FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, N-30D, 2000-03-08

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
N-30D, 2000-03-08

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ANNUAL REPORT

DECEMBER 31, 1999

FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST

<PAGE>

A WORD ABOUT RISK

All of the portfolios are subject to certain risks, which will cause investment
returns and the value of your principal to increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. Stocks and other equities, representing an ownership
interest in an individual company, have historically outperformed other asset
classes over the long term, but tend to fluctuate more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.

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

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

<PAGE>

TABLE OF CONTENTS

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST ANNUAL REPORT

<TABLE>
<S> <C>
Letter to Contract Owners ............................... 2
Class 1 Portfolio Report
Templeton Developing Markets Equity Fund ............... TD-1
Class 2 Portfolio Reports
Franklin Real Estate Fund .............................. FR-1
Franklin Small Cap Fund ................................ FS-1
Franklin Value Securities Fund ......................... FV-1
Mutual Shares Securities Fund .......................... MS-1
Templeton Global Growth Fund ........................... TG-1
Templeton International Smaller Companies Fund ......... TIS-1
REPORT OF SPECIAL MEETINGS OF SHAREHOLDERS .............. R-1
</TABLE>

PLEASE NOTE:
Franklin Templeton Variable Insurance Products (VIP) Trust currently consists
of 26 separate investment portfolios, which offer Class 1 and Class 2 shares,
except the Zero Coupon Funds, which offer only Class 1 shares. Only the
portfolios and class listed in the above Table of Contents are currently
available under your insurance contract. Please consult prospectuses for your
insurance contract and the Franklin Templeton VIP Trust for further
information.

<PAGE>

LETTER TO CONTRACT OWNERS

Dear Contract Owner:

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%.

<PAGE>

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.

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/registered trademark/) 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 from 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/registered trademark/
Industrial Average, Nasdaq and Standard & Poor's/registered trademark/ 500 (S&P
500/registered trademark/) 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.

3
<PAGE>

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>

TEMPLETON DEVELOPING MARKETS EQUITY FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: TEMPLETON DEVELOPING MARKETS EQUITY FUND SEEKS LONG-TERM
CAPITAL APPRECIATION. THE PORTFOLIO INVESTS PRIMARILY IN EMERGING MARKETS
EQUITY SECURITIES.
- --------------------------------------------------------------------------------
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 Decembeer 31, 1998, 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.

[This chart shows in pie format the geographic distribution for Templeton
Developing Markets Equity Fund based on the percentage of total net assets on
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%

TD-1
<PAGE>

[This chart shows the top 10 holdings and their respective industry and country
based on the percentage of total net assets on 12/31/99 for Templeton Developing
Markets Equity Fund.]

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

COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
-------------------------------------------
<S> <C>
Telefonos de Mexico SA 6.9%
(Telmex)
TELECOMMUNICATIONS,
MEXICO

Cemex SA 4.6%
BUILDING MATERIALS &
COMPONENTS, MEXICO

Akbank 3.5%
BANKING, TURKEY

Centrais Eletricas 3.1%
Brasileiras SA (Eletrobras)
UTILITIES ELECTRICAL & GAS,
BRAZIL

Grupo Financiero 2.6%
Banamex Accival SA de
CV
BANKING, MEXICO

Anglo American PLC 2.4%
METALS & MINING, SOUTH
AFRICA

PT Telekomunikasi 2.1%
Indonesia (Persero)
TELECOMMUNICATIONS,
INDONESIA

Cheung Kong Holdings 2.0%
Ltd.
MULTI-INDUSTRY, HONG
KONG

CEZ AS 1.8%
UTILITIES ELECTRICAL & GAS,
CZECH REPUBLIC

South African Breweries 1.8%
PLC
BEVERAGES & TOBACCO,
SOUTH AFRICA
</TABLE>

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

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.

TD-2
<PAGE>

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.

Sincerely,

/s/ J. MARK MOBIUS

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

TD-3
<PAGE>

TEMPLETON DEVELOPING MARKETS EQUITY FUND
- -- CLASS 1

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

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (3/15/94 -- 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF TEMPLETON DEVELOPING MARKETS EQUITY
FUND - CLASS 1 AND MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI/REGISTERED
TRADEMARK/) EMERGING MARKETS FREE (EMF) INDEX, MSCI WORLD INDEX AND
INTERNATIONAL FINANCE CORPORATION'S (IFC) INVESTABLE COMPOSITE INDEX, INCLUDING
REINVESTED DIVIDENDS. THE FUND'S TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF
AN INVESTMENT OVER THE PERIODS SHOWN AND ASSUMES REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AT NET ASSET VALUE. THE MSCI EMF INDEX COVERS 27 EMERGING MARKETS
AND TAKES INTO ACCOUNT LOCAL MARKET RESTRICTIONS ON SHARE OWNERSHIP BY
FOREIGNERS. THE IFC INVESTABLE COMPOSITE INDEX WAS DESIGNED TO REFLECT THE
PERFORMANCE OF EMERGING MARKET INVESTMENTS AND INCLUDES APPROXIMATELY 2,000
COMPANIES THAT FOREIGNERS CAN BUY IN 30 COUNTRIES. ALTHOUGH WE USE MSCI EMF
INDEX AS THE PORTFOLIO'S BENCHMARK INDEX, WE RETAINED MSCI WORLD INDEX IN THE
GRAPH TO SHOW HOW GLOBAL DEVELOPED MARKETS HAVE PERFORMED. INDEXES INCLUDE
REINVESTED DIVIDENDS. THE FUND'S PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE AN
INDEX IS NOT MANAGED, DOES NOT CONTAIN CASH (THE FUND GENERALLY CARRIES A
CERTAIN PERCENTAGE OF CASH AT ANY GIVEN TIME), AND INCLUDES NO SALES CHARGES OR
MANAGEMENT EXPENSES. OF COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS
AN INDEX REPRESENTATIVE OF THE FUND'S PORTFOLIO. THE INDEXES' SOURCES ARE MSCI
AND STANDARD & POOR'S MICROPAL.

[The graph below compares the performance of Templeton Developing Markets Equity
Fund - Class 1, as measured by the value of a $10,000 investment, and Morgan
Stanley Capital International (MSCI/R/) Emerging Markets Free (EMF) Index, MSCI
World Index and International Finance Corporation's (IFC) Investable Composite
Index, including reinvested dividends.]

TEMPLETON MSCI EMERGING MSCI WORLD INDEX IFC INVESTABLE
DEVELOPING MARKETS MARKETS FREE INDEX COMPOSITE INDEX
EQUITY FUND - 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>

Past performance does not guarantee future results.

TD-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Templeton Developing Markets Equity Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR (3/15/94)
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 54.64% 38.27% 32.19%
Average Annual Total Return 54.64% 6.70% 4.93%
Value of $10,000 Investment $ 15,464 $ 13,827 $ 13,219
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------------
One-Year Total Return 2.77% 21.59% -8.72% -21.61% 54.64%
</TABLE>

TEMPLETON DEVELOPING
MARKETS EQUITY FUND
- -- CLASS 1

Past performance does not guarantee future results.

TD-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 6.91 $ 10.29 $ 11.59 $ 9.78 $ 9.56
-------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .09 .20 .18 .12 .09
Net realized and unrealized gains (losses) ......... 3.66 (2.35) (1.10) 1.97 .18
-------------------------------------------------------------
Total from investment operations .................... 3.75 (2.15) (.92) 2.09 .27
-------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.17) (.29) (.15) (.10) (.04)
Net realized gains ................................. -- (.94) (.23) (.18) (.01)
-------------------------------------------------------------
Total distributions ................................. (.17) (1.23) (.38) (.28) (.05)
-------------------------------------------------------------
Net asset value, end of year ........................ $ 10.49 $ 6.91 $ 10.29 $ 11.59 $ 9.78
=============================================================
Total return* ....................................... 54.64% (21.61)% ( 8.72)% 21.59% 2.77%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $189,029 $162,433 $279,680 $272,098 $158,084
Ratios to average net assets:
Expenses ........................................... 1.39% 1.41% 1.42% 1.49% 1.41%
Net investment income .............................. 1.03% 2.04% 1.57% 1.68% 2.01%
Portfolio turnover rate ............................. 31.82% 36.58% 20.59% 12.42% 19.96%
</TABLE>

TD-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------
PERIOD ENDED
---------------------
DECEMBER 31, 1999(1,2)
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 7.22
-------
Income from investment operations:
Net investment income ................................ .02
Net realized and unrealized gains .................... 3.39
-------
Total from investment operations ...................... 3.41
-------
Less distributions from net investment income ......... (.17)
-------
Net asset value, end of period ........................ $ 10.46
=======
Total return* ......................................... 47.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $346
Ratios to average net assets:
Expenses ............................................. 1.67%**
Net investment income ................................ .18%**
Portfolio turnover rate ............................... 31.82%
</TABLE>

See notes to financial statements.

TD-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
INDUSTRY RIGHTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <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
------------

CZECH REPUBLIC 2.4%
a CEZ AS .................................................. Utilities Electrical & Gas 1,408,880 3,482,359
a Cesky Telecom AS ........................................ Telecommunications 62,910 1,015,556
------------
4,497,915
------------
</TABLE>

TD-8
<PAGE>

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
a Grupo Financiero Banamex Accival SA de CV .......... Banking 1,224,885 4,912,468
</TABLE>
TD-9

<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MEXICO (CONT.)
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
------------
</TABLE>

TD-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
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
------------
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
</TABLE>

TD-11

<PAGE>

A NON-INCOME PRODUCING.

See notes to financial statements.

TD-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $147,089,731)............................ $ 187,915,549
Receivables:
Investment securities sold ....................................................... 498,432
Capital shares sold .............................................................. 2,369,754
Dividends and interest ........................................................... 412,280
-------------
Total assets .................................................................... 191,196,015
-------------
Liabilities:
Payables:
Capital shares redeemed .......................................................... 141,885
Affiliates ....................................................................... 190,986
Professional fees ................................................................ 5,295
Custodian fees ................................................................... 106,327
Postage and mailing fees ......................................................... 12,274
Funds advanced by custodian ....................................................... 1,343,934
Other liabilities ................................................................. 19,948
-------------
Total liabilities ............................................................... 1,820,649
-------------
Net assets, at value ........................................................... $ 189,375,366
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 1,222,672
Net unrealized appreciation ....................................................... 40,825,818
Accumulated net realized loss ..................................................... (71,121,088)
Capital shares .................................................................... 218,447,964
-------------
Net assets, at value ........................................................... $ 189,375,366
=============
CLASS 1:
Net asset value per share ($189,029,214 /divided by/ 18,016,256 shares outstanding) $ 10.49
=============
CLASS 2:
Net asset value per share ($346,152 /divided by/ 33,093 shares outstanding)........ $ 10.46
=============
</TABLE>
See notes to financial statements.

TD-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
(net of foreign taxes of $401,706)
Dividends ................................................... $ 4,068,177
Interest .................................................... 32,409
-------------
Total investment income ................................... 4,100,586
-------------
Expenses:
Management fees (Note 3) .................................... 2,116,025
Distribution fees - Class 2 (Note 3) ........................ 848
Custodian fees .............................................. 203,000
Reports to shareholders ..................................... 9,600
Professional fees ........................................... 28,900
Trustees' fees and expenses ................................. 1,400
Other ....................................................... 153
-------------
Total expenses ............................................ 2,359,926
-------------
Net investment income .................................... 1,740,660
-------------
Realized and unrealized gain (loss):
Net realized loss from:
Investments (net of foreign tax of $181,680)................ (34,617,401)
Foreign currency transactions .............................. (83,976)
-------------
Net realized loss .......................................... (34,701,377)
Net unrealized appreciation on investments .................. 107,019,557
-------------
Net realized and unrealized gain ............................. 72,318,180
-------------
Net increase in net assets resulting from operations ......... $ 74,058,840
=============
</TABLE>

See notes to financial statements.

TD-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Financial Statements (continued)

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

Distributions to shareholders from:
Net investment income:
Class 1 .................................................................. (3,408,057) (7,007,398)
Class 2 .................................................................. (2,002) --
Net realized gains:
Class 1 .................................................................. -- (22,786,132)
---------------------------------
Total distributions to shareholders ........................................ (3,410,059) (29,793,530)

Capital share transactions (Note 2):
Class 1 .................................................................. (43,768,402) (31,081,577)
Class 2 .................................................................. 61,700 --
---------------------------------
Total capital share transactions ........................................... (43,706,702) (31,081,577)

Net increase (decrease) in net assets .................................... 26,942,079 (117,246,764)
Net assets:
Beginning of year ......................................................... 162,433,287 279,680,051
---------------------------------
End of year ............................................................... $ 189,375,366 $ 162,433,287
=================================
Undistributed net investment income included in net assets:
End of year ............................................................... $ 1,222,672 $ 3,107,117
=================================
</TABLE>

See notes to financial statements.

TD-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Developing Markets Equity Fund (the Fund) is a separate, diversified
series of the Franklin Templeton Variable Insurance Products Trust (the Trust),
which is an open-end investment company registered under the Investment Company
Act of 1940. Shares of the Fund 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 Fund's shares were
sold through one insurance company. The Fund seeks long-term capital
appreciation. The portfolio invests primarily in emerging markets equity
securities.

Effective July 1, 1999, the name of the Trust, Franklin Valuemark Funds,
changed to Franklin Templeton Variable Insurance Products Trust. The Fund's
investment objectives and other policies did not change as a result of the name
change.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

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

B. FOREIGN CURRENCY TRANSLATION

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

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

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

Certain countries in which the Fund invests have imposed restrictions on the
repatriation of their currencies. Other countries have previously instituted
currency exchange controls in the past during periods of serious imbalance in
their balance of payments or upon the occurrence of other destabilizing events.
Exchange control regulations may restrict the Fund's ability to convert
investment income, capital, or the proceeds of securities into U.S. dollars. As
of December 31, 1999 the Fund has investments with a value of approximately $1
million in countries with restrictions on the repatriation of their currencies
or formal exchange controls currently in place.

C. INCOME TAXES

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

TD-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and
losses on security transactions are determined on a specific identification
basis. Interest income and estimated expenses are accrued daily. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.

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

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.

E. ACCOUNTING ESTIMATES

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

2. SHARES OF BENEFICIAL INTEREST

Effective January 6, 1999, the Fund offered two classes of shares: Class 1 and
Class 2 shares. Outstanding shares before that date were designated Class 1
shares. Each class of shares differs by its distribution fees, voting rights on
matters affecting a single class, and the exchange privilege of each class.

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------------
1999(1)
-------------------------------
SHARES AMOUNT
CLASS 2 SHARES: -------------------------------
<S> <C> <C>
Shares sold ................................... 3,208,177 $ 28,287,279
Shares issued in reinvestment of distributions 218 2,002
Shares redeemed ............................... (3,175,302) (28,227,581)
---------------------------
Net increase .................................. 33,093 $ 61,700
===========================
</TABLE>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

TD-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND

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
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The Fund pays an investment management fee to TAML of 1.25% per year of the
average daily net assets of the Fund.

Under an agreement with TAML, FT Services provides administrative services to
the Fund. The fee is paid by TAML based on the average daily net assets, and is
not an additional expense of the Fund.

The Fund reimburses Distributors up to .25% per year of its average daily net
assets of Class 2 shares for costs incurred in marketing the Fund's shares.
Effective July 1, 1999, the rate changed from .30% to .25%.

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

At December 31, 1999, the Fund had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows.

<TABLE>
<S> <C>
Capital loss carryover expiring in:
2006 ............................. $21,232,197
2007 ............................. 46,658,065
-----------
$67,890,262
===========
</TABLE>

At December 31, 1999, the Fund had $1,522,503 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.

Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing tax treatments of wash sales, foreign
currency transactions, and passive foreign investment company shares.

At December 31 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $148,899,740 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............ $ 54,120,646
Unrealized depreciation ............ (15,104,837)
-------------
Net unrealized appreciation ........ $ 39,015,809
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 were $53,185,619, and $100,367,019, respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Developing Markets Equity
Fund, 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 Fund had not utilized this credit facility.

TD-18
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON DEVELOPING MARKETS EQUITY FUND
INDEPENDENT AUDITOR'S REPORT

The Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Developing Markets
Equity Fund (the Fund), a series of Franklin Templeton Variable Insurance
Products Trust, at December 31, 1999, the results of its operations for the
year then ended, the changes in its 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 Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with 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 custodian, provide a reasonable basis for the opinion
expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

San Francisco, California
February 2, 2000

TD-19
<PAGE>

FRANKLIN REAL ESTATE FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: 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).
- --------------------------------------------------------------------------------

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/registered
trademark/ 500 (S&P 500/registered trademark/) 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 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.

FR-1
<PAGE>

[This chart shows the top 10 holdings and their respective security type based
on the percentage of total net assets on 12/31/99 for Franklin Real Estate
Fund.]

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Franklin Real Estate Fund
12/31/99

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>

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

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.

Sincerely,

/s/ DOUG BARTON

Doug Barton
Portfolio Manager
Franklin Real Estate Fund

FR-2
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/24/89 -- 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF FRANKLIN REAL ESTATE FUND - CLASS 2
AND THE UNMANAGED STANDARD & POOR'S 500/REGISTERED TRADEMARK/ (S&P
500/REGISTERED TRADEMARK/) INDEX, INCLUDING REINVESTED DIVIDENDS, AS WELL AS
THE WILSHIRE REAL ESTATE SECURITIES INDEX. THE FUND'S TOTAL RETURN REPRESENTS
THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIOD SHOWN AND ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET ASSET VALUE. THE WILSHIRE
REAL ESTATE SECURITIES INDEX IS A MARKET CAPITALIZATION-WEIGHTED INDEX OF
PUBLICLY TRADED REAL ESTATE SECURITIES. THE FUND'S PERFORMANCE DIFFERS FROM AN
INDEX'S BECAUSE AN INDEX IS NOT MANAGED, DOES NOT CONTAIN CASH (THE FUND
GENERALLY CARRIES A CERTAIN PERCENTAGE OF CASH AT ANY GIVEN TIME), AND INCLUDES
NO SALES CHARGES OR MANAGEMENT EXPENSES. OF COURSE, ONE CANNOT INVEST DIRECTLY
IN AN INDEX, NOR IS AN INDEX REPRESENTATIVE OF THE FUND'S PORTFOLIO. INDEX
SOURCE IS STANDARD & POOR'S MICROPAL.

[The graph below compares the performance of Franklin Real Estate Fund - Class
2*, as measured by the value of a $10,000 investment, and the unmanaged Standard
& Poor's 500/R/(S&P 500/R/) Index, including reinvested dividends, as well as
the Wilshire Real Estate Securities Index.]

WILSHIRE REAL
FRANKLIN REAL ESTATE ESTATE
SECURITIES FUND - SECURITIES
CLASS 2 S&P 500 INDEX
------------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,704 $9,329 $9,529
02/28/1990 $9,685 $9,449 $9,525
03/31/1990 $9,780 $9,700 $9,503
04/30/1990 $9,644 $9,458 $9,319
05/31/1990 $9,712 $10,380 $9,278
06/30/1990 $9,789 $10,311 $9,296
07/31/1990 $9,673 $10,278 $8,940
08/31/1990 $8,995 $9,349 $7,895
09/30/1990 $8,405 $8,893 $6,980
10/31/1990 $8,172 $8,855 $6,478
11/30/1990 $8,685 $9,427 $6,741
12/31/1990 $8,802 $9,690 $6,654
01/31/1991 $9,692 $10,113 $7,302
02/28/1991 $9,905 $10,836 $7,731
03/31/1991 $10,574 $11,098 $8,420
04/30/1991 $10,758 $11,125 $8,352
05/31/1991 $10,883 $11,604 $8,481
06/30/1991 $10,588 $11,073 $8,063
07/31/1991 $10,719 $11,589 $8,029
08/31/1991 $10,678 $11,863 $7,932
09/30/1991 $10,890 $11,665 $7,842
10/31/1991 $10,749 $11,822 $7,665
11/30/1991 $10,668 $11,345 $7,411
12/31/1991 $11,364 $12,643 $7,987
01/31/1992 $12,393 $12,408 $8,364
02/29/1992 $12,050 $12,568 $8,343
03/31/1992 $11,828 $12,323 $8,162
04/30/1992 $11,656 $12,685 $8,027
05/31/1992 $11,929 $12,747 $8,059
06/30/1992 $11,822 $12,557 $7,817
07/31/1992 $12,296 $13,071 $7,845
08/31/1992 $12,162 $12,803 $7,727
09/30/1992 $12,337 $12,953 $8,021
10/31/1992 $12,533 $12,997 $8,106
11/30/1992 $12,677 $13,439 $8,176
12/31/1992 $13,171 $13,604 $8,578
01/31/1993 $13,707 $13,718 $9,175
02/28/1993 $14,201 $13,905 $9,619
03/31/1993 $15,128 $14,198 $10,264
04/30/1993 $14,531 $13,855 $9,682
05/31/1993 $14,407 $14,225 $9,530
06/30/1993 $14,904 $14,266 $9,780
07/31/1993 $15,196 $14,209 $9,978
08/31/1993 $15,602 $14,747 $10,186
09/30/1993 $16,405 $14,634 $10,647
10/31/1993 $16,290 $14,937 $10,348
11/30/1993 $15,279 $14,795 $9,897
12/31/1993 $15,675 $14,974 $9,885
01/31/1994 $15,957 $15,483 $10,182
02/28/1994 $16,613 $15,063 $10,598
03/31/1994 $16,030 $14,407 $10,107
04/30/1994 $16,290 $14,591 $10,221
05/31/1994 $16,540 $14,830 $10,433
06/30/1994 $16,188 $14,467 $10,228
07/31/1994 $16,156 $14,941 $10,251
08/31/1994 $16,103 $15,554 $10,244
09/30/1994 $15,840 $15,174 $10,073
10/31/1994 $15,276 $15,516 $9,704
11/30/1994 $14,728 $14,951 $9,325
12/31/1994 $16,129 $15,172 $10,047
01/31/1995 $15,539 $15,565 $9,723
02/28/1995 $15,813 $16,172 $10,027
03/31/1995 $15,929 $16,650 $10,085
04/30/1995 $15,887 $17,139 $10,013
05/31/1995 $16,529 $17,825 $10,344
06/30/1995 $16,809 $18,238 $10,524
07/31/1995 $17,158 $18,844 $10,694
08/31/1995 $17,528 $18,891 $10,824
09/30/1995 $18,029 $19,688 $11,023
10/31/1995 $17,659 $19,617 $10,682
11/30/1995 $17,953 $20,478 $10,793
12/31/1995 $18,955 $20,873 $11,419
01/31/1996 $19,380 $21,583 $11,576
02/29/1996 $19,631 $21,784 $11,805
03/31/1996 $19,653 $21,993 $11,901
04/30/1996 $19,707 $22,316 $11,955
05/31/1996 $20,099 $22,892 $12,221
06/30/1996 $20,316 $22,979 $12,466
07/31/1996 $20,157 $21,963 $12,355
08/31/1996 $21,121 $22,427 $12,880
09/30/1996 $21,789 $23,689 $13,202
10/31/1996 $22,221 $24,343 $13,559
11/30/1996 $22,949 $26,184 $14,122
12/31/1996 $25,176 $25,665 $15,629
01/31/1997 $25,495 $27,269 $15,852
02/28/1997 $25,461 $27,482 $15,862
03/31/1997 $25,654 $26,352 $15,916
04/30/1997 $24,995 $27,926 $15,402
05/31/1997 $25,904 $29,626 $15,861
06/30/1997 $27,088 $30,954 $16,647
07/31/1997 $27,824 $33,417 $17,195
08/31/1997 $27,788 $31,546 $17,068
09/30/1997 $30,494 $33,275 $18,751
10/31/1997 $29,355 $32,163 $17,954
11/30/1997 $29,877 $33,653 $18,315
12/31/1997 $30,388 $34,231 $18,723
01/31/1998 $30,055 $34,611 $18,459
02/28/1998 $29,901 $37,107 $18,223
03/31/1998 $30,542 $39,007 $18,582
04/30/1998 $29,711 $39,401 $17,997
05/31/1998 $29,414 $38,723 $17,824
06/30/1998 $29,019 $40,295 $17,729
07/31/1998 $27,015 $39,864 $16,495
08/31/1998 $24,174 $34,100 $14,782
09/30/1998 $25,468 $36,285 $15,609
10/31/1998 $25,062 $39,236 $15,395
11/30/1998 $25,430 $41,613 $15,685
12/31/1998 $25,278 $44,010 $15,461
01/31/1999 $24,466 $45,850 $15,125
02/28/1999 $24,124 $44,424 $15,006
03/31/1999 $24,085 $46,201 $14,916
04/30/1999 $26,761 $47,989 $16,506
05/31/1999 $27,117 $46,856 $16,785
06/30/1999 $26,634 $49,457 $16,499
07/31/1999 $25,388 $47,914 $15,867
08/31/1999 $24,877 $47,674 $15,629
09/30/1999 $23,860 $46,368 $14,924
10/31/1999 $23,240 $49,303 $14,647
11/30/1999 $22,747 $50,304 $14,424
12/31/1999 $23,670 $53,267 $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 REAL
ESTATE FUND
- -- CLASS 2

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

Past performance does not guarantee future results.

FR-3
<PAGE>

FRANKLIN REAL
ESTATE FUND
- -- CLASS 2

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions. By concentrating in a single
industry sector, the fund carries much greater risk of adverse developments
in that sector than a fund that invests in a wide variety of industries.
There are special risks involved with seeking long-term capital growth from
small or relatively new or unseasoned companies, which can have relatively
small revenues, limited product lines and small market share, and smaller
company stocks historically have exhibited greater price volatility than
large company stocks, particularly over the short term. You may have a gain
or loss when you sell your shares.

PERFORMANCE

<TABLE>
<CAPTION>
Franklin Real Estate Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (1/24/89)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return* -6.36% 46.76% 136.70% 148.07%
Average Annual Total Return* -6.36% 7.97% 9.00% 8.66%
Value of $10,000 Investment* $ 9,364 $ 14,676 $ 23,670 $ 24,807
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------------------------------------------------------------------------------------------------
One-Year Total Return* 17.52% 32.82% 20.70% -16.82% -6.36%
</TABLE>

Past performance does not guarantee future results.

FR-4
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999(1) 1998 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 19.93 $ 25.60 $ 22.15 $ 17.40 $ 15.31
-----------------------------------------------------------
Income from investment operations:
Net investment income .............................. .88 1.45 .72 .79 .78
Net realized and unrealized gains (losses) ......... (1.77) (5.60) 3.72 4.74 1.83
-----------------------------------------------------------
Total from investment operations .................... (.89) (4.15) 4.44 5.53 2.61
-----------------------------------------------------------
Less distributions from:
Net investment income .............................. (1.73) (.94) (.67) (.78) (.52)
Net realized gains ................................. (2.39) (.58) (.32) -- --
-----------------------------------------------------------
Total distributions ................................. (4.12) (1.52) (.99) (.78) (.52)
-----------------------------------------------------------
Net asset value, end of year ........................ $ 14.92 $ 19.93 $ 25.60 $ 22.15 $ 17.40
===========================================================
Total return* ....................................... (6.14)% (16.82)% 20.70% 32.82% 17.53%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $158,553 $282,290 $440,554 $322,721 $213,473
Ratios to average net assets:
Expenses .......................................... .58% .54% .54% .57% .59%
Net investment income ............................. 4.83% 5.44% 3.59% 4.80% 4.74%
Portfolio turnover rate ............................. 10.27% 13.21% 11.62% 10.32% 22.15%
</TABLE>

FR-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------
PERIOD ENDED
DECEMBER 31, 1999(1,2)
----------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 20.21
-------
Income from investment operations:
Net investment income ....................... 1.29
Net realized and unrealized losses .......... (2.50)
-------
Total from investment operations .............. (1.21)
-------
Less distributions from:
Net investment income ....................... (1.73)
Net realized gains .......................... (2.39)
-------
Total distributions ........................... (4.12)
-------
Net asset value, end of period ................ $ 14.88
=======
Total return* ................................. (7.66%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 2,449
Ratios to average net assets:
Expenses .................................... .83%**
Net investment income ....................... 8.84%**
Portfolio turnover rate ....................... 10.27%
</TABLE>

See notes to financial statements.

FR-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <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
------------
</TABLE>

FR-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES VALUE
--------------- ---------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
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
------------
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
------------
PRINCIPAL
b REPURCHASE AGREEMENT 3.4% AMOUNT
----------
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.
B 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.

FR-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (Cost $168,965,027)............................. $159,612,641
Receivables:
Capital shares sold ............................................................... 22,263
Dividends and interest ............................................................ 1,644,788
------------
Total assets ..................................................................... 161,279,692
------------
Liabilities:
Payables:
Capital shares redeemed ........................................................... 176,689
Affiliates ........................................................................ 77,941
Professional fees ................................................................. 8,397
Custodian fees .................................................................... 888
Postage and mailing fees .......................................................... 7,310
Other liabilities .................................................................. 6,724
------------
Total liabilities ................................................................ 277,949
------------
Net assets, at value ............................................................ $161,001,743
============
Net assets consist of:
Undistributed net investment income ................................................ $ 11,229,198
Net unrealized depreciation ........................................................ (9,352,386)
Accumulated net realized gain ...................................................... 1,863,614
Capital shares ..................................................................... 157,261,317
------------
Net assets at value ............................................................. $161,001,743
============
CLASS 1:
Net asset value per share ($158,552,597 /divided by/ 10,626,952 shares outstanding) $ 14.92
============
CLASS 2:
Net asset value per share ($2,449,146 /divided by/ 164,643 shares outstanding)..... $ 14.88
============
</TABLE>

See notes to financial statements.

FR-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
Dividends ................................................... $ 11,325,218
Interest .................................................... 300,341
-------------
Total investment income ................................... 11,625,559
-------------
Expenses:
Management fees (Note 3) .................................... 1,197,913
Distribution fees - Class 2 (Note 3) ........................ 844
Custodian fees .............................................. 2,848
Reports to shareholders ..................................... 23,690
Professional fees ........................................... 14,001
Trustees' fees and expenses ................................. 1,802
Other ....................................................... 2,368
-------------
Total expenses ............................................ 1,243,466
-------------
Net investment income .................................... 10,382,093
-------------
Realized and unrealized gain (loss):
Net realized gain from investments ......................... 2,394,868
Net unrealized depreciation on investments ................. (25,421,990)
-------------
Net realized and unrealized loss ............................. (23,027,122)
-------------
Net decrease in net assets resulting from operations ......... $ (12,645,029)
=============
</TABLE>

See notes to financial statements.

FR-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Financial Statements (continued)

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

<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......................................... $ 10,382,093 $ 20,084,431
Net realized gain from investments ............................. 2,394,868 24,686,332
Net unrealized depreciation on investments ..................... (25,421,990) (114,230,527)
---------------------------------
Net 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 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>

See notes to financial statements.

FR-11
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Franklin Real Estate Fund (the Fund) is a separate, diversified series of
the Franklin Templeton Variable Insurance Products Trust (the Trust), which is
an open-end investment company registered under the Investment Company Act of
1940. Shares of the Fund 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 Fund's shares were sold
through one insurance company. The Fund seeks capital appreciation with current
income as a secondary goal.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

B. INCOME TAXES

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

C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Distributions received by the Fund 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.

D. ACCOUNTING ESTIMATES

FR-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST

Effective January 6, 1999, the Fund offered two classes of shares: Class 1 and
Class 2. Outstanding shares before that date were designated Class 1 shares.
Each class of shares differs by its 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 Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 575,363 $ 10,691,098 1,938,333 $ 46,066,967
Shares issued in reinvestment of distributions 2,652,511 43,076,785 1,117,322 24,871,599
Shares redeemed ............................... (6,765,476) (121,727,316) (6,098,998) (134,871,059)
--------------------------------------------------------------
Net decrease .................................. (3,537,602) $ (67,959,433) (3,043,343) $ (63,932,493)
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
--------------------------
1999(1)
--------------------------
SHARES AMOUNT
CLASS 2 SHARES: --------------------------
<S> <C> <C>
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>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

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/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The Fund pays an investment management fee to Advisers based on the average net
assets of the 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 an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on the average daily net assets,
and is not an additional expense of the Fund.

FR-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES (CONT.)

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

At December 31, 1999, the Fund has deferred capital losses occurring subsequent
to October 31, 1999 of $4,078,609. For tax purposes, such losses will be
reflected in the year ending December 31, 2000.

At December 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $168,965,027 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 15,914,488
Unrealized depreciation ............. (25,266,874)
-------------
Net unrealized depreciation ......... $ (9,352,386)
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $21,466,517 and $114,760,248,
respectively.

6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The Investment Company Act of 1940 defines "affliliated 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 was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
HELD AT GROSS GROSS HELD VALUE AT CAPITAL
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR LOSSES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Candlewood Hotel Co., Inc. 650,000 -- (300,000) 350,000 * $ (1,793,962)
</TABLE>

*As of December 31, 1999, no longer an affiliate.

7. CREDIT FACILITY

Certain Franklin Templeton Funds, including Franklin Real Estate Fund, 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 Fund had not utilized this credit facility.

FR-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND
INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Real Estate Fund (the
Fund), a series of Franklin Templeton Variable Insurance Products Trust, at
December 31, 1999, the results of its operations for the year then ended, the
changes in its 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 Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 custodian provide
a reasonable basis for the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

San Francisco, California
February 2, 2000

FR-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN REAL ESTATE FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $5,942,659 as capital gain dividends for the fiscal year ended
December 31, 1999.

FR-16
<PAGE>

FRANKLIN SMALL CAP FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: 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.
- --------------------------------------------------------------------------------
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.

During 1999, Franklin Small Cap Fund posted strong total returns, handily
beating its benchmark, the Russell 2000/registered trademark/ 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.

FS-1
<PAGE>

[This chart shows the top 10 industry breakdown based on the percentage of total
net assets on 12/31/99 for Franklin Small Cap Fund.]

<TABLE>
<CAPTION>
TOP 10 INDUSTRY BREAKDOWN
Franklin Small Cap Fund
12/31/99
% 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>

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

For some time, we have been commenting about the weakness in the small-cap
market's non-tech sectors. We are pleased to report that as the year ended we
did observe signs of life among a small group of 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.

Sincerely,

/s/ EDWARD B. JAMIESON

Edward B. Jamieson
Portfolio Manager
Franklin Small Cap Fund

FS-2
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (11/1/95 - 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF FRANKLIN SMALL CAP FUND - CLASS 2
AND THE UNMANAGED STANDARD & POOR'S 500/REGISTERED TRADEMARK/ (S&P
500/REGISTERED TRADEMARK/) INDEX, INCLUDING REINVESTED DIVIDENDS, AS WELL AS
THE RUSSELL 2500/REGISTERED TRADEMARK/ INDEX AND RUSSELL 2000 GROWTH INDEX. THE
FUND'S TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE
PERIOD SHOWN AND ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET
ASSET VALUE. WE ARE REPLACING THE RUSSELL 2500 INDEX WITH THE RUSSELL 2000
GROWTH INDEX BECAUSE IT MORE CLOSELY MIRRORS OUR GROWTH STYLE OF INVESTING. THE
FUND'S PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE AN INDEX IS NOT MANAGED,
DOES NOT CONTAIN CASH (THE FUND GENERALLY CARRIES A CERTAIN PERCENTAGE OF CASH
AT ANY GIVEN TIME), AND INCLUDES NO SALES CHARGES OR MANAGEMENT EXPENSES. OF
COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS AN INDEX REPRESENTATIVE
OF THE FUND'S PORTFOLIO. INDEXES' SOURCE IS STANDARD & POOR'S MICROPAL.

[The graph below compares the performance of Franklin Small Cap Fund - Class 2*,
as measured by the value of a $10,000 investment, and the unmanaged Standard &
Poor's 500/R/ (S&P 500/R/) Index, including reinvested dividends, as well as the
Russell 2500/R/ Index and Russell 2000 Growth Index.]

Franklin Small S&P 500 Russell Russell 2000
Cap Fund - 2500 Index Growth Index
Class 2
---------------------------------------------------------
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

FRANKLIN SMALL
CAP FUND
- -- CLASS 2

Past performance does not guarantee future results.

FS-3
<PAGE>

FRANKLIN SMALL
CAP FUND
- -- CLASS 2

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

PERFORMANCE

<TABLE>
<CAPTION>
Franklin Small Cap Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 3-YEAR (11/1/95)
------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return* 96.36% 128.31% 201.47%
Average Annual Total Return* 96.36% 31.68% 30.32%
Value of $10,000 Investment* $ 19,636 $ 22,831 $ 30,147
12/31/96 12/31/97 12/31/98 12/31/99
- ---------------------------------------------------------------------------------------
One-Year Total Return* 28.95% 17.42% -0.98% 96.36%
</TABLE>

Past performance does not guarantee future results.

FS-4
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999(1) 1998 1997 1996 1995(2)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 13.72 $ 15.05 $ 13.20 $ 10.24 $ 10.00
------------------------------------------------------------
Income from investment operations:
Net investment income .............................. (.01) .07 .01 .02 .03
Net realized and unrealized gains (losses) ......... 13.25 (.20) 2.24 2.95 .21
------------------------------------------------------------
Total from investment operations .................... 13.24 (.13) 2.25 2.97 .24
------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.08) (.01) (.03) (.01) --
Net realized gains ................................. (.01) (1.19) (.37) -- --
------------------------------------------------------------
Total distributions ................................. (.09) (1.20) (.40) (.01) --
------------------------------------------------------------
Net asset value, end of year ........................ $ 26.87 $ 13.72 $ 15.05 $ 13.20 $ 10.24
============================================================
Total return* ....................................... 96.94% (.98)% 17.42% 28.95% 2.30%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $488,062 $315,460 $313,462 $170,969 $ 13,301
Ratios to average net assets:
Expenses ........................................... .77% .77% .77% .77% .90%**
Net investment income .............................. ( .05)% .51% .06% .63% 2.70%**
Portfolio turnover rate ............................. 39.49% 53.01% 64.07% 63.72% 16.04%
</TABLE>

FS-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------
PERIOD ENDED
DECEMBER 31, 1999(1,2)
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $14.25
------
Income from investment operations:
Net investment income ........................ (.04)
Net realized and unrealized gains ............ 12.68
------
Total from investment operations .............. 12.64
------
Less distributions from:
Net investment income ........................ (.08)
Net realized gains ........................... (.01)
------
Total distributions ........................... (.09)
------
Net asset value, end of period ................ $26.80
======
Total return* ................................. 89.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 6,156
Ratios to average net assets:
Expenses ..................................... 1.02%**
Net investment income ........................ (.18)%**
Portfolio turnover rate ....................... 39.49%
</TABLE>

See notes to financial statements.

FS-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- --------------------------------------------------------------------------------------
<S> <C> <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>
FS-7

<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <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
a Photronics Inc. ..................................... 8,400 240,450
</TABLE>

FS-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
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>

FS-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <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
------------
</TABLE>

FS-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
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
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
</TABLE>
FS-11

<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
a TECHNOLOGY SERVICES (CONT.)
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
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
</TABLE>

FS-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
a TECHNOLOGY SERVICES (CONT.)
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
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., AN ....................................... 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>

FS-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
b 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>

See notes to financial statements.

FS-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (Cost $270,107,360)............................. $492,179,597
Receivables:
Investment securities sold ........................................................ 786,759
Capital shares sold ............................................................... 2,277,635
Dividends and interest ............................................................ 258,996
------------
Total assets ..................................................................... 495,502,987
------------
Liabilities:
Payables:
Investment securities purchased ................................................... 380,813
Capital shares redeemed ........................................................... 593,752
Affiliates ........................................................................ 280,429
Professional fees ................................................................. 9,701
Custodian fees .................................................................... 795
Postage and mailing fees .......................................................... 6,180
Other liabilities .................................................................. 12,455
------------
Total liabilities ................................................................ 1,284,125
------------
Net assets, at value ............................................................ $494,218,862
============
Net assets consist of:
Accumulated net operating loss ..................................................... $ (103)
Net unrealized appreciation ........................................................ 222,072,237
Accumulated net realized gain ...................................................... 35,868,908
Capital shares ..................................................................... 236,277,820
------------
Net assets, at value ............................................................ $494,218,862
============
CLASS 1:
Net asset value per share ($488,062,459 /divided by/ 18,165,015 shares outstanding) $ 26.87
============
CLASS 2:
Net asset value per share ($6,156,403 /divided by/ 229,712 shares outstanding) ..... $ 26.80
============
</TABLE>

See notes to financial statements.

FS-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
Dividends ................................................... $ 1,421,876
Interest .................................................... 850,619
------------
Total investment income .................................... 2,272,495
------------
Expenses:
Management fees (Note 3) .................................... 2,375,111
Distribution fees - Class 2 (Note 3) ........................ 1,972
Custodian fees .............................................. 3,187
Reports to shareholders ..................................... 26,331
Professional fees ........................................... 18,046
Trustees' fees and expenses ................................. 2,590
Other ....................................................... 6,930
------------
Total expenses ............................................. 2,434,167
------------
Net investment loss ....................................... (161,672)
------------
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Investments ................................................ 36,534,514
Foreign currency transactions .............................. (103)
------------
Net realized gain ......................................... 36,534,411
Net unrealized appreciation on investments: ................. 205,811,890
------------
Net realized and unrealized gain ............................. 242,346,301
------------
Net increase in net assets resulting from operations ......... $242,184,629
============
</TABLE>

See notes to financial statements.

FS-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Statements (continued)

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

<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................................... $ (161,672) $ 1,603,412
Net realized gain (loss) from investments and foreign currency transactions ..... 36,534,411 (229,426)
Net unrealized appreciation (depreciation) on investments ....................... 205,811,890 (8,381,265)
--------------------------------
Net increase (decrease) in net assets resulting from operations ............... 242,184,629 (7,007,279)
Distributions to shareholders from:
Net investment income:
Class 1 ........................................................................ (1,492,353) (201,399)
Class 2 ........................................................................ (619) --
Net realized gains:
Class 1 ........................................................................ (208,580) (25,854,889)
Class 2 ........................................................................ (53) --
--------------------------------
Total distributions to shareholders .............................................. (1,701,605) (26,056,288)
Capital share transactions (Note 2):
Class 1 ........................................................................ (66,396,634) 35,061,886
Class 2 ........................................................................ 4,672,614 --
--------------------------------
Total capital share transactions ................................................. (61,724,020) 35,061,886
Net increase in net assets ..................................................... 178,759,004 1,998,319
Net assets:
Beginning of year ................................................................ 315,459,858 313,461,539
--------------------------------
End of year ...................................................................... $ 494,218,862 $ 315,459,858
================================
Undistributed net investment income (accumulated net
operating loss) included in net assets:
End of year ..................................................................... $ (103) $ 1,532,535
================================
</TABLE>

See notes to financial statements.

FS-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Franklin Small Cap Fund (the Fund) is a separate, diversified series of the
Franklin Templeton Variable Insurance Products Trust (the Trust), which is an
open-end investment company registered under the Investment Company Act of
1940. Shares of the Fund 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 Fund's shares were sold
through one insurance company. The Fund seeks long-term capital appreciation.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

B. FOREIGN CURRENCY TRANSLATION

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

C. INCOME TAXES

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

FS-18
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

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.

E. ACCOUNTING ESTIMATES

2. SHARES OF BENEFICIAL INTEREST

At December 31, 1999, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 5,623,402 $ 95,075,835 10,354,452 $ 146,238,628
Shares issued in reinvestment of distributions 106,977 1,700,933 1,866,496 26,056,288
Shares redeemed ............................... (10,564,693) (163,173,402) (10,047,779) (137,233,030)
----------------------------------------------------------------
Net increase (decrease) ....................... (4,834,314) $ (66,396,634) 2,173,169 $ 35,061,886
================================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
---------------------------
1999(1)
---------------------------
SHARES AMOUNT
CLASS 2 SHARES: ---------------------------
<S> <C> <C>
Shares sold ................................... 237,253 $ 4,844,539
Shares issued in reinvestment of distributions 42 673
Shares redeemed ............................... (7,583) (172,598)
-------------------------
Net increase .................................. 229,712 $ 4,672,614
=========================
</TABLE>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

FS-19
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
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/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The Fund pays an investment management fee to Advisers 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>

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

At December 31, 1999, the Fund had deferred currency losses occurring
subsequent to October 31, 1999 of $103. For tax purposes, such losses will be
reflected in the year ending December 31, 2000.

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

Net realized capital gains (losses) differ for financial statements and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $270,173,246 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 260,048,654
Unrealized depreciation ............. (38,042,303)
-------------
Net unrealized appreciation ......... $ 222,006,351
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $122,071,236 and $192,579,951
respectively.

FS-20
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (continued)

6. LENDING OF PORTFOLIO SECURITIES

The 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.

7. CREDIT FACILITY

Certain Franklin Templeton Funds, including Franklin Small Cap Fund, 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 Fund had not utilized this credit facility.

8. SUBSEQUENT EVENT

On February 8, 2000, Templeton Variable Products Series Fund (TVP) shareholders
approved a proposal to merge TVP Small Cap Investments Fund into the Fund.

FS-21
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

FRANKLIN SMALL CAP FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Small Cap Fund (the
Fund), a series of Franklin Templeton Variable Insurance Products Trust, at
December 31, 1999, the results of its operations for the year then ended, the
changes in its 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 Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 custodian and
brokers, provide a reasonable basis for the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

San Francisco, California
February 2, 2000, except for Note 8, as to which the date is February 8, 2000

FS-22
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $16,776,954 as income capital gain dividends for the fiscal year
ended December 31, 1999.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 26.48% ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

FS-23
<PAGE>

FRANKLIN VALUE SECURITIES FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: 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, TURNAROUND AND
COMPANIES EMERGING FROM BANKRUPTCY. THE PORTFOLIO MAY ALSO INVEST A SMALL
PORTION IN FOREIGN SECURITIES.
- --------------------------------------------------------------------------------
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.

FV-1
<PAGE>

[This chart shows the top 10 holdings and their respective industry based on the
percentage of total net assets on 12/31/99 for Franklin Value Securities Fund.]

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Franklin Value Securities Fund
12/31/99

COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------
<S> <C>
JLG Industries Inc. 4.3%
PRODUCER MANUFACTURING

The Timberland Co. 4.2%
CONSUMER NON-DURABLES

Presidential Life Corp. 3.1%
FINANCE

Robert Half International 3.0%
Inc.
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>

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

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 1.49%, 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/registered trademark/ 500 (S&P 500/registered
trademark/) 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.

FV-2
<PAGE>

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.

Sincerely,

/s/ WILLIAM J. LIPPMAN

William J. Lippman
President
Franklin Value Securities Fund

FV-3
<PAGE>

FRANKLIN VALUE
SECURITIES FUND
- -- CLASS 2

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

PERFORMANCE SUMMARY AS OF 12/31/99

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

THE GRAPH BELOW COMPARES THE PERFORMANCE OF FRANKLIN VALUE SECURITIES FUND -
CLASS 2, THE WILSHIRE TARGET SMALL COMPANY VALUE INDEX AND THE RUSSELL 2000
VALUE INDEX, INCLUDING REINVESTED DIVIDENDS. THE FUND'S TOTAL RETURN REPRESENTS
THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIOD SHOWN AND ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET ASSET VALUE. WE ARE
REPLACING THE WILSHIRE TARGET SMALL COMPANY VALUE INDEX WITH THE RUSSELL 2000
VALUE INDEX. AS OF MARCH 31, 1998, THE SPONSORS OF THE WILSHIRE TARGET SMALL
COMPANY VALUE INDEX HAVE DECIDED NOT TO PUBLISH THE HOLDINGS THAT COMPRISE THE
INDEX, WHICH WOULD MAKE IT DIFFICULT TO DETERMINE WHETHER IT IS AN APPROPRIATE
COMPARISON FOR THE FUND'S PERFORMANCE. WE BELIEVE THE RUSSELL 2000 VALUE INDEX
IS AN APPROPRIATE BENCHMARK BECAUSE MANY OF THE HOLDINGS THAT COMPRISE THE
INDEX ARE EITHER HELD BY THE FUND OR ARE SIMILAR TO THE FUND'S HOLDINGS. THE
RUSSELL 2000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000
COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES,
AND INFORMATION REGARDING THE INDEX IS READILY AVAILABLE. THE FUND'S
PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE AN INDEX IS NOT MANAGED, DOES NOT
CONTAIN CASH (THE FUND GENERALLY CARRIES A CERTAIN PERCENTAGE OF CASH AT ANY
GIVEN TIME), AND INCLUDES NO SALES CHARGES OR MANAGEMENT EXPENSES. OF COURSE,
ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS AN INDEX REPRESENTATIVE OF THE
FUND'S PORTFOLIO. INDEX SOURCE IS STANDARD & POOR'S MICROPAL.

[The graph below compares the performance of Franklin Value Securities Fund -
Class 2*, as measured by the value of a $10,000 investment, the Wilshire Target
Small Company Value Index and the Russell 2000 Value Index, including reinvested
dividends.]

Franklin Value Securities Wilshire Target Smaller Russell 2000
Fund - Class 2 Companies Value Index Value Index
---------------------------------------------------------------------------
<S> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 $9,760 $9,730 $9,646
06/30/1998 $9,140 $9,564 $9,592
07/31/1998 $8,240 $8,867 $8,841
08/31/1998 $6,970 $7,810 $7,456
09/30/1998 $7,240 $8,041 $7,878
10/31/1998 $7,670 $8,333 $8,112
11/30/1998 $7,690 $8,573 $8,332
12/31/1998 $7,790 $8,825 $8,593
01/31/1999 $7,650 $8,404 $8,398
02/28/1999 $7,009 $7,922 $7,824
03/31/1999 $7,150 $7,773 $7,760
04/30/1999 $7,900 $8,409 $8,469
05/31/1999 $8,149 $8,642 $8,729
06/30/1999 $8,629 $8,792 $9,045
07/31/1999 $8,409 $8,699 $8,830
08/31/1999 $8,099 $8,362 $8,507
09/30/1999 $7,547 $7,990 $8,337
10/31/1999 $7,557 $7,747 $8,170
11/30/1999 $7,627 $7,751 $8,213
12/31/1999 $7,899 $7,738 $8,465
</TABLE>

Past performance does not guarantee future results.

FV-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Franklin Value Securities Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR (5/1/98)
-------------- --------------
<S> <C> <C>
Cumulative Total Return* 1.39% -21.01%
Average Annual Total Return* 1.39% -13.16%
Value of $10,000 Investment* $ 10,139 $ 7,899
</TABLE>

FRANKLIN VALUE
SECURITIES FUND
CLASS 2

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions. There are special risks involved
with seeking long-term capital growth from small or relatively new or
unseasoned companies, which can have relatively small revenues, limited product
lines and small market share.

Past performance does not guarantee future results.

FV-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1999(1) 1998(2)
-----------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 7.79 $ 10.00
----------------------
Income from investment operations:
Net investment income ................................ .05 .02
Net realized and unrealized gains (losses) ........... .08 (2.23)
----------------------
Total from investment operations ...................... .13 (2.21)
----------------------
Less distributions from net investment income ......... (.02) --
----------------------
Net asset value, end of year .......................... $ 7.90 $ 7.79
======================
Total return* ......................................... 1.65% (22.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $11,320 $ 9,013
Ratios to average net assets:
Expenses ............................................ .81% .83%**
Net investment income ............................... .65% .95%**
Portfolio turnover rate ............................... 61.23% 22.79%
</TABLE>

FV-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------
PERIOD ENDED
DECEMBER 31, 1999(1,2)
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 7.97
-------
Income from investment operations:
Net investment income ............................... .05
Net realized and unrealized losses .................. (.12)
-------
Total from investment operations ...................... (.07)
-------
Less distributions from net investment income ......... (.02)
-------
Net asset value, end of period ........................ $ 7.88
=======
Total return* ......................................... (.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 1,263
Ratios to average net assets:
Expenses ............................................ 1.06%**
Net investment income ............................... .62%**
Portfolio turnover rate ............................... 61.23%
</TABLE>

See notes to financial statements.

FV-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <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
-----------
</TABLE>

FV-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
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
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
-----------
</TABLE>

FV-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
RIGHTS VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
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
-----------
PRINCIPAL
AMOUNT
---------
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.

FV-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (Cost $12,525,372)............................ $12,519,607
Receivables:
Capital shares sold ............................................................. 118,161
Dividends and interest .......................................................... 15,319
-----------
Total assets ................................................................... 12,653,087
-----------
Liabilities:
Payables:
Investment securities purchased ................................................. 55,855
Capital shares redeemed ......................................................... 17
Affiliates ...................................................................... 8,010
Professional fees ............................................................... 5,174
Custodian fees .................................................................. 27
Postage and mailing fees ........................................................ 270
Other liabilities ................................................................ 372
-----------
Total liabilities .............................................................. 69,725
-----------
Net assets, at value .......................................................... $12,583,362
===========
Net assets consist of:
Undistributed net investment income .............................................. $ 67,960
Net unrealized depreciation ...................................................... (5,765)
Accumulated net realized loss .................................................... (607,950)
Capital shares ................................................................... 13,129,117
-----------
Net assets, at value .......................................................... $12,583,362
===========
CLASS 1:
Net asset value per share ($11,320,426 /divided by/ 1,432,771 shares outstanding) $ 7.90
===========
CLASS 2:
Net asset value per share ($1,262,936 /divided by/ 160,310 shares outstanding)... $ 7.88
===========
</TABLE>

See notes to financial statements.

FV-11
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
(net of foreign taxes of $152)
Dividends ................................................... $ 126,152
Interest .................................................... 27,280
----------
Total investment income ................................... 153,432
----------
Expenses:
Management fees (Note 3) .................................... 62,295
Administrative fees (Note 3) ................................ 15,666
Distribution fees - Class 2 (Note 3) ........................ 573
Custodian fees .............................................. 103
Reports to shareholders ..................................... 895
Professional fees ........................................... 5,453
Trustees' fees and expenses ................................. 86
Other ....................................................... 336
----------
Total expenses ............................................ 85,407
----------
Net investment income .................................... 68,025
----------
Realized and unrealized gain (loss):
Net realized loss from investments .......................... (517,910)
Net unrealized appreciation on investments .................. 396,623
----------
Net realized and unrealized loss ............................. (121,287)
----------
Net decrease in net assets resulting from operations ......... $ (53,262)
==========
</TABLE>

See notes to financial statements.

FV-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Financial Statements (continued)

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

<TABLE>
<CAPTION>
1999 1998(1)
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 68,025 $ 28,176
Net realized loss from investments ................................ (517,910) (90,040)
Net unrealized appreciation (depreciation) on investments ......... 396,623 (402,388)
----------------------------
Net decrease in net assets resulting from operations ............. (53,262) (464,252)

Distributions to shareholders from:
Net investment income:
Class 1 ........................................................... (28,103) --
Class 2 ........................................................... (138) --
----------------------------
Total distributions to shareholders ................................. (28,241) --

Capital share transactions (Note 2):
Class 1 ........................................................... 2,419,613 9,477,723
Class 2 ........................................................... 1,231,781 --
----------------------------
Total capital share transactions .................................... 3,651,394 9,477,723

Net increase in net assets ....................................... 3,569,891 9,013,471
Net assets:
Beginning of year .................................................. 9,013,471 --
----------------------------
End of year ........................................................ $12,583,362 $9,013,471
============================
Undistributed net investment income included in net assets:
End of year ........................................................ $ 67,960 $ 28,176
============================
</TABLE>

(1)FOR THE PERIOD MAY 1, 1998 (EFFECTIVE DATE) TO DECEMBER 31, 1998.

See notes to financial statements.

FV-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Franklin Values Securities Fund (the Fund) is a separate, non-diversified
series of the Franklin Templeton Variable Insurance Products Trust (the Trust),
which is an open-end investment company registered under the Investment Company
Act of 1940. Shares of the Fund 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 Fund's shares were
sold through one insurance company. The Fund seeks long-term total return.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

B. FOREIGN CURRENCY TRANSLATION

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

C. INCOME TAXES

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

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

FV-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

E. ACCOUNTING ESTIMATES

2. SHARES OF BENEFICIAL INTEREST

At December 31, 1999, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998(1)
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 1,587,252 $ 12,476,029 1,367,931 $ 11,279,710
Shares issued in reinvestment of distributions 3,306 28,103 -- --
Shares redeemed ............................... (1,314,579) (10,084,519) (211,139) (1,801,987)
--------------------------------------------------------
Net increase .................................. 275,979 $ 2,419,613 1,156,792 $ 9,477,723
========================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
---------------------------
1999(2)
---------------------------
SHARES AMOUNT
CLASS 2 SHARES: ---------------------------
<S> <C> <C>
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>

(1)For the period May 1, 1998 (effective date) to December 31, 1998.
(2)For the period January 6, 1999 (effective date) to December 31, 1999.

FV-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
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 Advisory Services, LLC (Advisory Services) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The 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>
.60% First $200 million
.50% Over $200 million, up to and including $1.3 billion
.40% Over $1.3 billion
</TABLE>

Management fees were reduced on assets invested in the Franklin Institutional
Fiduciary Trust Money Market Portfolio.

The Fund pays administrative fees to FT Services based on the average daily net
assets of the 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.

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

At December 31, 1999, the Fund had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<S> <C>

Capital loss carryover expiring in:
2006 ............................. $ 64,007
2007 ............................. 382,947
---------
$ 446,954
=========
</TABLE>

At December 31, 1999, the Fund had deferred capital losses of $27,329 occurring
subsequent to October 31, 1999. For tax purposes such losses will be reflected
in the year ending December 31, 2000.

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

FV-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

FRANKLIN VALUE SECURITIES FUND

Notes to Financial Statements (continued)

4. INCOME TAXES (CONT.)

At December 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $12,659,039 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 1,443,892
Unrealized depreciation ............. (1,583,324)
------------
Net unrealized depreciation ......... $ (139,432)
============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $10,341,416 and $6,082,421,
respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Franklin Value Securities Fund, 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 Fund had not utilized this credit facility.

FV-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND
INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Value Securities Fund
(the Fund), a series of Franklin Templeton Variable Insurance Products Trust,
at December 31, 1999, the results of its operations for the year then ended,
the changes in its net assets for the year then ended and the period May 1,
1998 (effective date) through December 31, 1998 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 Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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 custodian and
brokers, provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Francisco, California
February 2, 2000

FV-18
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN VALUE SECURITIES FUND

Tax Designation

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 100% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

FV-19
<PAGE>

MUTUAL SHARES SECURITIES FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: 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.
- --------------------------------------------------------------------------------
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 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.

MS-1
<PAGE>

[This chart shows the top 10 holdings and their respective industry and country
based on the percentage of total net assets on 12/31/99 for Mutual Shares
Securities Fund.]

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Mutual Shares Securities Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ---------------------------- ------------
<S> <C>
Telephone and Data 3.2%
Systems Inc.
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 1.5%
Systems Corp.
AUTOMOBILES, U.S.

Washington Post Co. 1.5%
BROADCASTING &
PUBLISHING, U.S.

United Asset Management 1.5%
Corp.
FINANCIAL SERVICES, U.S.

Lagardere SCA 1.5%
MULTI-INDUSTRY, FRANCE
</TABLE>

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

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.

MS-2
<PAGE>

While acknowledging the significant innovations brought about by technology and
the Internet, we are unwilling to pay the incredible market valuations these
companies now command. We realize that many once-great technology companies
have vanished over the years, and that the technological winners of today may
not sustain their leadership in the years ahead. With the Nasdaq 100 trading at
over 100 times earnings, the 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.

Sincerely,

/s/ LARRY SONDIKE

Larry Sondike*
Portfolio Manager
Mutual Shares Securities Fund

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

MS-3
<PAGE>

MUTUAL SHARES
SECURITIES FUND
- -- CLASS 2

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (11/8/96 -- 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF MUTUAL SHARES SECURITIES FUND -
CLASS 2 AND THE UNMANAGED STANDARD & POOR'S 500/REGISTERED TRADEMARK/ (S&P
500/REGISTERED TRADEMARK/) INDEX, INCLUDING REINVESTED DIVIDENDS, THE LIPPER
GROWTH & INCOME FUNDS OBJECTIVE AVERAGE (LIPPER G&I AVERAGE) AND THE LIPPER
ANNUITY GROWTH & INCOME FUNDS OBJECTIVE AVERAGE (ANNUITY AVERAGE). THE FUND'S
TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIOD
SHOWN AND ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET ASSET
VALUE. WE ARE REPLACING THE LIPPER G&I AVERAGE WITH THE ANNUITY AVERAGE BECAUSE
THE FORMER IS BASED ON A PEER GROUP OF MUTUAL FUNDS, WHILE THE LATTER IS BASED
ON A PEER GROUP OF ANNUITY SUBACCOUNTS AND BETTER REFLECTS THE PORTFOLIO'S
PERFORMANCE. THE ANNUITY AVERAGE IS AN EQUALLY-WEIGHTED AVERAGE CALCULATION OF
PERFORMANCE FIGURES FOR ALL FUNDS WITHIN THE LIPPER ANNUITY G&I FUNDS OBJECTIVE
CATEGORY, WHICH IS DEFINED AS ALL ANNUITY SUBACCOUNTS THAT COMBINE A GROWTH OF
EARNINGS ORIENTATION AND A REQUIREMENT FOR LEVEL AND/OR RISING DIVIDENDS.
LIPPER CALCULATIONS INCLUDE REINVESTED DIVIDENDS BUT DO NOT INCLUDE SALES
CHARGES. THE FUND'S PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE AN INDEX IS NOT
MANAGED, DOES NOT CONTAIN CASH (THE FUND GENERALLY CARRIES A CERTAIN PERCENTAGE
OF CASH AT ANY GIVEN TIME), AND INCLUDES NO SALES CHARGES OR MANAGEMENT
EXPENSES. OF COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS AN INDEX
REPRESENTATIVE OF THE FUND'S PORTFOLIO. THE INDEXES' SOURCES ARE STANDARD &
POOR'S MICROPAL AND LIPPER, INC.

[The graph below compares the performance of Mutual Shares Securities Fund -
Class 2*, as measured by the value of a $10,000 investment, and the unmanaged
Standard & Poor's 500/R/ (S&P 500/R/) Index, including reinvested dividends, the
Lipper Growth & Income Funds Objective Average (Lipper G&I Average) and the
Lipper Annuity Growth & Income Funds Objective Average (Annuity Average).]

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>

Past performance does not guarantee future results.

MS-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Mutual Shares Securities Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 3-YEAR (11/8/96)
-------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return* 13.58% 33.84% 38.53%
Average Annual Total Return* 13.58% 10.20% 10.92%
Value of $10,000 Investment* $ 11,358 $ 13,384 $ 13,853
</TABLE>

MUTUAL SHARES
SECURITIES FUND
- -- CLASS 2

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

Past performance does not guarantee future results.

MS-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999(1) 1998 1997 1996(2)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $11.96 $12.18 $10.35 $10.00
----------------------------------------------------
Income from investment operations:
Net investment income .............................. 0.20 0.28 0.13 0.02
Net realized and unrealized gains (losses) ......... 1.41 (0.25) 1.71 0.33
----------------------------------------------------
Total from investment operations .................... 1.61 0.03 1.84 0.35
----------------------------------------------------
Less distributions from:
Net investment income .............................. (0.34) (0.13) (0.01) --
Net realized gains ................................. -- (0.12) -- --
----------------------------------------------------
Total distributions ................................. (0.34) (0.25) (0.01) --
----------------------------------------------------
Net asset value, end of year ........................ $13.23 $11.96 $12.18 $10.35
====================================================
Total return* ....................................... 13.40% .09% 17.73% 3.50%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $448,278 $482,444 $387,787 $27,677
Ratios to average net assets:
Expenses ........................................... .79%(3) .79%3 .80% 1.00%**
Net investment income .............................. 1.59% 2.60% 2.10% 2.56%**
Portfolio turnover rate ............................. 80.02% 70.19% 49.01% 1.31%
</TABLE>

*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.
**ANNUALIZED
(1)BASED ON AVERAGE SHARES OUTSTANDING.
(2)FOR THE PERIOD NOVEMBER 8, 1996 (EFFECTIVE DATE) TO DECEMBER 31, 1996.
(3)EXCLUDING DIVIDEND EXPENSE ON SECURITIES SOLD SHORT, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS FOR THE FUND WAS 0.77% FOR THE YEARS ENDED DECEMBER 31, 1999
AND DECEMBER 31, 1998.

MS-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Financial Highlights (continued)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $5,716
Ratios to average net assets:
Expenses ............................................. 1.04%**
Net investment income ................................ 1.26%**
Portfolio turnover rate ............................... 80.02%
</TABLE>

See notes to financial statements.

MS-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <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
------------
</TABLE>

MS-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
------------
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
------------
</TABLE>

MS-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
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
------------
</TABLE>

MS-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
------------
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
------------
PRINCIPAL
CORPORATE BONDS AND NOTES 2.5% AMOUNT*
------------
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
</TABLE>

MS-11
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND

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

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
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
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
</TABLE>

MS-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BONDS AND NOTES IN REORGANIZATION (CONT.)
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
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
</TABLE>

MS-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES IN REORGANIZATION (CONT.)
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>
b SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------
<S> <C> <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>
<TABLE>
<CAPTION>

c CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 12/31/1999 GAIN/(LOSS)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 CONTRACT FOR DIFFERENCES .................... $1,118,484 $ (93,657)
===========================
</TABLE>
CURRENCY ABBREVIATIONS:

CAD-Canadian Dollar
EUR-Eurodollar
GBP-British Pound
JPY-Japanese Yen

*SECURITIES TRADED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
A NON-INCOME PRODUCING.
B SEE NOTE 1(F) REGARDING SECURITIES SOLD SHORT.
C SEE NOTE 1(D) REGARDING CONTRACTS FOR DIFFERENCES.
D SEE NOTE 8 REGARDING RESTRICTED SECURITIES.

See notes to financial statements
MS-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (Cost $398,488,380)............................. $ 447,327,389
Cash ............................................................................... 2,419,529
Receivables:
Investment securities sold ........................................................ 8,114,832
Capital shares sold ............................................................... 82,121
Dividends and interest ............................................................ 942,716
Unrealized gain on forward exchange contracts (Note 6) ............................. 1,657,673
Deposits with broker for securities sold short ..................................... 9,023,384
-------------
Total assets ..................................................................... 469,567,644
-------------
Liabilities:
Payables:
Investment securities purchased ................................................... 3,507,413
Capital shares redeemed ........................................................... 540,336
Affiliates ........................................................................ 285,098
Professional fees ................................................................. 11,020
Custodian fees .................................................................... 6,937
Postage and mailing fees .......................................................... 8,621
Securities sold short, at value (proceeds $8,791,377)............................... 10,521,527
Due to broker variation margin ..................................................... 203,014
Unrealized loss on forward exchange contracts (Note 6) ............................. 478,156
Other liabilities .................................................................. 10,928
-------------
Total liabilities ................................................................ 15,573,050
-------------
Net assets, at value ............................................................ $ 453,994,594
=============
Net assets consist of:
Undistributed net investment income ................................................ $ 8,337,233
Net unrealized appreciation ........................................................ 48,194,718
Accumulated net realized gain ...................................................... 7,886,339
Capital shares ..................................................................... 389,576,304
-------------
Net assets, at value ............................................................ $ 453,994,594
=============
CLASS 1:
Net asset value per share ($448,278,273 /divided by/ 33,894,944 shares outstanding) $ 13.23
=============
CLASS 2:
Net asset value per share ($5,716,321 /divided by/ 431,392 shares outstanding) ..... $ 13.25
=============
</TABLE>

See notes to financial statements

MS-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment income:
(net of foreign taxes of $228,493)
Dividends ............................................................... $ 5,743,802
Interest ................................................................ 5,503,121
-----------
Total investment income ............................................... 11,246,923
-----------
Expenses:
Management fees (Note 3) ................................................ 2,833,172
Administrative fees (Note 3) ............................................ 667,459
Distribution fees - Class 2 (Note 3) .................................... 3,794
Custodian fees .......................................................... 28,000
Reports to shareholders ................................................. 57,824
Professional fees ....................................................... 37,100
Trustees' fees and expenses ............................................. 3,900
Dividends for securities sold short ..................................... 108,548
-----------
Total expenses ........................................................ 3,739,797
-----------
Net investment income ................................................ 7,507,126
-----------
Realized and unrealized gain:
Net realized gain from:
Investments ............................................................ 10,284,316
Short sale transactions ................................................ 4,016,951
Foreign currency transactions .......................................... 4,802,319
-----------
Net realized gain ..................................................... 19,103,586
Net unrealized appreciation on:
Investments ............................................................ 30,546,374
Translation of assets and liabilities denominated in foreign currencies 1,007,670
-----------
Net unrealized appreciation ........................................... 31,554,044
-----------
Net realized and unrealized gain ......................................... 50,657,630
-----------
Net increase in net assets resulting from operations ..................... $58,164,756
===========
</TABLE>

See notes to financial statements

MS-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Financial Statements (continued)

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

<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 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

MS-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Mutual Shares Securities Fund (the Fund) is a separate, diversified series of
Franklin Templeton Variable Insurance Products Trust (the Trust), which is an
open-end investment company registered under the Investment Company Act of
1940. Shares of the Fund 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 Fund's shares were sold
through one insurance company. The 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.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. 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.

B. FOREIGN CURRENCY TRANSLATION

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

C. FORWARD EXCHANGE CONTRACTS

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

D. CONTRACTS FOR DIFFERENCES

The Fund is 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

MS-18
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. CONTRACTS FOR DIFFERENCES (CONT.)

consequences that would apply had a short sale of the underlying security taken
place. Upon entering into short contracts for differences, the Fund is 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 Fund
periodically, depending on fluctuations in the value of the underlying
security. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. 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 Fund may write put and covered call options.

Premiums received by the Fund 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. The 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 options is adjusted by the
amount of the premium received or paid. The risk in writing a call option is
that the Fund gives 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 Fund 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 Fund is engaged in selling securities short, which obligates the Fund to
replace a security borrowed with the same security at the current market value.
The Fund would incur a loss if the price of the security increases between the
date of the short sale and the date on which the fund replaces the borrowed
security. The Fund would realize a gain if the price of the security declines
between those dates.

The Fund is 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 Fund 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

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.

MS-19
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

I. ACCOUNTING ESTIMATES

2. SHARES OF BENEFICIAL INTEREST

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 5,163,014 $ 66,279,367 12,012,852 $ 150,206,617
Shares issued in reinvestment of distributions 914,838 12,213,087 760,950 9,603,186
Shares redeemed ............................... (12,518,155) (158,453,903) (4,280,005) (49,418,486)
--------------------------------------------------------------
Net increase (decrease) ....................... (6,440,303) $ (79,961,449) 8,493,797 $ 110,391,317
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1999(1)
-----------------------------
SHARES AMOUNT
CLASS 2 SHARES: -----------------------------
<S> <C> <C>
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>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

MS-20
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND

Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

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 Mutual Advisers, LLC (Franklin Mutual) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The Fund pays an investment management fee to Franklin Mutual of .60% per year
of the average daily net assets of the Fund.

The Fund pays administrative fees to FT Services based on the average net
assets 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.

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

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

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

At December 31 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $399,801,882 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 70,275,572
Unrealized depreciation ............. (22,750,065)
-------------
Net unrealized appreciation ......... $ 47,525,507
=============
</TABLE>

MS-21
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements (continued)

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $320,934,150 and $351,652,090,
respectively.

Transactions in call options written during the year ended December 31, 1999
were as follows:
<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>

6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At December
31, 1999, the Fund has outstanding forward exchange contracts for the sale or
purchase of currencies as set out below. The contracts are reported in the
financial statements at the Fund's net equity, as measured by the difference
between the forward exchange rates at the reporting date and the forward
exchange rates at the day of entry into the contract.
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR SETTLEMENT DATE GAIN/(LOSS)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
500,000 British Pounds ............ U.S. $ 801,235 01/20/00 U.S. $ 6,898
400,000 Canadian Dollars .......... 275,473 01/31/00 1,379
321,344 Swiss Francs .............. 202,805 03/10/00 638
31,144,875 Japanese Yen .............. 306,770 03/24/00 2,210
252,546 British Pounds ............ 406,389 05/22/00 1,676
----------- ----------
U.S. $ 1,992,672 U.S. $ 12,801
=========== ==========
</TABLE>

MS-22
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements (continued)

6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR SETTLEMENT DATE GAIN/(LOSS)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
14,663,910 European Unit ........... U.S. $15,467,692 01/19/00 U.S. $ 682,528
19,759,585 Swedish Krona ........... 2,448,524 01/19/00 122,176
98,706 British Pounds .......... 160,841 02/17/00 1,305
16,550,500 Swedish Krona ........... 2,012,364 02/17/00 59,956
1,100,000 European Unit ........... 1,178,911 02/29/00 66,451
5,976,665 Swiss Francs ............ 3,863,265 03/10/00 79,441
442,057 European Unit ........... 458,091 03/10/00 10,708
31,117,386 Swedish Krona ........... 3,689,123 03/17/00 11,055
1,200,000 British Pounds .......... 1,965,000 03/24/00 25,587
11,262,369 European Unit ........... 11,963,405 04/12/00 538,559
1,858,407 British Pounds .......... 3,009,318 05/22/00 6,490
4,123,913 European Unit ........... 4,228,944 05/30/00 31,366
58,500,000 Swedish Krona ........... 6,959,315 06/15/00 5,587
684,044 European Unit ........... 700,910 06/19/00 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> <C> <C> <C>
697,728 Swiss Francs ............ U.S. $ 443,297 03/10/00 U.S. $ (1,566)
865,041 British Pounds .......... 1,422,477 05/22/00 (24,737)
----------- ------------
U.S. $ 1,865,774 U.S. $ (26,303)
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO SELL
---------------------------
<S> <C> <C> <C> <C> <C> <C>
117,327 British Pounds ............ U.S. $ 189,131 01/18/00 U.S. $ (499)
8,488,490 British Pounds ............ 13,336,936 01/20/00 (382,720)
4,522,798 Canadian Dollars .......... 3,085,637 01/31/00 (44,728)
216,272 British Pounds ............ 347,457 02/17/00 (2,100)
240,189 European Unit ............. 243,072 03/10/00 (12)
78,050,315 Japanese Yen .............. 764,194 03/24/00 (10,123)
111,488 British Pounds ............ 179,562 05/22/00 (581)
2,000,000 European Unit ............. 2,033,600 06/19/00 (5,003)
----------- ------------
U.S. $20,179,589 U.S. $ (445,766)
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO BUY
------------------------
<S> <C> <C> <C> <C> <C> <C>
528,932 European Unit ............. SEK $ 4,581,500 01/19/00 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>

MS-23
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND
Notes to Financial Statements (continued)

7. CREDIT RISK AND DEFAULTED SECURITIES

At December 31, 1999, the Fund held defaulted securities with a value
aggregating $16,666,079, representing 3.7% of the Fund's net assets. For
information as to specific securities, see the accompanying Statement of
Investments.

For financial reporting purposes, the Fund discontinued accruing income on
defaulted bonds and provided an estimate for losses on interest receivable.

8. RESTRICTED SECURITIES

The Fund 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>
SHARES ISSUER ACQUISITION DATE COST VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
27,030 Security Capital European Realty (.1% of Net Assets) 4/08/98 $540,600 $389,435
</TABLE>

9. CREDIT FACILITY

Certain Franklin Templeton Funds, including Mutual Shares Securities Fund, 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 Fund had not utilized this credit facility.

10. SUBSEQUENT EVENT

On February 8, 2000, Templeton Variable Products Series Fund (TVP) shareholders
approved a proposal to merge TVP Mutual Shares Fund into the Fund.

MS-24
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mutual Shares Securities Fund (the
Fund), a series of Franklin Templeton Variable Insurance Products Trust, at
December 31, 1999, the results of its operations for the year then ended, the
changes in its 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 Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 custodian and
brokers, provide a reasonable basis for the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

San Francisco, California
February 2, 2000, except for Note 10, as to which the date is February 8, 2000.

MS-25
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MUTUAL SHARES SECURITIES FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $10,186,671 as capital gain dividends for the fiscal year ended
December 31, 1999.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 35.83% of ordinary income dividends as qualifying for the dividends
received deduction for the fiscal year ended December 31, 1999.

MS-26
<PAGE>

TEMPLETON GLOBAL GROWTH FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: 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.
- --------------------------------------------------------------------------------
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 Moragn Stanley Capital International
(MSCI/registered trademark/) 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.

[This chart shows in pie format the geographic distribution of Templeton Global
Growth Fund based on total net assets as of 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%

TG-1
<PAGE>

Nowhere did the trend toward momentum-based buying seem greater than in the
U.S. market, where growth stocks with the greatest 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 the Hong Kong market 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.

TG-2
<PAGE>

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.

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.

[This chart shows the top 10 holdings and their respective industry and country
based on the percentage of total net assets on 12/31/99 for the Templeton Global
Growth Fund.]

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

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------
<S> <C>
Cheung Kong 2.1%
Holdings Ltd.
MULTI-INDUSTRY, HONG
KONG

Sony Corp. 1.7%
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN

Marconi PLC 1.6%
ELECTRICAL &
ELECTRONICS, U.K.

Anglo American Platinum 1.5%
Corp. Ltd.
METALS & MINING,
SOUTH AFRICA

Alcatel SA 1.4%
ELECTRICAL &
ELECTRONICS, FRANCE

HSBC Holdings PLC 1.4%
BANKING, HONG KONG

Telefonos de Mexico SA 1.3%
(Telmex) ADR
TELECOMMUNICATIONS,
MEXICO

Singapore Airlines Ltd. 1.3%
TRANSPORTATION,
SINGAPORE

Hong Kong Electric 1.3%
Holdings Ltd.
UTILITIES ELECTRICAL & GAS,
HONG KONG

Corus Group PLC 1.3%
METALS & MINING, U.K.
</TABLE>

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

TG-3
<PAGE>

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.

Sincerely,

/s/ MARK G. HOLOWESKO

Mark G. Holowesko, CFA
Portfolio Manager
Templeton Global Growth Fund

/s/ SEAN FARRINGTON

Sean Farrington
Portfolio Manager
Templeton Global Growth Fund

TG-4
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (3/15/94 -- 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF TEMPLETON GLOBAL GROWTH FUND -
CLASS 2 AND THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRIES (AC)
WORLD FREE INDEX, INCLUDING REINVESTED DIVIDENDS. THE FUND'S TOTAL RETURN
REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIODS SHOWN AND
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET ASSET VALUE. THE
MSCI AC WORLD FREE INDEX REPRESENTS BOTH DEVELOPED AND EMERGING MARKETS AROUND
THE WORLD. "FREE" IN THE TITLE REFLECTS THE ACTUAL BUYING OPPORTUNITIES FOR
GLOBAL INVESTORS BY TAKING INTO ACCOUNT LOCAL MARKET RESTRICTIONS ON SHARE
OWNERSHIP BY FOREIGNERS. THE FUND'S PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE
AN INDEX IS NOT MANAGED, DOES NOT CONTAIN CASH (THE FUND GENERALLY CARRIES A
CERTAIN PERCENTAGE OF CASH AT ANY GIVEN TIME), AND INCLUDES NO SALES CHARGES OR
MANAGEMENT EXPENSES. OF COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS
AN INDEX REPRESENTATIVE OF THE FUND'S PORTFOLIO. THE INDEX SOURCE IS MSCI.

[The graph below compares the performance of Templeton Global Growth Fund -
Class 2*, as measured by the value of a $10,000 investment, and the Morgan
Stanley Capital International (MSCI) All Countries (AC) World Free Index,
including reinvested dividends.]

Templeton Global MSCI All Countries
Growth Fund - Class 2 World Index
------------------------------------------
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

TEMPLETON GLOBAL
GROWTH FUND
- -- CLASS 2

Past performance does not guarantee future results.

TG-5
<PAGE>

TEMPLETON GLOBAL
GROWTH FUND
- -- CLASS 2

PERFORMANCE

Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains. Average returns smooth
out variations in returns, which can be significant; they are not the same as
year-by-year results.
<TABLE>
<CAPTION>
Templeton Global Growth Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR (3/15/94)
------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return* 20.84% 104.34% 110.77%
Average Annual Total Return* 20.84% 15.36% 13.73%
Value of $10,000 Investment* $ 12,084 $ 20,434 $ 21,077
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------------------------------------------------------------------------------------------------
One-Year Total Return* 12.72% 21.28% 13.50% 8.98% 20.84%
</TABLE>

Past performance does not guarantee future results.

TG-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 14.77 $ 15.34 $ 13.80 $ 11.75 $ 10.48
------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .28 .35 .33 .25 .16
Net realized and unrealized gains .......... 2.66 .98 1.53 2.22 1.17
------------------------------------------------------------------
Total from investment operations ............ 2.94 1.33 1.86 2.47 1.33
------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.36) (.41) (.24) (.21) (.06)
Net realized gains ......................... (1.72) (1.49) (.08) (.21) --
------------------------------------------------------------------
Total distributions ......................... (2.08) (1.90) (.32) (.42) (.06)
------------------------------------------------------------------
Net asset value, end of year ................ $ 15.63 $ 14.77 $ 15.34 $ 13.80 $ 11.75
==================================================================
Total return* ............................... 21.04% 8.98% 13.50% 21.28% 12.72%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $708,310 $747,080 $758,445 $579,877 $338,755
Ratios to average net assets:
Expenses ................................... .88% .88% .88% .93% .97%
Net investment income ...................... 1.87% 2.27% 2.49% 2.20% 2.46%
Portfolio turnover rate ..................... 46.54% 32.30% 24.81% 12.32% 30.92%
</TABLE>

TG-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------
PERIOD ENDED
DECEMBER 31, 1999(1,2)
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $15.34
------
Income from investment operations:
Net investment income ........................ .17
Net realized and unrealized gains ............ 2.17
------
Total from investment operations .............. 2.34
------
Less distributions from:
Net investment income ........................ (.36)
Net realized gains ........................... (1.72)
------
Total distributions ........................... (2.08)
------
Net asset value, end of period ................ $15.60
======
Total return* ................................. 16.35%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $4,483
Ratios to average net assets:
Expenses ..................................... 1.14%**
Net investment income ........................ 1.17%**
Portfolio turnover rate ....................... 46.54%
</TABLE>

See notes to financial statements.

TG-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <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
------------
</TABLE>

TG-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
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
------------
</TABLE>

TG-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
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
------------
</TABLE>

TG-11
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
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
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>

TG-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
COUNTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 (COST $584,327,494) 95.1%................ 677,841,102
------------
PRINCIPAL
b REPURCHASE AGREEMENT (COST $34,348,000) 4.8% AMOUNT
-----------
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.
B AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See notes to financial statements.

TG-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (Cost $618,675,494)............................. $ 712,189,102
Cash ............................................................................... 1,048
Receivables:
Investment securities sold ........................................................ 55,761
Capital shares sold ............................................................... 81,193
Dividends and interest ............................................................ 1,526,955
-------------
Total assets ..................................................................... 713,854,059
-------------
Liabilities:
Payables:
Capital shares redeemed ........................................................... 363,294
Affiliates ........................................................................ 498,764
Professional fees ................................................................. 17,057
Custodian fees .................................................................... 104,938
Postage and mailing fees .......................................................... 42,643
Other liabilities .................................................................. 33,913
-------------
Total liabilities ................................................................ 1,060,609
-------------
Net assets, at value ............................................................ $ 712,793,450
=============
Net assets consist of:
Undistributed net investment income ................................................ $ 11,248,397
Net unrealized appreciation ........................................................ 93,513,608
Accumulated net realized gain ...................................................... 73,981,403
Capital shares ..................................................................... 534,050,042
-------------
Net assets, at value ............................................................ $ 712,793,450
=============
CLASS 1:
Net asset value per share ($708,310,592 /divided by/ 45,321,675 shares outstanding) $ 15.63
-------------
CLASS 2:
Net asset value per share ($4,482,858 /divided by/ 287,317 shares outstanding) ..... $ 15.60
-------------
</TABLE>

See notes to financial statements.

TG-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
(net of foreign taxes and fees of $1,502,264)
Dividends ................................................... $ 17,650,467
Interest .................................................... 1,839,194
------------
Total investment income .................................... 19,489,661
------------
Expenses:
Management fees (Note 3) .................................... 5,923,920
Distribution fees - Class 2 (Note 3) ........................ 4,155
Custodian fees .............................................. 215,000
Reports to shareholders ..................................... 65,000
Professional fees ........................................... 30,700
Trustees' fees and expenses ................................. 5,800
Other ....................................................... 4,289
------------
Total expenses ............................................. 6,248,864
------------
Net investment income .................................... 13,240,797
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 73,984,430
Foreign currency transactions .............................. (990,366)
------------
Net realized gain ......................................... 72,994,064
------------
Net unrealized appreciation on investments .................. 47,953,928
------------
Net realized and unrealized gain ............................. 120,947,992
------------
Net increase in net assets resulting from operations ......... $134,188,789
============
</TABLE>

See notes to financial statements.

TG-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 13,240,797 $ 17,620,120
Net realized gain from investments and foreign currency transactions 72,994,064 76,153,893
Net unrealized appreciation (depreciation) on investments ........... 47,953,928 (33,429,013)
--------------------------------
Net increase 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 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.

TG-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Templeton Global Growth Fund (the Fund) is a separate, diversified series
of the Franklin Templeton Variable Insurance Products Trust (the Trust), which
is an open-end investment company registered under the Investment Company Act
of 1940. Shares of the Fund 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 Fund's shares were
sold through one insurance company. The Fund seeks long-term capital
appreciation. The portfolio invests primarily in equity securities of issuers
in foreign countries including developing markets.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

B. FOREIGN CURRENCY TRANSLATION

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

C. INCOME TAXES

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

TG-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

E. ACCOUNTING ESTIMATES

2. SHARES OF BENEFICIAL INTEREST

At December 31, 1999, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 3,559,626 $ 53,423,886 6,659,421 $ 103,474,286
Shares issued in reinvestment of distributions 6,314,237 91,430,148 6,496,363 93,807,481
Shares redeemed ............................... (15,136,586) (225,779,930) (12,002,187) (175,183,507)
----------------------------------------------------------------
Net increase (decrease) ....................... (5,262,723) $ (80,925,896) 1,153,597 $ 22,098,260
================================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
--------------------------------
1999(1)
--------------------------------
SHARES AMOUNT
CLASS 2 SHARES: --------------------------------
<S> <C> <C>
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>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

TG-18
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
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
Templeton Global Advisors Ltd. (TGAL) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>

The 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>

Under an agreement with TGAL, FT Services provides administrative services to
the Fund. The fee is paid by TGAL based on the average daily net assets, and is
not an additional expense of the Fund.

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

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

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $618,675,494 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 154,202,623
Unrealized depreciation ............. (60,689,015)
-------------
Net unrealized appreciation ......... $ 93,513,608
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $314,057,492 and $458,734,579,
respectively.

TG-19
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND
Notes to Financial Statements (continued)

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Global Growth Fund, 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 Fund had not utilized this credit facility

7. SUBSEQUENT EVENT

On February 8, 2000, Templeton Variable Products Series Fund (TVP) shareholders
approved a proposal to merge TVP Stock Fund into the Fund.

TG-20
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Global Growth Fund (the
Fund), a series of Franklin Templeton Variable Insurance Products Trust, at
December 31, 1999, the results of its operations for the year then ended, the
changes in its 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 Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 custodian provide
a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Francisco, California
February 2, 2000, except for Note 7, as to which the date is February 8, 2000.

TG-21
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON GLOBAL GROWTH FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $58,491,916 as a capital gain dividends for the fiscal year ended
December 31, 1999.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 10.92% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

TG-22
<PAGE>

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL: TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND SEEKS LONG-TERM
CAPITAL APPRECIATION. THE PORTFOLIO INVESTS PRIMARILY IN EQUITY SECURITIES OF
SMALLER COMPANIES LOCATED OUTSIDE THE U.S., INCLUDING EMERGING MARKETS.
- --------------------------------------------------------------------------------
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.

[This chart shows in pie format the geographic distribution of Templeton
International Smaller Companies Fund based on total net assets as of 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%

TIS-1
<PAGE>

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.

TIS-2
<PAGE>

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.

Sincerely,

/s/ SIMON RUDOLPH

Simon Rudolph, ACA
Portfolio Manager
Templeton International Smaller Companies Fund

[This chart shows the top 10 holdings and their respective industry and country
based on the percentage of total net assets on 12/31/99 for Templeton
International Smaller Companies Fund.]

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

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ---------------------------------------------
<S> <C>
Li & Fung Ltd. 4.7%
MERCHANDISING,
HONG KONG

Giordano International 3.8%
Ltd.
MERCHANDISING,
HONG KONG

GTC Transcontinental 3.4%
Group Ltd., B.
BROADCASTING &
PUBLISHING, CANADA

Sa des Galeries Lafayett e 2.8%
MERCHANDISING, FRANCE

Gujarat Ambuja Cements 2.8%
Ltd.
BUILDING MATERIALS &
COMPONENTS, INDIA

Siam City Cement Public 2.4%
Co. Ltd., Fgn.
BUILDING MATERIALS &
COMPONENTS, THAILAND

Elkem ASA, A 2.2%
METALS & MINING,
NORWAY

Dah Sing Financial 2.1%
Holdings Ltd.
FINANCIAL SERVICES,
HONG KONG

Telemig Celular 1.9%
Participacoes SA, ADR
TELECOMMUNICATIONS,
BRAZIL

Kardex AG, B. 1.8%
BUSINESS & PUBLIC
SERVICES, SWITZERLAND
</TABLE>

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

TIS-3
<PAGE>

TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
- -- CLASS 2

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (5/1/96 -- 12/31/99)

THE GRAPH BELOW COMPARES THE PERFORMANCE OF TEMPLETON INTERNATIONAL SMALLER
COMPANIES FUND - CLASS 2 AND THE SALOMON GLOBAL EX-U.S. LESS THAN $1 BILLION
INDEX, INCLUDING REINVESTED DIVIDENDS. THE FUND'S TOTAL RETURN REPRESENTS THE
CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIODS SHOWN AND ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AT NET ASSET VALUE. THE SALOMON
GLOBAL EX-U.S. LESS THAN $1 BILLION INDEX INCLUDES COMPANIES FROM ALL DEVELOPED
AND EMERGING COUNTRIES, EXCEPT THE U.S., WITH A TOTAL MARKET CAPITALIZATION
BELOW U.S. $1 BILLION. THE FUND'S PERFORMANCE DIFFERS FROM AN INDEX'S BECAUSE
AN INDEX IS NOT MANAGED, DOES NOT CONTAIN CASH (THE FUND GENERALLY CARRIES A
CERTAIN PERCENTAGE OF CASH AT ANY GIVEN TIME), AND INCLUDES NO SALES CHARGES OR
MANAGEMENT EXPENSES. OF COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, NOR IS
AN INDEX REPRESENTATIVE OF THE FUND'S PORTFOLIO. THE INDEX SOURCE IS SALOMON
SMITH BARNEY.

[The graph below compares the performance of Templeton International Smaller
Companies Fund - Class 2*, as measured by the value of a $10,000 investment, and
the Salomon Global ex-U.S. Less Than $1 Billion Index, including reinvested
dividends.]

Templeton International Salomon Global
Smaller Companies Fund ex-U.S. less than
- Class 2 $1 Billion Index
----------------------------------------------
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

Past performance does not guarantee future results.

TIS-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Templeton International Smaller Companies Fund
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/96)
--------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return* 23.90% 7.06% 20.40%
Average Annual Total Return* 23.90% 2.30% 5.20%
Value of $10,000 Investment* $ 12,390 $ 10,706 $ 12,040
12/31/97 12/31/98 12/31/99
- ----------------------------------------------------------------------------
One-Year Total Return* -1.50% -12.27% 23.90%
</TABLE>

TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
- -- CLASS 2

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund
invests. Developing markets involve heightened risks related to the same
factors in addition to those associated with their relatively small size
and lesser liquidity. There are additional risks involved with seeking
long-term capital growth from small or relatively new or unseasoned
companies, which can have relatively small revenues, limited product lines
and small market share, and smaller company stocks historically have
exhibited greater price volatility than large company stocks, particularly
over the short term. You may have a gain or loss when you sell your shares.

Past performance does not guarantee future results.

TIS-5
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999(1) 1998 1997 1996(2)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $9.20 $11.02 $11.25 $10.00
--------------------------------------------------
Income from investment operations:
Net investment income .............................. .26 .25 .23 .10
Net realized and unrealized gains (losses) ......... 1.93 (1.52) (.39) 1.15
--------------------------------------------------
Total from investment operations .................... 2.19 (1.27) (.16) 1.25
--------------------------------------------------
Less distributions from:
Net investment income .............................. (.32) (.25) (.07) --
Net realized gains ................................. -- (.30) -- --
--------------------------------------------------
Total distributions ................................. (.32) (.55) (.07) --
--------------------------------------------------
Net asset value, end of year ........................ $11.07 $9.20 $ 11.02 $11.25
==================================================
Total return* ....................................... 23.90% (12.27)% (1.50)% 12.50%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $23,541 $24,999 $32,201 $16,255
Ratios to average net assets:
Expenses ........................................... 1.11% 1.10% 1.06% 1.16%**
Net investment income .............................. 2.52% 2.26% 2.74% 2.51%**
Portfolio turnover rate ............................. 15.80% 18.45% 21.38% --
</TABLE>

TIS-6
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Financial Highlights (continued)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $2,049
Ratios to average net assets:
Expenses ............................................. 1.38%**
Net investment income ................................ 1.21%**
Portfolio turnover rate ............................... 15.80%
</TABLE>

See notes to financial statements.

TIS-7
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <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>

TIS-8
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <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>
TIS-9
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <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
-----------
PRINCIPAL
b REPURCHASE AGREEMENTS 6.4% AMOUNT
----------
Barclays Bank PLC, 3.0%, 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., 3.0%, 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.
B AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See notes to financial statements.

TIS-10
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $22,575,182)........................... $ 25,538,680
Cash ............................................................................ 243
Receivables:
Capital shares sold ............................................................ 41,346
Dividends and interest ......................................................... 58,116
------------
Total assets .................................................................. 25,638,385
------------
Liabilities:
Payables:
Capital shares redeemed ........................................................ 10,007
Affiliates ..................................................................... 21,851
Professional fees .............................................................. 2,176
Custodian fees ................................................................. 10,323
Postage and mailing fees ....................................................... 1,980
Other liabilities ............................................................... 1,899
------------
Total liabilities ............................................................. 48,236
------------
Net assets, at value ......................................................... $ 25,590,149
============
Net assets consist of:
Undistributed net investment income ............................................. $ 502,859
Net unrealized appreciation ..................................................... 2,963,498
Accumulated net realized loss ................................................... (4,537,241)
Capital shares .................................................................. 26,661,033
------------
Net assets, at value ......................................................... $ 25,590,149
============
CLASS 1:
Net asset value per share ($23,541,460 /divided by/ 2,126,632 shares outstanding) $ 11.07
============
CLASS 2:
Net asset value per share ($2,048,689 /divided by/ 185,021 shares outstanding)... $ 11.07
============
</TABLE>

See notes to financial statements.

TIS-11
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
Investment Income:
(net of foreign taxes of $93,421)
Dividends ................................................... $ 826,264
Interest .................................................... 32,478
------------
Total investment income ................................... 858,742
------------
Expenses:
Management fees (Note 3) .................................... 201,942
Administrative fees (Note 3) ................................ 35,637
Distribution fees - Class 2 (Note 3) ........................ 1,086
Custodian fees .............................................. 20,200
Reports to shareholders ..................................... 3,400
Professional fees ........................................... 2,700
Trustees' fees and expenses ................................. 200
Other ....................................................... 164
------------
Total expenses ............................................ 265,329
------------
Net investment income .................................... 593,413
------------
Realized and unrealized gain (loss):
Net realized loss from:
Investments ................................................ (1,993,271)
Foreign currency transactions .............................. (20,383)
------------
Net realized loss ......................................... (2,013,654)
Net unrealized appreciation on investments .................. 6,488,119
------------
Net realized and unrealized gain ............................. 4,474,465
------------
Net increase in net assets resulting from operations ......... $ 5,067,878
============
</TABLE>

See notes to financial statements.

TIS-12
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Financial Statements (continued)

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

<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................... $ 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 ................ 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>

See notes to financial statements.

TIS-13
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Templeton International Smaller Companies Fund (the Fund) is a separate,
diversified series of the Franklin Templeton Variable Insurance Products Trust
(the Trust), which is an open-end investment company registered under the
Investment Company Act of 1940. Shares of the Fund 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 Fund's shares were sold through one insurance company. The Fund seeks
long-term capital appreciation. The portfolio invests primarily in equity
securities of smaller companies outside the U.S., including developing markets.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

B. FOREIGN CURRENCY TRANSLATION

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

C. INCOME TAXES

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

TIS-14
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

E. ACCOUNTING ESTIMATES

2. SHARES OF BENEFICIAL INTEREST

At December 31, 1999, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 583,886 $ 6,152,029 1,335,385 $ 13,968,902
Shares issued in reinvestment of distributions 64,794 690,707 147,758 1,600,222
Shares redeemed ............................... (1,240,556) (12,457,655) (1,687,180) (17,302,839)
------------------------------------------------------------
Net decrease .................................. (591,876) $ (5,614,919) (204,037) $ (1,733,715)
============================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
--------------------------------
1999(1)
--------------------------------
<S> <C> <C>
CLASS 2 SHARES: SHARES AMOUNT
-----------------------
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>

(1)For the period January 6, 1999 (effective date) to December 31, 1999.

TIS-15
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

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
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 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 Fund pays administrative fees to FT Services based on the average net
assets of the 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 Fund reimburses Distributors up to .25% per year of the Fund's average
daily net assets of Class 2 for costs incurred in marketing the Fund's shares.
Effective July 1, 1999, the rate changed from .30% to .25%.

Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.

4. INCOME TAXES

At December 31, 1999, the Fund had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<S> <C>

Capital loss carryover expiring in:
2006 ............................. $2,543,971
2007 ............................. 1,878,044
----------
$4,422,015
==========
</TABLE>

At December 31, 1999, the Fund had deferred capital losses and deferred
currency losses of $115,743 occurring subsequent to October 31, 1999. For tax
purposes such losses will be reflected in the year ending December 31, 2000.

Net investment income and net realized capital gains (losses) differ for
financial statement and tax purposes primarily due to differing treatments of
foreign currency transactions and passive foreign investment company shares.

TIS-16
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

Notes to Financial Statements (continued)

4. INCOME TAXES (CONT.)

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $22,596,326 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 5,930,679
Unrealized depreciation ............. (2,988,325)
------------
Net unrealized appreciation ......... $ 2,942,354
============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 were $3,623,134 and $7,738,628, respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton International Smaller
Companies Fund, 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 Fund had not utilized this credit
facility.

TIS-17
<PAGE>

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton International Smaller
Companies Fund (the Fund), a series of Franklin Templeton Variable Insurance
Products Trust, at December 31, 1999, the results of its operations for the
year then ended, the changes in its 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 Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with 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 custodian, provide a reasonable basis for the opinion
expressed above.

PricewaterhouseCoopers LLP

San Francisco, California
February 2, 2000

TIS-18
<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>

R-1
<PAGE>

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>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
34,642,325.865 31,187,926.239 90.028% 1,310,140.114 3.782% 2,144,259.512 6.190%
</TABLE>

2. Regarding the approval of changes in the following fundamental investments
restrictions:

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
(a) Borrowing 34,642,325.865 30,364,960.448 87.653%
(b) Underwriting 34,642,325.865 30,937,738.640 89.306%
(c) Lending 34,642,325.865 30,627,603.069 88.411%
(d) Real Estate and
Commodities 34,642,325.865 30,491,288.755 88.017%
(e) Senior Securities 34,642,325.865 30,790,380.970 88.881%
(f) Concentration 34,642,325.865 30,873,386.121 89.120%
(g) Diversification 34,642,325.865 31,270,378.920 90.266%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) Borrowing 2,004,812.041 5.787% 2,272,553.376 6.560%
(b) Underwriting 1,351,902.686 3.903% 2,352,684.539 6.791%
(c) Lending 1,665,004.505 4.806% 2,349,718.291 6.783%
(d) Real Estate and
Commodities 1,824,505.657 5.267% 2,326,531.453 6.716%
(e) Senior Securities 1,583,482.434 4.571% 2,268,462.461 6.538%
(f) Concentration 1,467,482.510 4.237% 2,301,457.234 6.643%
(g) Diversification 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>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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.

R-2
<PAGE>

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>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
18,422,356.898 15,924,198.742 86.440% 1,460,550.545 7.928% 1,037,607.611 5.632%
</TABLE>

2. Regarding the approval of changes in the following fundamental investments
restrictions:

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
(a) Diversification 18,422,356.898 16,477,970.342 89.446%
(b) Borrowing 18,422,356.898 15,584,213.385 84.594%
(c) Lending 18,422,356.898 15,851,672.166 86.046%
(d) Underwriting 18,422,356.898 16,015,154.413 86.933%
(e) Concentration 18,422,356.898 15,978,912.676 86.737%
(f) Senior Securities 18,422,356.898 16,012,931.423 86.921%
(g) Real Estate and
Commodities 18,422,356.898 15,872,028.601 86.156%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
(a) Diversification 913,778.609 4.960% 1,030,607.947 5.594%
(b) Borrowing 1,689,334.485 9.170% 1,148,809.028 6.236%
(c) Lending 1,428,899.473 7.756% 1,141,785.259 6.198%
(d) Underwriting 1,206,200.983 6.548% 1,201,001.502 6.519%
(e) Concentration 1,254,405.961 6.809% 1,189,038.261 6.454%
(f) Senior Securities 1,247,669.028 6.773% 1,161,756.447 6.306%
(g) Real Estate and
Commodities 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>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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.

R-3
<PAGE>

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
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>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,643,113.339 91.093%
Global Asset Allocation 5,290,722.024 4,876,674.848 92.174%
International 44,149,844.645 40,368,795.570 91.436%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 316,569.083 1.732% 1,310,869.326 7.175%
Global Asset Allocation 96,681.269 1.827% 317,365.907 5.999%
International 824,499.311 1.867% 2,956,549.764 6.697%
</TABLE>

2. Regarding the approval of changes in the following fundamental investments
restrictions:

(a) Diversification

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,710,277.009 91.460%
Global Asset Allocation 5,290,722.024 4,655,162.142 87.987%
International 44,149,844.645 40,132,799,935 90.901%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 251,266.325 1.375% 1,309,008.414 7.165%
Global Asset Allocation 95,308.429 1.802% 540,251.453 10.211%
International 748,361.204 1.695% 3,268,683.506 7.404%
</TABLE>

(b) Borrowing

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,028,768.210 87.730%
Global Asset Allocation 5,290,722.024 4,475,809.527 84.597%
International 44,149,844.645 37,918,778.113 85.887%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 773,840.545 4.236% 1,467,942.993 8.034%
Global Asset Allocation 256,928.404 4.857% 557,984.093 10.546%
International 2,465,639.919 5.584% 3,765,426.613 8.529%
</TABLE>

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,248,486.259 88.933%
Global Asset Allocation 5,290,722.024 4,515,526.810 85.348%
International 44,149,844.645 38,527,292.561 87.265%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 558,650.236 3.057% 1,463,415.253 8.010%
Global Asset Allocation 209,939.770 3.968% 565,255.444 10.684%
International 1,884,118.568 4.267% 3,738,433.516 8.468%
</TABLE>

R-4
<PAGE>

(d) Underwriting

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,284,157.533 89.128%
Global Asset Allocation 5,290,722.024 4,602,118.027 86.985%
International 44,149,844.645 39,034,888.689 88.415%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 523,157.546 2.863% 1,463,236.669 8.009%
Global Asset Allocation 114,619.431 2.166% 573,984.566 10.849%
International 1,426,651.417 3.231% 3,688,304.539 8.354%
</TABLE>

(e) Concentration

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,426,194.875 89.905%
Global Asset Allocation 5,290,722.024 4,558,580.736 86.162%
International 44,149,844.645 39,112,258.974 88.590%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 393,199.573 2.152% 1,451,157.300 7.943%
Global Asset Allocation 131,923.214 2.493% 600,218.074 11.345%
International 1,309,365.688 2.966% 3,728,219.983 8.444%
</TABLE>

(f) Senior Securities

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,409,980.428 89.817%
Global Asset Allocation 5,290,722.024 4,581,468.769 86.594%
International 44,149,844.645 39,288,852.525 88.990%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 410,401.607 2.246% 1,450,169.713 7.937%
Global Asset Allocation 137,363.380 2.597% 571,889.875 10.809%
International 1,276,504.755 2.891% 3,584,487.365 8.119%
</TABLE>

(g) Real Estate and Commodities

<TABLE>
<CAPTION>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,207,115.077 88.706%
Global Asset Allocation 5,290,722.024 4,520,220.922 85.437%
International 44,149,844.645 38,784,297.831 87.847%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 622,804.971 3.409% 1,440,631.700 7.885%
Global Asset Allocation 185,790.635 3.511% 584,710.467 11.052%
International 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>
Shares % of
Shares Voted Shares
Voted For Voted
----------------------------------------------------
<S> <C> <C> <C>
Developing Markets 18,270,551.748 16,271,220.422 89.057%
Global Asset Allocation 5,290,722.024 4,582,110.985 86.607%
International 44,149,844.645 38,965,505.675 88.257%

<CAPTION>
Shares % of Shares % of
Voted Shares Voted to Shares
Against Voted Abstain Voted
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Developing Markets 527,502.539 2.887% 1,471,828.787 8.056%
Global Asset Allocation 178,528.088 3.374% 530,082.951 10.019%
International 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.

R-5
<PAGE>

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