Annual Allianz

N-30D 1 dn30d.htm ANNUAL ALLIANZ Annual Allianz

FRANKLIN TEMPLETON VARIABLE INSURANCE

PRODUCTS TRUST ANNUAL REPORT

TABLE OF CONTENTS

Letter to Contract Owners		2
A Word About Risk		5
Important Notes to Performance Information		6
Fund Summaries
Franklin Aggressive Growth Securities Fund		7
Franklin Global Communications Securities Fund		11
Franklin Growth and Income Securities Fund		15
Franklin High Income Fund		21
Franklin Income Securities Fund		27
Franklin Large Cap Growth Securities Fund		33
Franklin Money Market Fund		39
Franklin Real Estate Fund		41
Franklin Rising Dividends Securities Fund		47
Franklin S&P 500^® Index Fund		53
Franklin Small Cap Fund		57
Prospectus Supplement		61
Franklin Small Cap Value Securities Fund (formerly Franklin Value Securities Fund)		63
Franklin Technology Securities Fund		67
Franklin U.S. Government Fund		73
Franklin Zero Coupon Funds		77
Mutual Discovery Securities Fund		81
Mutual Shares Securities Fund		89
Templeton Developing Markets Securities Fund		97
Templeton Foreign Securities Fund (formerly Templeton International Securities Fund)		103
Templeton Global Asset Allocation Fund (formerly Templeton Asset Strategy Fund)		109
Prospectus Supplement		116
Templeton Global Income Securities Fund		117
Templeton Growth Securities Fund		123
Index Descriptions		131
Financial Highlights & Statements of Investments		137
Financial Statements		233
Notes to Financial Statements		251
Independent Auditors’ Report		274
Tax Designation		275
Board Members and Officers		277

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

Thank you for investing with Franklin Templeton Variable Insurance Products Trust. We encourage our investors to maintain a long-term perspective, and remember that all securities markets move both up and down, as do fund unit prices. We appreciate your past support and look forward to serving your investment needs in the years ahead.

Please Note: Franklin Templeton Variable Insurance Products Trust (FTVIP) currently consists of 24 separate funds, which generally offer Class 1 and Class 2 shares. Please consult your contract prospectus for the most current information on which funds and classes are available in that product.

Please retain this document, including the enclosed prospectus supplements, with your current prospectus, for reference.

ALLIANZ A02 02/03

LETTER TO CONTRACT OWNERS

Dear Contract Owners:

This annual report for Franklin Templeton Variable Insurance Products Trust covers the year ended December 31, 2002. For most investors, 2002 was a year that tested their fortitude. U.S. economic growth wavered during the year, mainly because of weakness in corporate capital spending. Amid lower earnings, sluggish capacity utilization rates, volatile capital markets and a slew of high-profile accounting scandals, U.S. companies continued to focus more on balance sheet strengthening than on making capital investments. Because many companies’ existing manufacturing plants generally were underutilized, additional plant and machinery investments became unnecessary. Lack of a clear vision into the future caused many companies to delay capital investment. In an effort to stimulate investment, the Federal Reserve Board lowered the federal funds target rate to 1.25% in November.

For most of the year, the U.S. consumer drove U.S. economic growth, in spite of a steady rise in the U.S. unemployment rate and historically high personal debt levels. American households benefited from several factors that enabled real disposable personal income growth to remain surprisingly steady throughout the year. Such factors included tax cuts, lower interest rates, real wage growth, and an enormous mortgage refinancing boom that was made even bigger by rising home prices. With more cash in hand, consumers proved willing to spend throughout most of the year. However, household spending began to slow near year-end.

Calendar-year 2002 was a year of extreme volatility for U.S. equity markets. Investor sentiment shifted back and forth, depending on economic data and news of corporate accounting scandals, rising unemployment, geopolitical conflicts and threats of war and terrorism. The U.S. stock markets surged up and down correspondingly, ending with their third consecutive losing year, a string not recorded since the Great Depression era.

Global stock markets also retreated for the third straight year, confounded by the uncertain U.S. economy and some sluggish Asian economies (notably Japan’s), financial crises in Latin America, the threat of war and a further deflating of the technology bubble in much of Europe. Not even an improving backdrop of declining global interest rates and falling valuations could offset the negative effects. By period-end,

there were some reasons for optimism, however, as global investors welcomed the European Central Bank’s decision to reduce rates in December. In addition, the euro appreciated to a three-year high against the U.S. dollar during the fiscal year.

For the 12 months ended December 31, 2002, the Dow Jones Industrial Average^™, Standard & Poor’s 500 Composite Index (S&P 500) and Nasdaq Composite Index posted cumulative total returns of -14.98%, -22.09% and -31.13%, respectively.¹ Indicative of global markets, the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index returned -15.66%.¹ Emerging stock markets generally outperformed their developed country counterparts for the second consecutive year, and the MSCI Emerging Markets Free Index returned -6.00% for the same period.¹

In the U.S., investors reacted to the economic uncertainty and stock market volatility by flocking to Treasury securities, and their yields, which move in the opposite direction of their prices, tumbled. As a result, 2002 was the third year in a row that Treasuries rose in value as stocks declined. Corporate bonds, particularly junk bonds, were a different story, in large part because of the corporate accounting scandals that came to light during the period. For the year ended December 31, 2002, the 10-year Treasury note posted a 14.62% return and the Credit Suisse First Boston High Yield Index returned -3.10%.²

Despite the uncertainty of some recent economic data, we believe a moderate economic recovery with low inflationary pressures is likely to unfold. It appears to us that the federal government is focusing on ways to bolster corporate growth and encourage capital spending in 2003, which could stimulate the economy. Meanwhile, the prospect of a future military conflict in Iraq remains a wild card for any economic outlook.

1. Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

2. Sources: Standard & Poor’s Micropal (Lehman Brothers); CS First Boston. Please see Index Descriptions following the Fund Summaries..

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 retirement and 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,

LOGO

Rupert H. Johnson, Jr.

Vice President

Franklin Templeton Variable Insurance Products Trust

A WORD ABOUT RISK

All of the funds are subject to certain risks, which will cause investment returns and the value of your principal to increase or decrease. Generally, investments offering the potential for higher returns are accompanied by a higher degree of risk. Stocks and other equities, representing an ownership interest in an individual company, historically have outperformed other asset classes over the long term, but tend to 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. By having significant investment in particular sectors from time to time, some funds carry greater risk of adverse developments in those sectors than a fund that always invests in a wider variety of sectors. The technology sector can be among the most volatile market sectors.

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 and social instability. These and other risks pertaining to specific funds, such as specialized industry or geographical sectors or use of complex securities, are discussed in the Franklin Templeton Variable Insurance Products Trust prospectus. Your investment representative can help you determine which funds may be right for you.

IMPORTANT NOTES TO

PERFORMANCE INFORMATION

Total return of the funds is the percentage change in value of a hypothetical $10,000 investment over the indicated periods and includes reinvestment of dividends and capital gains. Inception dates of the funds may have preceded the effective dates of the subaccounts, contracts, or their availability in all states. Performance data is historical and cannot predict or guarantee future results. Principal value and investment return will fluctuate with market conditions, and you may have a gain or loss when you withdraw your money.

When reviewing the index comparisons, please keep in mind that indexes have a number of inherent performance differentials over the funds. First, unlike the funds, which must hold a minimum amount of cash to maintain liquidity, indexes do not have a cash component. Second, the funds are actively managed and, thus, are subject to management fees to cover salaries of securities analysts or portfolio managers in addition to other expenses. Indexes are unmanaged and do not include any commissions or other expenses typically associated with investing in securities. Third, indexes often contain a different mix of securities than the fund to which they are compared. Additionally, please remember that indexes are simply a measure of performance and cannot be invested in directly.

FRANKLIN AGGRESSIVE GROWTH SECURITIES FUND

Fund Goal and Primary Investments: Franklin Aggressive Growth Securities Fund seeks capital appreciation. The Fund invests primarily in equity securities of companies demonstrating accelerating growth, increasing profitability, or above-average growth or growth potential as compared with the overall economy.

During the 12 months ended December 31, 2002, weak economic data, ongoing geopolitical turmoil and concerns about corporate governance continued to plague the stock market. Primarily because of these factors, it seemed increasingly difficult to predict future earnings streams, and investor confidence eroded. Thus, all major market indexes showed declines for the period. Specifically, the Russell 3000^® Growth Index, which is weighted toward large cap companies, declined 28.03% during the year under review while the Russell 2000^® Growth Index of small cap companies fell 30.26%.¹ We are disappointed to report that Franklin Aggressive Growth Securities Fund underperformed its primary benchmark, the Russell 3000 Growth Index. The Fund’s underperformance resulted mainly from our exposure to economically sensitive sectors and our significant weighting in smaller cap companies.

Over the past several quarters, we have been positioning the Fund to benefit from an economic recovery, investing in many sectors we considered cyclical in nature. However, after showing strong growth in the first quarter of 2002, the economy slowed dramatically in the second and third quarters. Capital spending remained low, and the resilient American consumer finally began to curtail spending. Thus, our positions in electronic technology, technology services, commercial services, health technology, consumer services and retail trade hurt Fund performance during the year. Technology stocks weakened as corporate budgets continued to shrink. Biotechnology and pharmaceutical stocks also performed poorly due to negative earnings surprises, unexpectedly poor clinical data and high-profile Food & Drug Administration setbacks. At period-end, we remained underweighted in health technology stocks relative to our primary benchmark.

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

LOGO

Throughout the Fund’s existence, our investment philosophy has not changed. We continue our disciplined search for attractively priced growth companies in a variety of industries. We keep investing in businesses we believe should benefit from a growing economy as we still expect to see a recovery take place in the coming quarters. However, geopolitical turmoil and relatively high energy prices make predicting future economic growth difficult. In an uncertain economic environment, we think it is important to find firms with identifiable competitive advantages and strong balance sheets. We look for those with the ability to invest in future growth and gain market share. We seek companies with strong operating leverage or the ability to increase profit margins as sales grow. Lastly, in light of corporate governance issues, we focus on businesses with proven management teams and clean accounting practices.

Despite economic uncertainty and declining investor confidence, we remain optimistic about equity markets over the long term because we see reasonable valuation levels and prospects for profit recovery. We expect volatility to remain high during a recovery, especially in light of ongoing geopolitical uncertainty. However, we will continue seeking to take advantage of any volatility to buy stocks of well-positioned growth companies at what we consider attractive valuations.

This discussion reflects our analysis, opinions and portfolio holdings as of December 31, 2002, the end of the reporting period. Our strategies and the Fund’s portfolio composition will change depending on market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable but the adviser makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

Top 10 Holdings

Franklin Aggressive Growth

Securities Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets


Pfizer Inc.		2.2%
Health Technology

Tektronix Inc.		2.2%
Electronic Technology

Affiliated Computer Services Inc., A		2.2%
Technology Services

Weatherford International Ltd.		2.2%
Industrial Services

MedImmune Inc.		2.0%
Health Technology

Dell Computer Corp.		1.9%
Electronic Technology

Network Associates Inc.		1.9%
Technology Services

eBay Inc.		1.8%
Consumer Services

Caremark RX Inc.		1.8%
Health Services

L-3 Communications Holdings Inc.		1.8%
Electronic Technology

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

PERFORMANCE SUMMARY AS OF 12/31/02

Total return of Class 1 shares 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.

Franklin Aggressive Growth Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	Since Inception (5/1/00)


Cumulative Total Return	-35.67%	-62.24%

Average Annual Total Return	-35.67%	-30.58%

Value of $10,000 Investment	$6,433	$3,776

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/00–12/31/02)

The graph compares the performance of Franklin Aggressive Growth Securities Fund – Class 1, the Standard & Poor’s 500 Index and the Russell 3000 Growth Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Aggressive Growth Securities Fund – Class 1

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.

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Total return of Class 2 shares 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.

Franklin Aggressive Growth Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	Since Inception (5/1/00)


Cumulative Total Return	-35.73%	-62.34%

Average Annual Total Return	-35.73%	-30.65%

Value of $10,000 Investment	$6,427	$3,766

*Because Class 2 shares were not offered until 2/12/01, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 2/12/01, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 2/12/01 (commencement of sales), the cumulative and average annual total returns of Class 2 shares were -49.66% and -30.55%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/00–12/31/02)

The graph compares the performance of Franklin Aggressive Growth Securities Fund – Class 2,* the Standard & Poor’s 500 Index and the Russell 3000 Growth Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Aggressive Growth Securities Fund – Class 2

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.

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

Past performance does not guarantee future results.

FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND

Fund Goals and Primary Investments: Franklin Global Communications Securities Fund seeks both capital appreciation and current income. The Fund invests primarily in equity securities of communications companies that are primarily engaged in providing the distribution, content and equipment related to the creation, transmission or processing of information in any nation, including the U.S. and emerging markets.

The 12 months ended December 31, 2002, was a difficult time for most world equity markets largely due to the disappointing performances of many major economies. The global economic slowdown as well as heightened geopolitical tensions caused many investors to shift their funds out of stocks and into other asset classes such as bonds and real estate. During the year under review, the communications sector struggled as shown by the Nasdaq Telecommunications Index’s 54.03% decline.¹ Within this difficult environment, Franklin Global Communications Securities Fund’s return, although negative, surpassed the index’s during the reporting period.

The Fund’s strong relative performance was largely due to our increased exposure to local service providers with strong balance sheets and relatively high profitability. During the year under review, we purchased several new companies that fit this profile. We initiated a position in Hellenic Telecommunications, Greece’s largest telecommunications service provider. We feel Hellenic’s management has done an excellent job avoiding the expensive acquisitions and spectrum auctions that have plagued many of its European peers. We believe the company’s strong finances should enable it to aggressively defend its market share as well as continue paying generous dividends. We maintained our positions in select U.S. carriers that we believe offer solid franchises with attractive valuations. AllTel, BellSouth and SBC Communications, as well as our new position in Verizon, are examples of incumbent local providers that, in our view, offer potential for positive investment returns and seem well positioned for the future. These companies possess experienced management teams that appear to run their operations solidly, regardless of the economic climate. We also maintained our Telefonos de Mexico (TELMEX) position due to the company’s track record of creating shareholder value over the long term. TELMEX runs

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Top 10 Holdings

Franklin Global Communications

Securities Fund

12/31/02

Company *Sector/Industry,* *Country*		% of Total Net Assets


Alltel Corp.		3.4%
Major Telecommunications, U.S.

Telefonos de Mexico SA de CV (TELMEX), L, ADR		3.3%
Major Telecommunications, Mexico

Gannet Co. Inc.		3.0%
Publishing: Newspapers, U.S.

Telstra Corp. Ltd.		3.0%
Major Telecommunications, Australia

Microsoft Corp.		2.8%
Packaged Software, U.S.

Knight-Ridder Inc.		2.8%
Publishing: Newspapers, U.S.

Telefonica SA, ADR		2.7%
Major Telecommunications, Spain

Hellenic Telecommunications Organization SA (OTE)		2.6%
Major Telecommunications, Greece

General Dynamics Corp.		2.5%
Aerospace & Defense, U.S.

Telecom Corp. of New Zealand Ltd.		2.5%
Major Telecommunications, New Zealand

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

one of the world’s most profitable local franchises and operates in a constructive regulatory environment.

During the past 12 months, we continued to provide our investors with broad exposure to the communications sector. We invested in several publishing companies due to their strong cash flows and valuations we found attractive. We added Dow Jones during the reporting period for its vast publishing franchise, which includes titles such as Barron’s and The Wall Street Journal. We also purchased Walt Disney due to its, in our view, solid entertainment brands and attractive relative valuation.

The U.S. and Western Europe remained the Fund’s largest investment areas. Our geographic weightings result from a fundamental, bottom-up stock selection process, rather than a top-down allotment of general industry or country trends. With this in mind, we found more U.S. companies offering a superior combination of strong fundamentals and low stock valuations.

Looking forward, we believe investing in the communications sector should reward investors who hold a long-term view. We remain committed to our philosophy of seeking outstanding investment opportunities through fundamental research and thus, think the Fund is well positioned to benefit from further advancements in global communications.

LOGO

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Global Communications Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-33.28%	-50.86%	-14.36%	+43.35%

Average Annual Total Return	-33.28%	-13.25%	-1.54%	+2.62%

Value of $10,000 Investment	$6,672	$4,914	$8,564	$14,335

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Global Communications Securities Fund – Class 1 and the Standard & Poor’s 500 Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Global Communications Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Global Communications Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-33.52%	-51.38%	-15.26%	+41.84%

Average Annual Total Return	-33.52%	-13.43%	-1.64%	+2.54%

Value of $10,000 Investment	$6,648	$4,862	$8,474	$14,184

*Because Class 2 shares were not offered until 1/6/99, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 1/6/99, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 1/6/99 (effective date), the cumulative and average annual total returns of Class 2 shares were -57.48% and -19.32%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Global Communications Securities Fund – Class 2* and the Standard & Poor’s 500 Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Global Communications Securities Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN GROWTH AND INCOME SECURITIES FUND

Fund Goals and Primary Investments: Franklin Growth and Income Securities Fund seeks capital appreciation, with current income as a secondary goal. The Fund invests primarily in common stocks offering above-market current dividend yields.

The 12 months ended December 31, 2002, was an extraordinary time of geopolitical upheaval and economic flux. The U.S. economy managed to pull away from recession with a tentative and uneven economic recovery, troubled by rising unemployment, corporate scandals, threat of war in Iraq and a sliding U.S. dollar. Many corporations reduced earnings estimates and warned of possible tough times ahead as profit margins dwindled. Also, many companies reduced capital spending, revamped operations to run leaner and worked down inventories. Although investors seemed to gain confidence in the spring and fall months, the year ended with the third consecutive annual decline for all major stock indexes — an event that has not occurred since the 1930s. Value and growth stocks converged as the market sell-off widened in scope, causing both types to turn in poor results.

Although the Fund experienced negative results for the 12-month period under review, our investment strategy generated returns that compared favorably with many major stock market indexes and reflected market trends for larger-capitalization value stocks. For the year ended December 31, 2002, the Fund’s benchmark, the Russell 3000^® Value Index, fell 15.18% while the Lipper VIP Equity Income Funds Average declined 16.76%.¹

Our investment strategy remains focused on stocks of high quality, well-established companies that pay above-average dividends. This discipline typically provides a cushion against market volatility through current income and capital appreciation potential. Dividends have historically been a significant contributor to the long-term investment returns of larger capitalization stocks. Moreover, dividend income generally becomes a larger factor in challenging stock markets or low inflation environments because it provides an up-front return to investors, as well as some protection against market fluctuations. This has been especially evident during the current bear market as dividend-paying stocks have outperformed non-dividend payers by a cumulative 53% for the three years ended December 31, 2002.²

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

2. Source: Ned Davis Research.

LOGO

Consumer-related stocks were among the Fund’s most rewarding investments for the year on absolute and relative bases. In its effort to reinvigorate the economy, the Federal Reserve Board lowered interest rates half a percentage point in November 2002. Very low interest rates fueled strong automobile sales and set off a huge wave of mortgage refinancing, putting more cash into consumers’ hands. We took advantage of the strength in many consumer-related investments such as Procter & Gamble and Newell Rubbermaid by realizing gains and using the sale proceeds to buy what we believed to be more attractively valued securities. We also took advantage of many real estate investment trusts’ (REITs’) strong performances earlier in the year to reduce our holdings as price targets were met. For example, we realized profits among our REIT investments in Equity Office Properties, Equity Residential Properties and Glenborough Realty Trust.

Some of the Fund’s disappointing investments included selected health care and utility stocks. For example, the Fund’s stake in pharmaceutical company Bristol-Myers Squibb did not meet expectations as the company suffered a series of setbacks including a poor investment in ImClone Systems, disappointing trial results for a new drug, and unexpected inventory-related accounting issues. We realized a loss on our investment and moved the proceeds into pharmaceutical leaders we believe are more promising, such as Merck, Pfizer, Wyeth and Abbott Laboratories. A combination of what we see as attractive valuations, less patent risk and the potential for a favorable Medicare prescription drug reform bill in 2003 could result in strong relative performance for major pharmaceutical stocks. As a result, we added to our related investments on weakness and maintained an overweighted position compared with the benchmark index. Our utility stocks, including investments in Texas Utilities, CMS Energy and Sierra Pacific Resources, also fared poorly. Each of these companies suffered the ill effects of industry deregulation and were forced to reduce dividends during 2002.

Finance remained the Fund’s largest sector weighting at year-end. However, our allocation has stayed substantially below our benchmark’s for the past few years mainly due to credit cycle concerns. Our investments yielded mixed results in 2002, but we experienced strong relative performance among our depressed bank and insurance stocks such as Fleet Boston, JP Morgan Chase, Citigroup, St. Paul Companies and Aegon toward year-end. Likewise, our telecommunications investments experienced weak results through much of the year but

Top 10 Holdings

Franklin Growth and
Income Securities Fund
12/31/02

Company *Sector/Industry*		% of Total Net Assets


SBC Communications Inc.		2.6%
Communications

ChevronTexaco Corp.		2.6%
Energy Minerals

Washington Mutual Inc.		2.3%
Finance

Verizon Communications Inc.		2.3%
Communications

BP PLC, ADR (U.K.)		2.2%
Energy Minerals

Fannie Mae		1.9%
Finance

Dow Chemical Co.		1.9%
Process Industries

Shell Transport & Trading Co. PLC, ADR (U.K.)		1.8%
Energy Minerals

General Electric Co.		1.8%
Producer Manufacturing

E.I. du Pont de Nemours and Co.		1.8%
Process Industries

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed
in the Fund’s Statement of Investments.

finished with strong performance during the final quarter. We believe the industry is approaching the final stages of a protracted shakeout that began in 2000, and felt valuations for industry leaders were especially compelling at year-end. SBC Communications and Verizon Communications were among the Fund’s largest holdings on December 31, 2002, and new investments for the year included BellSouth and Alltel.

In a complete reversal from three years ago, we found many compelling investment opportunities among technology- and defense-related companies. Technology serves as the cornerstone of corporate America’s effort to improve productivity, yet many stocks, including those in the technology-laden Nasdaq Composite Index, were selling at one-quarter of their 2000 valuations. Recent investments include dividend-paying companies such as Nokia, Motorola and Hewlett Packard. We believe the country is also in the early stages of a multiyear period of increased defense budget spending. Valuations among companies such as Raytheon, Boeing and Honeywell were very attractive, in our opinion, so we initiated or added to these positions during the reporting period. We believe the financial markets have been focused wrongly on short-term problems among these companies’ non-defense businesses while largely ignoring their attractive intrinsic values.

Looking forward, we see the economy struggling past the excesses of the late 1990s’ bubble economy, which could put us in good shape for a more robust recovery in 2003. Inventories are lean again and the hard lessons of corporate accountability have been learned. We hope that in the wake of high-profile scandals and overextended stock markets we have reached a new level of corporate truth, reliability and governance. We believe corporate earnings appear to be poised for a recovery, especially if capital spending improves. However, the consumer, who shouldered much of the economic expansion’s burden, will likely contribute less to the economy in the year ahead. Additionally, any news of armed conflict will almost certainly strain the economy in the short term. The uncertainties this brings are apt to limit investor enthusiasm near-term.

The financial market’s renewed interest in dividend-paying stocks and Congress’ reported consideration to reduce or eliminate taxes on dividends in 2003 could be especially favorable for this Fund’s investment strategy. Corporations appear to be clearly taking notice as declared dividends are now increasing despite depressed reported earnings. Also encouraging is our belief that dividend growth among financially

strong companies could accelerate, as the payout ratios of dividends-to-earnings were low on a historical basis at year-end. This leaves plenty of room for company managements to increase dividends for their shareholders in 2003.

PERFORMANCE SUMMARY AS OF 12/31/02


Franklin Growth and Income Securities Fund – Class 1 Periods ended 12/31/02
	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-15.53%	+6.96%	+124.03%	+197.05%

Average Annual Total Return	-15.53%	+1.36%	+8.40%	+8.13%

Value of $10,000 Investment	$8,447	$10,696	$22,403	$29,705

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Growth and Income Securities Fund – Class 1 and the Russell 3000 Value Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Growth and Income Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Growth and Income Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-15.72%	+5.99%	+121.98%	+194.34%

Average Annual Total Return	-15.72%	+1.17%	+8.30%	+8.06%

Value of $10,000 Investment	$8,428	$10,599	$22,198	$29,434

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Growth and Income Securities Fund – Class 2* and the Russell 3000 Value Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Growth and Income Securities Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN HIGH INCOME FUND

Fund Goals and Primary Investments: Franklin High Income Fund seeks a high level of current income, with capital appreciation as a secondary goal. The Fund invests primarily in debt securities, including lower-rated “junk bonds,” offering high yield and expected total return. The Fund also may invest in foreign securities, including emerging markets.

The year 2002 was another very difficult one for securities markets although high yield corporate bonds significantly outperformed major equity indexes. Mixed economic news, which resulted in periodic and dramatic investor sentiment shifts, as well as the threat of war in Iraq contributed to high volatility and generally negative stock market performance. The mix of volatile and negative equity markets put pressure on the high yield market, causing it to underperform more interest rate-sensitive fixed income sectors. The risk premium on high yield bonds, as measured by the Credit Suisse First Boston (CSFB) High Yield Index’s yield spread over U.S. Treasuries, increased from 8.7% on December 31, 2001, to 9.5% on December 31, 2002.¹ This reflected continued high corporate-bond default rates and corresponding increased investor risk aversion. Persistent corporate profit weakness created concern that defaults would continue at elevated levels. However, default rates improved toward year-end and, along with a strong technical backdrop for the high yield market, caused the risk premium to retreat from its October peak of 11.2%.

The Fund’s portfolio mix was fairly stable during the year with some notable exceptions. Wireless communications represented an overweighted position at the beginning of 2002 given our expectations for continued robust subscriber growth. However, market sentiment turned negative in the first half of the year and appeared to cause the industry to underperform, dampening the Fund’s overall returns. While we remain positive on the industry over the long term, we recognize that new wireless services growth has slowed and operator consolidation may be necessary to restore some pricing power. Consequently, we sought to take advantage of a significant rebound in wireless bond prices during the fourth quarter to reduce our exposure. We concentrated

1. Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed.

Top 10 Sectors/Industries

Franklin High Income Fund

Based on Total Net Assets

12/31/02

Consumer Services		22.8%

Process Industries		14.4%

Producer Manufacturing		9.6%

Communications		8.3%

Industrial Services		7.7%

Health Services		5.4%

Consumer Durables		5.1%

Utilities		3.8%

Retail Trade		3.0%

Energy Minerals		2.4%

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

our industry holdings in companies that we believe offer geographic diversification, strong balance sheets and solid growth prospects, such as Voicestream Wireless, Dobson/Sygnet Communications and Nextel Communications.

Two other industries that constituted significant Fund weightings at the beginning of the year, telecommunications and pay television, also negatively affected Fund performance. Demand for telecommunications services never materialized to nearly the extent necessary to support the vast infrastructure. This undermined the industry’s asset values of owned fiber, and correspondingly, bond prices. In contrast to telecommunications industry fundamentals, demand for pay television services continued to grow. Additionally, our view that the industry’s revenue stream is fairly economically insensitive proved correct. Unfortunately, news of fraudulent activities at one large high yield operator and questions over accounting irregularities tainted the industry overall. This in part caused the sector to turn in a very poor year. However, looking forward, we hold the opinion that most companies’ business models are essentially sustainable and their underlying physical assets are very attractive.

On a positive note, our overweighted gaming and leisure industry exposure proved beneficial as the industry was one of the best performers in the high yield universe. Investors appear to be attracted to gaming operators’ often stable cash flows and substantial assets. Health care was another sector that outperformed, and the Fund benefited from increased exposure during the year. Similarly, the Fund significantly increased its weighting in paper and forest products, which proved beneficial as the industry was a top performer. Finally, the Fund’s low exposure to utility companies aided performance as this sector was one of the worst performers. However, given what we believed were depressed trading levels for assets that may likely offer significant long-term value, we began to add to our positions in the sector.

Due to continued economic uncertainty, we will stay focused on long-term fundamentals and seek to identify the best risk/reward market opportunities. With yield spreads at historically high levels, the market may recognize attractive valuations over the intermediate term. Thus, we will continue to be slightly aggressively positioned versus our peer group. However, we do not expect market volatility to ease significantly in the near term. Therefore, we will remain concentrated in holdings that, in our opinion, offer stable cash flows and solid balance sheets.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin High Income Fund – Class 1 Periods ended 12/31/02
	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-9.55%	-17.20%	+42.40%	+99.26%

Average Annual Total Return	-9.55%	-3.70%	+3.60%	+5.07%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin High Income Fund – Class 1 and the CSFB High Yield Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin High Income Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin High Income Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-9.96%	-18.02%	+40.99%	+97.29%

Average Annual Total Return	-9.96%	-3.90%	+3.49%	+5.00%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin High Income Fund – Class 2* and the CSFB High Yield Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin High Income Fund – Class 2

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

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

FRANKLIN INCOME SECURITIES FUND

Fund Goal and Primary Investments: Franklin Income Securities Fund seeks to maximize income while maintaining prospects for capital appreciation. The Fund invests in debt and equity securities, including lower-rated “junk bonds.” The Fund may also invest in foreign securities, including emerging markets.

The year ended December 31, 2002, was a period of tremendous volatility and turmoil for the U.S. and global financial markets. The slowing pace of U.S. economic recovery, as well as continued corporate earnings pressure due to weakening demand and excess manufacturing capacity, challenged the financial markets. The feeble economy, continued profit warnings, corporate governance abuses and accounting manipulation tested investors’ patience and resilience, and the stock market experienced a third year of significant decline. Many investors sought safe-haven instruments, prompting significantly better bond market performance as the 10-year Treasury bond yield declined from 5.07% at the beginning of the period to 3.83% on December 31, 2002. Bond yields and prices move in an inverse relationship, so that as yields fall, bond prices rise. Although corporate bonds performed well, they did not perform as strongly as U.S. government securities.

Within this difficult environment characterized by broad stock market weakness, Franklin Income Securities Fund experienced a modest negative total return for the 12 months ended December 31, 2002. During the year under review, we took profits in certain equity and government agency securities that performed well and increased our focus on additional equity, convertible and high yield investments, which we feel have attractive income and long-term growth potential.

The Fund’s equity and convertible preferred investments benefited during the year from solid performance in the gold, energy and real estate sectors led by such portfolio holdings as AngloGold, Chesapeake Energy and Host Marriott. Offsetting the gains was weakness in the Fund’s electric utilities and consumer products positions, primarily tobacco-related companies including Philip Morris and R.J. Reynolds Tobacco Holdings.

Following Enron’s collapse and California’s power crisis, electric utilities remained extremely volatile mainly due to concerns related to investments in unregulated energy businesses including merchant power generation and energy marketing and trading. An oversupply of new generation coupled with weakening demand for electricity due to slowing economic growth led to an extended period of softened power prices. Combined with several industry participants’ deteriorating credit quality, the energy marketing and trading business similarly failed to meet prior lofty expectations. Under such difficult industry conditions, we identified numerous opportunities we considered attractive and thus increased our positions in companies emphasizing regulated electric and gas utility operations including FirstEnergy. We also initiated positions in Ameren and Progress Energy. Although we anticipate the industry will need time to stabilize its current supply-and-demand imbalance, we believe the sector’s recent dividend yields and valuations present a compelling case for long-term investment.

The Fund’s oil and gas positions demonstrated strength during the 12-month period, particularly in oil and natural gas exploration and development companies such as Devon Energy (Kerr-McGee convertible preferred) and Chesapeake Energy. Specific investments within our oilfield services holdings, including Weatherford International, also contributed to Fund performance. For the past year, energy producers benefited as North American supplies decreased under the pressures of reduced spending and declining production rates associated with the aging of the oil and gas resource base. Global commodity oil prices remained robust supported by OPEC production quotas, while global political tensions kept many investors nervous about the potential for global supplies’ disruption due to war. During the period we added to the Fund’s energy exposure by initiating positions in several leading integrated major oil companies including BP PLC, ChevronTexaco and Royal Dutch Petroleum.

What is a merchant power plant?

A merchant power plant produces power as a commodity, so its income stream depends on the market price. In contrast, traditional power plants generally rely on predetermined rates of return, usually set by a regulatory body, to generate income.

Real estate investment trusts also performed well as investors were attracted to the prospect of stable business fundamentals and attractive dividend yields. We continued to selectively increase investments in areas where we believed current valuations failed to reflect the long-term value associated with the underlying business. Over the past year, we increased our position in lodging industry leader Host Marriott due to our assessment that the security traded at a significant discount to the company’s value.

Among other sectors, we added to our Ford Motor convertible preferred holdings and initiated a position in Alltel Corp. convertible preferred. We view the Ford Motor securities as an attractive way to capture high, current income while gaining the long-term potential to participate in the company’s underlying common stock. Ford’s management continued to focus on improving vehicle profitability through cost reductions and planned to refresh its product offering in an effort to reverse recent market share losses. Alltel Corp. is a leading wireline and wireless communications provider concentrating on southeast U.S. rural markets. We believe our convertible preferred investment provides an attractive yield and the long-term potential to participate in the company’s favorable outlook.

Within the Fund’s fixed income holdings, high yield corporate bonds performed poorly despite declining interest rates. High yield corporate bonds’ average yield spreads over U.S. Treasuries, a comparison benchmark for the sector, widened and ended the period at 947 basis points (9.47%) over Treasuries. It is our belief that the high yield corporate bond market offers a compelling mix of high, current income as well as the appreciation associated with spread tightening. As a result we actively increased our investments in this area as we sought to invest in companies we believe have strong market positions, solid management teams and improving liquidity positions. New corporate bond positions included issues from wireless service provider AT&T Wireless and lodging and gaming operator Venetian Casino.

Top Five Stock Holdings

Franklin Income Securities Fund

12/31/02

Company *Sector/Industry*	% of Total Net Assets


Philip Morris Cos. Inc. Consumer Non-Durables	1.9	%

Entergy Corp. Utilities	1.7	%

Ford Motor Co. Capital Trust II Consumer Durables	1.5	%

FirstEnergy Corp. Utilities	1.3	%

Progress Energy Inc. Utilities	1.3	%

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

Top Five Bond Holdings

Franklin Income Securities Fund

12/31/02

Issuer	% of Total Net Assets


FNMA	5.7	%

GNMA	2.1	%

FHLMC	1.7	%

AT&T Wireless Group	1.2	%

Echostar	1.2	%

Looking forward, we will continue to focus on high yield corporate bond and convertible securities investments given their valuations, which we view as attractive, and their combination of current income with the potential for capital appreciation. However, we are also finding a number of investment opportunities in the stock markets offering what we consider attractive valuations and dividend yields. As always, we remain committed to our diversified, value-oriented approach and will continually search for new investments across asset classes and industries.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Income Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-0.37%	+20.25%	+113.16%	+240.71%

Average Annual Total Return	-0.37%	+3.76%	+7.86%	+9.20%

Value of $10,000 Investment	$9,963	$12,025	$21,316	$34,071

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Income Securities Fund – Class 1, the Standard & Poor’s 500 Index, the Lehman Brothers Government/Credit Index and the Lipper VIP Income Funds Average. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Sources: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin Income Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Income Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	-0.61%	+19.05%	+111.04%	+237.32%

Average Annual Total Return	-0.61%	+3.55%	+7.75%	+9.12%

Value of $10,000 Investment	$9,939	$11,905	$21,104	$33,732

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Income Securities Fund – Class 2,* the Standard & Poor’s 500 Index, the Lehman Brothers Government/Credit Index and the Lipper VIP Income Funds Average. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin Income Securities Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN LARGE CAP GROWTH SECURITIES FUND

Fund Goal and Primary Investments: Franklin Large Cap Growth Securities Fund seeks capital appreciation. The Fund invests primarily in equity securities of U.S. large-cap growth companies with market capitalization values within those of the top 50% of companies in the Russell 1000^® Index at the time of purchase.¹The Fund expects to hold significant positions in the technology sector (including health technology, electronic technology and technology services), and in communications.

During the year ended December 31, 2002, the chief culprit behind the weak U.S. economy was weakness in corporate spending and profitability. Amid lower earnings, sluggish capacity utilization rates, volatile capital markets and a slew of high-profile accounting scandals, businesses continued to focus more on balance sheet strengthening than on making capital investments. Many companies’ existing manufacturing plants generally were underutilized, rendering additional plant and machinery investments unnecessary, and corporate cash flows were down too, making such investments less affordable even for those companies needing or wishing to expand.

Indeed, for most of the year consumers shouldered the burden of U.S. economic growth. Despite steadily rising unemployment and historically high personal debt levels, American households benefited from tax cuts, real wage growth and an enormous mortgage refinancing boom. Eventually, however, as the 2002 winter holiday season unfolded, the long-expected slowdown in household spending began to appear as retail and automobile sales sagged.

For a third consecutive year, volatility and negative returns characterized U.S. equity markets. As the second half of 2002 unfolded it became increasingly clear to investors that a hoped-for resurgence in domestic corporate earnings would not materialize as forecast. Investor sentiment wavered, and in 2002’s fourth quarter the Standard & Poor’s 500 Composite Stock Index posted two short-term rallies of about 9% and 6%, but in both cases gave back all or a good part of these gains with subsequent sell-offs. The technology-heavy Nasdaq Composite Index behaved similarly, but with even greater volatility.¹

Looking back on the factors most significantly impacting the Fund’s poor returns during 2002, we would like to remind our shareholders that we base our investment strategy primarily on individual stock

1. Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

selection. That being said, we do recognize that our investors have an interest in top-down sector discussions of the Fund’s key performance drivers. On a sector basis, performance benefited most from our large weighting in electronic technology and our underweighted position in industrial conglomerates. The second half of 2002 in particular also aided our underweighted position in consumer non-durables, which we reduced rather aggressively, on strength in the third quarter. On an individual stock basis, the Fund’s biggest performance contributors included freight-forwarding company Expeditors International, pharmaceuticals company Pharmacia, and financial services providers Wells Fargo and Washington Mutual.

The Fund suffered most during the year from its overweighted position in disappointing telecommunications stocks, and our modestly overweighted position in consumer services stocks such as those in the media, cable and restaurant industries also fared poorly. We should note, however, that in 2002’s fourth quarter the Fund’s many telecommunications stocks rallied and provided a strong boost to overall performance. This reflected a surge in regional bell operating company stocks, which had severely underperformed until then. One of our most disappointing individual stocks was Bank of New York, whose shares fell in response to a combination of lower revenues from Wall Street transaction processing, as well as larger-than-expected losses in its commercial lending portfolio. We believe these disappointments are justified, but that the company’s resulting share price decline produced a valuation that more than adequately accounts for the company’s growth outlook. Other poor performers included McDonald’s, Home Depot and Computer Associates.

Some of the most notable changes in the Fund’s positioning during the second half of the year included a gradual increase in financial services stocks. Significant stock price declines in companies such as MBIA, Fannie Mae, Freddie Mac, Fifth-Third Bancorp and American International Group created opportunities to purchase these companies at significant discounts to their typical historical valuations.

As 2002 drew to a close, investors appeared to adopt a higher general tolerance for cyclical risks. Sharp fourth quarter rallies in many highly cyclical companies’ share prices seemed to signal investors’ belief that a cyclical economic recovery was not too far off. A dramatic drop in interest rate spreads between U.S. corporate high-grade and low-grade bonds also illustrated this dynamic. As investors gradually grew more

Top 10 Holdings

Franklin Large Cap Growth

Securities Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets

Microsoft Corp.		3.9%
Technology Services

Pfizer Inc.		3.9%
Health Technology

Philip Morris Cos. Inc.		2.7%
Consumer Non-Durables

General Electric Co.		2.4%
Producer Manufacturing

Expeditors International of Washington Inc.		2.1%
Transportation

American International Group Inc.		2.0%
Finance

International Business Machines Corp.		2.0%
Technology Services

Citigroup Inc.		1.9%
Finance

Automatic Data Processing Inc.		1.9%
Technology Services

SBC Communications Inc.		1.8%
Communications

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

willing to speculate on the riskiest and highest yielding corporate bonds, increased buying drove yields down sharply in relation to the market rates on higher quality corporate bonds.

Investor behavior also reflected their realization that leaner U.S. companies have been producing free cash flows at an impressive rate in recent quarters, due in large part to continued cost-cutting efforts and productivity gains. Furthermore, financial markets appear to recognize that companies have not been using this free cash to build new capacity, via capital spending, but rather have been using it to pay down debt. American boardrooms seem focused on fiscal conservatism and strengthening balance sheets. As a result, the overall financial condition of U.S. companies has actually improved by some measures in recent quarters — an impressive feat indeed during a cyclical economic slowdown.

Lastly, the reluctance of U.S. companies to build new productive capacity could have very positive long-term implications for the economy and corporate profits. Specifically, when end demand eventually picks up, the economy should enjoy meaningful increases in capacity utilization rates. When that occurs, corporate profit margins should improve, and likewise, corporate earnings. With these dynamics — improved profit margins, higher capacity utilization rates and better earnings — the groundwork will be set for a long-awaited resumption in capital spending. In our view, the market’s forward-looking perception that this process is unfolding is largely what drove recent, renewed investor appetite for speculative and cyclical stocks.

While we generally agree with this apparent market view and are encouraged by the possibility that an economic recovery is not too far off, we remain determined to stay disciplined on the valuations we pay for stocks. We simply will not chase stocks whose share prices we believe exceed their intrinsic long-term value. Meanwhile, we recognize that an enormous amount of cash remains on the sidelines, including billions that could shift out of short-term corporate and government bonds if given the slightest indication that it is time to buy stocks again. However, we will not allow this to alter our discipline regarding individual stock selection and careful risk management.

Looking forward, we believe that any eventual recovery will be rather modest. We reiterate our long-held view that the consumer may continue to soften somewhat in future quarters, although not enough to trigger a double-dip recession. However, we also believe that without positive and stable growth in consumer spending — which represents

roughly two-thirds of total demand for goods and services in the U.S. economy — it will be difficult for U.S. companies to develop the confidence needed to resume capital spending. Meanwhile, the prospect of a future military conflict with Iraq remains a wild card for any economic forecast. Considering all the variables, we recognize that in even a modest economic recovery many well-managed companies may see their fortunes, earnings and share prices dramatically improve from year-end levels. Our job is not to simply seek out and own a portfolio of stocks with the greatest exposure to a future cyclical economic recovery, nor to make predictions about its specific timing or magnitude. Rather, our job is to identify those stocks whose long-term future growth potential is most severely under-reflected in current share prices. Mispriced large cap stocks: these are the companies we continue to search for, one by one, every day, across every U.S. industry.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Large Cap Growth Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (5/1/96)


Cumulative Total Return	-22.94%	+14.52%	+53.92%

Average Annual Total Return	-22.94%	+2.75%	+6.68%

Value of $10,000 Investment	$7,706	$11,452	$15,392

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/96–12/31/02)

The graph compares the performance of Franklin Large Cap Growth Securities Fund – Class 1 and the Standard & Poor’s 500 Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Large Cap Growth Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Large Cap Growth Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (5/1/96)


Cumulative Total Return	-23.19%	+13.25%	+52.20%

Average Annual Total Return	-23.19%	+2.52%	+6.50%

Value of $10,000 Investment	$7,681	$11,325	$15,220

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/96–12/31/02)

The graph compares the performance of Franklin Large Cap Growth Securities Fund – Class 2* and the Standard & Poor’s 500 Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Large Cap Growth Securities Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN MONEY MARKET FUND

Fund Goal and Primary Investments: Franklin Money Market Fund seeks high current income, consistent with liquidity and capital preservation. The Fund also seeks to maintain a stable share price of $1.00.¹ The Fund invests in high quality U.S. dollar-denominated money market debt instruments.

Modest economic growth, accommodative short-term interest rates, and continued volatility characterized financial conditions in the U.S. during the 12-month reporting period ended December 31, 2002.

As we entered 2002, many of the economic conditions that led to 2001’s recession were still evident and potentially posed a problem for the economy in 2002. The previous year’s recession was mostly business driven so it was natural to depend on the business sector to drive a recovery. However, non-residential fixed investment (a measure for business expenditures) continued to decline during the reporting period. Weak business investment and the slackening economy helped push unemployment to its highest level since 1994, at 6.0% in April, November and December. This became a major concern because consumers have so far helped the economy maintain a moderate growth level. As unemployment increased, consumer confidence fell to the lowest levels in nearly a decade.

Although the economy faced significant headwinds, there were several important mitigating factors. Productivity accelerated as American workers produced more per unit of labor than ever before. This enabled corporations to show sequential earnings growth for the first time in a number of quarters. The consumer, while concerned with the economy and unemployment, continued to spend, albeit at a more moderate rate. Real estate remained a particular area of strength as housing starts kept rising and mortgage rates stayed very low. The development of the Chinese marketplace as well as declining prices around the world has muted inflation, which should keep interest rates low. If proposed tax cuts are adopted, these positive factors should help the economy as 2003 begins.

Despite some favorable economic indicators, including gross domestic product growth of 2.4% for 2002, the stock market remained unresponsive and registered its third consecutive annual decline. The Standard & Poor’s 500 Composite Index (S&P500) fell 22.09% for the

1. An investment in the Fund is not insured or guaranteed by the U.S. government or any other entity or institution. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

12 months ended December 31, 2002.² One key element negatively affecting stock market valuation was geopolitical risk, as the threat of war in Iraq created a great deal of uncertainty and volatility. Conversely, the bond market performed well as investors flocked to the perceived safety of fixed income investments. The 10-year U.S. Treasury bond’s yield decreased from 5.07% to 3.83% during the period.

While the Federal Reserve Board (the Fed) does not target the stock market with respect to its policy, it does target the overall economy. The Fed kept the federal funds target rate constant at 1.75% for most of the year until lowering it by 50 basis points in November to 1.25%. This move displayed that the Fed remains vigilant and will continue to use its power seeking to ensure U.S. economic stability.

During the period under review, we continued to invest the Fund’s assets in the highest-quality money market securities. For example, on December 31, 2002, over 87% of the securities purchased for the portfolio carried an AA or higher long-term credit rating by independent credit rating agencies Standard & Poor’s and Moody’s Investors Service, with the balance rated A.³ Consistent with the Fund’s objective of providing shareholders with a high quality and conservative investment vehicle, we do not invest the Fund’s cash in derivatives or other potentially volatile securities that we believe involve undue risk.

Looking forward, we believe that the risks to the economy are balanced such that the Fed will likely keep the federal funds target rate on hold in the first half of 2003. In fact, the Fed publicly shifted its policy focus in December from concern over slowing economic growth to a more neutral stance. We believe such a change in focus or bias by the Fed indicates that they will likely move with the economy, and thus will need time to gather more data.

2. Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

3. This does not indicate a rating of the Fund.

Top 10 Holdings

Franklin Money Market Fund

12/31/02

Security Name	% of Total Net Assets


Federal National Mortgage Association	24.9	%

Federal Home Loan Mortgage Corp.	24.9	%

UBS Warburg LLC	6.5	%

ABN AMRO Inc.	6.5	%

Toronto Dominion Bank	4.2	%

Westdeutsche Landesbank	4.2	%

ChevronTexaco Corp.	4.2	%

AIG Funding Inc.	4.2	%

Svenska Handelsbanken Inc.	4.2	%

Coca-Cola Co.	4.2	%

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

FRANKLIN REAL ESTATE FUND

Fund Goals and Primary Investments: Franklin Real Estate Fund seeks capital appreciation, with current income as a secondary goal. The Fund invests primarily in equity securities of companies operating in the real estate sector, primarily equity real estate investment trusts (REITs) and generally in small to medium capitalization companies.

During the 12 months ended December 31, 2002, real estate stocks posted modestly positive returns, marking the third consecutive year that publicly traded real estate stocks, as measured by the Wilshire Real Estate Securities Index, outpaced the Standard & Poor’s 500 Composite Index (S&P 500), Dow Jones Industrial Average and Nasdaq Composite Index. In absolute terms, however, returns for real estate stocks in 2002 were less impressive than in recent years as fundamentals at the operating level deteriorated. For the one-year period ended December 31, 2002, the Wilshire Real Estate Securities Index returned 2.62%, while the S&P 500 returned -22.09%.¹

With the exception of the retail sector, occupancies and rents for most operators fell nationwide. Although the rate of decline slowed during the reporting period, the general trend continued to be downward, negatively impacting earnings estimates for many of the companies in the real estate sector. We expect several operators’ earnings to be lower than their 2001 levels and to remain down through 2003. The effects were most striking in the apartment sector, which was negatively affected by slowing job growth and strong competition from single-family housing. Expectations for other sectors also suffered as modest economic improvement had not yet resulted in improving real estate fundamentals.

Despite the less-than-rosy outlook for a number of real estate operators, their stocks performed admirably during 2002. One potential explanation for the group’s resilience is the asset class’s defensive nature and investors’ diminished return expectations. Real estate is often viewed as a lagging, cyclical industry and, true to form, earnings growth declined, but we believe investors found few places offering better relative fundamentals or more visible profiles than real estate stocks. Many real estate operators enjoy the stability of multiple, long-term leases, often backed by letters of credit, with reasonable growth from contractually mandated rent increases, and staggered such that only a modest percentage of their overall portfolio is up for annual renewal. Many investors focused in particular on real estate investment

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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trusts (REITs), which by mandate must pay out at least 90% of their taxable income to shareholders through a dividend.

At period-end, our largest weighting was in the retail sector, consisting of malls, at 17.9% of the Fund’s total net assets (TNA). Relative to the benchmark Wilshire Real Estate Securities Index, we were overweighted in malls. We are particularly optimistic about the Fund’s mall holdings, as they appear attractively valued, their fundamentals remain intact, and we believe their future growth prospects remain strong. Although the office sector represented the Fund’s second-largest weighting at 16.1% of TNA, we were considerably under the index’s weighting. Office stocks lagged most other property types during the reporting period, largely due to widespread concerns of a protracted slowdown in demand. Even as the economy improves, a “jobless recovery” would not bode well for such companies. However, we continue to believe that certain office real estate securities represent an attractive combination of favorable supply characteristics, secure leases and compelling valuations. Diversified stocks, at 14.8% of TNA, were our third-largest weighting and modestly overweighted relative to the benchmark. This sector, whose focus is not limited to a single property type, offers some of the most attractively valued real estate securities, in our opinion.

At the end of the reporting period, we were also underweighted in the apartment sector, our fourth-largest weighting at 13.2% of TNA. This sector underperformed recently due to a lack of demand for apartments, competition from single-family housing and some modest overbuilding in certain geographic regions. In our opinion, this sector’s performance should improve as the economy recovers, given apartment leases’ short-term nature. Our hotel sector position was underweighted relative to the benchmark. Earlier in 2002, we became increasingly concerned about the effects of a slowing economy on this industry because, of all of the real estate property groups, hotel operations have the most sensitivity to economic changes. We attempted to take advantage of some share price weakness to increase our exposure, as we believed this sector would benefit significantly when the economy recovers.

We initiated several significant positions in the Fund during the year under review. In the retail sector, we bought Ramco-Gershenson Properties Trust, a small-capitalization shopping center REIT, and The Macerich Co., a regional mall REIT, as both traded at discounts to their peer group at the time of purchase. We also purchased shares of Reckson Associates Realty and Cousins Properties, two office REITs, and Forest City Enterprises, a diversified real estate operating company. Based on our analyses, these companies traded at a discount to their net

Top 10 Holdings

Franklin Real Estate Fund

12/31/02

Security *Security Type*	% of Total Net Assets


Simon Property Group Inc.	5.0	%
Equity REIT – Retail

Vornado Realty Trust	4.3	%
Equity REIT – Diversified Property

Equity Office Properties Trust	3.6	%
Equity REIT – Office

The Macerich Co.	3.6	%
Equity REIT – Retail

Public Storage Inc.	3.5	%
Equity REIT – Storage

ProLogis	3.2	%
Equity REIT – Industrial

iStar Financial Inc.	2.9	%
Equity REIT – Other

Host Marriott Corp.	2.8	%
Hotels & Travel

Liberty Property Trust	2.8	%
Equity REIT – Diversified Property

Avalonbay Communities Inc.	2.7	%
Equity REIT – Apartments

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

asset value when we purchased them. In the residential area, we purchased an apartment REIT, Camden Property Trust, as well as shares of a manufactured housing REIT, Sun Communities. In the hotel sector, we purchased Hilton Hotels after the stock traded down with the entire hotel group. We also added two homebuilders, Meritage and Lennar, to the Fund. Both stocks had come under pressure and traded at the low end of their historical price/earnings multiples at the time of purchase. In addition, we believe both companies should enjoy above-average earnings growth relative to their peers over the next several years. During the period, we eliminated several positions, most notably First Industrial Realty Trust, a warehouse REIT, and Alexandria Real Estate Equities, an office REIT, which we sold after the stocks met our value-based target price.

Looking ahead, we remain optimistic because real estate securities are reasonably valued in our opinion and should return to more robust operating fundamentals at the property level as demand returns. Although demand for space moderated with the economic malaise, we believe the nascent economic recovery should lead to demand stabilization. In our view, the downturn in fundamentals has been almost solely driven by a lack of demand. This contrasts with previous real estate cycles, which were marked by easy lending and rampant overbuilding. The past three years have led to more disciplined borrowing, which has curtailed overdevelopment. In short, recent trends suggest to us that the supply side of the equation is likely to enjoy less cyclicality, or economic sensitivity, than ever before. In addition, landmark tax legislation, which if passed may eliminate or reduce taxes on dividends, could maintain investor focus on dividend-paying stocks, although it is too early to gauge the prospects for the legislation’s passage or its implication for REITs.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Real Estate Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	+2.25%	+13.95%	+162.90%	+262.90%

Average Annual Total Return	+2.25%	+2.65%	+10.15%	+9.69%

Value of $10,000 Investment	$10,225	$11,395	$26,290	$36,290

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Real Estate Fund – Class 1, the Standard & Poor’s 500 Index and the Wilshire Real Estate Securities Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Real Estate Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Real Estate Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	+2.07%	+12.87%	+160.41%	+259.46%

Average Annual Total Return	+2.07%	+2.45%	+10.04%	+9.62%

Value of $10,000 Investment	$10,207	$11,287	$26,041	$35,946

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Real Estate Fund – Class 2,* the Standard & Poor’s 500 Index and the Wilshire Real Estate Securities Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Real Estate Fund – Class 2

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

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

FRANKLIN RISING DIVIDENDS SECURITIES FUND

Fund Goal and Primary Investments: Franklin Rising Dividends Securities Fund seeks long-term capital appreciation. Preservation of capital, although not a goal, is also an important consideration. The Fund invests primarily in equity securities of companies that have paid rising dividends, including small capitalization companies.

During 2002, the bear market in U.S. equities broadened, and it did not seem to matter whether companies were large cap or small cap, growth or value, or even what industry or sector they were in. No matter how you sliced it, most stocks ended the year lower than where they began, and almost all major market indexes suffered double-digit declines during the year. For example, the widely followed Standard & Poor’s 500 Composite Index (S&P 500) declined 22.09% for the year ended December 31, 2002.¹ Neither the S&P Midcap 400 Index nor the S&P Smallcap 600 Index fared much better, declining 14.52% and 14.63% during the same time.¹ Within this environment, we are pleased to report that Franklin Rising Dividends Securities Fund performed reasonably well, posting a modest decline and significantly outperforming its benchmark, the Russell Midcap^® Value Index, which fell 9.64% for the year under review.¹

In this very difficult market environment, six of the Fund’s top ten positions on December 31, 2001, generated positive total returns for 2002, while the loss for each of the other four stocks was less than 10%. The best performing stock among the top ten was Alberto-Culver. Led by strong growth in its beauty supply distribution segment, Alberto-Culver continued to report solid, double-digit earnings growth in 2002. The company also increased its dividend for the 18th consecutive year. Graco’s stock did well as the company expanded operating margins and generated solid, double-digit growth in earnings per share and operating cash flow. Washington Mutual’s stock price reacted positively to the relatively stable interest rate environment during the year, despite expectations by some that interest rates might rise. The company has increased its dividend every quarter since fourth quarter 1995. Reynolds & Reynolds’ stock price appreciated largely due to investors’ anticipation that the company’s growth rate would accelerate as the company rolls out its new suite of information management solutions for automotive retailers. Family Dollar Stores’ stock rose as the

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

LOGO

company continued to gain recognition for its consistently strong sales and earnings growth record. Family Dollar has increased its dividend for 26 consecutive years. Diebold’s stock price increased modestly as investors seemed pleased with the initial success of its new electronic voting machine business. Diebold has an exceptional record of 49 consecutive annual dividend increases.

Of the Fund’s ten largest positions at the beginning of the fiscal year, nine remained on the list at year-end. Most of these companies reported solid operating results in 2002 and continued to be well positioned for the future, in our opinion. Despite these stocks’ strong relative performance in 2002, we believe their valuations remain reasonable.

Other holdings include several stocks in which we accumulated relatively large positions. During the year, we significantly increased our Fannie Mae and Roper Industries positions. Fannie Mae continued its long string of quarterly, double-digit percentage, earnings-per-share increases during 2002 and appeared to be in good position to continue this record. Despite its success in managing through many previous interest rate cycles, Fannie Mae’s stock price was under pressure as investors worried about the impact that the recent surge in mortgage prepayments could have on its earnings. At period-end, its price-to-earnings ratio was close to the low end of its 10-year historical range, and Fannie Mae has 16 years of dividend increases. Roper is a diversified industrial company with a track record of generating cash from its business portfolio and reinvesting that cash in higher growth opportunities. Roper has increased its dividend every year since it reemerged as a public company in 1992.

We base our investment strategy on our belief that companies with consistently rising dividends should, over time, also realize stock price appreciation. We select portfolio securities based on several criteria. To be eligible for purchase, stocks must pass certain investment “screens,” or screening procedures, requiring consistent and substantial dividend increases, strong balance sheets and relatively low price-to-earnings ratios. We seek fundamentally sound companies that meet our standards and attempt to acquire them at attractive prices, often when they are out of favor with other investors.

Notable year-over-year dividend increases during the year ended December 31, 2002, came from National Commerce Financial (+13%), Donaldson Company (+13%), Mercury General (+13%), RLI Corp. (+13%), and Graco (+13%).

Top 10 Holdings

Franklin Rising Dividends

Securities Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets


Alberto-Culver Co., A		4.9%
Consumer Non-Durables

Family Dollar Stores Inc.		4.4%
Retail Trade

Diebold Inc.		4.3%
Electronic Technology

Washington Mutual Inc.		4.2%
Finance

Reynolds & Reynolds Co., A		3.9%
Technology Services

West Pharmaceutical Services Inc.		3.8%
Health Technology

Graco Inc.		3.6%
Producer Manufacturing

Teleflex Inc.		3.5%
Producer Manufacturing

National Commerce Financial Corp.		3.4%
Finance

AFLAC Inc.		3.2%
Finance

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

Our 10 largest positions at period-end comprised 39.2% of the Fund’s total net assets. It is interesting to note how these 10 companies would, in the aggregate, respond to the Fund’s screening criteria based on a simple average of statistical measures. On average, these 10 companies have raised their dividends 19 years in a row and by 260% in the past 10 years. Their most recent dividend increases averaged 9.4%, for a yield of 1.8% on December 31, 2002, and a dividend payout ratio of 25%. Long-term debt averaged 16% of capitalization, and the average price/earnings ratio was 15.5 on calendar 2003 estimates versus 16.6 for that of the unmanaged S&P 500 on the same date. In our opinion, these companies are representative of the portfolio’s fundamentally high quality. We also believe that, over the long haul, companies that increase cash payments to shareholders, year after year, will be superior builders of wealth.

PERFORMANCE SUMMARY AS OF 12/31/02


Franklin Rising Dividends Securities Fund – Class 1 Periods ended 12/31/02
	1-Year	5-Year	10-Year	Since Inception (1/27/92)


Cumulative Total Return	-1.32%	+31.36%	+160.67%	+186.21%

Average Annual Total Return	-1.32%	+5.61%	+10.05%	+10.10%

Value of $10,000 Investment	$9,868	$13,136	$26,067	$28,621

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Rising Dividends Securities Fund – Class 1 and the Russell Midcap Value Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Rising Dividends Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Rising Dividends Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/27/92)


Cumulative Total Return	-1.58%	+29.82%	+157.62%	+182.86%

Average Annual Total Return	-1.58%	+5.36%	+9.93%	+9.98%

Value of $10,000 Investment	$9,842	$12,982	$25,762	$28,286

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Rising Dividends Securities Fund – Class 2* and the Russell Midcap Value Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Rising Dividends Securities Fund – Class 2

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

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

FRANKLIN S&P 500 INDEX FUND

Fund Goal and Primary Investments: Franklin S&P 500 Index Fund seeks to match the performance of the Standard & Poor’s 500 Composite Stock Price Index (S&P 500 Index) before the deduction of Fund expenses.¹

As of June 1, 2002, the Fund closed to all new investments, except for the automatic reinvestment of any net investment income and capital gains. On December 13, 2001, the Board of Trustees of FTVIP approved a proposal to liquidate the Fund, which is expected to occur in 2003. Please refer to the Fund’s prospectus for more details.

The year under review was difficult for U.S. stock markets as uncertainty surrounding the economic recovery, geopolitical instability at home and abroad, and a string of corporate scandals combined to weaken investor confidence, leading to a third consecutive negative year for the S&P 500 Index and other major domestic equity indexes. After barely positive returns in 2002’s first quarter, the S&P 500 Index muddled through a painful six months losing more than 28% between April and September. However, a strong rebound occurred in 2002’s fourth quarter, resulting in a 13.73% rise from its October 9 nadir through year-end. Overall however, the S&P 500 Index posted a -22.09% cumulative total return for the year ended December 31, 2002.¹

Likewise, the S&P 400 Midcap Index, Dow Jones Industrial Average, Nasdaq Composite Index, and Russell 1000^® and 2000 Indexes all experienced similar patterns of volatility as the S&P 500 Index, and returned -14.52%, -14.98%, -31.13%, -21.65% and -20.48%, respectively, for the year under review.¹

Franklin S&P 500 Index Fund has been managed with a full replication technique. With this passive strategy, the Fund generally holds each constituent of the index, with the exception of some minor securities, in its approximate capitalization weight. We believe this replication technique allows the Fund to more tightly track the S&P 500 Index, with performance discrepancies generally attributable to the Fund’s cash flow, fees and trading expenses. Fund performance is reported after fees and expenses, while the S&P 500 Index serves as an unmanaged benchmark and includes reinvested dividends. Positive cash flow in a down market such as 2002 will provide positive tracking (deviation between the Fund and the S&P 500 Index which is beneficial to the Fund) that will help offset fees and expenses.

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

During 2002, Standard & Poor’s made a significant change to the S&P 500 Index, removing all foreign-domiciled issues, which affected seven stocks. Additionally, there were 17 other deletions and additions to the Fund’s portfolio between January 1 and December 31, 2002, based upon S&P 500 Index rebalancing activity. Deletions generally occur because of merger and acquisition activity, bankruptcies and restructurings, or lack of representation. Whenever a company is deleted from the index, Standard & Poor’s adds another company to keep the number of index constituents at 500.

Going forward, economic signals are mixed as we look toward 2003. The Republican dominance of fall 2002 Senate elections suggests there could be fiscal stimulus totaling $50-$100 billion or more in an attempt to boost 2003 activity. However, gross domestic product growth could remain weak in the near term, perhaps even in the sub-2% range. As the Fund approaches its liquidation date, shareholders may withdraw assets in anticipation of that liquidation. Accordingly, while we intend to continue to keep the Fund’s passively managed portfolio nearly fully invested in the constituent common stocks of the S&P 500 Index, we may increase our use of financial futures to maintain exposure to the S&P 500 Index. Fund performance should, however, continue to generally follow the performance of the S&P 500 Index, before the deduction of Fund expenses.

Top 10 Holdings

Franklin S&P 500 Index Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets


Microsoft Corp.		3.2%
Technology Services

General Electric Co.		2.8%
Producer Manufacturing

Exxon Mobil Corp.		2.7%
Energy Minerals

Wal-Mart Stores Inc.		2.6%
Retail Trade

Pfizer Inc.		2.2%
Health Technology

Citigroup Inc.		2.1%
Finance

Johnson & Johnson Inc.		1.8%
Health Technology

American International Group Inc.		1.7%
Finance

International Business Machines Corp.		1.5%
Technology Services

Merck & Co. Inc.		1.5%
Health Technology

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed
in the Fund’s Statement of Investments.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin S&P 500 Index Fund – Class 1
Periods ended 12/31/02
	1-Year	3-Year	Since Inception (11/1/99)


Cumulative Total Return	-22.23%	-37.58%	-34.08%

Average Annual Total Return	-22.23%	-14.54%	-12.33%

Value of $10,000 Investment	$7,777	$6,242	$6,592

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/1/99–12/31/02)

The graph compares the performance of Franklin S&P 500 Index Fund – Class 1 and the Standard & Poor’s 500 Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin S&P 500 Index Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin S&P 500 Index Fund – Class 2

Periods ended 12/31/02

	1-Year	3-Year	Since Inception (11/1/99)

Cumulative Total Return	-22.41%	-38.05%	-34.65%

Average Annual Total Return	-22.41%	-14.75%	-12.57%

Value of $10,000 Investment	$7,759	$6,195	$6,535

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/1/99–12/31/02)

The graph compares the performance of Franklin S&P 500 Index Fund – Class 2 and the Standard & Poor’s 500 Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin S&P 500 Index Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN SMALL CAP FUND

Fund Goal and Primary Investments: Franklin Small Cap Fund seeks long-term capital growth. The Fund invests primarily in equity securities of U.S. small-capitalization companies with market capitalization values not exceeding: (i) $1.5 billion; or (ii) the highest market capitalization value in the Russell 2000^® Index; whichever is greater, at the time of purchase.¹

The 12-month period under review was extremely challenging for domestic equities, particularly small- and mid-cap growth stocks. Investors, corporate planners and policy makers spent much of the year gradually losing confidence in capital markets as they were assaulted with news about corporate malfeasance, Wall Street conflicts of interest, faltering consumer confidence, rising unemployment, uncertain economic growth and threat of war with Iraq. The accumulating uncertainties prompted individuals to slow spending, caused corporate managers to cut budgets, and fueled public criticism about fiscal and monetary policy.

Equity investors, whose primary concern is profit growth and sustainability, found little optimism in most companies’ future growth prospects. This caused a widespread flight to quality and the perceived safety of bonds. The resulting retreat from equities created a sharp stock market sell-off, especially in 2002’s third quarter when pre-election war rhetoric coincided with the first hints of slowing automobile sales. Small-cap growth stocks are extremely sensitive to sudden market swings, and they fell steeply during this sell-off. In mid-October selling pressure eased and equity prices staged a two-month rebound before falling again in December. Small-cap growth equities posted strong relative performance during this fourth quarter rally, but overall they fell 29.09% for the 12 months ended December 31, 2002, as measured by the benchmark Russell 2500^™ Growth Index.¹ The Fund delivered similarly poor results, although it did manage to outperform the benchmark. Meanwhile, large-cap equities, as measured by the Standard & Poor’s 500 Composite Index, fared slightly better with a -22.09% total return during the same time.¹

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

LOGO

Fund performance suffered, largely due to our investments in sectors that normally benefit from a solid economic recovery, such as technology, manufacturing, transportation and materials. We also took an underweighted position in some of the typically defensive sectors such as financial services and health care, as well as some consumer sectors that remained surprisingly strong despite the shaky economy.

Looking forward, we cannot predict the timing or precise nature of the catalyst to restart economic growth. Nonetheless, we believe that there are ample preconditions for a corporate spending-led economic recovery in 2003. For example, we detect a few policy shifts in government chambers and boardrooms that could take the burden off wrung-out consumers and put it more squarely on corporations. First, the federal government demonstrated a willingness to actively address economic weakness, as evidenced by the Federal Reserve Board’s (the Fed’s) 0.5% interest rate cut in November 2002, the president’s change in his economic advisers, and the Fed’s apparent tolerance of a little inflation. Second, corporate confidence appeared to stabilize somewhat, after a two-year decline. As a result, we feel many 2003 corporate spending plans will likely remain flat or increase compared with 2002. Third, we believe corporate managers became overly conservative. Many businesses raised cash levels, lowered inventory, strengthened balance sheets, shuttered unneeded facilities and trimmed staff. In particular, small-cap growth companies greatly reduced their cost structures to the point that revenue increases could efficiently convert into profit. These developments are small, but we think they may herald the beginning of a truly broad-based economic recovery, built on corporate spending. As such, we have sought to position the Fund to benefit from such a recovery.

Franklin Small Cap Fund buys small cap stocks that the managers believe will appreciate in value. When our strategy is successful, our small cap holdings grow to be mid- and sometimes large-cap stocks. For this reason, the Fund’s average market cap has tended to grow as many holdings in small-cap companies have grown, sometimes dramatically. Given the Fund’s strategy, the managers believe the Fund’s average market cap has ranged, and likely will continue to range, from small to mid cap.

Top 10 Holdings

Franklin Small Cap Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets


Affiliated Computer Services Inc., A		2.1%
Technology Services

Varian Semiconductor Equipment Associates Inc.		1.8%
Electronic Technology

Integrated Circuit Systems Inc.		1.7%
Electronic Technology

Mettler-Toledo International Inc. (Switzerland)		1.7%
Producer Manufacturing

Gentex Corp.		1.6%
Producer Manufacturing

Micrel Inc.		1.6%
Electronic Technology

Expeditors International of Washington Inc.		1.5%
Transportation

Varco International Inc.		1.4%
Industrial Services

National Instruments Corp.		1.4%
Technology Services

Newfield Exploration Co.		1.4%
Energy Minerals

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Small Cap Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (11/1/95)


Cumulative Total Return	-28.52%	+1.17%	+56.87%

Average Annual Total Return	-28.52%	+0.23%	+6.48%

Value of $10,000 Investment	$7,148	$10,117	$15,687

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/1/95–12/31/02)

The graph compares the performance of Franklin Small Cap Fund – Class 1, the Standard & Poor’s 500 Index and the Russell 2500 Growth Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Small Cap Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Small Cap Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (11/1/95)


Cumulative Total Return	-28.68%	+0.17%	+55.31%

Average Annual Total Return	-28.68%	+0.03%	+6.34%

Value of $10,000 Investment	$7,132	$10,017	$15,531

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/1/95–12/31/02)

The graph compares the performance of Franklin Small Cap Fund – Class 2,* the Standard & Poor’s 500 Index and the Russell 2500 Growth Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Small Cap Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN SMALL CAP FUND

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

SUPPLEMENT DATED FEBRUARY 15, 2003

TO THE PROSPECTUS DATED MAY 1, 2002

The prospectus is amended by replacing the MANAGEMENT section (Page FSC-4) with the following:

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Franklin Advisers, Inc. (Advisers), One Franklin Parkway, San Mateo CA 94403-1906, is the Fund’s investment manager.

MANAGEMENT TEAM		The team responsible for managing the Fund is:

Edward B. Jamieson EXECUTIVE VICE PRESIDENT, ADVISERS		Mr. Jamieson has been a manager of the Fund since its inception in 1995, and has been with Franklin Templeton Investments since 1987.

Michael McCarthy SENIOR VICE PRESIDENT, ADVISERS		Mr. McCarthy has been a manager of the Fund since its inception in 1995, and has been with Franklin Templeton Investments since 1992.

Aidan O’Connell VICE PRESIDENT, ADVISERS		Mr. O’Connell has been a manager of the Fund since 1998. Before joining Franklin Templeton Investments in 1998, Mr. O’Connell was a research analyst and a corporate financial analyst at Hambrecht & Quist.

Avinash Satwalekar PORTFOLIO MANAGER, ADVISERS		Mr. Satwalekar has been a manager of the Fund since 2002, and has been with Franklin Templeton Investments since 1996.

Christopher Grisanti, CFA PORTFOLIO MANAGER, ADVISERS		Mr. Grisanti has been a manager of the Fund since 2000, and has been with Franklin Templeton Investments since 1998.

The Fund pays Advisers a fee for managing the Fund’s assets. For the fiscal year ended December 31, 2001, the management fee, before any reduction, was 0.53% of the Fund’s average daily net assets. Under an agreement by Advisers to reduce its fees to reflect reduced services resulting from the Fund’s investment in a Franklin Templeton money fund, the Fund paid 0.45% of its average daily net assets to Advisers for its services. This reduction is required by the Board and an SEC order.

Please keep this supplement for future reference.

FSC P 0203

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FRANKLIN SMALL CAP VALUE SECURITIES FUND

Fund Goal and Primary Investments: Franklin Small Cap Value Securities Fund (formerly Franklin Value Securities Fund) seeks long-term total return. The Fund invests primarily in equity securities of U.S. small capitalization companies that the Fund’s manager believes are undervalued.

During the fiscal year ended December 31, 2002, the Fund changed its name to Franklin Small Cap Value Securities Fund and expanded its investment universe to include companies with market capitalizations up to $2.5 billion.

The reporting period was a trying time for most investors, including those who held small cap value securities, as evidenced by the Fund’s negative total return for the 12 months ended December 31, 2002. However, within this bear market environment, the Fund outperformed its benchmark, the Russell 2000^® Value Index, which fell 11.43%.¹ During the same period, the Dow Jones Industrial Average, the Standard & Poor’s 500 Composite Index (S&P 500) and the Nasdaq Composite Index declined 14.98%, 22.09% and 31.13%, respectively.¹ Although the positive performance of small cap value stocks during 2002’s first half reversed during the second half, we are delighted with the abundance we see of small cap value opportunities available because of the downturn, and we continue to believe that investors at some point will return to these undervalued securities.

The Fund seeks undervalued small cap securities. Our broad value criteria include not only low price-to-earnings ratios, cash flow or book value, but also consider understated assets such as land or intangibles, patents and distribution systems. Another focus could be “fallen angels” — formerly attractive growth companies that have suffered short-term, sharp price declines, but that we believe still possess solid, long-term prospects. As patient investors, we hope to benefit from these bargains as other investors begin to recognize their value and bid up their prices.

We added 31 new securities to the portfolio during the period — all we believe have strong balance sheets, quality management and attractive valuations. We found several such values in the depressed finance sector in what we feel are fundamentally sound banks such as 1st Source and First Indiana, and Hancock Holding Co., a multi-bank

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

holding company of community-oriented banks offering commercial, consumer and mortgage loans. Also in the financial sector, we added Arthur J. Gallagher & Co., a provider of insurance brokerage, risk management and employee benefit services. We found other opportunities we regarded as attractive during the year in the energy minerals sector, and we initiated positions in Pioneer Natural Resources, an oil and gas exploration and production company, and Holly Corp., a refiner and transporter of petroleum products. As many consumers focus on energy sources, we believe these stocks may perform well. During the Fund’s fiscal year, we liquidated six small holdings that we thought would have minimal impact on the portfolio, as well as several positions we believed had deteriorating fundamentals.

Two major, positive contributors to the Fund’s total return during the reporting period were Brown Shoe Company and Hancock Holding Co. Brown Shoe is a 124-year-old operator of retail shoe stores in the U.S. and Canada, famous for its “Buster Brown” children’s brand. Cost-cutting initiatives launched in 2001 resulted in the company’s improved performance. Recently selling at 10 times 2003 earnings estimates and 1.5 times book value, we believe Brown Shoe remains a solid value. Hancock is one of the largest multi-bank holding companies in Mississippi and has operated a chain of community-oriented banks for over 100 years. As new product, pricing and collection initiatives begin to take hold, we believe Hancock’s earnings should continue to rise. Recently selling at 14 times 2003 earnings estimates and 1.8 times book value, we found Hancock’s stock attractive.

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 value investment approach will be rewarding to our shareholders over the long term.

Top 10 Holdings

Franklin Small Cap Value

Securities Fund

12/31/02

Company *Sector/Industry, Country*		% of Total Net Assets


Avocent Corp.		2.6%
Electronic Technology,
U.S.

Peabody Energy Corp.		2.3%
Energy Minerals, U.S.

Russ Berrie & Co. Inc.		2.0%
Consumer Durables, U.S.

Mettler-Toledo		2.0%
International Inc.
Producer Manufacturing,
Switzerland

Arch Coal Inc.		2.0%
Energy Minerals, U.S.

Teekay Shipping Corp.		1.9%
Transportation, Bahamas

Consol Energy Inc.		1.9%
Energy Minerals, U.S.

Bunge Ltd.		1.8%
Process Industries, U.S.

RLI Corp.		1.8%
Finance, U.S.

York International Corp.		1.7%
Producer Manufacturing,
U.S.

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Small Cap Value Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	3-Year	Since Inception (5/1/98)


Cumulative Total Return	-9.05%	+30.08%	+3.00%

Average Annual Total Return	-9.05%	+9.16%	+0.64%

Value of $10,000 Investment	$9,095	$13,008	$10,300

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/98–12/31/02)

The graph compares the performance of Franklin Small Cap Value Securities Fund – Class 1 and the Russell 2000 Value Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Small Cap Value Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Small Cap Value Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	3-Year	Since Inception (5/1/98)


Cumulative Total Return	-9.26%	+29.08%	+1.96%

Average Annual Total Return	-9.26%	+8.88%	+0.42%

Value of $10,000 Investment	$9,074	$12,908	$10,196

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/98–12/31/02)

The graph compares the performance of Franklin Small Cap Value Securities Fund – Class 2* and the Russell 2000 Value Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Small Cap Value Securities Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN TECHNOLOGY SECURITIES FUND

Fund Goal and Primary Investments: Franklin Technology Securities Fund seeks capital appreciation. The Fund invests in equity securities of companies expected to benefit from the development, advancement and use of technology. The Fund may have significant holdings in smaller companies and a smaller portion in foreign securities.

The 12 months ended December 31, 2002, was a difficult period for technology stocks in particular and equity markets in general as news of corporate scandals shook investor confidence while the pace and strength of the U.S. economic recovery remained uncertain. Fear of continued economic weakness, combined with the prospect of war in Iraq, contributed to equity markets’ steep declines and technology stocks’ continued volatility. Fortunately, however, signs of strength developed during the latter part of the period giving us hope that 2003 will be a better year for technology stocks.

Two primary factors impacted technology markets during the 12 months under review. First, earnings projections proved to be too optimistic. Earnings projections fell throughout the period and only recently showed signs of improvement. Second, the tepid economic recovery strained investors’ confidence and led to a continued sell-off of technology stocks. Mutual fund outflows also contributed to the equity market’s decline as many institutional investors sold stocks to meet redemptions. In this challenging environment, Franklin Technology Securities Fund underperformed the Nasdaq Composite Index’s -31.13% return for the year ended December 31, 2002.¹

By the end of the reporting period, investor sentiment improved and a number of positive changes arose. In October the Dow Jones Industrial Average posted its best monthly performance since January 1987.¹ The Fund appreciated significantly in October and November, as investors saw possible signs of a stabilizing economy. After witnessing announcements of corporate earnings warnings for much of 2002’s first and second quarters, we were encouraged by the stronger-than-expected earnings reports for the third quarter. While there is still room for significant gains before we can definitively say the economy is recovering, we view the recent developments as positive.

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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During the reporting period, our increased semiconductor exposure negatively affected Fund performance. However, many of the semiconductor industry’s highest quality stocks recently were trading at very attractive valuations, and in our opinion, these stocks could likely see significant rebounds. Moreover, many of the higher quality stocks that had previously been holding up well finally succumbed to the market sell-off during the reporting period. Many investors sold indiscriminately, and some higher quality stocks recently underperformed the lower quality names. We focused on moving the Fund’s assets into high-quality, industry-leading companies that suffered significant stock price drops recently but that we believe may rebound quickly if the economic recovery gains speed and strength.

Corporate information technology budgets remained the technology sector’s key market driver. Certain segments of many companies’ budgets were hit harder than others as corporations struggled to prioritize their spending to get the highest returns. We identified technology subsectors we think should experience relatively healthy spending, and thus may recover earlier, and sought to invest in those areas.

During the year under review, we made several purchases, including wireless technology designer QUALCOMM, electronic instrument maker Thermo Electron, business analysis software maker Hyperion Solutions and Internet security provider Symantec. Sales during the period included Actuate, Cirrus Logic, DRS Technologies and Electronic Data Systems. These stocks experienced eroding investor confidence as their earnings predictability deteriorated given the uncertain economic outlook. We believe their recent valuations were difficult to justify in this economic environment. For these reasons, we chose to exit our positions to reevaluate the companies at a later date.

We believe the worst has passed for the technology sector; however, we remain concerned about the lack of earnings stability for many technology companies in the short- to intermediate-term. Looking ahead, we are optimistic about technology stocks’ long-term performance and believe related companies are beginning to emerge from the most significant technology spending slowdown in recent history. Productivity enhancements, the substitution of labor by capital equipment, and improvements in communications and manufacturing technology are all trends that should continue due to technological advancements. In our analysis, technology-related companies should once again be able to increase their revenues and earnings at a faster

Top 10 Holdings

Franklin Technology Securities Fund

12/31/02

Company *Sector/Industry*		% of Total Net Assets


Microsoft Corp.		4.1%
Technology Services

Affiliated Computer Services Inc., A		3.2%
Technology Services

Cisco Systems Inc.		2.9%
Electronic Technology

Accenture Ltd., A (Bermuda)		2.8%
Technology Services

Oracle Corp.		2.7%
Technology Services

Linear Technology Corp.		2.6%
Electronic Technology

Dell Computer Corp.		2.5%
Electronic Technology

Integrated Circuit Systems Inc.		2.4%
Electronic Technology

Thermo Electron Corp.		2.4%
Electronic Technology

Network Appliance Inc.		2.4%
Electronic Technology

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

rate than the overall economy, as technology will continue to become an ever-growing part of the advancing global economy.

On November 12, 2002, the Board of Trustees of Franklin Templeton Variable Insurance Products Trust (the Trust) approved a proposal to merge Franklin Technology Securities Fund (Fund) into Franklin Small Cap Fund, another fund in the Trust (Reorganization). If approved by Fund shareholders, the Reorganization is expected to be completed around April 30, 2003.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Technology Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	Since Inception (5/1/00)


Cumulative Total Return	-43.93%	-70.00%

Average Annual Total Return	-43.93%	-36.31%

Value of $10,000 Investment	$5,607	$3,000

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/00–12/31/02)

The graph compares the performance of Franklin Technology Securities Fund – Class 1, the Standard & Poor’s 500 Index and the Nasdaq Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Technology Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Technology Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	Since Inception (5/1/00)


Cumulative Total Return	-43.90%	-70.10%

Average Annual Total Return	-43.90%	-36.39%

Value of $10,000 Investment	$5,610	$2,990

*Because Class 2 shares were not offered until 9/1/00, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 9/1/00, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 9/1/00 (commencement of sales), the cumulative and average annual total returns of Class 2 shares were -77.23% and -46.99%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (5/1/00–12/31/02)

The graph compares the performance of Franklin Technology Securities Fund – Class 2,* the Standard & Poor’s 500 Index and the Nasdaq Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Technology Securities Fund – Class 2

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

Past performance does not guarantee future results.

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FRANKLIN U.S. GOVERNMENT FUND

Fund Goal and Primary Investments: Franklin U.S. Government Fund seeks income. The Fund invests exclusively in U.S. government securities, primarily fixed and variable rate mortgage-backed securities.

During the year ended December 31, 2002, interest rates fell to their lowest levels in over 40 years as a result of slow economic growth. The 10-year U.S. Treasury yield fell more than 120 basis points as the entire yield curve shifted downward. While this translated into a lower cost of financing for businesses and consumers, most businesses slowed their spending largely because productivity continued to improve at a strong pace without further expenditures. In fact, first quarter 2002 saw the highest level of productivity growth since 1983, driven primarily by cost and job cuts as many companies maintained their output with significantly less resources. When this situation exists, companies generally are less inclined to invest in new equipment. However, some companies may need to refurbish older technologies to keep pace with changing business conditions, which could lift corporate spending going forward.

As a result of lower interest rates, mortgage rates continued to fall as Federal Home Loan Mortgage Corporation’s (Freddie Mac’s) 30-year commitment mortgage rate hit an all-time index low of 5.93% in December 2002, down from 7.14% at the beginning of the period. At the same time, mortgage refinancing increased as interest rates traded mostly downward within a 186-basis-point range during 2002, allowing homeowners to refinance at lower, more attractive levels. The Mortgage Banker’s Association’s refinancing index hit an all-time high in the second half of the year, peaking in October. Generally speaking, as mortgage rates fall, prepayments increase; at such times investors tend to seek lower-coupon bonds for their reduced prepayment risk. Our proprietary models showed many of these securities were attractive early in 2002, and the Fund performed well as a result.

Another positive trend impacting the Fund was investors’ flight to high-quality bonds as the corporate sector continued to experience negative credit events. As a result, securities guaranteed by the U.S. government, its agencies and instrumentalities performed well. We believe the relatively high, risk-adjusted returns these bonds have historically offered make them a beneficial diversification tool in any investor’s portfolio. On December 31, 2002, 44.2% of the Fund’s total net assets were invested in Government National Mortgage Association (GNMA) securities.

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Looking ahead to 2003, we believe economic and geopolitical uncertainty could continue to weigh heavily on investors’ minds. A lack of inflationary pressures, combined with strong productivity, should help to provide a favorable environment for fixed income investments such as those the Fund holds.

PERFORMANCE SUMMARY AS OF 12/31/02


Franklin U.S. Government Fund – Class 1 Periods ended 12/31/02
	1-Year	5-Year	10-Year	Since Inception (3/14/89)


Cumulative Total Return	+10.08%	+40.99%	+99.76%	+186.30%

Average Annual Total Return	+10.08%	+7.11%	+7.16%	+7.92%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin U.S. Government Fund – Class 1, the Lehman Brothers Intermediate Government Bond Index and the Lipper VIP General U.S. Government Funds Average, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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*Source: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin U.S. Government Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin U.S. Government Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (3/14/89)


Cumulative Total Return	+9.77%	+39.50%	+97.66%	+183.29%

Average Annual Total Return	+9.77%	+6.89%	+7.05%	+7.84%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin U.S. Government Fund – Class 2,* the Lehman Brothers Intermediate Government Bond Index and the Lipper VIP General U.S. Government Funds Average, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin U.S. Government Fund – Class 2

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

Past performance does not guarantee future results.

FRANKLIN ZERO COUPON FUNDS – 2005 AND 2010

Fund Goal and Primary Investments: The two Zero Coupon Funds seek as high an investment return as is consistent with capital preservation. Each Fund invests primarily in dollar-denominated zero coupon debt securities, primarily U.S. Treasury-issued stripped securities and stripped securities issued by the U.S. government and its agencies and authorities. Each Zero Coupon Fund seeks to return a reasonably assured target dollar amount, predictable at the time of investment, on a specific date in the future. The Funds may not be appropriate for those who intend to redeem units before the maturity date.

During the 12 months ended December 31, 2002, intermediate-term interest rates fell to their lowest levels in more than 40 years, with the 10-year U.S. Treasury yield falling 124 basis points (1.24%). The yield curve shifted down as interest rates fell across maturities, which translated into a lower cost of financing for businesses and consumers. During the fiscal year, most businesses seemed hesitant about spending on further enhancements. However, productivity improved at a strong pace despite the lack of expenditures. In fact, first quarter 2002 saw the highest productivity level since 1983, driven primarily by cost and job cuts as many companies maintained their output with significantly less resources. As long as this situation exists, companies potentially have less incentive to invest in new equipment. However, some companies may need to refurbish older technologies to keep pace with changing business conditions.

Due to lower interest rates, consumers’ improving financial situations largely supported consumer spending. During the reporting period, mortgage rates declined. In December 2002, the Federal Home Loan Mortgage Corporation’s (Freddie Mac’s) 30-year commitment rates hit all-time index lows of 5.93%, down from 7.14% at the beginning of the period. At the same time, we saw a spike in mortgage refinancings as homeowners refinanced their older mortgages at lower, more attractive rates. The Mortgage Banker’s Association’s refinancing index hit an all-time high in the second half of 2002, peaking in October. A significant portion of these refinancings provided homeowners cash for spending or investment.

One of the primary factors affecting the Funds was investors’ flight to high-quality bonds as the corporate sector continued to experience credit events. As a result, securities guaranteed by the U.S. government, its agencies and instrumentalities, those in which the Funds invest, generally performed well.

For the fiscal year ended December 31, 2002, the Funds’ returns compared very favorably to those of such broad equity indexes as the Dow Jones Industrial Average, Standard & Poor’s 500 Composite Index (S&P 500) and Nasdaq Composite Index, which fell 14.98%, 22.09% and 31.13%, respectively.¹ In comparison, the Lipper Target Maturity Funds Average returned 15.62% during the same period.²

Looking forward, we believe economic and geopolitical uncertainty may continue to weigh heavily on investors’ minds in 2003. In our opinion, a lack of inflationary pressures, combined with strong productivity, should help to provide a favorable environment for fixed income products in which the Funds invest.

1. Source: Standard & Poor’s Micropal.

2. Source: Lipper Inc.

One cannot invest directly in an index, nor is an index representative of the Funds’ portfolio. Please see Index Descriptions following the Fund Summaries.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Zero Coupon Fund 2005 – Class 1

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (3/14/89)


Cumulative Total Return	+10.11%	+42.99%	+130.72%	+264.36%

Average Annual Total Return	+10.11%	+7.41%	+8.72%	+9.82%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Zero Coupon Fund 2005 – Class 1 and the Merrill Lynch Treasury 5-Year Zero Coupon Bond Total Return Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Zero Coupon Fund 2005 – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Franklin Zero Coupon Fund 2010 – Class 1 Periods ended 12/31/02
	1-Year	5-Year	10-Year	Since Inception (3/14/89)


Cumulative Total Return	+20.10%	+51.27%	+173.70%	+323.33%

Average Annual Total Return	+20.10%	+8.63%	+10.59%	+11.02%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Franklin Zero Coupon Fund 2010 – Class 1 and the Merrill Lynch Treasury 10-Year Zero Coupon Bond Total Return Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Franklin Zero Coupon Fund 2010 – Class 1

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

Past performance does not guarantee future results.

MUTUAL DISCOVERY SECURITIES FUND

Fund Goal and Primary Investments: Mutual Discovery Securities Fund seeks capital appreciation. Using a value-driven approach, the Fund invests primarily in U.S. and foreign equity securities of companies that the Fund’s manager believes are available at market prices less than their value based on certain recognized or objective criteria. Investments include undervalued stocks, restructuring companies and distressed companies. The Fund may also invest a significant portion in small capitalization companies.

The 12-month period ended December 31, 2002, was the third consecutive annual decline in an ongoing, brutal bear market. In this extremely difficult environment, Mutual Discovery Securities Fund posted a negative cumulative total return for the 12 months under review. While we are never happy to report losses to our shareholders, we are pleased the Fund continued to show strong relative performance compared with its benchmarks, the Standard & Poor’s 500 Composite Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, which returned -22.09% and -19.54% during the year under review.¹ Although we believe our distinctive, disciplined investment style contributed to the Fund’s relative outperformance, we were not completely immune to the overall global downdraft.

As always, we encourage our shareholders to put the Fund’s performance in the proper perspective. At Mutual Series, we are long-term value investors, and we strive to generate superior long-term results with less risk than the overall market. We refer you to the Performance Summary for a more detailed, standardized view of the Fund’s performance. Although we were unable to avoid some losses for the one-year period ended December 31, 2002, we are pleased our conservative investment philosophy has enabled us to keep most of your capital intact. Successful investing can be as much about avoiding and containing losses as it is about achieving profits.

The financial markets’ continuing decline during the year under review resulted in the unwinding of the substantial excesses built up in corporations and financial markets in the late 1990s. Surplus capacity in many industries nearly eliminated much of corporate America’s pricing power and will likely take some time to absorb. Corporate scandals have shaken investor confidence, and we believe the return of faith in the system’s integrity will be gradual. Aggressive accounting seemed the rule rather

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

than the exception, and many companies have only begun to untangle its impact. While the process of trimming these excesses can be painful, the end result should provide future opportunities for the Fund.

In this environment, we maintained our three-pronged approach of investing in undervalued common stocks with a willingness to be activists when necessary, investing in bankruptcy and distressed companies, and participating in arbitrage opportunities. We believe this approach has produced solid returns over time with less risk than the overall market. While bankruptcy and arbitrage investment require highly specialized skills, we at Mutual Series have been involved in these areas for years and have found that they can present attractive opportunities for the Fund. We continue to look for special situations where downside risk is minimal and long-term upside potential is substantial.

This year’s best performers for the Fund represented an unusual mix of positions, even in light of our normal penchant for special situations. The largest contributor to Fund performance was International Steel Group (ISG). ISG was formed by a group of investors to purchase the assets of bankrupt carbon steel producer LTV Steel. By purchasing the assets out of bankruptcy, the new company was able to leave behind many of LTV’s legacy liabilities, resulting in a significantly lower cost structure. We were able to invest in privately held ISG at a very low multiple of expected earnings.

Another significant Fund contributor during the fiscal year was Washington Post. In addition to publishing its namesake newspaper and Newsweek magazine, Washington Post owns educational company Kaplan and cable television systems operator CableONE. After years of investing in Kaplan and CableONE, Washington Post began reaping the rewards of strong revenue growth and cash flow generation, key drivers of the stock’s performance over the past year.

Also contributing meaningfully in 2002 was Railtrack Group, which was one of our poorest performers in 2001. As we wrote in last year’s report, the company’s main operating subsidiary was forced into administration — the British equivalent of bankruptcy — in an action which we believed was tantamount to the government’s seizing of the company’s equity value without compensation. We expended considerable energy in late 2001 and into 2002 in an effort to recover appropriate value from our investment. We joined forces with other shareholders, and through a highly effective legal and public relations campaign, we were able to put sufficient pressure on the British government to offer an acceptable price for the assets.

Top 10 Sectors/Industries

Mutual Discovery Securities Fund

Based on Equity Securities

12/31/02

		% of Total Net Assets


Tobacco		8.9%

Insurance		8.7%

Food Products		6.7%

Media		5.3%

Beverages		4.9%

Diversified Financials		4.0%

Construction & Engineering		3.4%

Banks		3.4%

Oil & Gas		2.9%

Metals & Mining		2.9%

Our worst performers during the reporting period included NTL, Sprint and Adelphia Communications. NTL bonds declined as industry fundamentals continued to worsen, the company reported lackluster operating results, and investors shied away from the cable industry. Meanwhile, the company continued to work diligently toward successfully emerging from bankruptcy. With Sprint, as we have reported previously, we underestimated the level of overcapacity and the weakened economy’s negative impact on the telecommunications sector. We exited our Sprint position by period-end. Although we were surprised by the revelations of Adelphia’s fraudulent accounting, we are confident there is substantial value in the bonds we hold.

As we sift through the bear market rubble, we are finding an increasing number of companies we believe have solid balance sheets, strong free cash generation and defensible businesses. In our opinion, market volatility and weakness during the year under review have offered multiple opportunities to invest in quality franchises at significant discounts to intrinsic value.

During the reporting period, we increased our position in Nestle, the world’s largest food company by sales. Nestle generates over 70% of its sales from six brands, one of the industry’s highest percentages, which enables the company to generate significant operational efficiencies. After adjusting for the value of its stakes in Alcon and L’Oreal, we were able to buy this leading beverage, confectionery, pet food and ice cream company at a discount to its peers. The company boasts one of the industry’s highest growth rates, carries a rock-solid balance sheet with a rating of AAA and generates substantial amounts of free cash flow that should be enhanced by the benefits of cost-saving programs.

One of the Fund’s largest holdings at period-end, a position we added to during the year, was White Mountains Insurance Group. We have owned White Mountains for several years, and we consider it one of the insurance industry’s best-managed entities. The tragic events of September 11, 2001, resulted in substantial claims for the property and casualty (P&C) insurance industry. This unexpected occurrence was compounded by increasing losses from asbestos settlements, floods in Europe, and an erosion of capital within many companies’ investment portfolios. Not surprisingly, many of White Mountains’ competitors faced difficult financial situations. We believe these circumstances will continue to support and extend the currently strong pricing cycle within the P&C insurance industry. Under this scenario, well-capitalized players should continue improving their competitive

Top 10 Holdings

Mutual Discovery Securities Fund

12/31/02

Company *Sector/Industry, Country*		% of Total Net Assets


Berkshire Hathaway Inc., A & B		3.5%
Insurance, U.S.

Altadis SA		2.0%
Tobacco, Spain

British American Tobacco PLC (Ord. & ADR)		1.9%
Tobacco, U.K.

Imperial Tobacco Group PLC		1.8%
Tobacco, U.K.

White Mountains Insurance Group Inc. (Common, Restricted & Preferred)		1.7%
Insurance, U.S.

Carlsberg AS, B		1.6%
Beverages, Denmark

Brown-Forman Corp., A & B		1.5%
Beverages, U.S.

Nestle SA		1.4%
Food Products, Switzerland

Groupe Danone		1.4%
Food Products, France

Vinci SA		1.3%
Construction & Engineering, France

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

positioning. During the year under review, we purchased additional White Mountains shares at a discount in a privately negotiated transaction. This private placement was undertaken to provide management with greater flexibility to take advantage of industry opportunities.

During the year under review, we initiated a new position in Lotte Confectionery, South Korea’s leading maker of gum, candy and ice cream. Lotte Confectionery has been growing its market share in key products and improving its overall business mix, resulting in rapid profit growth. Meanwhile, the company holds substantial investments in other Lotte Group companies that are listed on its balance sheet at cost, but whose market value we estimate at nearly half of the share price. We were able to buy Lotte Confectionery at what we believe is a modest premium to its book value — unadjusted for the unrealized value in its investments — and at 3.5 times estimated earnings on the confectionery business after subtracting the estimated market value of its investments.

In an ongoing process, we regularly evaluate all of our positions, adding as well as trimming or selling positions as they become fully valued or to avoid losses due to deteriorating fundamentals. During the 12 months under review, we sold our position in GIB Group, a diversified retail holding company in Belgium. We purchased GIB with the expectation of an eventual liquidation. In 2002, GIB divested most of its assets and began liquidating. We were offered cash for our shares ahead of the lengthy liquidation process and chose to sell them at a modest discount rather than hold them through the completion of the entire process. We eliminated our long-time Telephone & Data Systems position, selling it after the company’s management made what we regarded as an ill-advised and overpriced acquisition that destroyed substantial shareholder value. We also sold our Federated Department Stores shares as we grew increasingly wary of the consumers’ willingness to continue spending at ever higher levels.

In 2002, defaulted and distressed corporate debt, both public and private, reached its highest level in more than 10 years. We will continue to canvass this corporate minefield seeking to find the gems. In particular, we are intrigued by areas that attracted huge capital during the economic boom and carry real assets such as telecommunications and utilities. During the year under review, we invested in debt issued by Qwest, one of the high-profile companies. We were able to buy bonds at what we believe is a very low valuation relative to their core telecommunications business.

There is no doubt that the past three years have proven very trying for equity investors. Although no one can predict the market’s direction, recent share prices seem to present a more attractive overall valuation level. We believe that many of the recent stresses in corporations and the financial markets play to our strengths as long-term value investors. The continual flow of bankruptcies keeps us very busy as we seek to identify the handful of truly compelling opportunities that will most likely present themselves. Market volatility, while unsettling to many investors’ nerves, can offer excellent opportunities to generate future returns for those who develop a suitable investment plan and follow it with available capital. We believe we are extremely well positioned in this environment.

As always, we will strive to provide our shareholders with excellent risk-adjusted returns using our unique approach of investing in undervalued securities, distressed debt and risk arbitrage. We will continue to work diligently to find the most attractive long-term investment opportunities globally, those offering little downside risk and substantial upside potential.

PERFORMANCE SUMMARY AS OF 12/31/02

Mutual Discovery Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (11/8/96)


Cumulative Total Return	-9.06%	+18.56%	+44.35%

Average Annual Total Return	-9.06%	+3.46%	+6.16%

Value of $10,000 Investment	$9,094	$11,856	$14,435

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/8/96–12/31/02)

The graph compares the performance of Mutual Discovery Securities Fund – Class 1, the Standard & Poor’s 500 Index and the MSCI World Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Mutual Discovery Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02


Mutual Discovery Securities Fund – Class 2* Periods ended 12/31/02
	1-Year	5-Year	Since Inception (11/8/96)


Cumulative Total Return	-9.40%	+17.43%	+42.97%

Average Annual Total Return	-9.40%	+3.27%	+5.99%

Value of $10,000 Investment	$9,060	$11,743	$14,297

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (11/8/96–12/31/02)

The graph compares the performance of Mutual Discovery Securities Fund – Class 2,* the Standard & Poor’s 500 Index and the MSCI World Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Mutual Discovery Securities Fund – Class 2

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

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

MUTUAL SHARES SECURITIES FUND

Fund Goals and Primary Investments: Mutual Shares Securities Fund seeks capital appreciation, with income as a secondary goal. Using a value-driven approach, the Fund invests primarily in U.S. equity securities of companies that the Fund’s manager believes are available at market prices less than their value based on certain recognized or objective criteria. Investments include undervalued stocks, restructuring companies and distressed companies. The Fund may also invest a significant portion in small capitalization companies and a portion in foreign securities.

The 12-month period under review was the third consecutive annual decline in an ongoing, brutal bear market. In this extremely difficult environment, Mutual Shares Securities Fund posted a negative cumulative total return for the 12 months ended December 31, 2002. While we are never happy to report losses to our shareholders, we are pleased the Fund continued to show strong relative performance compared with its benchmark, the Standard & Poor’s 500 Composite Index (S&P 500), which fell 22.09% for the year under review. The Lipper VIP Multi-Cap Value Funds Average declined 18.97% during the same time.¹ Although we believe our distinctive, disciplined investment style contributed to the Fund’s continued relative outperformance, we were not completely immune from the financial markets’ multi-year downdraft.

As always, we encourage our shareholders to put the Fund’s performance in the proper perspective. At Mutual Series, we are long-term value investors, and we strive to generate superior long-term results with less risk than the overall market. We refer you to the Performance Summary for a more detailed, standardized view of the Fund’s performance. We believe that successful investing can be as much about limiting losses as it is about achieving profits. As such, we are pleased our conservative investment philosophy enabled us to keep most of your capital intact for the one-year period ended December 31, 2002.

The major indexes’ continuing decline during the year under review was accompanied by the unwinding of some of the excesses built up at corporations and in the financial markets. In the late 1990s, many companies employed aggressive accounting practices that exaggerated their financial results and overstated their economic earnings. As the markets rewarded companies with supernormal growth trends, stock

1. Sources: Standard & Poor’s Micropal; Lipper Inc. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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prices became overinflated and capacity in many industries was brought on line at aggressive rates, which is perhaps epitomized best by the unbridled over-investment experienced in the telecommunications sector. Many companies have only begun to unwind the impact of agressive accounting practices that became common during the late 1990s. Meanwhile, scandals have shaken investors’ confidence, and faith in the financial markets is unlikely to return quickly. While the process of eliminating these excesses is painful, we believe the end result will be a much more attractive investment landscape from which we can reap future returns for our shareholders.

In this challenging environment, we maintained our unique, three-pronged approach to investing, which has produced attractive returns over time with less risk and volatility than the overall market. First, we invest in equities that we believe are trading at a substantial discount to their intrinsic value. Second, we seek out opportunities in distressed situations, investing principally in the debt of companies that have filed for bankruptcy court protection. Third, we look for arbitrage opportunities in mergers and acquisitions. While bankruptcy and arbitrage investment require highly specialized skills, we have been involved in these areas for years and have found attractive opportunities for the Fund over time.

The Fund’s three best performers in 2002 were media companies Washington Post and E.W. Scripps, and International Steel Group (ISG). The publisher of its namesake newspaper, Washington Post was the Fund’s top performing position. Washington Post also owns Newsweek magazine, Kaplan educational company and CableONE cable television systems. After years of investing in Kaplan and CableONE, Washington Post recently began reaping the rewards of strong revenue growth and cash flow, key drivers to the stock’s performance over the past year.

E.W. Scripps, headquartered in Cincinnati, Ohio, was another solid performer. One of the oldest media companies in the U.S., E.W. Scripps owns and operates 21 newspapers, 10 television stations and 4 cable networks including Food Network and Home & Garden Television. During 2002’s first half, we believe E.W. Scripps demonstrated that it had successfully restructured and turned around its Denver newspaper division, a business that had previously been suffering losses. Its cable assets continued to generate material top-line growth and cash flow, which also contributed to the stock’s price appreciation. Finally, E.W. Scripps was buoyed by expectations that the Federal Communications

Top 10 Sectors/Industries

Mutual Shares Securities Fund

Based on Equity Securities

12/31/02

		% of Total Net Assets


Insurance		10.3%

Media		6.9%

Tobacco		6.6%

Banks		3.7%

Pharmaceuticals		3.2%

Food Products		3.2%

Oil & Gas		2.9%

Food & Drug Retailing		2.2%

Road & Rail		1.9%

Commercial Services & Supplies		1.9%

Commission may relax television station ownership regulation, which could usher in further consolidation and higher asset prices.

Another strong performer for the Fund was ISG. ISG was formed by a group of investors to purchase the assets of bankrupt carbon steel producer LTV Steel. By purchasing the assets out of bankruptcy, the new company was able to leave behind many of LTV’s legacy liabilities, resulting in a significantly lower cost structure. We were able to invest in privately held ISG at a very low multiple of expected earnings.

Unfortunately, not all of our investments were successful in 2002. Three of the Fund’s poor performers were Sprint Corp., AT&T Wireless and ICN Pharmaceuticals. We sold our positions in telecommunications companies Sprint and AT&T Wireless after we underestimated the level of industry overcapacity and competitive pressure as well as how much the weak economy would negatively impact demand for telecommunications services. In early 2002, we became actively involved in a special situation with ICN and led a successful proxy fight to appoint new Board of Directors members. Unfortunately, ICN’s stock declined when issues emerged concerning certain patents and excess inventories at distributors. However, we believe management changes initiated by the new board are positive, and we hope to continue our efforts with ICN to eventually realize value for our shareholders.

We constantly monitor our portfolio, making adjustments where appropriate by buying securities we feel are a compelling value and selling investments that we believe are no longer attractively priced. As part of this reevaluation process, we added to our holdings in Nestle, the world’s largest food company as measured by sales. Nestle generates over 70% of its sales from six brands, one of the food industry’s highest percentages, enabling the company to generate significant operational efficiencies. After adjusting for the value of Nestle’s stakes in Alcon and L’Oreal, we bought one of the world’s leading beverage, confectionery, pet food and ice cream companies at a substantial discount to its peers, particularly relative to its U.S. counterparts. Nestle boasts one of the food industry’s highest growth rates, generates substantial free cash flow, and has a substantial cost-saving program and rock-solid balance sheet with a rating of AAA.

Another position we added to is Altadis SA, a Franco-Spanish tobacco company. We believe the company has substantial opportunities to improve its profitability through manufacturing rationalization and cost savings from the merger. In addition, the company continues to have

Top 10 Holdings

Mutual Shares Securities Fund

12/31/02

Company *Sector/Industry, Country*		% of Total Net Assets


Berkshire Hathaway Inc., A & B		3.5%
Insurance, U.S.

White Mountains Insurance Group Inc. (Common, Restricted & Preferred)		3.4%
Insurance, U.S.

Altadis SA		2.4%
Tobacco, Spain

British American Tobacco PLC (Ord. & ADR)		2.1%
Tobacco, U.K.

Liberty Media Corp., A		1.8%
Media, U.S.

Washington Post Co., B		1.8%
Media, U.S.

Kroger Co.		1.6%
Food & Drug Retailing, U.S.

Nestle SA		1.5%
Food Products, Switzerland

Philip Morris Cos. Inc.		1.4%
Tobacco, U.S.

Sovereign Bancorp Inc.		1.1%
Banks, U.S.

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

high pricing power in its cigarette business and the potential to further develop its cigar business. Finally, we believe management has proven they are financially disciplined as they walked away from acquisition candidates when the price became too high, instead opting to use their capital to repurchase their own undervalued shares.

During the year ended December 31, 2002, our reevaluation process resulted in the sale of or reduction in several of our largest positions from the previous fiscal year-end. For example, we liquidated our investment in Telephone & Data Systems (TDS), a long-time holding. We sold TDS because we felt management made an ill-advised and overpriced acquisition, which destroyed shareholder value. We also sold our Federated Department Stores and May Department Stores positions when we grew concerned about the U.S. consumer’s ability to maintain recent spending rates. We sold International Paper at a profit when we believed the stock appreciated well ahead of underlying fundamentals. We also substantially reduced our PG&E position after we thought the company’s stock became fully valued in early 2002 after more than doubling from our average cost in 2001. When the stock became, in our view, undervalued again in August, we decided to add to our PG&E position.

At year-end one of our largest positions was White Mountains Insurance Group. We have owned this company for many years and consider it one of the insurance industry’s best-managed entities. The tragic events of September 11, 2001, resulted in substantial losses for the property and casualty (P&C) insurance industry. This unexpected occurrence was compounded by increasing losses from asbestos settlements, floods in Europe, and an erosion of capital within most companies’ investment portfolios. As a result, many of White Mountains’ competitors faced challenging financial situations. We believe these circumstances will continue to support and extend the P&C insurance industry’s current, strong pricing cycle. Under this scenario, we believe well-capitalized players, such as White Mountains, should see their competitive positions strengthen. During the year under review, we purchased additional shares in White Mountains at a discount in a privately negotiated transaction. This private placement was undertaken to provide management with greater flexibility to take advantage of industry opportunities.

Defaulted and distressed corporate debt, both public and private, reached record levels over the past 10 years. We are especially intrigued by sectors with real assets that attracted huge capital during the economic boom, such as utilities and telecommunications. For exam -

ple, during the year under review, we invested in debt issued by Qwest, one of the high-profile “darlings” of the late 1990s’ boom years. We were able to buy bonds at what we believed was a very low valuation relative to its core telecommunications business. We will continue to canvass this corporate debt minefield to find the investment gems for our shareholders.

The past three years have proven very trying for investors. Although no one can predict the market’s direction, we believe recent share prices should present a more attractive overall valuation level from which to generate future returns. We anticipate the coming months will present us with multiple opportunities to invest our shareholders’ capital. On the equity side, we are finding an increasing number of companies we believe have solid balance sheets, strong free cash flow and defensible businesses at attractive prices, allowing us to invest in quality franchises at significant discounts to intrinsic value. On the distressed debt front, much of the stress in corporations and the financial market plays to our strengths as long-term value investors. The continuing stream of bankruptcies is keeping us exceptionally busy as we seek out the truly compelling opportunities that we believe should present themselves in the coming months. We are somewhat disappointed that the increase in mergers and acquisitions we expected to occur in this low interest rate environment has not yet emerged, but we are hopeful attractive share prices will spark increased activity. The market’s weakness and volatility, while unsettling to many investors, can present excellent opportunities to generate future returns for those who have capital to invest and a rational investment philosophy. We believe the Fund is extremely well positioned in this regard.

PERFORMANCE SUMMARY AS OF 12/31/02

Mutual Shares Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (11/8/96)


Cumulative Total Return	-11.56%	+22.38%	+49.13%

Average Annual Total Return	-11.56%	+4.12%	+6.72%

Value of $10,000 Investment	$8,844	$12,238	$14,913

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (11/8/96–12/31/02)

The graph compares the performance of Mutual Shares Securities Fund – Class 1, the Standard & Poor’s 500 Index and the Lipper VIP Multi-Cap Value Funds Average. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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*Sources: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Mutual Shares Securities Fund – Class 1

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

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Mutual Shares Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (11/8/96)


Cumulative Total Return	-11.81%	+21.53%	+48.09%

Average Annual Total Return	-11.81%	+3.98%	+6.60%

Value of $10,000 Investment	$8,819	$12,153	$14,809

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (11/8/96–12/31/02)

The graph compares the performance of Mutual Shares Securities Fund – Class 2,* the Standard & Poor’s 500 Index and the Lipper VIP Multi-Cap Value Funds Average. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Sources: Standard & Poor’s Micropal; Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Mutual Shares Securities Fund – Class 2

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

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

TEMPLETON DEVELOPING MARKETS SECURITIES FUND

Fund Goal and Primary Investments: Templeton Developing Markets Securities Fund seeks long-term capital appreciation. The Fund invests primarily in emerging market equity securities.

The 12 months ended December 31, 2002, brought challenges and some improvement for many emerging market economies and markets. The Latin American region began to recover from the aftermath of difficult political and economic events in Brazil and Argentina. Brazilian elections ended months of political uncertainty during which the country’s stock market and currency suffered. The country’s markets recovered as investor sentiment improved and Brazil’s currency strengthened. President-elect Luiz Inacio Lula da Silva stressed his commitment to accelerating Brazil’s economic recovery by combating inflation and controlling government spending. In Argentina, concerns focused on the country’s shattered financial system. The International Monetary Fund (IMF) granted Argentina a third payment delay for 2002, which allowed the country to avoid defaulting on its IMF debt. Because Argentina needs to obtain additional IMF support, we expect the country to work toward implementing key reforms and improving its fiscal position. Additionally, many analysts expect the central bank’s new president, Alfonso Prat Gay, to implement independent monetary policies, which we believe could improve the country’s financial situation. In Mexico, the economy benefited from prudent fiscal and monetary policies and improving confidence in the region.

In Asia, many markets attracted foreign investment as a result of their competitive edge and strengthening economies. Countries such as China and South Korea attracted outsourcing contracts largely due to their manufacturing expertise and low costs. Citing South Korea’s improving external payment situation, Moody’s, an independent rating agency, raised its outlook on the country’s sovereign credit ratings to positive from stable and maintained its long-term foreign currency rating of A3. In addition, strong gross domestic product growth in 2002’s second and third quarters, as well as other favorable macroeconomic indicators, helped attract investment to South Korea. In an attempt to encourage capital investment and maintain the country’s growth momentum, the government announced it would extend preferential tax rates to corporate capital investments until June 2003. Aimed at promoting bilateral trade between South Korea and Singapore, the two countries announced that negotiations for a free-trade agreement would soon begin, while South Korea and Chile agreed on a free-trade pact that would eliminate tariffs on major agricultural

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and industrial products. Chinese President Jiang Zemin, in addition to discussing future economic policy, emphasized the need for continued political reforms, government accountability, reform for state-owned enterprises and strategies for combating corruption.

In a landmark decision, the European Union (EU) formally agreed upon enlarging the bloc to include 10 additional states in May 2004. These included Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia. In our opinion, these countries’ economies should benefit from convergence to EU standards. Many analysts expect companies exposed to the effort for EU convergence to undergo consolidation and merger and acquisition activity, which should, in our opinion, generate greater investor interest. Additionally, with the Justice and Development Party’s majority in the Turkish Assembly, that country’s political situation looks set to improve, and markets there posted gains near year-end.

During the 12-month reporting period, the Fund’s exposure to South Africa increased due to our Anglo American purchase and the rand’s recovery, which contributed to higher U.S. dollar returns in our holdings there. We purchased shares in Anglo American because of its dominant market position, strong cash flows and capable management team. We believe investors can also take comfort in the government’s sound fiscal management and an efficient central bank. Furthermore, we favor South African companies because we feel they are well managed and enjoy not only a favorable domestic market, but also expanding demand in Africa and other parts of the world.

In Asia, we increased our exposure to South Korea as we expect the country’s positive macroeconomic performance to allow companies to improve their profitability, thus leading to higher stock prices. On the other hand, we made selective sales in Taiwan as stocks reached our sell-price targets. Moreover, we reduced Fund exposure to Thailand’s banking sector because of a relatively high number of non-performing loans.

In Latin America, with the political environment in Brazil stabilizing, we expect equity markets to improve as investors reevaluate Brazilian assets. Therefore, we took the opportunity to increase our exposure to stocks we deemed to be attractively valued. In addition, we increased exposure to Chile during the reporting period as a result of our investment in COPEC, a holding company that operates Chile’s leading fuel distribution franchise.

Top 10 Countries

Templeton Developing Markets Securities Fund

12/31/02

		% of Total Net Assets


South Korea		16.2%

South Africa		15.8%

Hong Kong		8.5%

Brazil		6.6%

Mexico		5.3%

Turkey		5.1%

Indonesia		4.3%

China		4.2%

Taiwan		4.0%

Singapore		3.7%

In Europe, we increased our Hungary exposure through purchases in MOL, the largest, fully integrated petroleum company in central Europe, and Gedeon Richter, Hungary’s largest pharmaceutical producer. We also purchased shares of Greece’s Coca-Cola SA, Coca-Cola’s second largest bottler in the world. In Russia, we increased our holdings in UES, the world’s largest utility holding company.

Within the top 10 holdings, South Africa’s Anglo American and Barloworld, South Korea’s Korea Electric Power, Russia’s Lukoil and Austria’s OMV replaced South Korea’s Samsung Electronics, Brazilian companies Banco Bradesco and Centrais Eletricas Brasileiras (Eletrobras), Turkey’s Tupras-Turkiye Petrol Rafineleri and Singapore’s Fraser & Neave.

At year-end we note that completed elections in Brazil and Turkey resulted in investors’ return from the sidelines, with stock markets embarking on an upward trend in the final quarter of 2002. We expect many emerging markets to continue experiencing positive macroeconomic trends, which should positively affect the stock markets. In addition, we believe progressive political changes that may lead to efficient and strong central governments could in turn attract foreign investment. Because a stable economic and political environment generally supports the investment climate, we believe improving economic conditions and corporate profitability should be reflected in increased stock prices over the long term. As a result, we will continue to focus on Templeton’s bottom-up, value approach in our search for bargain stocks, which we believe will allow the portfolio to benefit from future global economic recovery.

Top 10 Equity Holdings

Templeton Developing Markets Securities Fund 12/31/02

Company *Sector/Industry, Country*		% of Total Net Assets


Anglo American PLC Metals & Mining, South Africa		3.1%

SABMiller PLC Beverages, South Africa		3.0%

PT Telekomunikasi Indonesia TBK, B Diversified Telecommunication Services, Indonesia		2.3%

Akbank		2.2%
Banks, Turkey

Kimberly Clark de Mexico SA de CV, A Household Products, Mexico		2.1%

Lukoil Holdings, ADR Oil & Gas, Russia		1.9%

Korea Electric Power Corp. Electric Utilities, South Korea		1.9%

OMV AG Oil & Gas, Austria		1.8%

Barloworld Ltd. Industrial Conglomerates, South Africa		1.7%

Polski Koncern Naftowy Orlen SA Oil & Gas, Poland		1.6%

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Developing Markets Securities Fund – Class 1*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (3/4/96)


Cumulative Total Return	+0.04%	-23.68%	-49.06%

Average Annual Total Return	+0.04%	-5.26%	-9.41%

Value of $10,000 Investment	$10,004	$7,632	$5,094

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton Developing Markets Fund.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (3/4/96–12/31/02)

The graph compares the performance of Templeton Developing Markets Securities Fund – Class 1,* the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index and the S&P/International Finance Corporation (IFC) Investable Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Developing Markets Securities Fund – Class 1

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

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Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Developing Markets Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (3/4/96)


Cumulative Total Return	-0.15%	-24.50%	-49.69%

Average Annual Total Return	-0.15%	-5.47%	-9.57%

Value of $10,000 Investment	$9,985	$7,550	$5,031

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton Developing Markets Fund. Additionally, because Class 2 shares were not offered until 5/1/97, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 5/1/97, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 5/1/97 (effective date), the cumulative and average annual total returns of Class 2 shares were -49.26% and -11.28%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (3/4/96–12/31/02)

The graph compares the performance of Templeton Developing Markets Securities Fund – Class 2,* the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index and the S&P/International Finance Corporation (IFC) Investable Composite Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Developing Markets Securities Fund – Class 2

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

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Past performance does not guarantee future results.

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TEMPLETON FOREIGN SECURITIES FUND

Fund Goal and Primary Investments: Templeton Foreign Securities Fund (formerly Templeton International Securities Fund) seeks long-term capital growth. The Fund invests primarily in equity securities of companies located outside the U.S., including those in emerging markets.

The year 2002 was marked by mounting investor uncertainty on several levels, especially regarding the direction of global economies, currencies and interest rates, the potential for war, questions about accounting practices and continued worries over the ailing technology, media and telecommunications (TMT) sectors. This scenario fostered significant equity market volatility that could be with us for the foreseeable future. We believe some investors lost sight of individual companies’ future prospects, and sold their holdings in companies of excellent fundamental quality, producing opportunities for savvy long-term stock pickers and highlighting the benefits of a well-diversified portfolio. In other words, we saw a significant shift away from the common investment practices of the late 1990s’ “bubble” economy throughout the year under review.

Templeton Foreign Securities Fund underperformed its benchmark, the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index, which returned -15.66% during the year ended December 31, 2002.¹ We attribute much of the Fund’s disappointing results to our large weightings in the industrial and materials sectors, both of which generally delivered poor returns. At period-end, however, our bottom-up, fundamental analysis indicated our investments in these sectors still offered significant value and strong long-term potential, although the short-term picture remained clouded by worries over the direction of global economies.

Overall we were net sellers of European securities over 2002, and the Fund’s weighting declined accordingly, from 61.9% on December 31, 2001, to 53.4% of total net assets by December 31, 2002. European markets performed poorly, dragged down by declines in diversified financials, commodity and TMT stocks, although partially offset by a rebound in the euro. We have believed for some time that the euro was undervalued, and in light of worries over the U.S. market, capital flows began to shift into Europe and Japan, benefiting unhedged asset holders in those regions.

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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103

The Fund was aided by strong performance from an eclectic mix of stocks, including Italian oil company Eni, U.K. consumer company Unilever, U.K. engineer Smiths Group, and U.K. leisure company

P&O Princess Cruises. Detractors from performance included telecommunications companies such as Cable & Wireless and Telefonica, insurers AXA and Swiss Reinsurance, ING Groep in financial services, and chemical producers such as Akzo Nobel, Clariant and Bayer. Our industry analysis showed that European equity valuations were inexpensive relative to the U.S. at period-end, and that many of the region’s companies were slowly restructuring operations and improving their competitive positions. During the year, we identified a handful of opportunities we saw as attractive across diverse industries. New purchases included food manufacturer Nestle, Finnish insurer Sampo, Italian bank San Paolo-IMI, German software provider SAP and real estate operator Rodamco Europe. We funded these purchases largely by selling holdings in companies we regarded as more poorly positioned in similar industries, including Zurich Financial Services and Banca Nazionale del Lavoro.

Japan and the rest of the Asia/Pacific Rim region turned in relatively strong performance, aided by currency appreciation, positive earnings trends and low valuations relative to other global markets. Australia and South Korea were two of the region’s better performing markets, led by stocks pertaining to financial, utility, base metal and select technology companies. Top performers Samsung Electronics, Nippon Telegraph & Telephone, BHP Billiton, CLP Holdings, KT Corporation and Australia and New Zealand Banking Group aided Fund performance. While we identified some value in Japan, notably insurer Sompo Japan Insurance, we remained cautious due to the shaky Japanese economy and stock market. We believe there are significant, entrenched barriers to real reform in Japan at the political and corporate levels. We are skeptical that Japanese corporations will take the painful path of restructuring, and thus chose to underweight the portfolio’s Japanese equities as our analysts consistently identified values we saw as better in other regions of the world. We are far more optimistic about the rest of Asia, home to low-cost manufacturing, rising levels of intellectual property and an emerging middle class. We regard key Fund holding Samsung Electronics as an excellent example of an Asian company focused on improving returns, cash flow and its long-term market position in semiconductors, handsets and flat panel displays. Ironically, our most significant Asian purchases during the period were in Japan: the

Top 10 Holdings

Templeton Foreign

Securities Fund

12/31/02

Company *Sector/Industry,* *Country*		% of Total Net Assets

Eni SpA		2.2%
Oil & Gas, Italy

Samsung Electronics Co. Ltd.		2.1%
Semiconductor Equipment & Products, South Korea

Shell Transport & Trading Co. PLC		1.6%
Oil & Gas, U.K.

Cheung Kong Holdings Ltd.		1.6%
Real Estate, Hong Kong

Swiss Reinsurance Co.		1.5%
Insurance, Switzerland

Volkswagen AG, pfd.		1.5%
Automobiles, Germany

Telefonos de Mexico SA de CV (Telmex), L, ADR		1.5%
Diversified Telecommunications Services, Mexico

Ono Pharmaceutical Co. Ltd.		1.5%
Pharmaceuticals, Japan

Akzo Nobel NV		1.5%
Chemicals, Netherlands

BCE Inc.		1.5%
Diversified Telecommunication Services, Canada

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

104

aforementioned Sompo Japan Insurance, a health insurer trading at attractive valuations; Denso Corporation, a major supplier to Toyota; and transportation provider East Japan Railway. Our sales during the period were also concentrated in Japan, as we took advantage of the market’s strength to reduce holdings in Sony and Nomura Holdings, while eliminating holdings in Fujitsu and Nippon Express. We also sold our holding in Australia and New Zealand Banking Group due to its strong price appreciation and high valuation. During the period we were net buyers of Asian securities, which combined with relative outperformance, raised the Fund’s regional weighting from 20.1% of total net assets on December 31, 2001, to 22.3% at period-end.

Our Latin American securities performed poorly and were negatively impacted by political and economic turmoil in Brazil and Argentina. Mexico remained relatively healthy, sheltered by its ties to the U.S., but declined modestly during the period as investors worried that a sluggish U.S. economy would slow Mexico’s growth. Brazilian mining company Cia Vale do Rio Doce, one of the world’s lowest-cost resource companies, was one of the Fund’s strongest Latin American stocks during the year under review. Our weighting in Latin America continued to shrink as we were unable to identify new values and elimintated holdings in Unibanco and Telebras due to what we considered deteriorating fundamentals. During the year under review, Latin American holdings as a percentage of total net assets declined from 7.3% on December 31, 2001, to 5.3% by period-end.

Looking forward, we do not foresee the current economic slowdown becoming a synchronized global recession. We acknowledge that the near-term environment is uncertain and potentially unpleasant but remain focused on the long-term potential of the companies we own. In spite of the rampant short-term pessimism, there are signs of economic improvement in Europe and Asia, and we identified several companies that are reducing cost structures and positioning themselves to survive the current environment and prosper in the next upturn. As mentioned earlier, the Fund underperformed the MSCI EAFE Index during the year, dragged down by its higher-than-index weightings in materials and industrial stocks. Despite low valuations, we believe these sectors underperformed due to uncertain global economic conditions, weak commodity prices and worries that the current economic downturn will be prolonged. We are not pleased with recent Fund performance but remain confident that the cyclical stocks we own are from

105

well-managed companies with strong earnings prospects, solid balance sheets and very attractive valuations.

Overall, we believe that recent monetary stimulus could create a framework for global economic and equity price recovery. We are optimistic because we believe the Fund holds a number of the world’s best-managed companies and is well positioned to take advantage of the next economic upturn. In the meantime, the Templeton research team will continue to follow the time-tested analytical process that we believe will allow our organization to produce superior performance.

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PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Foreign Securities Fund – Class 1*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (5/1/92)


Cumulative Total Return	-18.40%	-9.13%	+114.18%	+101.11%

Average Annual Total Return	-18.40%	-1.90%	+7.91%	+6.77%

Value of $10,000 Investment	$8,160	$9,087	$21,418	$20,111

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton International Fund.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Foreign Securities Fund – Class 1* and the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Foreign Securities Fund – Class 1

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

107

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Foreign Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (5/1/92)


Cumulative Total Return	-18.56%	-10.23%	+111.16%	+98.28%

Average Annual Total Return	-18.56%	-2.13%	+7.76%	+6.63%

Value of $10,000 Investment	$8,144	$8,977	$21,116	$19,828

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton International Fund. In addition, because Class 2 shares were not offered until 5/1/97, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 5/1/97, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 5/1/97 (effective date), the cumulative and average annual total returns of Class 2 shares were -1.74% and
-0.31%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Foreign Securities Fund – Class 2* and the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Foreign Securities Fund – Class 2

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

108

Past performance does not guarantee future results.

TEMPLETON GLOBAL ASSET ALLOCATION FUND

Fund Goal and Primary Investments: Templeton Global Asset Allocation Fund (formerly Templeton Asset Strategy Fund) seeks high total return. The Fund will invest in equity securities of companies of any country, debt securities of companies and governments of any country, and in money market instruments. The Fund may invest in lower-rated “junk bonds.”

Templeton Global Asset Allocation Fund outperformed the Morgan Stanley Capital International (MSCI) All Country World Free Index, which returned -18.98% during the year ended December 31, 2002. The Fund performed less favorably against the J.P. Morgan Global Government Bond Index (JPM GGBI), which returned 19.38% during the same period.¹ At year-end, the Fund held 64.9% of its total net assets in equities, 34.0% in fixed income and 1.1% in short-term investments and other net assets.

Equity

European markets performed poorly, dragged down by declines in diversified financials, commodity and TMT stocks, although partially offset by a rebound in the euro. We have believed for some time that the euro was undervalued, and in light of worries over the U.S. market, capital flows began to shift into Europe and Japan, benefiting unhedged asset holders in those regions. The Fund was aided by strong performance from an eclectic mix of stocks, including Italian oil company Eni, U.K. consumer company Unilever and Swedish auto part supplier

1. Source: Standard & Poor’s Micropal; J.P. Morgan. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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Autoliv. Detractors from performance included telecommunications companies such as Cable & Wireless and Telefonica, insurers AXA and Zurich Financial Services, ING Groep in financial services, Akzo Nobel in chemicals, and materials producer Corus Group. Our industry analysis showed that European equity valuations were inexpensive relative to the U.S. at period-end, and that many of the region’s companies were slowly restructuring operations and improving their competitive positions. During the year, we identified a handful of opportunities we saw as attractive across diverse industries. New purchases included Swedish capital equipment company Atlas Copco and Italian insurer Riunione Adriatica di Sicurta. We funded these purchases by selling our holdings of what we believed were poorly positioned companies in similar industries, including Volkswagen and Zurich Financial Services.

Japan and the rest of the Asia/Pacific Rim region turned in relatively strong performance, aided by currency appreciation, positive earnings trends and low valuations relative to other global markets. Australia and South Korea were two of the region’s better performing markets, led by stocks pertaining to financial, utility, base metal and select technology companies. Top performers KT, Nippon Express, Samsung Electronics, Nippon Telegraph & Telephone, and Telecom Corp. of New Zealand aided Fund performance. While Japan represented our largest Asian country exposure at period-end, we remain cautious on the Japanese economy and stock market. We believe there are significant, entrenched barriers to real reform in Japan at the political and corporate levels. We are skeptical that Japanese corporations will take the painful path of restructuring, and thus chose to underweight the portfolio’s Japanese equities as our analysts consistently identified better value in other regions of the world. We are far more optimistic about the rest of Asia, home to low-cost manufacturing, rising levels of intellectual property and an emerging middle class. Key Fund holding Samsung Electronics is an excellent example of an Asian company we see as focused on improving returns, cash flow and its long-term market position in semiconductors, handsets and flat panel displays.

Top 5 Country Holdings

Templeton Global Asset Allocation Fund

Based on Equity Securities

12/31/02

U.S.		18.6%

U.K.		14.9%

Sweden		8.5%

Japan		8.2%

Germany		5.6%

110

The U.S. market weakened further during the year under review, as a rebound in profits failed to materialize and corporate malfeasance cast a pall over investor enthusiasm. The U.S. represented the Fund’s largest country allocation at period-end, with 12.0% of total net assets invested in U.S. equities. Our U.S. holdings were a mixed blessing to performance. Key contributors to performance included Wellpoint Health Networks and toy maker Mattel, while detractors included coal producer Consol Energy and telephone company SBC Communications. Even with the domestic stock markets well off their 2000 highs, we continued to struggle to find suitable new U.S. investment ideas.

Fixed Income

Global bond markets generated positive returns as modest inflation and the slow pace of economic recovery allowed most major central banks to reduce or maintain low interest rates. As a result, international yield curves shifted down during the period and most major global bond markets generated positive returns in local currency terms. The JPM GGBI, a benchmark index for global government bonds, rose 8.57% in local currency terms for the year ended December 31, 2002.¹ The index increased 19.38% in U.S. dollar terms because most major currencies appreciated relative to the U.S. dollar.¹

The U.S. Federal Reserve Board (the Fed) remained cautious throughout the year. Risks to U.S. economic recovery prompted the Fed to reduce the federal funds target rate in November, supported by continued consumer price deflation. As a result, the U.S. Treasury yield curve shifted down over the course of the year, and the J.P. Morgan U.S. Government Bond Total Return Index, a benchmark index for U.S. Treasuries, posted a 12.21% return.¹ The growing reliance on debt issuance to finance a deficit, which in previous years had increasingly been financed by foreign direct investment and international flows into the U.S. equity market, contributed to a reduction in the overall quality of financing and relative attractiveness of the U.S. dollar.

The eurozone (the 12-country European Monetary Union or EMU) bond market posted strong returns, with the J.P. Morgan EMU Government Bond Index rising 9.82% in euro terms.¹ The European Central Bank reduced the reference rate late in the year as risk from the region’s slowing economic growth overshadowed persistent inflationary pressures. The euro’s strength was partly a function of U.S. dollar weakness, but also the region’s improving balance-of-payment position

Top 5 Sectors/Industries

Templeton Global Asset Allocation Fund

Based on Equity Securities

12/31/02

Diversified Telecommunication Services		13.5%

Oil & Gas		7.5%

Insurance		6.8%

Food Products		6.8%

Machinery		6.5%

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

111

and growing current account surplus. The euro reached an all-time high against the U.S. dollar during the 12-month period.

In developed Asia and the Pacific Rim, the Japanese bond index performed modestly, hampered by continued deflation and stalled financial reforms. The dollar-bloc bond markets of Australia, Canada and New Zealand were much stronger. Australia and New Zealand were among the fastest growing developed economies of 2002, with improving underlying fundamentals reflected in their strong currency gains.

Emerging market bond prices rose during the year despite investors’ generally diminished risk appetite. The J.P. Morgan Emerging Markets Bond Index Global increased 13.11% in U.S.-dollar terms during the period.¹ Emerging market returns were regionally bifurcated with non-Latin American bond markets significantly outperforming the politically volatile Latin American region. Aided by improving macroeconomic fundamentals and prudent debt management, Russia was the top performing emerging sovereign credit during the year, returning 35.77%.¹

Most of the Fund’s bond allocation was positioned in short- and intermediate-term global investment-grade bonds, and to a lesser extent in what we found to be the highest quality and most liquid, below-investment grade bonds available in emerging markets. We believed this combination offered an attractive risk/reward trade-off. Our emerging market allocation added positively to the Fund’s performance for the year, as emerging market country bonds generated a high level of income and capital gains.

By region our bond mix changed substantially. We cut most of our exposure to North America based on our negative outlook for the U.S. dollar and positive outlook for non-U.S. dollar (excluding Japan) global bond markets. Our overall European allocation caught much of the proceeds of this shift, and increased significantly. Within Europe, we maintained our overweighted allotment in the eurozone and increased allocation to peripheral Europe, including Norway and Sweden. We also increased exposure to Australia and New Zealand. Seeking to enhance the Fund’s returns, about one-sixth of our fixed income allocation was in U.S. dollar-denominated emerging market bonds on December 31, 2002.

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112

Looking Ahead

We do not foresee the current economic slowdown becoming a synchronized global recession. We acknowledge that the near-term environment is uncertain and potentially unpleasant, but we believe the past year was an encouraging period for our investment style as investors continued their return to a more rational evaluation approach. In spite of the rampant short-term pessimism, there are signs of economic improvement in Europe, Asia and the U.S., and we identified several companies that we believe are reducing cost structures and positioning themselves to survive the current environment and prosper in the next upturn. We are not pleased with recent Fund performance but remain focused on the long-term potential of the stocks we own, believing they are from well-managed companies that possess strong earnings prospects, solid balance sheets and very attractive valuations.

For 2003, we hold a positive long-term outlook for the prospects of yield curve compression within the dollar-bloc countries, Europe and peripheral Europe compared with the U.S. Treasury curve. Also, within the emerging markets we hold a defensive outlook with regard to Brazil and a positive outlook on Asia and Eastern Europe, particularly Russia.

Overall, we believe that recent monetary stimulus could create a framework for global economic and equity price recovery. We are optimistic that the Fund holds a number of the world’s best managed companies and is well positioned to take advantage of the next economic upturn. In the meantime, the Templeton research team will continue to follow our time-tested analytical process.

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PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Global Asset Allocation Fund – Class 1*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (8/24/88)


Cumulative Total Return	-4.17%	+13.44%	+133.61%	+245.39%

Average Annual Total Return	-4.17%	+2.55%	+8.86%	+9.02%

Value of $10,000 Investment	$9,583	$11,344	$23,361	$34,539

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton Asset Allocation Fund.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Global Asset Allocation Fund – Class 1,* the MSCI All Country World Free Index and the J.P. Morgan Global Government Bond Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Sources: Standard & Poor’s Micropal; J.P. Morgan. Please see Index Descriptions following the Fund Summaries.

Templeton Global Asset Allocation Fund – Class 1

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

114

Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Global Asset Allocation Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (8/24/88)


Cumulative Total Return	-4.39%	+11.99%	+130.33%	+240.54%

Average Annual Total Return	-4.39%	+2.29%	+8.70%	+8.91%

Value of $10,000 Investment	$9,561	$11,199	$23,033	$34,054

*Performance prior to the 5/1/00 merger reflects the historical performance of Templeton Asset Allocation Fund. In addition, because Class 2 shares were not offered until 5/1/97, standardized Class 2 Fund performance for prior periods represents the historical results of Class 1 shares. For periods beginning on 5/1/97, Class 2’s results reflect an additional 12b-1 fee expense, which also affects future performance. Since 5/1/97 (effective date), the cumulative and average annual total returns of Class 2 shares were +22.53% and +3.65%.

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Global Asset Allocation Fund – Class 2,* the MSCI All Country World Free Index and the J.P. Morgan Global Government Bond Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

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**Sources: Standard & Poor’s Micropal; J.P. Morgan. Please see Index Descriptions following the Fund Summaries.

Templeton Global Asset Allocation Fund – Class 2

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

115

Past performance does not guarantee future results.

TEMPLETON GLOBAL ASSET ALLOCATION FUND

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

SUPPLEMENT DATED FEBRUARY 15, 2003

TO THE PROSPECTUS DATED MAY 1, 2002

The prospectus is amended by replacing the MANAGEMENT section (Page TGA-5) with the following:

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Templeton Investment Counsel, LLC (TIC), Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, is the Fund’s investment manager.

Under an agreement with TIC, Franklin Advisers, Inc. (Advisers), One Franklin Parkway, San Mateo, California 94403-1906, is the Fund’s sub-advisor. A team from Advisers provides TIC with investment management advice and assistance with respect to the Fund’s investments in debt securities.

MANAGEMENT TEAM The team responsible for managing the equity portion of the Fund is:

Peter A. Nori, CFA		Mr. Nori has managed the equity portion of the Fund since 1996, and has been with Franklin Templeton
EXECUTIVE VICE		Investments since 1987.
PRESIDENT, TIC

Tucker Scott, CFA		Mr. Scott has managed the equity portion of the Fund since 1998, and has been with Franklin
SENIOR VICE		Templeton Investments since 1996.
PRESIDENT, TIC

The Fund pays TIC a fee for managing the Fund’s assets. For the fiscal year ended

December 31, 2001, the Fund paid 0.61% of its average daily net assets to TIC for its services.

Please keep this supplement for future reference.

TGA P 0203

116

TEMPLETON GLOBAL INCOME SECURITIES FUND

Fund Goal and Primary Investments: Templeton Global Income Securities Fund seeks high current income, consistent with preservation of capital. Capital appreciation is a secondary consideration. The Fund invests primarily in debt securities of governments and their political subdivisions and agencies, supranational organizations and companies located anywhere in the world, including emerging markets. The Fund may also invest in lower-rated “junk bonds.”

During the year under review, global bond markets generated positive returns as modest inflation and the slow pace of economic recovery allowed most major central banks to reduce or maintain low interest rates. As a result, international yield curves shifted down during the period and most major global bond markets generated positive returns in local currency terms. The J.P. Morgan Global Government Bond Index, a benchmark index for global government bonds, rose 8.54% in local currency terms for the year ended December 31, 2002.¹ The index increased 19.38% in U.S. dollar terms because most major currencies appreciated relative to the U.S. dollar.¹

The U.S. Federal Reserve Board (the Fed) remained cautious throughout the year. Risks to U.S. economic recovery prompted the Fed to reduce the federal funds target rate in November, supported by continued consumer price disinflation. As a result, the U.S. Treasury yield curve shifted down over the course of the year, and the J.P. Morgan U.S. Government Bond Total Return Index, a benchmark index for U.S. Treasuries, posted a 12.21% return.¹ Notably, reduced growth expectations, coupled with increased risk aversion in the U.S. equities market and heightened geopolitical risks, reduced the U.S. dollar’s appeal relative to other major currencies. A run-up in the country’s current account deficit layered additional pressure on the dollar. The growing reliance on debt issuance to finance a deficit, which in previous years had increasingly been financed by foreign direct investment and international flows into the U.S. equity market, reduced the overall quality of financing and relative attractiveness of the U.S. dollar.

The eurozone (the 12-country European Monetary Union or EMU) bond market posted strong returns, with the J.P. Morgan EMU Government Bond Index rising 9.85% in euro terms.¹ The European Central Bank reduced the reference rate late in the year as risk from the

1. Source: J.P. Morgan. Please see Index Descriptions following the Fund Summaries.

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region’s slowing economic growth overshadowed persistent inflationary pressures. The euro reached parity with the U.S. dollar for the first time in over two years. The currency’s strength was partly a function of U.S. dollar weakness, but also the region’s improving balance-of-payment position and growing current account surplus. The euro reached near-all-time highs against the U.S. dollar during the 12-month period.

Emerging market bond prices rose during the year despite investors’ generally diminished risk appetite. The J.P. Morgan Emerging Markets Bond Index Global increased 13.11% in U.S.-dollar terms during the period.¹ Emerging market returns were regionally bifurcated with the politically volatile Latin American region returning just 6.80% while non-Latin American bond markets returned 21.04%.¹ Russia was the top performing emerging sovereign credit during the year, returning 35.86%.¹ Russia exhibited improving macroeconomic fundamentals and debt management, as reflected by the upgrade from B+ to BB on its sovereign credit according to Standard & Poors, an independent credit rating agency.

During the year under review, we attempted to maximize the Fund’s return by allocating approximately 80%-90% of total net assets in short- and intermediate-term global investment-grade bonds and approximately 10%-20% in what we found to be the highest quality and most liquid, below investment-grade bonds available in emerging markets. We believed this combination offered an attractive risk/reward trade-off. Our emerging market allocation added positively to the Fund’s performance for the year, as emerging market country bonds generated a high level of income and capital gains.

The Fund’s portfolio mix changed notably during the year under review. On December 31, 2002, we held only 3.3% of total net assets in North America, down from 22.3% on December 31, 2001. We eliminated the Fund’s U.S. Treasury position based on our negative outlook for the U.S. dollar and positive outlook for non-U.S. dollar (excluding Japan) global bond markets. Our overall European allocation increased to 68.0% of total net assets by period-end. Within Europe, we maintained our

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overweighted allotment in the eurozone and increased allocation to peripheral Europe, including Norway and Sweden. We also increased exposure to Australia and New Zealand, to 11.6% of total net assets. Seeking to enhance the Fund’s returns, our U.S. dollar-denominated emerging market bond allocation was 19.6% of total net assets on December 31, 2002.

The Fund’s positioning reflects three central points in our global outlook going into 2003. First, with regard to currencies, we continue to hold a defensive view on the U.S. dollar and the Japanese yen, but a positive outlook on the euro, peripheral Europe and the dollar-bloc countries. Second, we maintain a positive long-term outlook for the prospects of yield curve compression within the dollar-bloc countries, Europe and peripheral Europe compared with the U.S. Treasury curve. Finally, within the emerging markets we maintain a defensive outlook with regard to Brazil and a positive outlook on Asia and Eastern Europe, particularly Russia.

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PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Global Income Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	+21.44%	+31.06%	+87.21%	+151.45%

Average Annual Total Return	+21.44%	+5.56%	+6.47%	+6.84%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Global Income Securities Fund – Class 1 and the J.P. Morgan Global Government Bond Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Global Income Securities Fund – Class 1

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

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Past performance does not guarantee future results.

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Global Income Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	10-Year	Since Inception (1/24/89)


Cumulative Total Return	+21.15%	+29.71%	+85.29%	+148.87%

Average Annual Total Return	+21.15%	+5.34%	+6.36%	+6.76%

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (1/1/93–12/31/02)

The graph compares the performance of Templeton Global Income Securities Fund – Class 2* and the J.P. Morgan Global Government Bond Index, as well as the Consumer Price Index (CPI). One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Global Income Securities Fund – Class 2

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

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Past performance does not guarantee future results.

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TEMPLETON GROWTH SECURITIES FUND

Fund Goal and Primary Investments: Templeton Growth Securities Fund seeks long-term capital growth. The Fund invests primarily in equity securities of companies located anywhere in the world, including those in the U.S. and emerging markets.

Global equity investors faced another extremely difficult environment in the 12 months ended December 31, 2002, as evidenced by the -18.98% one-year cumulative total return of the Morgan Stanley Capital International All Country (MSCI AC) World Free Index — its third consecutive year in negative territory.¹ For perhaps an unprecedented second year in a row, all regions and sectors in the MSCI AC World Free Index finished 2002 with negative performance in U.S.-dollar terms. The reason was simple: investors’ widespread desire to avoid risk. Risk aversion climbed across all assets classes as evidenced by dramatically widening risk spreads in bonds and rising risk premiums for equities. With the global economy in the doldrums, company fundamentals showed no signs of improvement. Ongoing threats of terrorism in the U.S. and escalating geopolitical tensions only added to the weakness and volatility. Policy makers responded with monetary stimulus in an effort to revive economies, but the efforts have been slow to take hold.

Similarly, there were no safe havens in equities. Value- or growth-oriented, large- or small-capitalization stocks — no matter the type — all had negative returns. Stocks seemed to perform irrespective of economic sensitivity, with materials (cyclically exposed) and consumer staples (considered to be defensive, or non-cyclical) both performing well. Information technology and telecommunication services finished the year as the two worst performing industries.

Within such an environment, the Fund delivered poor results for the year under review. When 2002 started we earnestly believed the Fund was positioned well enough to weather any type of market. We believed the portfolio’s generally defensive nature and our holdings in what, in our opinion, represents the planet’s very best equity values, would protect it from all but the most severe market corrections. For the first half of the year, this was true, with Fund performance through May 2002 essentially flat. During that time, the Fund’s exposure to consumer staples, energy, utilities and materials stocks helped insulate

1. Source: Standard & Poor’s Micropal. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

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shareholders from the ongoing downturn in technology, telecommunications and media companies. But as deflation and macroeconomic worries grew, even these successful sectors succumbed to selling pressure. During 2002’s third quarter, global markets posted terrible performance, and the Fund suffered double-digit losses. The final months of the year offered only a partial rebound, thanks to minor improvements on the economic and accounting fronts and closure of the mid-term U.S. elections. Specifically, our large holdings of inexpensive food retailers, including Albertson’s and Kroger, weakened with signs of deflation. Philips Electronics and Cheung Kong Holdings, two of our long-time favorites we believe offer solid fundamentals and cash generating businesses, were not able to stave off investor ire, and fell dramatically in 2002’s third quarter.

We remained nearly fully invested all year, taking profits in select Asian banks such as HSBC and Australia and New Zealand Banking Group, consumer staples such as Procter & Gamble and Newell Rubbermaid, chemicals companies DSM and Lyondell Chemical, and some energy companies. We reinvested the proceeds into companies we believed offered better risk/reward profiles. For the first time in many years we bought technology and pharmaceutical companies that carried valuations we previously deemed too high. We selectively initiated small positions in both sectors early in the year and added to them on weakness. Admittedly, we were too early in our buying, and in hindsight the Fund would have performed better for the year had we simply waited until the end of September on any purchases. But we have never been market timers, and as long as valuations appear attractive and our in-depth analysis supports investment, we seize individual opportunities as they come, confident their value will eventually be recognized.

Portions of our insurance, technology and pharmaceutical exposure performed poorly. Together with telecommunications exposure, these four areas provided the most drag on Fund performance. Our exposure to large property casualty insurers in North America and to AAA-rated European reinsurers experienced dramatic price pressure over the summer as well. Although the ability of insurance companies to increase pricing appears to be improving as competition declines, European insurers typically carry much higher equity exposure, and in the late summer sell-off they were pummeled as rumors circulated they would have to reduce these stakes near what turned out to be market lows.

Top 10 Holdings

Templeton Growth

Securities Fund

12/31/02

Company *Sector/Industry,* *Country*		% of Total Net Assets


Eni SpA		2.0%
Oil & Gas, Italy

Shell Transport & Trading Co. PLC		2.0%
Oil & Gas, U.K.

General Mills Inc.		1.7%
Food Products, U.S.

KT Corp., ADR		1.6%
Diversified Telecommunication Services, South Korea

BHP Billiton PLC		1.6%
Metals & Mining, Australia

Samsung Electronics Co. Ltd.		1.6%
Semiconductor Equipment & Products, South Korea

UBS AG		1.5%
Banks, Switzerland

Cheung Kong Holdings Ltd.		1.5%
Real Estate, Hong Kong

Nippon Telegraph & Telephone Corp.		1.5%
Diversified Telecommunication Services, Japan

Pharmacia Corp.		1.5%
Pharmaceuticals, U.S.

The dollar value, number of shares or
principal amount, and complete legal
titles of all portfolio holdings are listed in
the Fund’s Statement of Investments.

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In technology, tight corporate information technology (IT) budgets and technology saturation meant our investments in related companies such as IT storage company EMC, contract manufacturer Celestica and software consultant EDS were too early. We were simply wrong on others, such as contract manufacturer Solectron, as we underestimated their loss of business to lower-cost Asian competitors. We found moderate success with contract manufacturer Jabil Circuit and Indian software company Satyam Computer. Despite holding what may seem like many companies, our general lack of comfort with valuations in much of the technology sector meant our overall technology weighting stayed significantly below that of the MSCI AC World Free Index’s 11% weighting as of December 31, 2002.

Fears of patent expiration and accounting worries pushed pharmaceutical companies to valuation levels not seen since the mid-1990s. Although patent expiration is a real issue, we were able to identify individual companies that we feel successfully funded research and development to update their drug pipelines, and after a temporary period of weakness should not only survive but in our opinion excel at tapping future markets. We did sell two pharmaceutical holdings entirely after significant losses. Our investment in Irish company Elan plunged as a weaker operating environment quickly deteriorated into a liquidity crunch exacerbated by the revelation that Elan’s management had hidden underperforming divisions from the public. And we took advantage of a better risk/reward profile to sell Germany’s Merck, and invested the proceeds in French life sciences company Aventis.

Telecommunications was the world’s second worst-performing sector according to MSCI, down about 28% in dollar terms. Not only did the underlying businesses contract dramatically, particularly in the U.S., but we saw several instances of fraud and rumors of fraud that caught investors off guard. While we feel fortunate to have sold WorldCom before it went into bankruptcy, frankly this stock had already hurt the portfolio’s returns.

On December 31, 2002, the Fund’s largest country weighting was in the U.S. (at 30.1% of total net assets), well below the global benchmark’s weighting, and only two of our top ten holdings were domiciled there (General Mills and Pharmacia). Although the U.S. exposure was fairly stable all year long, many of the names changed. We sold or trimmed several companies that posted solid performance early in the year like insurance companies Allstate and Torchmark, and sold

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consumer powerhouse Procter & Gamble and defense company Raytheon after they reached our valuation targets.

We remain wary about the U.S. economy. The U.S. consumer is the largest single driver of its economy, and by extension the global economy. Yet it is difficult to expect sustained incremental consumer spending given the year’s already strong housing and durable goods sales. Longer-term, the current account deficit and high consumer debt levels are problematic for a strong recovery. Importantly, although stock prices have dropped dramatically so have the underlying operating fundamentals, and we find stock valuations are still on the expensive side, particularly in technology.

Europe’s stock markets performed slightly better than those of the U.S., but country performance varied significantly. The U.K. and Spanish markets, where the Fund held 12.2% and 4.9% of total net assets at year-end, each fell about 15%. Meanwhile, German chancellery elections and heavy index exposure to financials and telecommunications dragged that market down nearly 33%, making Germany one of Europe’s worst performing markets. However, careful stock selection in sectors we believe are undervalued and defensive sectors like consumer staples Unilever, Nestle and Marks & Spencer supported Fund returns. Our European energy and utility stock selections from years past finally bore fruit, with investments in Italian oil company Eni and petroleum giant Shell benefiting from restructuring efforts and stronger oil prices. While Europe is plagued by slower growth and poor demographics relative to Asia or North America, we think valuations were significantly more attractive at period-end. Furthermore, Europe offers solidly run multinational companies that have been far less aggressive at boosting operating performance with accounting gimmickry, in our analysis. We believe that as global recovery takes hold, these companies and their relatively undemanding valuations will again attract investor attention. We typically do not hedge currencies as our studies show the hedging costs to be high and that holding a basket of currencies aids diversification. Keeping this in mind, at year-end 2002 the Fund’s largest regional exposure was to Europe, and despite Europe’s lackluster performance in 2002, as the U.S. dollar’s value eroded against many currencies — especially the euro — our unhedged exposure benefited investors.

In Asia at year-end, the Fund’s three largest country weightings were South Korea (6.1% of total net assets), Japan (4.6%) and Hong Kong (4.5%). South Korea was one of the few markets to post positive performance and our exposure to Samsung Electronics and KT Corp. delivered strong results.

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These companies moved into the Fund’s top 10 holdings for the first time. Hong Kong has typically been our largest weighting in Asia, but deflationary pressures from China and higher unemployment held back this market in 2002. Additionally, we sold some of our Hong Kong Electric and HSBC Holdings shares on strength. Additions in the region included conglomerate Hutchison Whampoa, one of Hong Kong’s oldest port operators, and China Mobile, China’s largest mobile phone operator.

Japanese stocks had relatively low representation in the Fund, and most of the reasons have not changed. Valuations, while more compelling to us than years ago in some cases, are still hampered by the need for genuine reform, and many companies have yet to undertake any serious restructuring. Political gridlock is preventing the banking system from clearing away its bad debts, so that viable lending can commence and allow Japan to grow again.

In conclusion, stimulation from lower interest rates, tax cuts and government spending should help the global economy. We expect 2003 to be a year of stabilization, underpinned by modest economic growth and moderately improving corporate profits, but we think a smooth transition is unlikely. As always, our near-term focus will be applying our bottom-up investment process to identify stocks selling at low valuations that also have the potential to benefit our clients over the longer term.

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PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Growth Securities Fund – Class 1

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (3/15/94)


Cumulative Total Return	-18.32%	+8.53%	+73.71%

Average Annual Total Return	-18.32%	+1.65%	+6.48%

Value of $10,000 Investment	$8,168	$10,853	$17,371

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (3/15/94–12/31/02)

The graph compares the performance of Templeton Growth Securities Fund – Class 1 and the Morgan Stanley Capital International (MSCI) All Country World Free Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

*Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Growth Securities Fund – Class 1

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

Past performance does not guarantee future results.

128

PERFORMANCE SUMMARY AS OF 12/31/02

Templeton Growth Securities Fund – Class 2*

Periods ended 12/31/02

	1-Year	5-Year	Since Inception (3/15/94)


Cumulative Total Return	-18.49%	+7.49%	+72.05%

Average Annual Total Return	-18.49%	+1.46%	+6.36%

Value of $10,000 Investment	$8,151	$10,749	$17,205

Ongoing market volatility can significantly affect short-term performance; recent returns may differ.

Total Return Index Comparison

for $10,000 Investment (3/15/94–12/31/02)

The graph compares the performance of Templeton Growth Securities Fund – Class 2* and the Morgan Stanley Capital International (MSCI) All Country World Free Index. One cannot invest directly in an index, nor is an index representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

LOGO

**Source: Standard & Poor’s Micropal. Please see Index Descriptions following the Fund Summaries.

Templeton Growth Securities Fund – Class 2

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

129

Past performance does not guarantee future results.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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INDEX DESCRIPTIONS

The indexes are unmanaged and include reinvested distributions.

Consumer Price Index (CPI) is a measure of the average change in prices for a fixed basket of goods and services regularly bought by consumers in the U.S.; published by the Bureau of Labor Statistics.

Credit Suisse First Boston (CSFB) High Yield Index is a trader-priced portfolio constructed to mirror the high yield debt market.

Dow Jones Industrial Average (the Dow^®) is price-weighted based on the average market price of 30 blue chip stocks of companies that are generally industry leaders. Total return for the Dow is calculated by Wilshire Associates, Inc.

J.P. Morgan Emerging Markets Bond Index Global (EMBIG) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans and Eurobonds.

J.P. Morgan EMU Government Bond Index is a euro-aggregated index weighted by market capitalization. The index includes only liquid bullet euro-denominated fixed-rate debt, which has been issued by participating governments. No callable, puttable or convertible features are allowed. Bonds must have at least 12 months remaining maturity. The EMU bond index is fully invested. All coupons received are immediately invested back into the entire index until the next index rebalancing.

J.P. Morgan Global Government Bond Index (JPM GGBI) tracks total returns of government bonds in developed countries globally. The bonds included in the index are weighted according to their market capitalization. The index is unhedged and expressed in terms of $U.S.

J.P. Morgan U.S. Government Bond Total Return Index includes only actively traded fixed-rate bonds with a remaining maturity of one year or longer.

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Lehman Brothers Government/Credit Index includes fixed-rate debt issues rated investment grade or higher by Moody’s, S&P or Fitch, in that order. All issues have at least one year to maturity and an outstanding par value of at least $100 million for U.S. government securities and $50 million for all others. All returns are market value-weighted inclusive of accrued interest. The index includes those issues in the Lehman Brothers Government Bond Index and Corporate Bond Index. The index includes those issues of the U.S. government and agencies thereof, domestic corporate issues and foreign dollar denominated issues. All issues included are Baa/BBB or better. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization.

Lehman Brothers Intermediate Government Bond Index includes fixed-rate debt issues rated investment grade or higher by Moody’s, S&P or Fitch, in that order. All issues have at least one year to maturity and an outstanding par value of at least $100 million for U.S. government issues. All returns are market value-weighted inclusive of accrued interest. The Government Bond Index includes issues of the U.S. government or any agency thereof. It includes only issues with a remaining term to maturity of less than 10 years. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization.

Lehman Brothers U.S. Aggregate Index includes fixed-rate debt issues rated investment grade or higher by Moody’s, S&P or Fitch, in that order. All issues have at least one year to maturity and an outstanding par value of at least $100 million for U.S. government issues and $50 million for all others. All returns are market value-weighted inclusive of accrued interest. The index is a composite of the Government/Cor-

porate Index and the Mortgage-Backed Securities Index. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization.

Lipper Target Maturity Funds Average is an equally weighted average calculation of performance figures for all funds within the Lipper Target Maturity Funds classification. Lipper Target Maturity Funds invest principally in zero coupon U.S. Treasury securities or in coupon-bearing U.S. government securities targeted to mature in a specific year.

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Lipper VIP Equity Income Funds Average is an equally weighted average calculation of performance figures for all funds within the Lipper Equity Income Funds classification in the Lipper VIP underlying funds universe. Lipper Equity Income Funds are defined as funds that seek relatively high current income and growth of income through investing at least 65% of their portfolio in dividend paying equity securities. As of 12/31/02, there were 51 funds in this category. Lipper calculations do not include contract fees, expenses or sales charges, and may have been different if such charges had been considered.

Lipper VIP Income Funds Average is an equally weighted average calculation of performance figures for all funds within the Lipper Income Funds classification in the Lipper VIP underlying funds universe. Lipper Income Funds are defined as funds that normally seek a high level of current income through investing in income-producing stocks, bonds and money market instruments. As of 12/31/02, there were 10 funds in this category. Lipper calculations do not include contract fees, expenses or sales charges, and may have been different if such charges had been considered.

Lipper VIP Multi-Cap Value Funds Average is an equally weighted average calculation of performance figures for all funds within the Lipper Multi-Cap Value Funds classification in the Lipper VIP underlying funds universe. Lipper Multi-Cap Value Funds are defined as funds that invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. As of 12/31/02, there were 91 funds in this category. Lipper calculations do not include contract fees, expenses or sales charges, and may have been different if such charges had been considered.

Lipper VIP General U.S. Government Funds Average is an equally weighted average calculation of performance figures for all funds within the Lipper U.S. Government Funds classification in the Lipper VIP underlying funds universe. Lipper U.S. Government Funds are defined as funds that invest at least 65% of their assets in securities issued or guaranteed by the U.S. government, its agencies or its instrumentalities. As of 12/31/02, there were 44 funds in this category. Lipper calculations do not include contract fees, expenses or sales charges, and may have been different if such charges had been considered.

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Merrill Lynch Treasury 5- and 10-Year Zero Coupon Bond Total Return Indexes include zero coupon bonds that pay no interest and are issued at a discount from redemption price.

Morgan Stanley Capital International (MSCI) All Country (AC) World Free Index is market capitalization-weighted and measures the total returns of equity securities available to foreign (non-local) investors in the developed and emerging markets globally.

Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is market capitalization-weighted and measures the total returns of equity securities in emerging markets globally. Only securities available to foreign (non-local) investors are included.

Morgan Stanley Capital International (MSCI) Europe Australasia Far East (EAFE) Index is market capitalization-weighted and measures the total returns of equity securities in the developed markets in Europe, Australasia and the Far East.

Morgan Stanley Capital International (MSCI) World Index is market capitalization-weighted and measures the total returns of equity securities in the developed markets globally.

Nasdaq Telecommunications Index contains all types of telecommunications companies, including point-to-point communication services and radio and television broadcast, and companies that manufacture communication equipment and accessories. On November 1, 1993, the Nasdaq Utility Index was renamed the Nasdaq Telecommunications Index.

National Association of Securities Dealers Automated Quotations (Nasdaq) Composite Index measures all domestic and international common stocks listed on the Nasdaq Stock Market. The index is market value-weighted and includes over 4,000 companies.

Russell 1000^® Index is market capitalization-weighted and measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represented approximately 92% of the total market capitalization of the Russell 3000 Index, as of 6/30/02.

Russell 2000^® Growth Index is market capitalization-weighted and measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

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Russell 2000 Index is market capitalization-weighted and measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represented approximately 8% of the total market capitalization of the Russell 3000 Index, as of 6/30/02.

Russell 2000 Value Index is market capitalization-weighted and measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

Russell 2500^™ Growth Index is market capitalization-weighted and measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 3000^® Growth Index is market capitalization-weighted and measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values.

Russell 3000 Index is market capitalization-weighted and measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represented approximately 98% of the investable U.S. equity market, as of 6/30/02.

Russell 3000 Value Index is market capitalization-weighted and measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values.

Russell Midcap^® Value Index is market capitalization-weighted and measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values.

S&P/International Finance Corporation (IFC) Investable Composite Index measures the total return with dividends reinvested of equity securities in emerging markets globally. Securities’ weights are adjusted to reflect only the portion of the market capitalization available to foreign (non-local) investors. Securities included are weighted according to their adjusted market capitalization (outstanding investable shares times price).

Standard & Poor’s 500 Composite Index (S&P 500) consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock’s weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance.

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Standard & Poor’s (S&P) Midcap 400 Index consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. Each stock’s weight in the index is proportionate to its market value.

Standard & Poor’s (S&P) Smallcap 600 Index consists of 600 domestic stocks chosen for market size, liquidity and industry group representation. Each stock’s weight in the index is proportionate to its market value.

Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as real estate investment trusts (REITs) and real estate operating companies (REOCs). The index is capitalization-weighted and rebalanced monthly, and returns are calculated on a buy-and-hold basis.

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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights

	Per share operating performance																								Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net invest- ment income (loss)ⁱ			Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distri- butions from net realized gains			Total distri- butions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income (loss) to average net assets		Portfolio turnover rate

Franklin Aggressive Growth Securities Fund
Class 1
2000^g	$	10.00	$	.02		$	(2.43	)	$	(2.41	)	$	—		$	—		$	—		$	7.59	(24.10	)%	$	13,021	.90	%^a	.35	%^a	86.65	%
2001		7.59		(.02	)		(1.69	)		(1.71	)		(.01	)		—			(.01	)		5.87	(22.67	)		8,294	.85		(.38	)	182.27
2002		5.87		(.03	)		(2.07	)		(2.10	)		—			—			—			3.77	(35.67	)		4,801	1.04		(.75	)	117.74
Class 2
2001^c		7.48		(.04	)		(1.57	)		(1.61	)		(.01	)		—			(.01	)		5.86	(22.81	)		2	1.10	^a	(.75	)^a	182.27
2002		5.86		(.05	)		(2.06	)		(2.11	)		—			—			—			3.75	(35.73	)		2	1.29		(1.00	)	117.74

Franklin Global Communications Securities Fund
Class 1
1998		20.33		.76			1.41			2.17			(.83	)		(1.22	)		(2.05	)		20.45	11.19			986,755	.50		3.15		33.85
1999		20.45		.37			6.91			7.28			(.84	)		(2.03	)		(2.87	)		24.86	39.42			987,011	.51		1.81		87.53
2000		24.86		.11			(6.77	)		(6.66	)		(.50	)		(4.82	)		(5.32	)		12.88	(32.85	)		523,288	.52		.54		117.99
2001		12.88		.04			(3.55	)		(3.51	)		(.01	)		(2.49	)		(2.50	)		6.87	(29.24	)		265,055	.55		.46		105.36
2002		6.87		.04			(2.33	)		(2.29	)		(.05	)		—			(.05	)		4.53	(33.28	)		130,255	.60		.83		97.75
Class 2
1999^e		21.02		.26			6.37			6.63			(.84	)		(2.03	)		(2.87	)		24.78	35.17			491	.77	^a	1.24	^a	87.53
2000		24.78		.05			(6.72	)		(6.67	)		(.43	)		(4.82	)		(5.25	)		12.86	(32.97	)		499	.77		.29		117.99
2001		12.86		.02			(3.54	)		(3.52	)		(.01	)		(2.49	)		(2.50	)		6.84	(29.40	)		312	.80		.21		105.36
2002		6.84		.03			(2.32	)		(2.29	)		(.04	)		—			(.04	)		4.51	(33.52	)		1,490	.85		.58		97.75

Franklin Growth and Income Securities Fund
Class 1
1998		21.01		.69			.99			1.68			(.69	)		(1.64	)		(2.33	)		20.36	8.33			1,318,743	.49		3.27		27.32
1999		20.36		.57			(.16	)		.41			(.79	)		(2.20	)		(2.99	)		17.78	1.10			964,553	.49		2.94		39.80
2000		17.78		.45			2.26			2.71			(1.17	)		(2.16	)		(3.33	)		17.16	17.99			810,837	.50		2.75		66.82
2001		17.16		.37	^l		(.70	)^l		(.33	)		(.05	)		(1.51	)		(1.56	)		15.27	(2.02	)		646,851	.51		2.31	^l	119.78
2002		15.27		.39			(2.58	)		(2.19	)		(.42	)		(.84	)		(1.26	)		11.82	(15.53	)		455,680	.53		2.85		96.61
Class 2
1999^e		20.71		.47			(.46	)		.01			(.79	)		(2.20	)		(2.99	)		17.73	(.86	)		789	.75	^a	2.55	^a	39.80
2000		17.73		.40			2.27			2.67			(1.11	)		(2.16	)		(3.27	)		17.13	17.79			2,311	.75		2.46		66.82
2001		17.13		.33	^l		(.70	)^l		(.37	)		(.05	)		(1.51	)		(1.56	)		15.20	(2.28	)		11,789	.76		2.13	^l	119.78
2002		15.20		.34			(2.54	)		(2.20	)		(.42	)		(.84	)		(1.26	)		11.74	(15.72	)		38,379	.78		2.60		96.61

Franklin High Income Fund
Class 1
1998		14.45		1.43			(1.25	)		.18			(1.27	)		(.08	)		(1.35	)		13.28	.99			446,609	.53		9.96		41.71
1999		13.28		1.24			(1.19	)		.05			(3.03	)		(.44	)		(3.47	)		9.86	(.07	)		314,131	.54		9.97		22.17
2000		9.86		1.08			(2.36	)		(1.28	)		(.04	)		—			(.04	)		8.54	(13.00	)		189,986	.57		11.43		20.37
2001		8.54		.87	^l		(.50	)^l		.37			(1.47	)		—			(1.47	)		7.44	4.26			151,924	.62		10.63	^l	30.03
2002		7.44		.63			(1.30	)		(.67	)		(1.10	)		—			(1.10	)		5.67	(9.55	)		111,746	.63		9.92		56.01
Class 2
1999^e		13.36		1.11			(1.18	)		(.07	)		(3.02	)		(.44	)		(3.46	)		9.83	(.96	)		448	.80	^a	9.51	^a	22.17
2000		9.83		1.04			(2.33	)		(1.29	)		(.04	)		—			(.04	)		8.50	(13.15	)		432	.82		11.16		20.37
2001		8.50		.84	^l		(.48	)^l		.36			(1.45	)		—			(1.45	)		7.41	4.18			832	.87		10.39l		30.03
2002		7.41		.56			(1.25	)		(.69	)		(1.10	)		—			(1.10	)		5.62	(9.96	)		7,326	.88		9.67		56.01

137

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

	Per share operating performance																								Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net invest-ment incomeⁱ			Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distri- butions from net realized gains			Total distri- butions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income to average net assets		Portfolio turnover rate


Franklin Income Securities Fund
Class 1
1998	$	18.37	$	1.37		$	(1.07	)	$	.30		$	(1.42	)	$	(.33	)	$	(1.75	)	$	16.92	1.64	%	$	1,185,840	.49	%	6.94	%	12.22	%
1999		16.92		1.19			(1.43	)		(.24	)		(1.46	)		(.53	)		(1.99	)		14.69	(1.82	)		775,116	.50		7.41		11.89
2000		14.69		1.17			1.40			2.57			(1.85	)		(.71	)		(2.56	)		14.70	19.77			647,370	.50		8.21		23.92
2001		14.70		1.09	^l		(.92	)^l		.17			(1.03	)		(.88	)		(1.91	)		12.96	.98			527,047	.53		7.90	^l	32.52
2002		12.96		.90			(.89	)		.01			(1.23	)		(.26	)		(1.49	)		11.48	(.37	)		427,036	.53		7.40		62.00
Class 2
1999^e		17.07		1.10			(1.53	)		(.43	)		(1.46	)		(.53	)		(1.99	)		14.65	(2.93	)		1,302	.75	^a	7.36	^a	11.89
2000		14.65		1.14			1.39			2.53			(1.81	)		(.71	)		(2.52	)		14.66	19.43			2,534	.75		7.99		23.92
2001		14.66		1.03	^l		(.90	)^l		.13			(1.03	)		(.88	)		(1.91	)		12.88	.76			9,067	.78		7.68	^l	32.52
2002		12.88		.84			(.86	)		(.02	)		(1.22	)		(.26	)		(1.48	)		11.38	(.61	)		70,130	.78		7.15		62.00

Franklin Large Cap Growth Securities Fund
Class 1
1998		13.42		.10			2.62			2.72			(.06	)		—			(.06	)		16.08	20.29			220,952	.77		1.00		12.17
1999		16.08		.11			4.96			5.07			(.08	)		—			(.08	)		21.07	31.65			407,515	.77		.63		41.78
2000		21.07		.09			1.14			1.23			(.11	)		(1.16	)		(1.27	)		21.03	5.75			431,384	.78		.43		70.16
2001		21.03		.10			(2.13	)		(2.03	)		(.11	)		(4.37	)		(4.48	)		14.52	(11.26	)		300,135	.78		.56		75.67
2002		14.52		.09			(3.41	)		(3.32	)		(.10	)		—			(.10	)		11.10	(22.94	)		175,917	.80		.73		59.65
Class 2
1999^e		16.47		.04			4.58			4.62			(.08	)		—			(.08	)		21.01	28.11			542	1.02	^a	.22	^a	41.78
2000		21.01		.03			1.13			1.16			(.08	)		(1.16	)		(1.24	)		20.93	5.46			1,081	1.03		.17		70.16
2001		20.93		.05			(2.12	)		(2.07	)		(.06	)		(4.37	)		(4.43	)		14.43	(11.43	)		5,290	1.03		.30		75.67
2002		14.43		.07			(3.40	)		(3.33	)		(.10	)		—			(.10	)		11.00	(23.19	)		30,289	1.05		.48		59.65

Franklin Money Market Fund
Class 1
1998		1.00		.05			—			.05			(.05	)		—			(.05	)		1.00	5.22			414,341	.45	^j	5.08		—
1999		1.00		.05			—			.05			(.05	)		—			(.05	)		1.00	4.76			364,028	.53		4.64		—
2000		1.00		.06			—			.06			(.06	)		—			(.06	)		1.00	5.95			274,580	.55		5.75		—
2001		1.00		.04			—			.04			(.04	)		—			(.04	)		1.00	3.91			200,911	.56		3.89		—
2002		1.00		.01			—			.01			(.01	)		—			(.01	)		1.00	1.33			119,819	.63		1.37		—
Class 2
1999^e		1.00		.04			—			.04			(.04	)		—			(.04	)		1.00	4.39			8,602	.79	^a	4.51	^a	—
2000		1.00		.06			—			.06			(.06	)		—			(.06	)		1.00	5.69			21,609	.79		5.59		—
2001		1.00		.04			—			.04			(.04	)		—			(.04	)		1.00	3.65			952	.81		3.52		—
2002		1.00		.01			—			.01			(.01	)		—			(.01	)		1.00	1.08			479	.88		1.12		—

Franklin Real Estate Fund
Class 1
1998		25.60		1.45			(5.60	)		(4.15	)		(.94	)		(.58	)		(1.52	)		19.93	(16.82	)		282,290	.54		5.44		13.21
1999		19.93		.88			(1.77	)		(.89	)		(1.73	)		(2.39	)		(4.12	)		14.92	(6.14	)		158,553	.58		4.83		10.27
2000		14.92		.84			3.55			4.39			(1.15	)		(.69	)		(1.84	)		17.47	31.95			153,203	.60		5.29		16.41
2001		17.47		.74			.65			1.39			(.72	)		—			(.72	)		18.14	8.19			134,058	.59		4.25		34.21
2002		18.14		.75			(.30	)		.45			(.54	)		—			(.54	)		18.05	2.25			112,991	.57		4.23		18.13

138

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

Year ended	Per share operating performance																								Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net investment income (loss)ⁱ			Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distributions from net realized gains			Total distributions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income (loss) to average net assets		Portfolio turnover rate
Franklin Real Estate Fund (cont.)
Class 2
1999^e	$	20.21	$	1.29		$	(2.50	)	$	(1.21	)	$	(1.73	)	$	(2.39	)	$	(4.12	)	$	14.88	(7.66	)%	$	2,449	.83	%^a	8.84	%^a	10.27	%
2000		14.88		.93			3.41			4.34			(1.15	)		(.69	)		(1.84	)		17.38	31.59			23,743	.85		5.75		16.41
2001		17.38		.80			.52			1.32			(.71	)		—			(.71	)		17.99	7.88			95,891	.84		4.60		34.21
2002		17.99		.76			(.35	)		.41			(.52	)		—			(.52	)		17.88	2.07			249,116	.82		3.98		18.13
Franklin Rising Dividends Securities Fund
Class 1
1998		19.68		.23			1.07			1.30			(.22	)		(2.65	)		(2.87	)		18.11	6.92			751,869	.72		1.20		26.44
1999		18.11		.22			(1.57	)		(1.35	)		(.29	)		(2.86	)		(3.15	)		13.61	(9.70	)		450,549	.75		1.35		5.32
2000		13.61		.20			2.18			2.38			(.50	)		(2.26	)		(2.76	)		13.23	21.05			363,485	.78		1.66		12.26
2001		13.23		.18			1.60			1.78			(.01	)		(.81	)		(.82	)		14.19	13.90			347,336	.76		1.36		11.78
2002		14.19		.16			(.30	)		(.14	)		(.19	)		(.29	)		(.48	)		13.57	(1.32	)		292,881	.78		1.11		14.06
Class 2
1999^e		18.28		.17			(1.74	)		(1.57	)		(.29	)		(2.86	)		(3.15	)		13.56	(10.84	)		549	1.01	^a	1.15	^a	5.32
2000		13.56		.17			2.17			2.34			(.46	)		(2.26	)		(2.72	)		13.18	20.71			1,041	1.03		1.44		12.26
2001		13.18		.15			1.58			1.73			(.01	)		(.81	)		(.82	)		14.09	13.57			11,831	1.01		1.13		11.78
2002		14.09		.13			(.31	)		(.18	)		(.18	)		(.29	)		(.47	)		13.44	(1.58	)		63,879	1.03		.86		14.06
Franklin S&P 500 Index Fund
Class 1
1999^f		10.00		.03			.53			.56			—			—			—			10.56	5.60			14,888	.55	^a,j	1.77	^a	—
2000		10.56		.11			(1.00	)		(.89	)		(.01	)		—			(.01	)		9.66	(8.47	)		45,106	.32		1.06		15.85
2001		9.66		.09			(1.28	)		(1.19	)		(.08	)		—	ⁿ		(.08	)		8.39	(12.31	)		43,643	.36		1.05		23.15
2002		8.39		.09			(1.94	)		(1.85	)		(.10	)		—			(.10	)		6.44	(22.23	)		20,232	.28		1.29		28.69
Class 2
1999^f		10.00		.04			.51			.55			—			—			—			10.55	5.50			88	.80	^a,j	2.17	^a	—
2000		10.55		.08			(1.00	)		(.92	)		—	^m		—			—			9.63	(8.70	)		80	.59		.81		15.85
2001		9.63		.06			(1.27	)		(1.21	)		(.05	)		—	ⁿ		(.05	)		8.37	(12.72	)		1,592	.61		.77		23.15
2002		8.37		.08			(1.94	)		(1.86	)		(.10	)		—			(.10	)		6.41	(22.41	)		5,965	.53		1.04		28.69
Franklin Small Cap Fund
Class 1
1998		15.05		.07			(.20	)		(.13	)		(.01	)		(1.19	)		(1.20	)		13.72	(.98	)		315,460	.77		.51		53.01
1999		13.72		(.01	)		13.25			13.24			(.08	)		(.01	)		(.09	)		26.87	96.94			488,062	.77		(.05	)	39.49
2000		26.87		.11			(3.81	)		(3.70	)		—			(1.92	)		(1.92	)		21.25	(14.60	)		387,474	.75		.42		19.49
2001		21.25		.09			(3.28	)		(3.19	)		(.09	)		—			(.09	)		17.97	(15.02	)		266,694	.76		.50		37.94
2002		17.97		(.02	)		(5.09	)		(5.11	)		(.07	)		—			(.07	)		12.79	(28.52	)		164,350	.79		(.16	)	29.59
Class 2
1999^e		14.25		(.04	)		12.68			12.64			(.08	)		(.01	)		(.09	)		26.80	89.05			6,156	1.02	^a	(.18	)^a	39.49
2000		26.80		.12			(3.86	)		(3.74	)		—			(1.92	)		(1.92	)		21.14	(14.76	)		301,420	1.00		.49		19.49
2001		21.14		.03			(3.25	)		(3.22	)		(.07	)		—			(.07	)		17.85	(15.25	)		401,663	1.01		.19		37.94
2002		17.85		(.06	)		(5.05	)		(5.11	)		(.04	)		—			(.04	)		12.70	(28.68	)		415,952	1.04		(.41	)	29.59
Franklin Small Cap Value Securities Fund
Class 1
1998^d		10.00		.02			(2.23	)		(2.21	)		—			—			—			7.79	(22.10	)		9,013	.83	^a	.95	^a	22.79
1999		7.79		.05			.08			.13			(.02	)		—			(.02	)		7.90	1.65			11,320	.81		.65		61.23
2000		7.90		.10			1.89			1.99			(.03	)		—			(.03	)		9.86	25.23			19,455	.84		1.13		42.47
2001		9.86		.11			1.29			1.40			(.05	)		(.24	)		(.29	)		10.97	14.21			32,604	.77		1.07		40.54
2002		10.97		.07			(1.01	)		(.94	)		(.05	)		(.28	)		(.33	)		9.70	(9.05	)		28,720	.76		.63		5.11

139

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

	Per share operating performance																								Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net invest- ment income (loss)ⁱ			Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distri- butions from net realized gains			Total distri- butions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income (loss) to average net assets		Portfolio turnover rate

Franklin Small Cap Value Securities Fund (cont.)
Class 2
1999^e	$	7.97	$	.05		$	(.12	)	$	(.07	)	$	(.02	)	$	—		$	(.02	)	$	7.88	(.90	)%	$	1,263	1.06	%^a	.62	%^a	61.23	%
2000		7.88		.08			1.88			1.96			(.03	)		—			(.03	)		9.81	25.02			7,209	1.09		.90		42.47
2001		9.81		.08			1.28			1.36			(.04	)		(.24	)		(.28	)		10.89	13.79			34,282	1.02		.81		40.54
2002		10.89		.04			(1.00	)		(.96	)		(.04	)		(.28	)		(.32	)		9.61	(9.26	)		125,302	1.01		.38		5.11

Franklin Technology Securities Fund
Class 1
2000^g		10.00		(.02	)		(2.40	)		(2.42	)		—			—			—			7.58	(24.20	)		9,066	.99	^a	(.30	)^a	106.77
2001		7.58		(.01	)		(2.22	)		(2.23	)		—			—			—			5.35	(29.42	)		5,126	1.03		(.17	)	179.25
2002		5.35		(.03	)		(2.32	)		(2.35	)		—			—			—			3.00	(43.93	)		1,862	1.02		(.82	)	160.68
Class 2
2000^h		13.13		(.01	)		(5.55	)		(5.56	)		—			—			—			7.57	(42.35	)		1,855	1.24	^a	(.29	)^a	106.77
2001		7.57		(.03	)		(2.21	)		(2.24	)		—			—			—			5.33	(29.59	)		8,740	1.28		(.52	)	179.25
2002		5.33		(.04	)		(2.30	)		(2.34	)		—			—			—			2.99	(43.90	)		10,535	1.27		(1.07	)	160.68

Franklin U.S. Government Fund
Class 1
1998		13.92		.99			.01			1.00			(1.03	)		—			(1.03	)		13.89	7.44			710,832	.50		6.22		31.34
1999		13.89		.83			(.96	)		(.13	)		(1.98	)		—			(1.98	)		11.78	(.94	)		515,033	.51		6.25		7.90
2000		11.78		.79			.60			1.39			(.01	)		—			(.01	)		13.16	11.82			424,513	.52		6.48		6.28
2001		13.16		.80	^l		.17	^I		.97			(.97	)		—			(.97	)		13.16	7.62			392,453	.53		6.06	^l	35.94
2002		13.16		.71			.57			1.28			(.83	)		—			(.83	)		13.61	10.08			382,663	.54		5.34		86.86
Class 2
1999^e		13.89		.77			(.92	)		(.15	)		(1.96	)		—			(1.96	)		11.78	(1.10	)		1,877	.77	^a	5.95	^a	7.90
2000		11.78		.77			.57			1.34			(.01	)		—			(.01	)		13.11	11.39			3,961	.77		6.22		6.28
2001		13.11		.75	^l		.18	^l		.93			(.96	)		—			(.96	)		13.08	7.37			23,356	.78		5.69	^l	35.94
2002		13.08		.66			.57			1.23			(.82	)		—			(.82	)		13.49	9.77			136,875	.79		5.09		86.86

Franklin Zero Coupon Fund—2005
1998		17.05		1.01			1.03			2.04			(1.10	)		(.25	)		(1.35	)		17.74	12.53			84,487	.40	^j	5.82		3.87
1999		17.74		.98			(2.01	)		(1.03	)		(2.10	)		(.10	)		(2.20	)		14.51	(5.88	)		65,895	.65		5.93		15.87
2000		14.51		.93			.84			1.77			(.01	)		(.39	)		(.40	)		15.88	12.56			62,288	.66		6.27		32.88
2001		15.88		.94			.42			1.36			(1.04	)		(.18	)		(1.22	)		16.02	8.93			60,233	.68		5.87		2.02
2002		16.02		.94			.61			1.55			(1.02	)		(.12	)		(1.14	)		16.43	10.11			71,051	.68		5.85		12.63

Franklin Zero Coupon Fund—2010
1998		17.83		1.09			1.39			2.48			(1.11	)		(.15	)		(1.26	)		19.05	14.45			93,515	.40	^j	5.55		15.92
1999		19.05		.99			(3.24	)		(2.25	)		(2.14	)		(.51	)		(2.65	)		14.15	(12.24	)		66,049	.65		5.83		19.30
2000		14.15		.94			1.67			2.61			(.02	)		(.24	)		(.26	)		16.50	18.72			56,720	.65		6.28		34.39
2001		16.50		.92			(.06	)		86			(1.21	)		(.82	)		(2.03	)		15.33	5.62			51,002	.68		5.73		23.68
2002		15.33		.87			2.03			2.90			(.95	)		(.67	)		(1.62	)		16.61	20.10			68,489	.68		5.48		19.03

Mutual Discovery Securities Fund
Class 1
1998		12.17		.20			(.76	)		(.56	)		(.17	)		(.15	)		(.32	)		11.29	(5.00	)		224,656	1.01	^k	1.94		93.99
1999		11.29		.17			2.48			2.65			(.37	)		—			(.37	)		13.57	23.76			202,777	1.01	^k	1.42		104.69
2000		13.57		.26			1.14			1.40			(.42	)		—			(.42	)		14.55	10.45			191,051	1.02	^k	1.80		74.77
2001		14.55		.24			(.08	)		.16			(.30	)		(1.85	)		(2.15	)		12.56	.39			164,527	1.02	^k	1.76		64.58
2002		12.56		.19			(1.28	)		(1.09	)		(.19	)		(.22	)		(.41	)		11.06	(9.06	)		122,011	1.03	^k	1.55		47.46

140

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

	Per share operating performance																							Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net invest- ment income (loss)ⁱ		Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distri- butions from net realized gains			Total distri- butions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income to average net assets		Portfolio turnover rate

Mutual Discovery Securities Fund (cont.)
Class 2
1999^e	$	11.65	$	.11	$	2.15		$	2.26		$	(.37	)	$	—		$	(.37	)	$	13.54	19.68	%	$	413	1.27	%^a	.94	%^a	104.69	%
2000		13.54		.22		1.14			1.36			(.40	)		—			(.40	)		14.50	10.21			1,035	1.27	^k	1.59		74.77
2001		14.50		.13		.01			.14			(.29	)		(1.85	)		(2.14	)		12.50	.24			5,681	1.27	^k	1.03		64.58
2002		12.50		.16		(1.29	)		(1.13	)		(.18	)		(.22	)		(.40	)		10.97	(9.40	)		37,241	1.28	^k	1.30		47.46

Mutual Shares Securities Fund
Class 1
1998		12.18		.28		(.25	)		.03			(.13	)		(.12	)		(.25	)		11.96	.09			482,444	.79	^k	2.60		70.19
1999		11.96		.20		1.41			1.61			(.34	)		—			(.34	)		13.23	13.40			448,278	.79	^k	1.59		80.02
2000		13.23		.30		1.42			1.72			(.38	)		(.33	)		(.71	)		14.24	13.62			407,063	.80	^k	2.23		66.67
2001		14.24		.21		.86			1.07			(.29	)		(.94	)		(1.23	)		14.08	7.31			399,336	.79	^k	1.42		54.73
2002		14.08		.20		(1.78	)		(1.58	)		(.12	)		(.29	)		(.41	)		12.09	(11.56	)		288,928	.80	^k	1.57		49.80
Class 2
1999^e		12.36		.16		1.07			1.23			(.34	)		—			(.34	)		13.25	9.91			5,716	1.04	^a	1.26	^a	80.02
2000		13.25		.26		1.41			1.67			(.37	)		(.33	)		(.70	)		14.22	13.25			37,087	1.05	^k	1.96		66.67
2001		14.22		.15		.88			1.03			(.28	)		(.94	)		(1.22	)		14.03	7.04			262,621	1.04	^k	1.04		54.73
2002		14.03		.16		(1.77	)		(1.61	)		(.11	)		(.29	)		(.40	)		12.02	(11.81	)		589,738	1.05	^k	1.32		49.80

Templeton Developing Markets Securities Fund^o
Class 1
1998		6.63		.07		(1.42	)		(1.35	)		(.09	)		(.06	)		(.15	)		5.13	(20.94	)		180,684	1.66		1.67		23.22
1999		5.13		.05		2.67			2.72			(.08	)		—			(.08	)		7.77	53.84			297,605	1.50		.82		60.27
2000		7.77		.07		(2.52	)		(2.45	)		(.07	)		—			(.07	)		5.25	(31.76	)		301,645	1.56		1.13		89.48
2001		5.25		.08		(.50	)		(.42	)		(.05	)		—			(.05	)		4.78	(8.08	)		240,289	1.57		1.64		78.29
2002		4.78		.07		(.06	)		.01			(.08	)		—			(.08	)		4.71	.04			225,454	1.58		1.45		57.91
Class 2
1998		6.62		.07		(1.42	)		(1.35	)		(.09	)		(.06	)		(.15	)		5.12	(21.03	)		17,287	1.91		1.44		23.22
1999		5.12		.03		2.66			2.69			(.07	)		—			(.07	)		7.74	53.27			49,654	1.75		.52		60.27
2000		7.74		.06		(2.53	)		(2.47	)		(.05	)		—			(.05	)		5.22	(32.04	)		56,617	1.81		.88		89.48
2001		5.22		.07		(.49	)		(.42	)		(.04	)		—			(.04	)		4.76	(8.08	)		64,081	1.82		1.37		78.29
2002		4.76		.06		(.06	)		—			(.07	)		—			(.07	)		4.69	(.15	)		80,952	1.83		1.20		57.91

Templeton Foreign Securities Fund^p
Class 1
1998		20.18		.60		1.29			1.89			(.49	)		(.89	)		(1.38	)		20.69	9.33			980,470	.86		2.81		29.56
1999		20.69		.33		3.78			4.11			(.57	)		(1.98	)		(2.55	)		22.25	23.61			1,056,798	.85		1.69		30.04
2000		22.25		.40		(.95	)		(.55	)		(.43	)		(2.49	)		(2.92	)		18.78	(2.19	)		776,495	.87		2.08		32.81
2001		18.78		.23		(5.23	)		(5.00	)		(.26	)		(1.67	)		(1.93	)		11.85	(15.75	)		565,220	.90		1.59		20.00
2002		11.85		.22		(2.37	)		(2.15	)		(.19	)		—			(.19	)		9.51	(18.40	)		397,420	.88		1.97		28.12
Class 2
1998		20.14		.59		1.25			1.84			(.48	)		(.89	)		(1.37	)		20.61	9.08			39,886	1.11		2.69		29.56
1999		20.61		.25		3.78			4.03			(.53	)		(1.98	)		(2.51	)		22.13	23.23			101,365	1.10		1.26		30.04
2000		22.13		.31		(.90	)		(.59	)		(.38	)		(2.49	)		(2.87	)		18.67	(2.38	)		187,115	1.12		1.66		32.81
2001		18.67		.18		(5.21	)		(5.03	)		(.23	)		(1.67	)		(1.90	)		11.74	(15.99	)		225,505	1.15		1.32		20.00
2002		11.74		.17		(2.32	)		(2.15	)		(.17	)		—			(.17	)		9.42	(18.56	)		299,760	1.13		1.72		28.12

141

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

	Per share operating performance																								Ratios/supplemental data
Year ended	Net asset value, beginning of year		Net invest- ment incomeⁱ			Net realized & unrealized gains (losses)			Total from investment operations			Distributions from net investment income			Distri- butions from net realized gains			Total distri- butions			Net asset value, end of year		Total return^b		Net assets, end of year (000’s)		Ratio of expenses to average net assets		Ratio of net investment income to average net assets		Portfolio turnover rate

Templeton Global Asset Allocation Fund^q
Class 1
1998	$	22.35	$	.69		$	.75		$	1.44		$	(.66	)	$	(.67	)	$	(1.33	)	$	22.46	6.41	%	$	692,163	.78	%	2.88	%	43.18	%
1999		22.46		.44			3.78			4.22			(.50	)		(2.81	)		(3.31	)		23.37	22.86			671,549	.74		2.06		45.34
2000		23.37		.44			(.45	)		(.01	)		(.52	)		(3.62	)		(4.14	)		19.22	.29			628,244	.81		2.20		30.32
2001		19.22		.38	^l		(2.16	)^l		(1.78	)		(.26	)		(1.67	)		(1.93	)		15.51	(9.72	)		501,074	.81		2.28	^l	35.63
2002		15.51		.39			(1.01	)		(.62	)		(.30	)		—			(.30	)		14.59	(4.17	)		425,470	.81		2.56		27.27
Class 2
1998		22.32		.63			.74			1.37			(.64	)		(.67	)		(1.31	)		22.38	6.10			15,763	1.03		2.61		43.18
1999		22.38		.36			3.80			4.16			(.46	)		(2.81	)		(3.27	)		23.27	22.54			20,962	.99		1.71		45.34
2000		23.27		.37			(.43	)		(.06	)		(.46	)		(3.62	)		(4.08	)		19.13	.04			32,346	1.07		1.91		30.32
2001		19.13		.33	^l		(2.15	)^l		(1.82	)		(.23	)		(1.67	)		(1.90	)		15.41	(9.95	)		38,974	1.06		1.99	^l	35.63
2002		15.41		.34			(1.00	)		(.66	)		(.26	)		—			(.26	)		14.49	(4.39	)		39,926	1.06		2.31		27.27

Templeton Global Income Securities Fund
Class 1
1998		12.97		1.07			(.19	)		.88			(.98	)		—			(.98	)		12.87	7.08			150,941	.63		6.86		84.17
1999		12.87		.68			(1.42	)		(.74	)		(1.06	)		—			(1.06	)		11.07	(5.79	)		90,537	.65		5.65		80.76
2000		11.07		.68			(.20	)		.48			(.02	)		—			(.02	)		11.53	4.32			81,171	.72		6.22		40.43
2001		11.53		.59	^l		(.32	)^l		.27			(.41	)		—			(.41	)		11.39	2.55			63,781	.71		5.22	^l	122.45
2002		11.39		.59			1.83			2.42			(.14	)		—			(.14	)		13.67	21.44			50,622	.73		4.88		27.91
Class 2
1999^e		12.93		.60			(1.44	)		(.84	)		(1.05	)		—			(1.05	)		11.04	(6.53	)		443	.91	^a	5.36	^a	80.76
2000		11.04		.65			(.19	)		.46			(.02	)		—			(.02	)		11.48	4.14			1,237	.97		5.94		40.43
2001		11.48		.55	^l		(.31	)^l		.24			(.39	)		—			(.39	)		11.33	2.24			1,286	.96		4.95	^l	122.45
2002		11.33		.54			1.84			2.38			(.12	)		—			(.12	)		13.59	21.15			2,119	.98		4.63		27.91

Templeton Growth Securities Fund
Class 1
1998		15.34		.35			.98			1.33			(.41	)		(1.49	)		(1.90	)		14.77	8.98			747,080	.88		2.27		32.30
1999		14.77		.28			2.66			2.94			(.36	)		(1.72	)		(2.08	)		15.63	21.04			708,310	.88		1.87		46.54
2000		15.63		.30			(.15	)		.15			(.27	)		(1.75	)		(2.02	)		13.76	1.74			1,163,637	.88		2.18		69.67
2001		13.76		.26			(.36	)		(.10	)		(.28	)		(2.29	)		(2.57	)		11.09	(.98	)		966,725	.85		2.13		31.05
2002		11.09		.17			(2.13	)		(1.96	)		(.24	)		(.22	)		(.46	)		8.67	(18.32	)		665,537	.87		1.69		30.67
Class 2
1999^e		15.34		.17			2.17			2.34			(.36	)		(1.72	)		(2.08	)		15.60	16.35			4,483	1.14	^a	1.17	^a	46.54
2000		15.60		.25			(.15	)		.10			(.26	)		(1.75	)		(2.01	)		13.69	1.47			79,043	1.12		1.87		69.67
2001		13.69		.21			(.34	)		(.13	)		(.26	)		(2.29	)		(2.55	)		11.01	(1.31	)		113,925	1.10		1.80		31.05
2002		11.01		.13			(2.10	)		(1.97	)		(.23	)		(.22	)		(.45	)		8.59	(18.49	)		190,054	1.12		1.44		30.67

^a	Annualized

^b	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.

^c	For the period February 12, 2001 (effective date) to December 31, 2001.

^d	For the period May 1, 1998 (effective date) to December 31, 1998.

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

^f	For the period November 1, 1999 (effective date) to December 31, 1999.

^g	For the period May 1, 2000 (effective date) to December 31, 2000.

^h	For the period September 1, 2000 (effective date) to December 31, 2000.

ⁱ	Based on average shares outstanding effective year ended December 31, 1999, except for the Franklin Money Market Fund.

142

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Highlights (continued)

During the periods indicated below, Franklin Advisers, Inc., the investment manager, agreed in advance to waive a portion of its management fees and may assume payment of other expenses incurred by certain funds in the Trust. Had such action not been taken, the ratio of expenses to average net assets would have been as follows:

Franklin Money Market Fund		Franklin S&P 500 Index Fund			Franklin Zero Coupon Fund - 2005		Franklin Zero Coupon Fund - 2010
1998	.53%	Class 1			1998	.66%	1998	.66%
		1999^f	.98	%^a
		Class 2
		1999^f	1.23	^a

^kExcluding dividend expense on securities sold short, the ratios of expenses to average net assets would have been as follows:
Mutual Discovery Securities Fund		Mutual Shares Securities Fund
Class 1		Class 1
1998	1.00%	1998	.77	%
1999	.99	1999	.77
2000	.98	2000	.77
2001	1.00	2001	.78
2002	1.02	2002	.79
Class 2		Class 2
2000	1.23	2000	1.02
2001	1.25	2001	1.03
2002	1.27	2002	1.04

Effective January 1, 2001, the Trust adopted the provisions of the AICPA Audit and Accounting Guide of Investment Companies and began recording all paydown gains and losses as part of investment income and amortizing all premium and discount on fixed-income securities, as required. The effect of this change was as follows (data prior to January 1, 2001, has not been restated for this accounting policy change):

	Franklin Growth and Income Securities Fund		Franklin High Income Fund		Franklin Income Securities Fund		Franklin U.S. Government Fund		Templeton Global Asset Allocation Fund		Templeton Global Income Securities Fund

Class 1
Net investment income (loss) per share	$(.026	)	$(.004	)	$.008		$.016		$(.018	)	$(.059	)
Net realized and unrealized gains (losses) per share	.026		.004		(.008	)	(.016	)	.018		.059
Ratio of net investment income to average net assets	(.17	)%	(.05	)%	.06	%	.12	%	(.10	)%	(.53	)%

Class 2
Net investment income (loss) per share	$(.026	)	$(.004	)	$.008		$.016		$(.018	)	$(.059	)
Net realized and unrealized gains (losses) per share	.026		.004		(.008	)	(.016	)	.018		.059
Ratio of net investment income to average net assets	(.17	)%	(.05	)%	.06	%	.12	%	(.10	)%	(.53	)%

^m	Includes distributions of net investment income in the amount of $.002.

ⁿ	Includes distributions of capital gains in the amount of $.002.

^o	Financial highlights presented reflect historical financial information from Templeton Variable Products Series Fund (TVP) - Templeton Developing Markets Fund as a result of a merger on May 1, 2000.

^p	Financial highlights presented reflect historical financial information from TVP - Templeton International Fund as a result of a merger on May 1, 2000.

^q	Financial highlights presented reflect historical financial information from TVP - Templeton Asset Allocation Fund as a result of a merger on May 1, 2000.

See notes to financial statements.

143

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Statement of Investments, December 31, 2002

	Franklin Aggressive Growth Securities Fund	SHARES	VALUE

	Common Stocks 90.0%
	Commercial Services 4.4%
^a	Exult Inc.	13,000	$	41,340
	Fair, Isaac & Co. Inc.	1,972		84,205
^a	Lamar Advertising Co., A	2,500		84,125

				209,670

	Consumer Durables 1.1%
	Polaris Industries Inc.	900		52,740

	Consumer Services 6.6%
^a	eBay Inc.	1,300		88,166
^a	Entercom Communications Corp.	1,800		84,456
^a	Entravision Communications Corp.	7,000		69,860
^a	Univision Communications Inc., A	3,000		73,500

				315,982

	Electronic Technology 23.9%
^a	Applied Materials Inc.	4,400		57,332
^a	Avocent Corp.	3,300		73,326
^a	Dell Computer Corp.	3,500		93,590
^a	DRS Technologies Inc.	2,600		81,458
^a	Intersil Corp.	4,000		55,760
^a	L-3 Communications Holdings Inc.	1,900		85,329
^a	Lam Research Corp.	5,500		59,400
^a	Lexmark International Inc.	1,400		84,700
	Linear Technology Corp.	2,400		61,728
	Microchip Technology Inc.	2,600		63,570
^a	Network Appliance Inc.	5,200		52,000
^a	RF Micro Devices Inc.	8,000		58,640
	Rockwell Automation Inc.	2,700		55,917
^a	Semtech Corp.	4,000		43,680
^a	Tektronix Inc.	5,800		105,502
^a	Varian Semiconductor Equipment Associates Inc.	3,400		80,787
^a	Xicor Inc.	9,000		33,570

				1,146,289

	Finance 3.9%
	AMBAC Financial Group Inc.	900		50,616
	Charles Schwab Corp.	6,700		72,695
	Investors Financial Services Corp.	2,400		65,736

				189,047

	Health Services 2.4%
^a	Accredo Health Inc.	800		28,200
^a	Caremark RX Inc.	5,300		86,125

				114,325

	Health Technology 10.4%
^a	Abgenix Inc.	5,200		38,324
	Allergan Inc.	1,400		80,668
^a	Cubist Pharmaceuticals Inc.	6,300		51,849
^a	IDEC Pharmaceuticals Corp.	1,900		63,023
^a	Intermune Inc.	2,200		56,122
^a	MedImmune Inc.	3,500		95,095
	Pfizer Inc.	3,500		106,995
^a	Shire Pharmaceuticals Group PLC, ADR (United Kingdom)	500		9,445

				501,521

144

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Statement of Investments, December 31, 2002 (cont.)

Franklin Aggressive Growth Securities Fund		SHARES	VALUE

	Common Stocks (cont.)
	Industrial Services 3.3%
^a	Global Industries Ltd.	13,000	$	54,210
^a	Weatherford International Ltd.	2,600		103,818

				158,028

	Process Industries 1.8%
	Cabot Corp.	3,200		84,928

	Producer Manufacturing 4.0%
	Borg Warner Inc.	1,100		55,462
	Lennox International Inc.	5,500		69,025
	Oshkosh Truck Corp.	200		12,300
	Superior Industries International Inc.	1,400		57,904

				194,691

	Retail Trade 7.2%
^a	Abercrombie & Fitch Co., A	2,700		55,242
^a	Cost Plus Inc.	2,600		74,542
^a	Gymboree Corp.	3,600		57,096
	Home Depot Inc.	2,600		62,296
	Ross Stores Inc.	900		38,151
^a	Tuesday Morning Corp.	900		15,390
^a	Ultimate Electronics Inc.	4,500		45,675

				348,392

	Technology Services 19.5%
^a	Accenture Ltd., A (Bermuda)	4,000		71,960
^a	Affiliated Computer Services Inc., A	1,985		104,510
^a	Borland Software Corp.	2,000		24,600
^a	Cadence Design Systems Inc.	5,600		66,024
^a	Cognos Inc. (Canada)	1,700		39,865
^a	Entrust Inc.	18,000		60,480
^a	Inforte Corp.	8,048		62,372
^a	Mercury Interactive Corp.	1,700		50,405
^a	Microsoft Corp.	1,600		82,720
^a	Netiq Corp.	5,000		61,750
^a	Network Associates Inc.	5,600		90,104
	Paychex Inc.	2,600		72,540
^a	SPSS Inc.	600		8,394
^a	Verity Inc.	4,300		57,581
^a	Yahoo! Inc.	5,000		81,750

				935,055

	Transportation 1.5%
^a	Forward Air Corp.	3,800		73,758

	Total Common Stocks (Cost $5,033,892)			4,324,426

	Preferred Stock (Cost $5,962)
^a,b	Micro Photonix Integration Corp., pfd., C	944		—
	Total Long Term Investments (Cost $5,039,854)			4,324,426

	Short Term Investments (Cost $698,651) 14.6%
^c	Franklin Institutional Fiduciary Trust Money Market Portfolio	698,651		698,651

	Total Investments (Cost $5,738,505) 104.6%			5,023,077
	Other Assets, less Liabilities (4.6)%			(219,956	)

	Net Assets 100.0%		$	4,803,121

^a	Non-income producing

^b	See Note 9 regarding restricted securities.

^c	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

145

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Global Communications Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks 87.9%
	Advertising/Marketing Services 1.3%
	Interpublic Group of Cos. Inc.	United States	119,800	$	1,686,784

	Aerospace & Defense 2.5%
	General Dynamics Corp.	United States	40,900		3,246,233

	Broadcasting 6.1%
^a	Clear Channel Communications Inc.	United States	78,600		2,930,994
	Television Francaise 1	France	71,400		1,907,637
^a	Univision Communications Inc., A	United States	39,900		977,550
^a	USA Interactive	United States	94,800		2,172,816

					7,988,997

	Commercial Printing/Forms 1.9%
	R.R. Donnelley & Sons Co.	United States	111,900		2,436,063

	Computer Communications .4%
^a	3Com Corp.	United States	116,600		539,858

	Computer Processing Hardware 1.9%
^a	Apple Computer Inc.	United States	177,900		2,549,307

	Data Processing Services 3.4%
^a	Convergys Corp.	United States	143,200		2,169,480
	First Data Corp.	United States	66,400		2,351,224

					4,520,704

	Electronic Equipment/Instruments 2.6%
	Scientific-Atlanta Inc.	United States	44,800		531,328
^a	Tektronix Inc.	United States	156,900		2,854,011

					3,385,339

	Electronics/Appliance Stores .2%
	RadioShack Corp.	United States	13,900		260,486

	Financial Publishing/Services 4.0%
^a	Dun & Bradstreet Corp.	United States	76,400		2,635,036
	The McGraw-Hill Cos. Inc.	United States	29,500		1,782,980
	Reuters Group PLC, ADR	United Kingdom	53,100		913,320

					5,331,336

	Information Technology Services 2.2%
	International Business Machines Corp.	United States	37,150		2,879,125

	Internet Software/Services .8%
^a	Check Point Software Technologies Ltd.	Israel	81,600		1,058,352

	Major Telecommunications 27.7%
^a	Alaska Communications Systems Holdings Inc.	United States	180,800		332,672
	Alltel Corp.	United States	87,700		4,472,700
	AT&T Corp.	United States	48,300		1,261,113
	BellSouth Corp.	United States	106,200		2,747,394
^a	Broadwing Inc.	United States	161,100		567,072
	Cable & Wireless PLC	United Kingdom	921,000		663,513
	Hellenic Telecommunications Organization SA	Greece	307,500		3,388,234
	Portugal Telecom SGPS SA, ADR	Portugal	415,104		2,835,160
	SBC Communications Inc.	United States	100,900		2,735,399
	Telecom Corp. of New Zealand Ltd.	New Zealand	1,379,947		3,269,674
	Telefonica SA, ADR	Spain	131,414		3,491,670
	Telefonos de Mexico SA de CV (Telmex), L, ADR	Mexico	135,900		4,346,082
	Telstra Corp. Ltd.	Australia	1,579,007		3,921,110
	Verizon Communications Inc.	United States	60,700		2,352,125
	Videsh Sanchar Nigam Ltd.	India	69,244		142,243

					36,526,161

146

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Global Communications Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks (cont.)
	Media Conglomerates 1.8%
	The Walt Disney Co.	United States	146,000	$	2,381,260

	Miscellaneous Commercial Services .1%
^a	Metro One Telecommunications Inc.	United States	28,000		180,600

	Packaged Software 4.0%
	Autodesk Inc.	United States	116,000		1,658,800
^a	Microsoft Corp.	United States	70,900		3,665,530

					5,324,330

	Publishing: Newspapers 9.2%
	Dow Jones & Co. Inc.	United States	49,900		2,157,177
	Gannett Co. Inc.	United States	55,000		3,949,000
	Knight-Ridder Inc.	United States	57,600		3,643,200
	The New York Times Co., A	United States	51,000		2,332,230

					12,081,607

	Semiconductors 2.5%
^a	Integrated Device Technology Inc.	United States	30,200		252,774
^a	Intersil Corp.	United States	68,700		957,678
^a	Micrel Inc.	United States	122,900		1,103,642
^a	Semtech Corp.	United States	94,100		1,027,572

					3,341,666

	Specialty Telecommunications 2.1%
	CenturyTel Inc.	United States	73,700		2,165,306
	Mahanagar Telephone Nigam Ltd.	India	328,300		649,411

					2,814,717

	Telecommunications Equipment 4.9%
	Alcatel SA	France	255,200		1,119,427
^a	Comverse Technology Inc.	United States	39,800		398,796
	Motorola Inc.	United States	177,700		1,537,105
^a	Polycom Inc.	United States	216,000		2,056,320
^a	Powerwave Technologies Inc.	United States	239,800		1,294,920

					6,406,568

	Wireless Communications 8.3%
^a	AT&T Wireless Services Inc.	United States	447,943		2,530,878
^a	Europolitan Holdings AB	Sweden	587,800		2,765,864
	SK Telecom Co. Ltd., ADR	South Korea	101,400		2,164,890
	Smartone Telecommunications Holdings Ltd.	Hong Kong	1,031,000		1,150,205
	Vodafone Group PLC, ADR	United Kingdom	125,400		2,272,247

					10,884,084

	Total Common Stocks (Cost $140,869,733)				115,823,577

147

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Global Communications Securities Fund	COUNTRY	PRINCIPAL AMOUNT		VALUE

	Repurchase Agreement (Cost $16,230,419) 12.3%
^b	Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $16,231,451)	United States	$	16,230,419	$	16,230,419
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $1,502,004)
	Banc of America Securities LLC (Maturity Value $1,502,004)
	Barclays Capital Inc. (Maturity Value $1,502,004)
	Bear, Stearns & Co. Inc. (Maturity Value $1,502,004)
	BNP Paribas Securities Corp. (Maturity Value $1,211,411)
	Deutsche Bank Securities Inc. (Maturity Value $1,502,004)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $1,502,004)
	Goldman, Sachs & Co. (Maturity Value $1,502,004)
	Lehman Brothers Inc. (Maturity Value $1,502,004)
	Morgan Stanley & Co. Inc. (Maturity Value $1,502,004)
	UBS Warburg LLC (Maturity Value $1,502,004)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $157,100,152) 100.2%					132,053,996
	Other Assets, less Liabilities (.2)%					(308,739	)

	Net Assets 100.0%				$	131,745,257

^a	Non-income producing

^b	See Note 1(c) regarding joint repurchase agreement.

See notes to financial statements.

148

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

Franklin Growth and Income Securities Fund	SHARES	VALUE

Common Stocks 88.6%
Commercial Services 2.3%
The McGraw-Hill Cos. Inc.	60,500	$	3,656,620
R.R. Donnelley & Sons Co	352,800		7,680,456

			11,337,076

Communications 8.3%
Alltel Corp.	63,000		3,213,000
AT&T Corp.	133,660		3,489,863
BellSouth Corp.	233,300		6,035,471
SBC Communications Inc.	466,472		12,646,056
Verizon Communications Inc.	290,722		11,265,477
Vodafone Group PLC, ADR (United Kingdom)	253,400		4,591,608

			41,241,475

Consumer Durables 1.6%
Stanley Works	117,000		4,045,860
Whirlpool Corp.	70,000		3,655,400

			7,701,260

Consumer Non-Durables 6.9%
General Mills Inc.	112,500		5,281,875
Kimberly-Clark Corp.	167,100		7,932,237
Philip Morris Cos. Inc.	206,300		8,361,339
Sara Lee Corp.	323,400		7,279,734
UST Inc.	160,800		5,375,544

			34,230,729

Consumer Services 2.7%
Dow Jones & Co. Inc	117,300		5,070,879
McDonald’s Corp.	237,600		3,820,608
The Walt Disney Co.	264,300		4,310,733

			13,202,220

Electronic Technology 8.2%
Boeing Co.	195,700		6,456,143
Diebold Inc	149,600		6,166,512
Hewlett-Packard Co.	265,700		4,612,552
Motorola Inc.	682,000		5,899,300
Nokia Corp., ADR (Finland)	202,000		3,131,000
Raytheon Co.	256,800		7,896,600
Rockwell Automation Inc.	307,400		6,366,254

			40,528,361

Energy Minerals 8.2%
BP PLC, ADR (United Kingdom)	264,400		10,747,860
ChevronTexaco Corp.	189,758		12,615,112
Exxon Mobil Corp.	228,444		7,981,833
Shell Transport & Trading Co. PLC, ADR (United Kingdom)	234,300		9,118,956

			40,463,761

Finance 21.5%
Aegon NV, ADR (Netherlands)	358,800		4,603,404
Arthur J. Gallagher & Co.	234,200		6,880,796
Bank of America Corp.	88,000		6,122,160
Bank of New York Co. Inc.	128,000		3,066,880
CIT Group Inc.	207,800		4,072,880
Citigroup Inc.	189,800		6,679,062
Fannie Mae	144,200		9,276,386
Fleet Boston Financial Corp.	257,300		6,252,390
GATX Corp.	147,200		3,359,104

149

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Franklin Growth and Income Securities Fund	SHARES	VALUE

Common Stocks (cont.)
Finance (cont.)
Jefferson-Pilot Corp.	133,300	$	5,080,063
JP Morgan Chase & Co.	254,070		6,097,680
KeyCorp	179,800		4,520,172
Morgan Stanley	117,000		4,670,640
National Commerce Financial Corp.	269,700		6,432,345
St. Paul Cos. Inc.	178,800		6,088,140
U.S. Bancorp	350,000		7,427,000
Washington Mutual Inc.	331,300		11,439,789
Wells Fargo & Co.	87,000		4,077,690

			106,146,581

Health Technology 6.7%
Abbott Laboratories	162,600		6,504,000
Merck & Co. Inc.	90,400		5,117,544
Pall Corp.	255,600		4,263,408
Pfizer Inc.	225,600		6,896,592
Schering-Plough Corp.	122,000		2,708,400
Wyeth	210,700		7,880,180

			33,370,124

Process Industries 4.5%
Dow Chemical Co.	311,300		9,245,610
E.I. du Pont de Nemours and Co.	206,100		8,738,640
RPM International Inc.	280,500		4,286,040

			22,270,290
Producer Manufacturing 8.3%
Delphi Corp.	617,400		4,970,070
Dover Corp.	127,800		3,726,648
Emerson Electric Co.	99,100		5,039,235
General Electric Co.	363,500		8,851,225
Honeywell International Inc.	308,700		7,408,800
Pitney Bowes Inc.	223,200		7,289,712
United Technologies Corp.	59,900		3,710,206

			40,995,896

Real Estate 1.0%
Apartment Investment & Management Co., A	67,500		2,529,900
Vornado Realty Trust	70,000		2,604,000

			5,133,900
Retail Trade 2.1%
Albertson’s Inc.	185,400		4,127,004
Home Depot Inc	121,500		2,911,140
May Department Stores Co.	151,900		3,490,662

			10,528,806

Technology Services 1.6%
Automatic Data Processing Inc.	130,500		5,122,125
Electronic Data Systems Corp.	139,600		2,572,828

			7,694,953

Utilities 4.7%
CMS Energy Corp.	246,100		2,323,184
Duke Energy Corp.	259,000		5,060,860
FirstEnergy Corp.	162,000		5,341,140

150

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Franklin Growth and Income Securities Fund		SHARES		VALUE

	Common Stocks (cont.)
	Utilities (cont.)
	Pinnacle West Capital Corp.		144,900	$	4,939,641
	Progress Energy Inc.		124,300		5,388,405

					23,053,230

	Total Common Stocks (Cost $432,981,664)				437,898,662

	Convertible Preferred Stocks 6.0%
	Consumer Durables .5%
	Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd.		62,700		2,561,295

	Finance 1.8%
	MetLife Capital Trust I, 8.00%, cvt. pfd.		43,200		3,547,800
	Prudential Financial Inc., 6.75%, cvt. pfd.		98,000		5,347,860

					8,895,660

	Real Estate .5%
	Host Marriott Corp., 6.75%, cvt. pfd.		71,000		2,647,959

	Retail Trade 1.0%
	Toys R Us Inc., 6.25%, cvt. pfd.		146,500		4,929,725

	Utilities 2.2%
	PPL Capital Fund Trust I, 7.75%, cvt. pfd., E		273,800		4,969,470
	Sierra Pacific Resources Co., 9.00%, cvt. pfd., PIES		165,700		5,675,225

					10,644,695

	Total Convertible Preferred Stocks (Cost $30,999,236)				29,679,334


			PRINCIPAL AMOUNT
	Convertible Bonds 2.7%
	Distribution Services .9%
	Amerisource Health Corp., cvt., 5.00%, 12/01/07	$	3,350,000		4,288,000

	Health Technology .6%
	ICN Pharmaceuticals Inc., cvt., 6.50%, 6.50%, 7/15/08		3,600,000		2,925,000

	Retail Trade 1.2%
	Penney JC Co. Inc., cvt., 144A, 5.00%, 10/15/08		5,700,000		6,106,126

	Total Convertible Bonds (Cost $12,287,204)				13,319,126

	Total Long Term Investments (Cost $476,268,104)				480,897,122

	Repurchase Agreement (Cost $12,393,783) 2.5%
^a	JointRepurchase Agreement, 1.144%, 1/02/03, (Maturity Value $12,394,571)		12,393,783		12,393,783
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $1,146,994)
	Banc of America Securities LLC (Maturity Value $1,146,994)
	Barclays Capital Inc. (Maturity Value $1,146,994)
	Bear, Stearns & Co. Inc. (Maturity Value $1,146,994)
	BNP Paribas Securities Corp. (Maturity Value $1,146,994)
	Deutsche Bank Securities Inc. (Maturity Value $1,146,994)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $1,146,994)
	Goldman, Sachs & Co. (Maturity Value $1,146,994)
	Lehman Brothers Inc. (Maturity Value $1,146,994)
	Morgan Stanley & Co. Inc. (Maturity Value $924,631)
	UBS Warburg LLC (Maturity Value $1,146,994)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $488,661,887) 99.8%				493,290,905
	Other Assets, less Liabilities .2%				768,858

	Net Assets 100.0%			$	494,059,763

^a	SeeNote 1(c) regarding joint repurchase agreement.

See notes to financial statements.

151

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin High Income Fund	COUNTRY	SHARES/ WARRANTS		VALUE

	Common Stocks and Warrants 1.4%
	Communications .4%
^a	Arch Wireless Inc	United States		78	$	160
^a	Call-Net Enterprises Inc., B	Canada		47,553		29,483
^a	ICO Global Communications Holdings Ltd.	United States		300,767		360,920
^a	ICO Global Communications Holdings Ltd., wts., 5/16/06	United States		75,434		75
^a	ICO Global Communications Holdings Ltd., wts., 5/16/06	United States		112		—
^a	International Wireless Communications Holdings Inc.	United States		377,088		57
^a	Leap Wireless International Inc., wts., 144A, 4/15/10	United States		3,600		3,600
^a	Loral Space & Communications Ltd., wts., 1/15/07	United States		1,500		15
^a,b	McCaw International Ltd., wts., 4/15/07	United States		7,000		—
^a	Metrocall Holdings Inc	United States		4,620		1,155
^a	NII Holdings Inc., B	United States		9,569		112,436
^a,b	Poland Telecom Finance, wts., 12/01/07	Poland		8,000		—

						507,901

	Consumer Durables
^a	Pillowtex Corp	United States		3,704		1,037
^a	Pillowtex Corp., wts., 11/24/09	United States		19,498		195

						1,232

	Consumer Services
^a	Jack in the Box Inc	United States		210		3,631

	Industrial Services .1%
^a	Transocean Inc., wts., 144A, 5/01/09	United States		1,500		101,250

	Producer Manufacturing
^a	Goss Holdings Inc., B	United States		44,604		—

	Technology Services .9%
^a	Anacomp Inc., A	United States		52,000		1,066,000

	Utilities
^a	Empire Gas Corp., wts., 7/15/04	United States		6,900		—

	Total Common Stocks and Warrants (Cost $ 11,371,083)					1,680,014

	Preferred Stocks 1.7%
	Communications
^a	Metrocall Holdings Inc., 15.00%, pfd, A	United States		3,982		8,564

	Process Industries 1.7%
^c	Asia Pulp & Paper Co. Ltd., 12.00%, pfd.	Indonesia		4,500,000		56,250
	Fresenius Medical Care Capital Trust, 7.875%, pfd	Germany		2,000,000		1,975,000

						2,031,250

	Total Preferred Stocks (Cost $6,451,138)					2,039,814

				PRINCIPAL AMOUNT^e
	Bonds 88.3%
	Commercial Services .1%
^c	Key3Media Group Inc., senior sub. note, 11.25%, 6/15/11	United States	$	2,000,000		120,000

	Communications 7.9%
	American Cellular Corp., senior sub. note, 9.50%10/15/09	United States		1,500,000		292,500
	Crown Castle International Corp., senior note, 9.375%, 8/01/11	United States		1,000,000		835,000
	Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08	United States		2,500,000		1,925,000
^c	Global Crossing Holdings Ltd., 9.50%, 11/15/09	United States		5,000,000		175,000
^c	Intelcom Group Inc., senior disc. note, 12.50%, 5/01/06	United States		3,250,000		32,500
	Leap Wireless International Inc., senior disc. note, zero cpn. to 4/15/05, 14.50% thereafter, 4/15/10	United States		3,600,000		342,000
	Millicom International Cellular SA, senior note, 13.50%, 6/01/06	Luxembourg		2,000,000		990,000
	Nextel Communications Inc., senior disc. note, 9.75%, 10/31/07	United States		2,000,000		1,860,000

152

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Statement of Investments, December 31, 2002 (cont.)

	Franklin High Income Fund	COUNTRY	PRINCIPAL AMOUNT^e	VALUE

	Bonds (cont.)
	Communications (cont.)
	Nextel Partners Inc., senior note, 11.00%, 3/15/10	United States	$1,000,000	$ 855,000
c	Nextlink Communications Inc., senior note, 9.00%, 3/15/08	United States	3,600,000	22,500
c	Nextlink Communications Inc., senior note, 9.625%, 10/01/07	United States	1,400,000	8,750
	Voicestream Wireless Corp., senior note, 11.50%, 9/15/09	United States	2,000,000	2,095,000

				9,433,250

	Consumer Durables 5.1%
	D.R. Horton Inc., senior note, 8.50%, 4/15/12	United States	2,000,000	2,020,000
	Sealy Mattress Co., senior disc. note, B, 10.875%, 12/15/07	United States	2,000,000	1,950,000
	True Temper Sports Inc., senior sub. note, B, 10.875%, 12/01/08	United States	2,000,000	2,070,000

				6,040,000

	Consumer Non-Durables 1.0%
	Armkel Finance Inc., senior sub. note, 9.50%, 8/15/09	United States	1,000,000	1,090,000
c,f	Styling Technology Corp., senior sub. note, 10.875%, 7/01/08	United States	3,000,000	9,000

				1,099,000

	Consumer Services 22.8%
c,f	Adelphia Communications Corp., senior note, 10.25%, 6/15/11	United States	2,500,000	975,000
	Argosy Gaming Co., senior sub. note, 9.00%, 9/01/11	United States	800,000	851,000
	Aztar Corp., senior sub. note, 8.875%, 5/15/07	United States	2,000,000	2,050,000
c	Callahan NordRhein-Westfalen, senior note, 14.00%, 7/15/10	United States	2,750,000	116,875
	Chancellor Media Corp., senior note, 8.00%, 11/01/08	United States	2,000,000	2,192,500
	Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11	United States	4,000,000	1,420,000
	Coast Hotel & Casino Inc., senior sub. note, 9.50%, 4/01/09	United States	1,500,000	1,612,500
	Diamond Holdings PLC, senior note, 9.125%, 2/01/08	United Kingdom	1,500,000	930,000
	EchoStar DBS Corp., 10.375%, 10/01/07	United States	2,000,000	2,175,000
	Granite Broadcasting Corp., senior sub. note, 10.375%, 5/15/05	United States	1,500,000	1,305,000
	Host Marriott LP, senior note, 9.50%, 1/15/07	United States	1,500,000	1,530,000
	LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08	United States	2,000,000	2,052,500
	Meristar Hospitality Corp., senior note, 10.50%, 6/15/09	United States	1,600,000	1,468,000
	Park Place Entertainment Corp., senior sub. note 7.875%, 3/15/10	United States	2,000,000	2,045,000
	Six Flags Inc., senior note, 8.875%, 2/01/10	United States	2,000,000	1,890,000
	Station Casinos Inc., senior sub. note, 9.875%, 7/01/10	United States	1,400,000	1,526,000
	Venetian Casino/LV Sands, 144A, 11.00%, 6/15/10	United States	1,600,000	1,680,000
	Yell Finance BV, senior disc. note, zero cpn. to 8/01/06, 13.50% thereafter, 8/01/11	United Kingdom	2,000,000	1,420,000

				27,239,375

	Electronic Technology 1.6%
	Alliant Techsystems Inc., senior sub note, 8.50%, 5/15/11	United States	600,000	651,000
	ON Semiconductor Corp., senior secured note, 144A, 12.00%, 5/15/08	United States	1,600,000	1,184,000

				1,835,000

	Energy Minerals 2.4%
	P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08	United States	2,000,000	2,122,500
	Solectron Corp., senior note, 9.625%, 2/15/09	United States	700,000	686,000

				2,808,500

	Finance 1.9%
	Corrections Corp. of America, senior note, 144A, 9.875%, 5/01/09	United States	1,400,000	1,491,000
	Western Financial Bank-FSB, 9.625%, 5/15/12	United States	800,000	780,000

				2,271,000

	Health Services 5.4%
	Insight Health Services Corp., B, 9.875%, 11/01/11	United States	2,000,000	1,930,000
f	Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08	United States	2,750,000	708,125
	Pacificare Health Systems Inc., senior note, 10.75%, 6/01/09	United States	1,600,000	1,720,000
	United Surgical Partners, senior sub. note, 10.00%, 12/15/11	United States	2,000,000	2,060,000

				6,418,125

153

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin High Income Fund	COUNTRY	PRINCIPAL AMOUNT^e		VALUE

	Bonds (cont.)
	Industrial Services 7.6%
	Allied Waste North America Inc., senior sub. note, B, 10.00%, 8/01/09	United States	$	2,000,000	$	1,995,000
	El Paso Energy Partners, senior sub. note, 144A, 10.625%, 12/01/12	United States		1,500,000		1,541,250
	Grant Prideco Escrow, senior note, 144A, 9.00%, 12/15/09	United States		700,000		731,500
	SESI L.L.C., senior note, 8.875%, 5/15/11	United States		1,500,000		1,537,500
	Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08	United States		2,000,000		2,070,000
	URS Corp., senior sub. note, 12.25%, 5/01/09	United States		1,500,000		1,222,500

						9,097,750

	Non-Energy Minerals 1.2%
	Century Aluminum Co., first mortgage, 11.75%, 4/15/08	United States		1,500,000		1,462,500

	Process Industries 12.7%
	Buckeye Technologies Inc., senior sub. note, 8.50%, 12/15/05	United States		2,000,000		1,820,000
	Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07	United States		1,697,000		1,340,630
	Four M Corp., senior note, B, 12.00%, 6/01/06	United States		2,000,000		2,080,000
	Huntsman International LLC, senior note, 9.875%, 3/01/09	United States		2,000,000		2,010,000
	Lyondell Chemical Co., senior secured note, B, 9.875%, 5/01/07	United States		2,000,000		1,930,000
	MDP Aquisitions PLC, senior note, 144A, 9.625%, 10/01/12	Irish Republic		1,200,000		1,254,000
	Pliant Corp., senior sub. note, 13.00%, 6/01/10	United States		2,000,000		1,840,000
^c	Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07	Indonesia		4,250,000		265,625
	Radnor Holdings Inc., senior note, 10.00% 12/01/03	United States		1,400,000		1,197,000
	Terra Industries Inc., senior note, B, 10.50%, 6/15/05	United States		1,000,000		915,000
^c	Tjiwi Kimia FN Mauritius, senior note, 10.00%, 8/01/04	Indonesia		2,000,000		495,000

						15,147,255

	Producer Manufacturing 9.6%
	Collins & Aikman Products, 10.75%, 12/31/11	United States		2,000,000		1,915,000
	Cummins Inc., 144A, 9.50%, 12/01/10	United States		500,000		535,000
	Dana Corp., 9.00%, 8/15/11	United States		2,000,000		1,940,000
^c	Goss Graphic Systems Inc., 12.25%, 11/19/05	United States		1,912,374		7,649
	H&E Equipment/Finance, 144A, 11.125%, 6/15/12	United States		2,000,000		1,490,000
	Joy Global Inc., senior sub. note, 8.75%, 3/15/12	United States		2,000,000		2,095,000
	Motors & Gears, senior note, 10.75%, 11/15/06	United States		1,500,000		1,301,250
	Rexnord Corp., senior sub. note, 144A, 10.125%, 12/15/12	United States		300,000		309,000
	The Manitowoc Co. Inc., senior sub. note, 144A, 10.50%, 8/01/12	United States		1,800,000		1,876,500

						11,469,399

	Retail Trade 3.0%
	Hollywood Entertainment Corp., senior sub. note, B, 10.625%, 8/15/04	United States		2,000,000		2,063,200
	Rite Aid Corp., 144A, 6.125%, 12/15/08	United States		2,000,000		1,500,000

						3,563,200

	Transportation 2.2%
	American Airlines, 9.71%, 1/02/07	United States		1,767,796		901,576
	CP Ships Ltd., 10.375%, 7/15/12	United States		1,500,000		1,582,500
^c,f	Holt Group Inc., senior notes, 9.75%, 1/15/06	United States		5,250,000		157,500

						2,641,576

	Utilities 3.8%
	AES Corp., senior note, 8.75%, 6/15/08	United States		2,000,000		1,180,000
^c	All Star Gas Corp., senior note, 11.00%, 6/30/03	United States		2,085,834		834,334
	Aquila Inc., 144A, 14.375%, 07/01/12	United States		2,000,000		1,582,272
	Calpine Canada Energy Finance, senior note, 8.50%, 5/01/08	Canada		2,000,000		880,000

						4,476,606

	Total Bonds (Cost $151,812,176)					105,122,536

	Total Long Term Investments (Cost $169,634,397)					108,842,364

154

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Franklin High Income Fund	COUNTRY	PRINCIPAL AMOUNT^e		VALUE

Repurchase Agreement (Cost $8,260,282) 6.9%
^d Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $8,260,807)	United States	$	8,260,282	$	8,260,282
ABN AMRO Bank, N.V., New York Branch (Maturity Value $764,427)
Banc of America Securities LLC (Maturity Value $ 764, 427)
Barclays Capital Inc. ( Maturity Value $764,427)
Bear, Stearns & Co. Inc. ( Maturity Value $764,427)
BNP Paribas Securities Corp. (Maturity Value $764,427)
Deutsche Bank Securities Inc. (Maturity Value $ 764,427)
Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $764,427)
Goldman, Sachs & Co. ( Maturity Value $764,427)
Lehman Brothers Inc. (Maturity Value $ 616,537)
Morgan Stanley & Co. Inc. ( Maturity Value $764,427)
UBS Warburg LLC (Maturity Value $764,427)
Collateralized by U. S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities
Total Investments (Cost $177,894,679) 98.3%					117,102,646
Other Assets, less Liabilities 1.7%					1,969,092

Net Assets 100.0%				$	119,071,738

^a	Non-income producing

^b	See Note 9 regarding restricted securities.

^c	See Note 8 regarding defaulted securities.

^d	See Note 1(c) regarding joint repurchase agreement.

^e	The principal amount is stated in U.S. dollars unless otherwise indicated.

^f	See Note 11 regarding other considerations.

See notes to financial statements.

155

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Income Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Warrants 34.1%
	Communications 1.7%
^a	McLeodUSA Inc., wts., 4/16/07	United States	32,281	$	11,298
^a	Metrocall Holdings Inc.	United States	2,772		693
^a	NII Holdings Inc., B	United States	8,744		102,742
	SBC Communications Inc.	United States	150,000		4,066,500
^a	Telecom Argentina—France Telecom SA, B, ADR	Argentina	100,000		225,000
	Verizon Communications Inc.	United States	104,500		4,049,375

					8,455,608

	Consumer Non-Durables 2.8%
^a	Hartmarx Corp.	United States	271,700		662,948
	Philip Morris Cos. Inc.	United States	235,600		9,548,868
	R.J. Reynolds Tobacco Holdings Inc.	United States	61,600		2,593,976
	UST Inc.	United States	30,000		1,002,900

					13,808,692

	Energy Minerals 3.3%
	BP PLC, ADR	United Kingdom	70,000		2,845,500
	Canadian Oil Sands Trust	Canada	250,000		6,021,332
	ChevronTexaco Corp.	United States	65,000		4,321,200
	Petroleo Brasileiro SA, ADR	Brazil	100,000		1,494,000
	Royal Dutch Petroleum Co., N.Y. shs.	Netherlands	40,000		1,760,800

					16,442,832

	Finance 1.6%
	Fleet Boston Financial Corp.	United States	100,000		2,430,000
	iStar Financial Inc.	United States	118,500		3,323,925
	JP Morgan Chase & Co.	United States	100,000		2,400,000

					8,153,925

	Health Technology 1.4%
	Bristol-Myers Squibb Co.	United States	225,000		5,208,750
	Wyeth	United States	50,000		1,870,000

					7,078,750

	Non-Energy Minerals 1.3%
	AngloGold Ltd., ADR	South Africa	171,300		5,868,738
^a	Hecla Mining Co.	United States	150,000		759,000

					6,627,738

	Process Industries 1.1%
	Dow Chemical Co.	United States	100,000		2,970,000
	Georgia-Pacific Corp.	United States	71,662		1,158,058
	Lyondell Chemical Co.	United States	83,500		1,055,440
^a	SHC Inc.	United States	83,438		—

					5,183,498

	Real Estate 1.4%
	Felcor Lodging Trust Inc.	United States	197,700		2,261,688
	First Industrial Realty Trust Inc.	United States	50,000		1,400,000
	Liberty Property Trust	United States	50,000		1,597,000
	ProLogis	United States	63,200		1,589,480

					6,848,168

	Technology Services .3%
^a	Anacomp Inc., A	United States	74,300		1,523,150

	Utilities 19.2%
	Ameren Corp.	United States	96,700		4,019,819
	American Electric Power Co. Inc.	United States	125,000		3,416,250
	Centerpoint Energy Inc.	United States	175,200		1,489,200

156

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Income Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE


	Common Stocks and Warrants (cont.)
	Utilities (cont.)
	Cinergy Corp.	United States	155,000	$	5,226,600
	CMS Energy Corp.	United States	306,000		2,888,640
	Dominion Resources Inc.	United States	65,000		3,568,500
	DTE Energy Co.	United States	45,000		2,088,000
	Duke Energy Corp.	United States	200,000		3,908,000
	Energy East Corp.	United States	189,000		4,175,010
	Entergy Corp.	United States	190,000		8,662,100
	Exelon Corp.	United States	65,000		3,430,050
	FirstEnergy Corp.	United States	197,300		6,504,994
	FPL Group Inc.	United States	50,000		3,006,500
	Hawaiian Electric Industries Inc.	United States	60,000		2,638,800
	KeySpan Corp.	United States	105,000		3,700,200
	NiSource Inc.	United States	50,000		1,000,000
	Pepco Holdings Inc.	United States	246,400		4,777,696
	Pinnacle West Capital Corp.	United States	125,500		4,278,295
	Progress Energy Inc..	United States	150,000		6,502,500
	Public Service Enterprise Group Inc.	United States	137,100		4,400,910
	Sempra Energy	United States	139,100		3,289,715
	Southern Co.	United States	170,000		4,826,300
	TECO Energy Inc.	United States	100,000		1,547,000
	TXU Corp.	United States	160,000		2,988,800
	Xcel Energy Inc.	United States	260,000		2,860,000

					95,193,879

	Total Common Stocks and Warrants (Cost $161,137,395)				169,316,240

	Preferred Stocks .4%
	Communications
^a	Metrocall Holdings Inc., 15.00%, pfd, A	United States	2,389		5,136

	Process Industries .4%
^b	Asia Pulp & Paper Co. Ltd., 12.00%, pfd.	Indonesia	10,073,000		125,913
	Fresenius Medical Care Capital Trust, 7.875%, pfd.	Germany	2,250,000		2,221,875

					2,347,788

	Total Preferred Stocks (Cost $9,517,711)				2,352,924

	Convertible Preferred Stocks 13.7%
	Commercial Services .4%
^a	Morgan Stanley into Coca Cola Co., 7.00%, cvt. pfd.	United States	50,000		2,237,500

	Communications .7%
	Alltel Corp.-Equity Units, 7.75%, cvt. pfd.	United States	70,000		3,593,100
^a	McLeodUSA Inc., 2.50%, cvt., pfd.	United States	14,568		59,729

					3,652,829

	Consumer Durables 1.4%
	Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd.	United States	176,000		7,189,600

	Electronic Technology .9%
	Goldman Sachs Group Inc., into 8.00%, Mandatory Notes, cvt. pfd.	United States	25,000		1,839,275
	Motorola Inc., 7.00%, cvt. pfd.	United States	25,000		800,000
	Solectron Corp., 7.25%, cvt. pfd.	United States	149,100		1,744,470

					4,383,745

	Energy Minerals 3.0%
	Chesapeake Energy Corp., 144A, 6.75%, cvt. pfd.	United States	19,600		1,176,000
	Kerr-McGee Corp. into Devon Energy, 5.50%, cvt. pfd.	United States	60,000		2,527,500
	Lomak Financing Trust, 5.75%, cvt. pfd.	United States	140,000		4,060,000
	Newfield Financial Trust I, 6.50%, cvt. pfd.	United States	65,000		3,652,324

157

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Franklin Income Securities Fund	COUNTRY	SHARES		VALUE

Convertible Preferred Stocks (cont.)
Energy Minerals (cont.)
Nuevo Financing I, 5.75%, cvt. pfd., A	United States		90,000	$	2,621,250
Unocal Corp., 6.25%, cvt. pfd.	United States		20,000		1,027,500

					15,064,574

Industrial Services .5%
Weatherford International Inc., 5.00%, cvt. pfd.	United States		50,000		2,567,115

Non-Energy Minerals .1%
Freeport-McMoran Copper & Gold Inc., cum. variable pfd.	United States		17,100		560,025

Real Estate 3.8%
Archstone-Smith Trust, cvt. pfd.	United States		60,000		1,884,000
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A	United States		210,000		4,441,500
Host Marriott Corp., 6.75%, cvt. pfd.	United States		120,000		4,475,424
Innkeepers USA Trust, 8.625%, cvt. pfd., A	United States		125,000		3,025,000
Reckson Associates Realty Corp., 7.625%, cvt. pfd., A	United States		140,000		3,150,000
Vornado Realty Trust, 6.50%, cvt. pfd., A	United States		35,000		1,820,000

					18,795,924

Retail Trade .3%
^a Goldman Sachs Group Inc., into Target Corp., 8.00%, cvt. pfd.	United States		44,475		1,373,210
Kmart Financing I, 7.75%, cvt. pfd.	United States		24,000		21,600

					1,394,810

Technology Services .2%
Electronic Data Systems Corp., 7.625%, cvt. pfd.	United States		35,000		766,850

Transportation .6%
Union Pacific Capital Trust, 6.25%, cvt. pfd.	United States		55,000		2,846,541

Utilities 1.8%
Dominion Resources Inc., 9.50%, cvt. pfd.	United States		25,000		1,354,750
FPL Group Inc. 8.50%, cvt. pfd.	United States		62,300		3,448,928
PPL Capital Fund Trust I, 7.75%, cvt. pfd., E	United States		69,300		1,257,795
Sempra Energy, 8.50%, cvt. pfd.	United States		70,000		1,696,800
Sierra Pacific Resources Co., 9.00%, cvt. pfd.	United States		29,700		1,017,225

					8,775,498

Total Convertible Preferred Stocks (Cost $77,217,837)					68,235,011


		PRINCIPAL AMOUNT^c
Bonds 26.9%
Commercial Services .1%
^b Ameriserve Food Distribution Inc., 10.125%, 7/15/07	United States	$	1,000,000		—
Johnsondiversey Inc., senior sub. note, 144A, 9.625%, 5/15/12	United States		600,000		633,000

					633,000

Communications 3.1%
American Cellular Corp., senior sub. note, 9.50%, 10/15/09	United States		3,100,000		604,500
AT&T Wireless Group, senior note, 7.875%, 3/01/11	United States		6,000,000		6,040,764
Crown Castle International Corp., senior note, 9.375%, 8/01/11	United States		500,000		417,500
Dobson Communications Corp., senior note, 10.875%, 7/01/10	United States		3,000,000		2,550,000
Rural Cellular Corp., senior sub. note, 9.75%, 1/15/10	United States		800,000		484,000
Time Warner Telecom Inc., senior note, 10.125%, 2/01/11	United States		2,900,000		1,580,500
US West Communications Inc., 6.875%, 9/15/33	United States		2,000,000		1,550,000
Voicestream Wireless Corp., senior note, 10.375%, 11/15/09	United States		652,000		687,860
^b WorldCom Inc., 8.00%, 5/15/06	United States		6,000,000		1,440,000
^b XO Communications Inc., senior note, 10.75%, 6/01/09	United States		4,000,000		25,000

					15,380,124

158

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Income Securities Fund	COUNTRY	PRINCIPAL AMOUNT^c		VALUE

	Bonds (cont.)
	Consumer Non-Durables 1.3%
^b	Compania Alimentos Fargo SA, senior note, 13.25%, 8/01/08	Argentina	$	1,900,000	$	85,500
	Del Monte Corp., senior sub. note, B, 9.25%, 5/15/11	United States		500,000		523,125
	Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07	United States		1,697,000		1,340,630
	Hartmarx Corp., senior note, 12.50%, 9/15/03	United States		1,145,000		1,150,725
	Playtex Products Inc., senior sub. note, 9.375%, 6/01/11	United States		500,000		555,000
	Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08	United States		5,800,000		2,813,000

						6,467,980

	Consumer Services 8.0%
^b,e	Adelphia Communications Corp., 7.875%, 5/01/09	United States		3,400,000		1,275,000
^b,e	Adelphia Communications Corp., 10.875%, 10/01/10	United States		1,900,000		731,500
^b	Cablevision SA, 13.75%, 5/01/09	Argentina		2,000,000		490,000
	CanWest Media Inc., senior sub. note, 10.625%, 5/15/11	Canada		2,600,000		2,782,000
	CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09	United States		300,000		256,500
	Coast Hotel & Casino Inc., senior sub. note, 9.50%, 4/01/09	United States		2,600,000		2,795,000
	CP Ships Ltd., 10.375%, 7/15/12	United States		3,750,000		3,956,250
	CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23	United States		3,000,000		2,688,750
	EchoStar DBS Corp., 10.375%, 10/01/07	United States		3,700,000		4,023,750
	Eldorado Resorts LLC, senior sub. note, 10.50%, 8/15/06	United States		500,000		502,500
	Lone Cypress Co., sub. note, 11.50%, 8/01/09	United States		3,363,692		3,540,285
	MGM Mirage Inc., 8.375%, 2/01/11	United States		1,600,000		1,732,000
^b	NTL Communications Corp., senior note, B, 11.875%, 10/01/10	United Kingdom		4,100,000		389,500
	Six Flags Inc., senior note, 9.50%, 2/01/09	United States		2,000,000		1,940,000
	Spalding Inc., 144A, PIK, 9.50%, 5/01/08	United States		1,968,021		196,802
	Spanish Broadcasting Systems, 9.625%, 11/01/09	United States		1,100,000		1,144,000
	Station Casinos Inc., senior sub. note, 9.875%, 7/01/10	United States		2,700,000		2,943,000
	Tyco International Group, 6.375%, 10/15/11	Luxembourg		3,250,000		3,044,717
	Venetian Casino/LV Sands, 144A, 11.00%, 6/15/10	United States		2,100,000		2,205,000
	Yell Finance BV, senior note, 10.75%, 8/01/11	United Kingdom		1,400,000		1,547,000
	Young Broadcasting Inc., senior sub. note, 10.00%, 3/01/11	United States		1,427,000		1,430,568

						39,614,122

	Electronic Technology 1.7%
	Amkor Technology Inc., senior sub. note, 10.50%, 5/01/09	United States		4,100,000		3,177,500
	Fairchild Semiconductor Corp., senior sub. note, 10.50%, 2/01/09	United States		3,100,000		3,363,500
	Lucent Technologies, 6.45%, 3/15/29	United States		4,700,000		2,091,500

						8,632,500

	Energy Minerals 2.6%
	Chesapeake Energy Corp., senior note, 8.125%, 4/01/11	United States		3,800,000		3,952,000
	Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10	Mexico		3,000,000		3,697,500
	Denbury Management Inc., senior sub. note, 9.00%, 3/01/08	United States		3,000,000		3,116,250
	Mission Resources Corp., senior sub. note, C, 10.875%, 4/01/07	United States		2,600,000		1,573,000
	P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08	United States		700,000		742,875

						13,081,625

	Health Services .7%
	Healthsouth Corp., 7.625%, 6/01/12	United States		1,900,000		1,577,000
	Iasis Healthcare Corp., senior sub. note, 13.00%, 10/15/09	United States		1,700,000		1,819,000

						3,396,000

	Industrial Services 1.4%
	Allied Waste North America Inc., senior sub. note, B, 10.00%, 8/01/09	United States		4,000,000		3,990,000
	Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08	United States		1,400,000		1,464,750
	H&E Equipment/Finance, 144A, 11.125%, 6/15/12	United States		2,250,000		1,676,250

						7,131,000

159

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Income Securities Fund	COUNTRY	PRINCIPAL AMOUNT^c		VALUE

	Bonds (cont.)
	Non-Energy Minerals .3%
	Century Aluminum Co., first mortgage, 11.75%, 4/15/08	United States	$	800,000	$	780,000
	Louisiana Pacific Corp., senior sub. note, 10.875%, 11/15/08	United States		800,000		864,000

						1,644,000

	Process Industries 2.5%
	Applied Extrusion Technologies Inc., senior note, 10.75%, 7/01/11	United States		600,000		390,000
	Buckeye Technologies Inc., senior sub. note, 8.50%, 12/15/05	United States		1,200,000		1,092,000
	Consoltex Group Inc., 144A, PIK, 11.00%, 1/31/09	United States		10,600,877		583,048
	Equistar Chemicals, senior note, 10.125%, 9/01/08	United States		3,700,000		3,385,500
	Four M Corp., senior note, B, 12.00%, 6/01/06	United States		2,000,000		2,080,000
	Hercules Inc., senior note, 11.125%, 11/15/07	United States		1,200,000		1,344,000
^b	RBX Corp., senior sub. note, B, 11.25%, 10/15/05	United States		10,000,000		50
	Riverwood International, senior sub. note, 10.875%, 4/01/08	United States		3,200,000		3,248,000

						12,122,598

	Producer Manufacturing 2.2%
	Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06	United States		1,200,000		1,014,000
	The Manitowoc Co. Inc., senior sub. note, 144A, 10.50%, 8/01/12	United States		2,300,000		2,397,750
	NMHG Holding Co., 10.00%, 5/15/09	United States		900,000		904,500
	Nortek Inc., senior sub. note, 9.875%, 6/15/11	United States		3,100,000		3,119,375
	Outsourcing Services Group Inc., senior sub. note, 10.875%, 3/1/06	United States		2,000,000		1,560,000
^b	Thermadyne Holdings Corp., 10.75%, 11/01/03	United States		2,696,000		270
	Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07	Canada		2,350,000		1,844,750

						10,840,645

	Real Estate .7%
	Felcor Lodging LP, 9.50%, 9/15/08	United States		1,600,000		1,640,000
	HMH Properties Inc., senior note, C, 8.45%, 12/01/08	United States		1,600,000		1,588,000

						3,228,000

	Retail Trade .3%
	Rite Aid Corp., 7.70%, 2/15/27	United States		2,000,000		1,410,000

	Utilities 2.0%
	AES Corp., senior note, 8.75%, 6/15/08	United States		2,000,000		1,180,000
	Aquila Inc., 144A, 14.375%, 07/01/12	United States		4,500,000		3,560,112
	Calpine Canada Energy Finance, senior note, 8.50%, 5/01/08	Canada		2,800,000		1,232,000
	Calpine Corp., senior note, 8.50%, 2/15/11	United States		7,100,000		3,124,000
	CMS Energy Corp., 9.875%, 10/15/07	United States		1,000,000		951,053

						10,047,165

	Total Bonds (Cost $177,234,016)					133,628,759

	Convertible Bonds 7.0%
	Consumer Durables
^b	Exide Technologies, cvt., 144A, 2.90%, 12/15/05	United States		5,000,000		37,500

	Consumer Services .7%
^b,e	Adelphia Communications Corp., cvt., 6.00%, 2/15/06	United States		3,600,000		288,000
	Charter Communications Inc., cvt., 4.75%, 6/01/06	United States		7,700,000		1,414,875
	Echostar Communications Corp., cvt., 4.875%, 1/01/07	United States		2,000,000		1,780,000

						3,482,875

	Electronic Technology 3.9%
	Advanced Micro Devices Inc., FRN, cvt., 4.75%, 2/01/22	United States		2,500,000		1,568,750
	Amkor Technology Inc., cvt., 5.00%, 3/15/07	United States		2,000,000		987,500
	Cypress Semiconductor Corp., cvt., 3.75%, 7/01/05	United States		2,250,000		1,805,625
	International Rectifier Corp., cvt., 4.25%, 7/15/07	United States		1,000,000		858,750
	Nortel Networks Corp., cvt., 4.25%, 9/01/08	United States		5,000,000		2,637,500
	PMC-Sierra Inc., cvt., 3.75%, 8/15/06	United States		2,000,000		1,510,000
	SCI Systems Inc., cvt., 3.00%, 3/15/07	United States		5,100,000		3,608,250

160

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Income Securities Fund	COUNTRY	PRINCIPAL AMOUNT^c		VALUE

	Convertible Bonds (cont.)
	Electronic Technology (cont.)
	Semtech Corp., cvt., 4.50%, 2/01/07	United States	$	2,000,000	$	1,752,500
	Trans-Lux Corp., cvt., sub. note, 7.50%, 12/01/06	United States		5,759,000		4,607,200

						19,336,075

	Health Technology .2%
	ICN Pharmaceuticals Inc., cvt., 6.50%, 7/15/08	United States		1,150,000		934,375

	Industrial Services .3%
	Key Energy Services Inc., cvt., 5.00%, 9/15/04	United States		1,800,000		1,723,500

	Non-Energy Minerals .8%
	Coeur d’Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04	United States		1,000,000		995,000
	Trizec Hahn Corp., cvt., senior deb., 3.00%, 1/29/21	Canada		4,700,000		2,786,724

						3,781,724

	Real Estate 1.1%
	Capstar Hotel/Meristar Hospitality Corp., cvt., sub. note, 4.75%, 10/15/04	United States		3,000,000		2,550,000
	Equity Office Properties Trust, senior exchangeable note, 144A, 7.25%, 11/15/08	United States		3,000,000		3,138,750

						5,688,750

	Total Convertible Bonds (Cost $ 48,482,915)					34,984,799

	Zero Coupon/Step-Up Bonds 2.6%
	APP Finance VI Mauritius Ltd., cvt., zero cpn., 11/18/12	Indonesia		11,500,000		632,500
	Charter Communications Holdings LLC, senior disc. note, zero cpn. to 1/15/06, 13.50% thereafter, 1/15/11	United States		3,000,000		795,000
	Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11	United States		5,000,000		1,775,000
	Huntsman ICI Chemicals, senior disc. note, zero cpn., 12/31/09	United States		8,000,000		1,880,000
	Microcell Telecommunications Inc., senior disc. note, zero cpn. to 6/01/04, 12.00% thereafter, 6/01/09	Canada		3,000,000		105,000
	Nextel Communications Inc., senior disc. note, zero cpn. to 2/15/03, 9.95% thereafter, 2/15/08	United States		3,500,000		3,220,000
	Quebecor Media Inc. senior disc. note, zero cpn. to 7/15/06, 13.75% thereafter, 7/15/11	Canada		3,500,000		1,977,500
^b	XO Communications Inc., senior disc. note, zero cpn. to 6/01/04, 12.25% thereafter, 6/01/09	United States		4,000,000		25,000
	Yell Finance BV, senior disc. note, zero cpn. to 8/01/06, 13.50% thereafter, 8/01/11	United Kingdom		3,300,000		2,343,000

	Total Zero Coupon/Step-Up Bonds (Cost $ 26,977,916)					12,753,000

	U.S. Government and Agency Securities 9.5%
	FHLMC, 6.00%, 12/01/31	United States		453,285		469,523
	FHLMC, 6.00%, 1/01/32	United States		2,778,741		2,878,283
	FHLMC, 6.00%, 2/01/32	United States		893,712		925,728
	FHLMC, 6.00%, 3/01/32	United States		3,996,344		4,139,452
	FNMA, 6.50%, 5/01/31	United States		375,883		391,672
	FNMA, 6.50%, 1/01/32	United States		2,764,083		2,880,194
	FNMA, 6.50%, 2/01/32	United States		2,913,721		3,036,118
	FNMA, 6.50%, 6/01/32	United States		6,529,456		6,803,620
	FNMA, 6.50%, 7/01/32	United States		5,976,229		6,227,162
	FNMA, 6.50%, 8/01/32	United States		8,774,666		9,143,102
	GNMA, 6.00%, 1/15/29	United States		34,097		35,617
	GNMA, 6.00%, 2/15/29	United States		178,220		186,165
	GNMA, 6.00%, 3/15/29	United States		225,657		235,716
	GNMA, 6.00%, 5/15/29	United States		32,435		33,881
	GNMA, 6.00%, 12/15/31	United States		125,371		130,736
	GNMA, 6.00%, 5/15/32	United States		80,261		83,698
	GNMA, 6.00%, 9/15/32	United States		80,919		84,384
	GNMA, 6.00%, 10/15/32	United States		3,340,843		3,483,904
	GNMA, 6.00%, 11/15/32	United States		5,713,026		5,957,667

	Total U.S. Government and Agency Securities (Cost $45,877,228)					47,126,622

	Foreign Government and Agency Securities (Cost $4,683,531) .5%
	Republic of South Africa, 12.00%, 2/28/05	South Africa		23,000,000 ZAR		2,729,700

	Total Long Term Investments (Cost $551,128,549)					471,127,055

161

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Income Securities Fund	COUNTRY	PRINCIPAL AMOUNT^c		VALUE

	Repurchase Agreement (Cost $26,715,152) 5.4%
^d	Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $26,716,850)	United States	$	26,715,152	$	26,715,152
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $2,472,377)
	Banc of America Securities LLC (Maturity Value $2,472,377)
	Barclays Capital Inc. (Maturity Value $2,472,377)
	Bear, Stearns & Co. Inc. (Maturity Value $2,472,377)
	BNP Paribas Securities Corp. (Maturity Value $2,472,377)
	Deutsche Bank Securities Inc. (Maturity Value $2,472,377)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $2,472,377)
	Goldman, Sachs & Co. (Maturity Value $2,472,377)
	Lehman Brothers Inc. (Maturity Value $1,993,080)
	Morgan Stanley & Co. Inc. (Maturity Value $2,472,377)
	UBS Warburg LLC (Maturity Value $2,472,377)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $577,843,701) 100.1%					497,842,207
	Other Assets, less Liabilities (.1)%					(676,034	)

	Net Assets 100.0%				$	497,166,173

Currency Abbreviations:

ZAR—South African Rand

^a	Non-income producing

^b	See Note 8 regarding defaulted securities.

^c	The principal amount is stated in U.S. dollars unless otherwise indicated.

^d	See Note 1(c) regarding joint repurchase agreement.

^e	See Note 11 regarding other considerations.

See notes to financial statements.

162

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Large Cap Growth Securities Fund	SHARES	VALUE

	Common Stocks 93.6%
	Commercial Services .4%
	Omnicom Group Inc.	14,300	$	923,780

	Communications 5.3%
	AT&T Corp.	27,200		710,192
	BellSouth Corp.	80,900		2,092,883
	SBC Communications Inc.	136,100		3,689,671
	Sprint Corp. (FON Group)	177,000		2,562,960
	Verizon Communications Inc.	49,000		1,898,750

				10,954,456

	Consumer Non-Durables 6.0%
	Coca-Cola Co.	34,000		1,489,880
	Kimberly-Clark Corp.	52,000		2,468,440
	Loews Corp. - Carolina Group	36,000		729,720
	PepsiCo Inc.	21,000		886,620
	Philip Morris Cos. Inc.	136,700		5,540,451
	Procter & Gamble Co.	16,000		1,375,040

				12,490,151

	Consumer Services 5.0%
^a	Cendant Corp.	90,000		943,200
^a	Clear Channel Communications Inc.	55,700		2,077,053
^a	Comcast Corp.	43,996		1,036,986
^a	Cox Communications Inc., A	27,000		766,800
	McDonald’s Corp.	192,000		3,087,360
^a	Univision Communications Inc., A	29,683		727,233
	The Walt Disney Co.	102,000		1,663,620

				10,302,252

	Distribution Services 2.3%
	AmerisourceBergen Corp.	60,300		3,274,893
	McKesson Corp.	55,000		1,486,650

				4,761,543

	Electronic Technology 7.4%
^a	Applied Materials Inc.	150,000		1,954,500
	Boeing Co.	102,000		3,364,980
^a	Cisco Systems Inc.	70,000		917,000
	Goodrich Corp.	20,000		366,400
	Intel Corp.	120,000		1,868,400
^a	KLA-Tencor Corp.	12,000		424,440
	Linear Technology Corp.	65,000		1,671,800
	Nokia Corp., ADR (Finland)	70,000		1,085,000
^a	Novellus Systems Inc.	22,000		617,760
^a	QUALCOMM Inc.	34,000		1,237,260
^a	Xilinx Inc.	84,000		1,730,400

				15,237,940

	Energy Minerals 3.8%
	Anadarko Petroleum Corp.	55,000		2,634,500
	Conocophillips	10,000		483,900
	Exxon Mobil Corp.	51,500		1,799,410
	Peabody Energy Corp.	40,000		1,169,200
	Royal Dutch Petroleum Co., N.Y. shs. (Netherlands)	40,000		1,760,800

				7,847,810

	Finance 16.7%
	American International Group Inc.	73,000		4,223,050
	Bank of New York Co. Inc.	140,000		3,354,400
	Bank One Corp.	42,000		1,535,100

163

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Large Cap Growth Securities Fund	SHARES	VALUE

	Common Stocks (cont.)
	Finance (cont.)
	Capital One Financial Corp.	15,000	$	445,800
	CIT Group Inc.	80,300		1,573,880
	Citigroup Inc.	112,000		3,941,280
	Fannie Mae	33,000		2,122,890
	Fifth Third Bancorp	38,800		2,271,740
	Freddie Mac	25,700		1,517,585
	Goldman Sachs Group Inc.	30,000		2,043,000
	Marsh & McLennan Cos. Inc.	50,000		2,310,500
	MBIA Inc.	53,700		2,355,282
	Washington Mutual Inc.	96,000		3,314,880
	Wells Fargo & Co.	75,000		3,515,250

				34,524,637

	Health Services .2%
^a	Tenet Healthcare Corp.	20,000		328,000

	Health Technology 16.4%
	Abbott Laboratories	46,000		1,840,000
	Allergan Inc.	50,000		2,881,000
^a	Amgen Inc.	71,000		3,432,140
	Baxter International Inc.	44,000		1,232,000
	Bristol-Myers Squibb Co.	94,000		2,176,100
	Eli Lilly & Co.	4,000		254,000
^a	Genentech Inc.	60,200		1,996,232
^a	Guidant Corp.	35,000		1,079,750
	Johnson & Johnson Inc.	21,700		1,165,507
^a	King Pharmaceuticals Inc.	66,000		1,134,540
	Medtronic Inc.	30,000		1,368,000
	Pfizer Inc.	260,000		7,948,200
	Pharmacia Corp.	70,000		2,926,000
^a	Shire Pharmaceuticals Group PLC, ADR (United Kingdom)	84,600		1,598,094
^a	Watson Pharmaceuticals Inc.	40,000		1,130,800
	Wyeth	42,000		1,570,800

				33,733,163

	Industrial Services 1.0%
	Schlumberger Ltd.	50,000		2,104,500

	Process Industries 1.0%
	Dow Chemical Co.	48,000		1,425,600
	Georgia-Pacific Corp.	39,600		639,936

				2,065,536

	Producer Manufacturing 4.5%
	Emerson Electric Co.	13,000		661,050
	General Electric Co.	200,000		4,870,000
^a	Mettler-Toledo International Inc. (Switzerland)	38,200		1,224,692
	United Technologies Corp.	42,200		2,613,868

				9,369,610

	Retail Trade 9.3%
^a	AutoZone Inc.	13,900		982,035
^a	Best Buy Co. Inc.	88,000		2,125,200
^a	Dollar Tree Stores Inc.	61,700		1,515,969
^a	Federated Department Stores Inc.	36,400		1,046,864
	Home Depot Inc.	131,200		3,143,552
^a	Rent-A-Center Inc.	32,300		1,613,385
^a	Safeway Inc.	43,600		1,018,496
	Target Corp.	74,900		2,247,000
	Tiffany & Co.	60,000		1,434,600

164

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Large Cap Growth Securities Fund	SHARES		VALUE

	Common Stocks (cont.)
	Retail Trade (cont.)
^a	Tuesday Morning Corp.		79,800	$	1,364,580
	Wal-Mart Stores Inc.		52,000		2,626,520

					19,118,201

	Technology Services 11.2%
^a	Amdocs Ltd.		110,800		1,088,056
	Automatic Data Processing Inc.		100,000		3,925,000
^a	Check Point Software Technologies Ltd. (Israel)		47,000		609,590
^a	Computer Sciences Corp.		35,000		1,205,750
^a	Concord EFS Inc.		103,000		1,621,220
	Electronic Data Systems Corp.		47,104		868,127
	International Business Machines Corp.		52,000		4,030,000
^a	Microsoft Corp.		156,000		8,065,200
^a	Oracle Corp.		88,000		950,400
	Paychex Inc.		25,800		719,820

					23,083,163

	Transportation 2.1%
	Expeditors International of Washington Inc.		130,000		4,244,500

	Utilities 1.0%
	CMS Energy Corp.		42,600		402,144
	Exelon Corp.		25,500		1,345,636
	TXU Corp.		16,000		298,880

					2,046,660

	Total Common Stocks (Cost $ 202,780,022)				193,135,902

		PRINCIPAL AMOUNT
	Convertible Bond (Cost $1,150,000) .6%
	Technology Services
	Computer Associates International 5.00%, Inc., cvt., 144A, 3/15/07	$	1,150,000		1,171,562

	Total Long Term Investments (Cost $203,930,022)				194,307,464

	Repurchase Agreement (Cost $13,989,281) 6.8%
^b	Joint Repurchase Agreement, 1.144%, 1/2/03, (Maturity Value $13,990,170)		13,989,281		13,989,281
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $1,294,650)
	Banc of America Securities LLC (Maturity Value $1,294,650)
	Barclays Capital Inc. (Maturity Value $1,294,650)
	Bear, Stearns & Co. Inc. (Maturity Value $1294,650)
	BNP Paribas Securities Corp. (Maturity Value $1294,650)
	Deutsche Bank Securities Inc. (Maturity Value $1,294,650)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $1,294,650)
	Goldman, Sachs & Co. (Maturity Value $1,294,650)
	Lehman Brothers Inc. (Maturity Value $1,043,670)
	Morgan Stanley & Co. Inc. (Maturity Value $1,294,650)
	UBS Warburg LLC (Maturity Value $1,294,650)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $217,919,303) 101.0%				208,296,745
	Other Assets, less Liabilities (1.0)%				(2,091,066	)

	Net Assets 100.0%			$	206,205,679

^a	Non-income producing

^b	See Note 1(c) regarding joint repurchase agreements.

See notes to financial statements.

165

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Statement of Investments, December 31, 2002

	Franklin Money Market Fund	PRINCIPAL AMOUNT		VALUE

	Certificates of Deposit 8.3%
	Toronto Dominion Bank, New York Branch, 1.65%, 1/10/03	$	5,000,000	$	4,999,970
	Westdeutsche Landesbank, New York Branch, 2.27%, 6/30/03		5,000,000		4,999,247

	Total Certificates of Deposit (Cost $9,999,217)				9,999,217

	Commercial Paper 29.0%
^a	AIG Funding Inc., 1.69%, 1/21/03		5,000,000		4,995,306
^a	Barclays U.S. Funding Corp., 1.32%, 3/17/03		5,000,000		4,986,250
^a	Canadian Wheat Board, 1.30%, 3/28/03		5,000,000		4,984,472
^a	ChevronTexaco Corp., 1.25%, 1/24/03		5,000,000		4,996,007
^a	Coca-Cola Co., 1.29%, 2/12/03		5,000,000		4,992,475
^a	General Electric Capital Corp., 1.34%, 6/09/03		5,000,000		4,970,408
^a	Svenska Handelsbanken Inc., 1.34%, 1/30/03		5,000,000		4,994,603

	Total Commercial Paper (Cost $34,919,521)				34,919,521

	U.S. Government Agency Securities 49.8%
	Federal Home Loan Mortgage Corp., 1.245% - 1.685%, 1/16/03 - 7/17/03		30,000,000		29,933,351
	Federal National Mortgage Association, 1.25% - 1.705%, 1/15/03 - 3/12/03		30,000,000		29,957,728

	Total U.S. Government Agency Securities (Cost $59,891,079)				59,891,079

	Total Investments before Repurchase Agreements (Cost $104,809,817)				104,809,817

	Repurchase Agreements 13.0%
^b	ABN AMRO Inc., 1.20%, 1/02/03 (Maturity Value $7,780,519)		7,780,000		7,780,000
	Collateralized by U.S. Government Agency Securities
^b	UBS Warburg LLC, 1.25%, 1/02/03 (Maturity Value $7,785,541)		7,785,000		7,785,000
	Collateralized by U.S. Government Agency Securities

	Total Repurchase Agreements (Cost $15,565,000)				15,565,000

	Total Investments (Cost $120,374,817) 100.1%				120,374,817
	Other Assets, less Liabilities (.1)%				(77,054	)

	Net Assets 100.0%			$	120,297,763

^a	Securities are traded on a discount basis; the rates shown are the discount rates at the time of purchase by the fund.

^b	See Note 1(c) regarding repurchase agreements.

See notes to financial statements.

166

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Real Estate Fund	SHARES	VALUE

	Common Stocks 91.1%
	Equity REIT — Apartments 11.2%
	Apartment Investment & Management Co., A	195,000	$	7,308,600
	Archstone-Smith Trust	372,060		8,758,292
	Avalonbay Communities Inc.	252,000		9,863,280
	Camden Property Trust	170,000		5,610,000
	Equity Residential	365,000		8,971,700

				40,511,872

	Equity REIT — Diversified Property 11.9%
	Bedford Property Investors Inc.	191,280		4,913,983
	Crescent Real Estate Equities Co.	171,800		2,858,752
	Duke Realty Corp.	34,348		874,157
	Glenborough Realty Trust Inc.	498,700		8,886,834
	Liberty Property Trust	315,000		10,061,100
	Vornado Realty Trust	420,800		15,653,760

				43,248,586

	Equity REIT — Health Care 1.2%
	Ventas Inc.	220,000		2,519,000
	Windrose Medical Properties	180,200		1,856,060

				4,375,060

	Equity REIT — Home Builders 1.5%
	Lennar Corp.	40,000		2,064,000
^a	Meritage Corp.	98,600		3,317,890

				5,381,890

	Equity REIT — Hotels 1.3%
	MeriStar Hospitality Corp.	361,200		2,383,920
	RFS Hotel Investors Inc.	210,000		2,280,600

				4,664,520

	Equity REIT — Industrial 8.2%
	AMB Property Corp.	306,200		8,377,632
	ProLogis	463,800		11,664,570
	PS Business Parks Inc.	300,000		9,540,000

				29,582,202

	Equity REIT — Manufactured Homes 3.0%
	Manufactured Home Communities Inc.	146,600		4,343,758
	Sun Communities Inc.	184,000		6,728,880

				11,072,638

	Equity REIT — Office 16.1%
	Arden Realty Inc.	227,300		5,034,695
	Boston Properties Inc.	120,250		4,432,415
	Brandywine Realty Trust	114,400		2,495,064
	CarrAmerica Realty Corp.	373,600		9,358,680
	Cousins Properties Inc.	262,600		6,486,220
	Equity Office Properties Trust	520,652		13,005,887
	Reckson Associates Realty Corp.	361,800		7,615,890
	SL Green Realty Corp.	209,000		6,604,400
	Trizec Properties Inc.	359,200		3,372,888

				58,406,139

	Equity REIT — Other 3.5%
	Entertainment Properties Trust	90,000		2,116,800
	iStar Financial Inc.	375,000		10,518,750

				12,635,550

	Equity REIT — Retail 17.9%
	Chelsea Property Group Inc.	75,700		2,521,567
	General Growth Properties Inc.	117,200		6,094,400

167

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Statement of Investments, December 31, 2002 (cont.)

	Franklin Real Estate Fund	SHARES		VALUE

	Common Stocks (cont.)
	Equity REIT - Retail (cont.)
	Glimcher Realty Trust		384,500	$	6,824,875
	The Macerich Co.		422,000		12,976,500
	Ramco-Gershenson Properties Trust		257,100		5,077,725
	The Rouse Co.		172,000		5,452,400
	Simon Property Group Inc.		534,800		18,220,636
	Taubman Centers Inc.		469,200		7,615,116

					64,783,219

	Equity REIT - Storage 4.1%
	Public Storage Inc.		391,200		12,639,672
	Shurgard Storage Centers Inc., A		66,900		2,096,646

					14,736,318

	Apartments 2.0%
	Boardwalk Equities Inc. (Canada)		758,200		7,271,138

	Diversified Property 2.9%
	Brookfield Properties Corp. (Canada)		185,560		3,748,312
^a	Catellus Development Corp.		179,100		3,555,135
	Forest City Enterprises Inc., A		100,000		3,335,000

					10,638,447

	Hotels & Travel 6.3%
^a	Candlewood Hotel Co. Inc.		350,000		185,500
^a	Cendant Corp.		742,500		7,781,400
	Hilton Hotels Corp.		148,900		1,892,519
^a	Host Marriott Corp.		901,900		7,981,815
	Starwood Hotels & Resorts Worldwide Inc.		205,200		4,871,448

					22,712,682

	Total Common Stocks (Cost $309,372,118)				330,020,261

	Convertible Preferred Stock (Cost $1,503,132) .6%
	Hotels & Travel
	Host Marriott Corp., 6.75%, cvt. pfd.		56,900		2,122,097

	Total Long Term Investments (Cost $310,875,250)				332,142,358

		PRINCIPAL AMOUNT
	Repurchase Agreement (Cost $27,592,915) 7.6%
^b	Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $27,594,669)	$	27,592,915		27,592,915
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $2,553,611)
	Banc of America Securities LLC (Maturity Value $2,553,611)
	Barclays Capital Inc. (Maturity Value $2,553,611)
	Bear, Stearns & Co. Inc. (Maturity Value $2,553,611)
	BNP Paribas Securities Corp. (Maturity Value $2,553,611)
	Deutsche Bank Securities Inc. (Maturity Value $2,553,611)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $2,553,611)
	Goldman, Sachs & Co. (Maturity Value $2,553,611)
	Lehman Brothers Inc. (Maturity Value $2,058,559)
	Morgan Stanley & Co. Inc. (Maturity Value $2,553,611)
	UBS Warburg LLC (Maturity Value $2,553,611)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $338,468,165) 99.3%				359,735,273
	Other Assets, less Liabilities .7%				2,372,166

	Net Assets 100.0%			$	362,107,439

^a	Non-income producing

^b	See Note 1(c) regarding joint repurchase agreement.

See notes to financial statements.

168

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

Franklin Rising Dividends Securities Fund	SHARES	VALUE

Common Stocks 97.3%
Commercial Services 1.1%
ABM Industries Inc.	264,000	$	4,092,000

Consumer Durables 5.3%
Leggett & Platt Inc.	487,500		10,939,500
Russ Berrie & Co. Inc.	231,400		7,816,692

			18,756,192

Consumer Non-Durables 8.6%
Alberto-Culver Co., A	360,300		17,506,977
Lancaster Colony Corp.	92,800		3,626,624
Philip Morris Cos. Inc.	48,000		1,945,440
Superior Uniform Group Inc.	276,600		3,427,074
Universal Corp.	115,800		4,279,968

			30,786,083

Electronic Technology 5.5%
Cohu Inc.	279,400		4,107,180
Diebold Inc.	374,900		15,453,378

			19,560,558

Energy Minerals .9%
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands)	70,300		3,094,606

Finance 28.7%
AFLAC Inc.	375,600		11,313,072
American International Group Inc.	163,855		9,479,012
Arthur J. Gallagher & Co.	233,000		6,845,540
Fannie Mae	163,200		10,498,656
Mercantile Bankshares Corp.	197,525		7,622,490
Mercury General Corp.	87,200		3,276,976
National Commerce Financial Corp.	504,200		12,025,170
Old Republic International Corp.	195,000		5,460,000
Peoples Bancorp Inc.	44,700		1,144,320
RLI Corp.	252,512		7,045,085
State Street Corp.	75,400		2,940,600
TrustCo Bank Corp. NY	328,588		3,542,178
U.S. Bancorp	87,749		1,862,034
Washington Mutual Inc.	429,300		14,823,729
Wilmington Trust Corp.	139,000		4,403,520

			102,282,382

Health Technology 7.0%
Becton, Dickinson & Co.	103,300		3,170,277
Hillenbrand Industries Inc.	105,000		5,072,550
Pall Corp.	169,600		2,828,928
West Pharmaceutical Services Inc.	562,800		13,732,320

			24,804,075

Non-Energy Minerals 1.7%
Nucor Corp.	149,800		6,186,740

Process Industries 5.6%
Bemis Co. Inc.	98,600		4,893,518
Brady Corp., A	134,400		4,482,240
Donaldson Co. Inc.	104,900		3,776,400
Myers Industries Inc.	641,147		6,860,273

			20,012,431

169

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Rising Dividends Securities Fund	SHARES	VALUE

	Common Stocks (cont.)
	Producer Manufacturing 22.1%
	Baldor Electric Co.	199,833	$	3,946,701
	Carlisle Cos. Inc.	154,300		6,384,934
	CIRCOR International Inc.	255,350		4,060,065
	Dover Corp.	210,600		6,141,096
	General Electric Co.	435,000		10,592,250
	Graco Inc.	447,075		12,808,699
	Kaydon Corp.	213,600		4,530,456
	Roper Industries Inc.	211,300		7,733,580
	Superior Industries International Inc.	248,400		10,273,824
	Teleflex Inc.	287,900		12,348,031

				78,819,636

	Retail Trade 6.9%
	Family Dollar Stores Inc.	501,600		15,654,936
	Fresh Brands Inc.	227,700		3,757,050
	Limited Brands Inc.	379,046		5,280,111

				24,692,097

	Technology Services 3.9%
	Reynolds & Reynolds Co., A	543,600		13,845,492

	Total Common Stocks (Cost $255,726,877)			346,932,292

	Short Term Investments (Cost $9,352,178) 2.6%
^a	Franklin Institutional Fiduciary Trust Money Market Portfolio	9,352,178		9,352,178

	Total Investments (Cost $265,079,055) 99.9%			356,284,470
	Other Assets, less Liabilities .1%			475,127

	Net Assets 100.0%		$	356,759,597

^a	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

170

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Statement of Investments, December 31, 2002

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks 93.2%
	Commercial Services .7%
	Deluxe Corp.	200	$	8,420
	Equifax Inc.	400		9,256
	Interpublic Group of Cos. Inc.	1,200		16,896
	The McGraw-Hill Cos. Inc.	600		36,264
	Moody’s Corp.	400		16,516
	Omnicom Group Inc.	530		34,238
	R.R. Donnelley & Sons Co.	400		8,708
^a	Robert Half International Inc.	600		9,666
^a	Sabre Holdings Corp., A	461		8,349
^a	Sungard Data Systems Inc.	900		21,204
^a	TMP Worldwide Inc.	400		4,524

				174,041

	Communications 3.9%
	Alltel Corp.	900		45,900
	AT&T Corp.	2,303		60,131
^a	AT&T Wireless Services Inc.	8,271		46,731
	BellSouth Corp.	5,551		143,604
	CenturyTel Inc.	400		11,752
^a	Citizens Communications Co., B	800		8,440
^a	Nextel Communications Inc., A	2,800		32,340
^a	Qwest Communications International Inc.	5,174		25,870
	SBC Communications Inc.	9,983		270,639
^a	Sprint Corp. (PCS Group)	3,000		13,140
	Sprint Corp. (FON Group)	2,716		39,328
	Verizon Communications Inc.	8,277		320,734

				1,018,609

	Consumer Durables 1.5%
	The Black & Decker Corp.	200		8,578
	Brunswick Corp.	300		5,958
	Centex Corp.	200		10,040
	Cooper Tire & Rubber Co.	300		4,602
	Eastman Kodak Co.	900		31,536
^a	Electronic Arts Inc.	400		19,908
	Ford Motor Co.	5,573		51,829
	Fortune Brands Inc.	400		18,604
	General Motors Corp.	1,648		60,745
	Goodyear Tire & Rubber Co.	600		4,086
	Harley-Davidson Inc.	900		41,580
	Hasbro Inc.	600		6,930
^a	International Game Technology	200		15,184
	KB Home	100		4,285
	Leggett & Platt Inc.	600		13,464
	Mattel Inc.	1,300		24,895
	Maytag Corp.	200		5,700
	Newell Rubbermaid Inc.	800		24,264
	Pulte Homes Inc.	200		9,574
	Snap-on Inc.	200		5,622
	Stanley Works	300		10,374
	Tupperware Corp.	200		3,016
	Whirlpool Corp.	200		10,444

				391,218

	Consumer Non-Durables 8.1%
	Adolph Coors Co., B	100		6,125
	Alberto-Culver Co., B	200		10,080
^a	American Greetings Corp., A	200		3,160

171

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Consumer Non-Durables (cont.)
	Anheuser-Busch Cos. Inc.	2,600	$	125,840
	Avon Products Inc.	700		37,709
	Brown-Forman Corp., B	200		13,072
	Campbell Soup Co.	1,249		29,314
	Cintas Corp.	500		22,875
	Clorox Co.	700		28,875
	Coca-Cola Co.	7,492		328,299
	Coca-Cola Enterprises Inc.	1,400		30,408
	Colgate-Palmolive Co.	1,600		83,888
	ConAgra Foods Inc.	1,600		40,016
	General Mills Inc.	1,100		51,645
	Gillette Co.	3,216		97,638
	H.J. Heinz Co.	1,000		32,870
	Hershey Foods Corp.	439		29,606
	International Flavors & Fragrances Inc.	300		10,530
^a	Jones Apparel Group Inc.	400		14,176
	Kellogg Co.	1,200		41,124
	Kimberly-Clark Corp.	1,516		71,965
	Liz Claiborne Inc.	300		8,895
	Nike Inc., B	800		35,576
	Pepsi Bottling Group Inc.	800		20,560
	PepsiCo Inc.	5,211		220,008
	Philip Morris Cos. Inc.	6,243		253,029
	Procter & Gamble Co.	3,900		335,166
	R.J. Reynolds Tobacco Holdings Inc.	300		12,633
^a	Reebok International Ltd.	200		5,880
	Sara Lee Corp.	2,398		53,979
	UST Inc.	500		16,715
	V.F. Corp.	300		10,815
	Wm. Wrigley Jr. Co.	700		38,416

				2,120,887

	Consumer Services 4.8%
^a	AOL Time Warner Inc.	13,518		177,086
^a	Apollo Group Inc., A	500		22,000
	Carnival Corp.	1,724		43,014
^a	Cendant Corp.	3,200		33,536
^a	Clear Channel Communications Inc.	1,847		68,875
^a	Comcast Corp.	6,944		163,670
	Darden Restaurants Inc.	500		10,225
	Dow Jones & Co. Inc.	200		8,646
^a	eBay Inc.	900		61,038
	Gannett Co. Inc.	838		60,168
	H&R Block Inc.	500		20,100
^a	Harrah’s Entertainment Inc.	300		11,880
	Hilton Hotels Corp.	1,100		13,981
	Knight-Ridder Inc.	244		15,433
	Marriott International Inc., A	700		23,009
	McDonald’s Corp.	3,905		62,792
	Meredith Corp.	100		4,111
	The New York Times Co., A	400		18,292
^a	Starbucks Corp.	1,200		24,456
	Starwood Hotels & Resorts Worldwide Inc.	600		14,244
	Tribune Co.	880		40,005
^a	Univision Communications Inc., A	700		17,150
^a	Viacom Inc., B	5,295		215,824
	The Walt Disney Co.	6,159		100,453

172

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Consumer Services (cont.)
	Wendy’s International Inc.	300	$	8,121
^a	Yum! Brands Inc.	900		21,798

				1,259,907

	Distribution Services .8%
	AmerisourceBergen Corp.	359		19,497
	Cardinal Health Inc.	1,350		79,907
	Genuine Parts Co.	500		15,400
	McKesson Corp.	900		24,327
	SUPERVALU Inc.	400		6,604
	Sysco Corp.	2,000		59,580
	W.W. Grainger Inc.	300		15,465

				220,780

	Electronic Technology 8.1%
^a	ADC Telecommunications Inc.	3,000		6,270
^a	Advanced Micro Devices Inc.	1,200		7,752
^a	Agilent Technologies Inc.	1,412		25,360
^a	Altera Corp.	1,200		14,808
^a	Analog Devices Inc.	1,100		26,257
^a	Andrew Corp.	400		4,112
^a	Apple Computer Inc.	1,100		15,763
^a	Applied Materials Inc.	4,900		63,847
^a	Applied Micro Circuits Corp.	1,000		3,690
^a	Avaya Inc.	994		2,435
	Boeing Co.	2,520		83,135
^a	Broadcom Corp., A	858		12,921
^a	CIENA Corp.	1,200		6,168
^a	Cisco Systems Inc.	21,818		285,816
^a	Comverse Technology Inc.	700		7,014
^a	Corning Inc.	3,398		11,247
^a	Dell Computer Corp.	7,762		207,556
^a	EMC Corp.	6,620		40,647
^a	Gateway Inc.	1,000		3,140
	General Dynamics Corp.	636		50,479
	Goodrich Corp.	400		7,328
	Hewlett-Packard Co.	9,244		160,476
	Intel Corp.	19,910		309,999
^a	Jabil Circuit Inc.	600		10,752
^a	JDS Uniphase Corp.	4,100		10,127
^a	KLA-Tencor Corp.	600		21,222
^a	Lexmark International Inc.	400		24,200
	Linear Technology Corp.	900		23,148
	Lockheed Martin Corp.	1,400		80,850
^a	LSI Logic Corp.	1,200		6,924
^a	Lucent Technologies Inc.	10,338		13,026
	Maxim Integrated Products Inc.	1,000		33,040
^a	Micron Technology Inc.	1,900		18,506
	Motorola Inc.	7,038		60,879
^a	National Semiconductor Corp.	500		7,505
^a	NCR Corp.	300		7,122
^a	Network Appliance Inc.	1,000		10,000
	Northrop Grumman Corp.	518		50,273
^a	Novellus Systems Inc.	400		11,232
^a	Nvidia Corp.	400		4,604
	PerkinElmer Inc.	468		3,861
^a	PMC-Sierra Inc. (Canada)	700		3,892

173

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Electronic Technology (cont.)
^a	QLogic Corp.	300	$	10,353
^a	QUALCOMM Inc.	2,400		87,336
	Raytheon Co.	1,200		36,900
	Rockwell Automation Inc.	600		12,426
	Rockwell Collins Inc.	600		13,956
^a	Sanmina-Sci Corp.	1,872		8,405
	Scientific-Atlanta Inc.	400		4,744
^a	Solectron Corp.	2,400		8,520
^a	Sun Microsystems Inc.	9,334		29,029
	Symbol Technologies Inc.	850		6,987
^a	Tektronix Inc.	300		5,457
^a	Tellabs Inc.	1,400		10,178
^a	Teradyne Inc.	500		6,505
	Texas Instruments Inc.	5,148		77,271
^a	Thermo Electron Corp.	500		10,060
^a	Waters Corp.	400		8,712
^a	Xerox Corp.	2,216		17,839
^a	Xilinx Inc.	1,000		20,600

				2,132,661

	Energy Minerals 4.8%
	Amerada Hess Corp.	300		16,515
	Anadarko Petroleum Corp.	700		33,530
	Apache Corp.	470		26,785
	Ashland Inc.	200		5,706
	Burlington Resources Inc.	600		25,590
	ChevronTexaco Corp.	3,199		212,670
	ConocoPhillips	1,996		96,586
	Devon Energy Corp.	500		22,950
	EOG Resources Inc.	300		11,976
	Exxon Mobil Corp.	20,256		707,745
	Kerr-McGee Corp.	342		15,151
	Marathon Oil Corp.	1,000		21,290
	Occidental Petroleum Corp.	1,100		31,295
	Sunoco Inc.	200		6,636
	Unocal Corp.	800		24,464

				1,258,889

	Finance 19.1%
	Ace Ltd. (Bermuda)	800		23,472
	AFLAC Inc.	1,592		47,951
	Allstate Corp.	2,075		76,754
	AMBAC Financial Group Inc.	294		16,535
	American Express Co.	3,923		138,678
	American International Group Inc.	7,850		454,122
	AmSouth BanCorp.	1,100		21,120
	AON Corp.	900		17,001
	Bank of America Corp.	4,516		314,178
	Bank of New York Co. Inc.	2,182		52,281
	Bank One Corp.	3,482		127,267
	BB&T Corp.	1,400		51,786
	The Bear Stearns Cos. Inc.	300		17,820
	Capital One Financial Corp.	700		20,804
	Charles Schwab Corp.	4,128		44,789
	Charter One Financial Inc.	636		18,272
	Chubb Corp.	500		26,100
	CInc.innati Financial Corp.	500		18,775
	Citigroup Inc.	15,496		545,304

174

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Finance (cont.)
	Comerica Inc.	500	$	21,620
	Countrywide Financial Corp.	400		20,660
	Equity Office Properties Trust	1,200		29,976
	Equity Residential	800		19,664
	Fannie Mae	3,009		193,569
	Fifth Third Bancorp	1,712		100,238
	First Tennessee National Corp.	400		14,376
	Fleet Boston Financial Corp.	3,135		76,180
	Franklin Resources Inc.	800		27,264
	Freddie Mac	2,065		121,938
	Golden West Financial Corp.	443		31,812
	Goldman Sachs Group Inc.	1,400		95,340
	Hartford Financial Services Group Inc.	700		31,801
	Household International Inc.	1,433		39,852
	Huntington Bancshares Inc.	780		14,594
	Jefferson-Pilot Corp.	450		17,149
	John Hancock Financial Services Inc.	900		25,110
	JP Morgan Chase & Co.	6,038		144,912
	KeyCorp	1,300		32,682
	Lehman Brothers Holdings Inc.	700		37,303
	Lincoln National Corp.	500		15,790
	Loews Corp.	600		26,676
	Marsh & McLennan Cos. Inc.	1,608		74,306
	Marshall & Ilsley Corp.	600		16,428
	MBIA Inc.	450		19,737
	MBNA Corp.	3,852		73,265
	Mellon Financial Corp.	1,257		32,820
	Merrill Lynch & Co. Inc.	2,631		99,846
	MetLife Inc.	2,100		56,784
	MGIC Investment Corp.	300		12,390
	Morgan Stanley	3,292		131,417
	National City Corp.	1,849		50,515
	North Fork Bancorp. Inc.	500		16,870
	Northern Trust Corp.	640		22,432
	Plum Creek Timber Co. Inc.	600		14,160
	PNC Financial Services Group	873		36,579
	Principal Financial Group	1,000		30,130
	The Progressive Corp.	632		31,366
^a	Providian Financial Corp.	1,043		6,769
	Prudential Financial Inc.	1,700		53,958
	Regions Financial Corp.	628		20,950
	Ryder Systems Inc.	200		4,488
	SAFECO Corp.	400		13,868
	Simon Property Group Inc.	600		20,442
	SLM Corp.	500		51,930
	Southtrust Corp.	1,100		27,335
	St. Paul Cos. Inc.	700		23,835
	State Street Corp.	1,000		39,000
	Stilwell Financial Inc.	700		9,149
	SunTrust Banks Inc.	800		45,536
	Synovus Financial Corp.	900		17,460
	T. Rowe Price Group Inc.	400		10,912
	Torchmark Corp.	300		10,959
^a	Travelers Property Casualty Corp., B	3,025		44,316
	Union Planters Corp.	600		16,884
	Unumprovident Corp.	800		14,032
	U.S. Bancorp	5,775		122,546

175

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Finance (cont.)
	Wachovia Corp.	4,087	$	148,930
	Washington Mutual Inc.	2,824		97,513
	Wells Fargo & Co.	5,097		238,896
	XL Capital Ltd., A (Bermuda)	400		30,900
	Zions Bancorp	300		11,805

				4,972,973

	Health Services 1.2%
	Aetna Inc.	400		16,448
^a	Anthem Inc.	400		25,160
	CIGNA Corp.	421		17,312
	HCA Inc.	1,535		63,702
	Health Management Associates Inc., A	700		12,530
^a	HealthSouth Corp.	1,400		5,880
^a	Humana Inc.	600		6,000
	IMS Health Inc.	900		14,400
^a	Manor Care Inc.	300		5,583
^a	Quest Diagnostics Inc.	300		17,070
^a	Quintiles Transnational Corp.	300		3,630
^a	Tenet Healthcare Corp.	1,550		25,420
	United Health Group Inc.	900		75,150
^a	Wellpoint Health Networks Inc.	400		28,464

				316,749

	Health Technology 12.2%
	Abbott Laboratories	4,726		189,040
	Allergan Inc.	400		23,048
	Amgen Inc.	3,912		189,106
	Applera Corp-Applied Biosystems Group	700		12,278
	Bausch & Lomb Inc.	200		7,200
	Baxter International Inc.	1,800		50,400
	Becton, Dickinson & Co.	800		24,552
^a	Biogen Inc.	400		16,024
	Biomet Inc.	825		23,645
^a	Boston Scientific Corp.	1,200		51,024
	Bristol-Myers Squibb Co.	5,828		134,918
	C.R. Bard Inc.	100		5,800
^a	Chiron Corp.	600		22,560
	Eli Lilly & Co.	3,387		215,075
^a	Forest Laboratories Inc.	500		49,110
^a	Genzyme Corp-General Division	600		17,742
^a	Guidant Corp.	945		29,153
	Johnson & Johnson Inc.	8,958		481,134
^a	King Pharmaceuticals Inc.	800		13,752
^a	Medimmune Inc.	800		21,736
	Medtronic Inc.	3,673		167,489
	Merck & Co. Inc.	6,766		383,023
	Pall Corp.	400		6,672
	Pfizer Inc.	18,514		565,973
	Pharmacia Corp.	3,893		162,727
	Schering-Plough Corp.	4,451		98,812
^a	St. Jude Medical Inc.	500		19,860
	Stryker Corp.	600		40,272
^a	Watson Pharmaceuticals Inc.	300		8,481
	Wyeth	4,020		150,348
^a	Zimmer Holdings Inc.	602		24,995

				3,205,949

176

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Industrial Services 1.0%
^a	Allied Waste Industries Inc.	700	$	7,000
	Baker Hughes Inc.	1,000		32,190
^a	BJ Services Co.	500		16,155
	El Paso Corp.	1,830		12,737
	Fluor Corp.	200		5,600
	Halliburton Co.	1,301		24,342
^a	McDermott International Inc.	300		1,314
^a	Nabors Industries Ltd.	400		14,108
^a	Noble Corp.	400		14,060
	Rowan Cos. Inc.	300		6,810
	Schlumberger Ltd.	1,700		71,553
	Transocean Inc.	1,012		23,478
	Waste Management Inc.	1,800		41,256
	Williams Cos. Inc.	2,071		5,592

				276,195

	Non-Energy Minerals .7%
	Alcoa Inc.	2,524		57,497
	Allegheny Technologies Inc.	300		1,869
^a	Freeport-McMoRan Copper & Gold Inc., B	500		8,390
^a	Louisiana-Pacific Corp.	400		3,224
	Newmont Mining Corp.	1,200		34,836
	Nucor Corp.	200		8,260
^a	Phelps Dodge Corp.	300		9,495
	United States Steel Corp.	400		5,248
	Vulcan Materials Co.	300		11,250
	Weyerhaeuser Co.	700		34,447
	Worthington Industries Inc.	300		4,572

				179,088

	Process Industries 2.1%
	Air Products & Chemicals Inc.	700		29,925
	Archer Daniels Midland Co.	1,981		24,564
	Ball Corp.	200		10,238
	Bemis Co. Inc.	200		9,926
	Boise Cascade Corp.	200		5,044
	Dow Chemical Co.	2,766		82,150
	E.I. du Pont de Nemours and Co.	2,990		126,776
	Eastman Chemical Co.	200		7,354
	Ecolab Inc.	400		19,800
	Engelhard Corp.	400		8,940
	Georgia-Pacific Corp.	637		10,294
	Great Lakes Chemical Corp.	200		4,776
^a	Hercules Inc.	400		3,520
	International Paper Co.	1,436		50,217
	Meadwestvaco Corp.	582		14,381
	Millipore Corp.	100		3,400
	Monsanto Co.	783		15,073
^a	Pactiv Corp.	500		10,930
	PPG Industries Inc.	483		24,223
	Praxair Inc.	500		28,885
	Rohm & Haas Co.	700		22,736
^a	Sealed Air Corp.	200		7,460
	Sigma-Aldrich Corp.	200		9,740
	Temple-Inland Inc.	200		8,962

				539,314

177

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Producer Manufacturing 6.3%
^a	American Power Conversion Corp.	600	$	9,090
^a	American Standard Cos. Inc.	200		14,228
	Avery Dennison Corp.	300		18,324
	Caterpillar Inc.	1,015		46,406
	Cooper Industries Ltd., A (Bermuda)	300		10,935
	Crane Co.	200		3,986
	Cummins Inc.	100		2,813
	Dana Corp.	500		5,880
	Danaher Corp.	400		26,280
	Deere & Co.	700		32,095
	Delphi Corp.	1,700		13,685
	Dover Corp.	600		17,496
	Eaton Corp.	200		15,622
	Emerson Electric Co.	1,240		63,054
	General Electric Co.	29,983		730,086
	Honeywell International Inc.	2,525		60,600
	Illinois Tool Works Inc.	900		58,374
	Ingersoll Rand Co., A (Bermuda)	500		21,530
	ITT Industries Inc.	300		18,207
	Johnson Controls Inc.	300		24,051
	Masco Corp.	1,500		31,575
	Minnesota Mining & Manufacturing Co.	1,149		141,672
	Molex Inc.	625		14,400
^a	Navistar International Corp.	200		4,862
	PACCAR Inc.	350		16,145
	Parker Hannifin Corp.	300		13,839
	Pitney Bowes Inc.	700		22,862
^a	Power-One Inc.	400		2,268
	Textron Inc.	400		17,196
^a	Thomas & Betts Corp.	200		3,380
	Tyco International Ltd.	6,033		103,044
	United Technologies Corp.	1,441		89,255
	Visteon Corp.	534		3,717

				1,656,957

	Retail Trade 6.5%
	Albertson’s Inc.	1,115		24,820
^a	AutoZone Inc.	300		21,195
^a	Bed Bath & Beyond Inc.	900		31,077
^a	Best Buy Co. Inc.	1,000		24,150
^a	Big Lots Inc.	400		5,292
	Circuit City Stores-Circuit City Group	800		5,936
^a	Costco Wholesale Corp.	1,400		39,284
	CVS Corp.	1,240		30,963
	Dillards Inc., A	300		4,758
	Dollar General Corp.	1,075		12,846
	Family Dollar Stores Inc.	500		15,605
^a	Federated Department Stores Inc.	548		15,761
	GAP Inc.	2,639		40,957
	Home Depot Inc.	6,994		167,576
^a	Kohl’s Corp.	973		54,439
^a	The Kroger Co.	2,348		36,277
	Limited Brands Inc.	1,600		22,288
	Lowe’s Cos. Inc.	2,310		86,625
	May Department Stores Co.	900		20,682
	Nordstrom Inc.	400		7,588

178

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Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES	VALUE

	Common Stocks (cont.)
	Retail Trade (cont.)
^a	Office Depot Inc.	1,000	$	14,760
	J.C. Penney Co. Inc.	800		18,408
	Radioshack Corp.	500		9,370
^a	Safeway Inc.	1,369		31,980
	Sears, Roebuck & Co.	1,000		23,950
	Sherwin-Williams Co.	500		14,125
^a	Staples Inc.	1,400		25,620
	Target Corp.	2,692		80,760
	Tiffany & Co.	400		9,564
	The TJX Cos. Inc.	1,600		31,232
^a	Toys R Us Inc.	600		6,000
	Wal-Mart Stores Inc.	13,279		670,722
	Walgreen Co.	3,100		90,489
	Winn-Dixie Stores Inc.	500		7,640

				1,702,739

	Technology Services 7.2%
	Adobe Systems Inc.	700		17,361
	Autodesk Inc.	400		5,720
	Automatic Data Processing Inc.	1,778		69,786
^a	BMC Software Inc.	700		11,977
^a	Citrix Systems Inc.	600		7,392
	Computer Associates International Inc.	1,800		24,300
^a	Computer Sciences Corp.	500		17,225
^a	Compuware Corp.	1,100		5,280
^a	Concord EFS Inc.	1,616		25,436
^a	Convergys Corp.	602		9,120
	Electronic Data Systems Corp.	1,500		27,645
	First Data Corp.	2,294		81,231
^a	Fiserv Inc.	582		19,759
	International Business Machines Corp.	5,118		396,645
^a	Intuit Inc.	600		28,152
^a	Mercury Interactive Corp.	236		6,997
^a	Microsoft Corp.	16,098		832,267
^a	Novell Inc.	1,000		3,340
^a	Oracle Corp.	16,120		174,096
^a	Parametric Technology Corp.	1,100		2,772
	Paychex Inc.	1,100		30,690
^a	PeopleSoft Inc.	1,000		18,300
^a	Rational Software Corp.	500		5,195
^a	Siebel Systems Inc.	1,401		10,479
^a	Unisys Corp.	1,100		10,890
^a	VERITAS Software Corp.	1,235		19,291
^a	Yahoo! Inc.	1,838		30,051

				1,891,397

	Transportation 1.6%
^a	AMR Corp.	600		3,960
	Burlington Northern Santa Fe Corp.	1,175		30,562
	CSX Corp.	600		16,986
	Delta Air Lines Inc.	300		3,630
	Fedex Corp.	900		48,798
	Norfolk Southern Corp.	1,200		23,988
	Southwest Airlines Co.	2,350		32,665
	Union Pacific Corp.	728		43,585
	United Parcel Service Inc., B	3,400		214,472

				418,646

179

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin S&P 500 Index Fund	SHARES		VALUE

	Common Stocks (cont.)
	Utilities 2.6%
^a	AES Corp.		2,100	$	6,342
	Allegheny Energy Inc.		500		3,780
	Ameren Corp.		400		16,628
	American Electric Power Co. Inc.		1,040		28,423
^a	Calpine Corp.		1,515		4,939
	Centerpoint Energy Inc.		1,000		8,500
	Cinergy Corp.		500		16,860
	CMS Energy Corp.		400		3,776
	Consolidated Edison Inc.		600		25,692
	Constellation Energy Group Inc.		500		13,910
	Dominion Resources Inc.		900		49,410
	DTE Energy Co.		500		23,200
	Duke Energy Corp.		2,658		51,937
	Dynegy Inc.		1,400		1,652
^a	Edison International		1,000		11,850
	Entergy Corp.		700		31,913
	Exelon Corp.		1,000		52,770
	FirstEnergy Corp.		897		29,574
	FPL Group Inc.		500		30,065
	KeySpan Corp.		400		14,096
	Kinder Morgan Inc.		400		16,908
^a	Mirant Corp.		1,656		3,130
	Nicor Inc.		100		3,403
	NiSource Inc.		653		13,060
	Peoples Energy Corp.		100		3,865
^a	PG&E Corp.		1,300		18,070
	Pinnacle West Capital Corp.		300		10,227
	PPL Corp.		500		17,340
	Progress Energy Inc.		709		30,735
	Public Service Enterprise Group Inc.		600		19,260
	Sempra Energy		600		14,190
	Southern Co.		2,160		61,323
	TECO Energy Inc.		600		9,282
	TXU Corp.		900		16,812
	Xcel Energy Inc.		1,275		14,000

					676,922

	Total Common Stocks (Cost $27,456,066)				24,413,921

	Short Term Investments 6.1%
^b	Franklin Institutional Fiduciary Trust Money Market Portfolio		1,472,031		1,472,031

		PRINCIPAL AMOUNT
^c	U.S. Treasury Bill, 1.18%, 3/13/03	$	130,000		129,715

	Total Short Term Investments (Cost $1,601,727)				1,601,746

	Total Investments (Cost $29,057,793) 99.3%				26,015,667
	Other Assets, less Liabilities .7%				182,107

	Net Assets 100.0%			$	26,197,774

^a	Non-income producing

^b	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

^c	On deposit with broker for initial margin on futures contracts (Note 1(d)).

See notes to financial statements.

180

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Small Cap Fund	SHARES	VALUE

	Common Stocks 89.6%
	Commercial Services 3.8%
^a	Corporate Executive Board Co.	110,000	$	3,511,200
	Fair, Isaac & Co. Inc.	75,255		3,213,388
^a	Lamar Advertising Co., A	32,000		1,076,800
^a	Learning Tree International Inc.	52,000		712,400
^a	Maximus Inc.	250,000		6,525,000
	Pittston Brinks Group	209,400		3,869,712
^a	ProBusiness Services Inc.	103,000		1,030,000
^a	Resources Connection Inc.	74,600		1,731,466
^a	Robert Half International Inc.	19,000		306,090

				21,976,056

	Communications .2%
^a	Alaska Communications Systems Holdings Inc.	86,900		159,896
	CenturyTel Inc.	40,900		1,201,642

				1,361,538

	Consumer Non-Durables 1.2%
	Adolph Coors Co., B	46,600		2,854,250
^a	Jones Apparel Group Inc.	27,800		985,232
^a	Reebok International Ltd.	70,000		2,058,000
	Wolverine World Wide Inc.	84,800		1,281,328

				7,178,810

	Consumer Services 3.7%
^a	Brinker International Inc.	36,800		1,186,800
^a	Entercom Communications Corp.	62,000		2,909,040
^a	Entravision Communications Corp.	370,000		3,692,600
^a	Hispanic Broadcasting Corp., A	226,100		4,646,355
^a	Insight Communications Co. Inc., A	90,400		1,119,152
^a	Jack in the Box Inc.	72,200		1,248,338
^a	Mediacom Communications Corp., A	220,000		1,938,200
^a	Radio One Inc..	39,500		577,490
^a	Radio One Inc., D	42,900		619,047
^a	Station Casinos Inc.	187,100		3,311,670

				21,248,692

	Distribution Services .5%
	Fleming Cos. Inc.	100,000		657,000
^a	Performance Food Group Co.	70,300		2,387,318

				3,044,318

	Electronic Technology 20.4%
^a	Advanced Energy Industries Inc.	375,000		4,770,000
^a	Advanced Fibre Communications Inc..	200,000		3,336,000
^a	Anaren Microwave Inc.	240,200		2,113,760
^a	Avocent Corp.	140,000		3,110,800
^a	Catapult Communications Corp.	38,100		455,295
^a	Cirrus Logic Inc.	475,000		1,368,000
^a	Coherent Inc.	199,400		3,978,030
^a	Credence Systems Corp.	625,000		5,831,250
^a	Cymer Inc.	150,000		4,837,500
^a	DRS Technologies Inc.	106,400		3,333,512
^a	EMCORE Corp.	89,200		195,348
^a	Integrated Circuit Systems Inc.	550,000		10,037,500
^a	Integrated Device Technology Inc.	225,000		1,883,250
^a	Intersil Corp.	116,500		1,624,010
^a	Kronos Inc.	50,000		1,849,500
^a	L-3 Communications Holdings Inc.	114,400		5,137,704
^a	Lam Research Corp.	600,000		6,480,000

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Fund	SHARES	VALUE

	Common Stocks (cont.)
	Electronic Technology (cont.)
^a	McDATA Corp., A	415,000	$	2,946,500
^a	Micrel Inc.	1,050,000		9,429,000
^a	Novellus Systems Inc.	128,500		3,608,280
^a	Oak Technology Inc.	300,000		795,000
	PerkinElmer Inc.	450,000		3,712,500
^a	PLX Technology Inc.	265,000		1,036,150
^a	PMC-Sierra Inc. (Canada)	166,502		925,751
^a	Polycom Inc.	140,300		1,335,656
^a	QLogic Corp.	6,400		220,864
^a	Semtech Corp.	630,000		6,879,600
^a	Silicon Laboratories Inc.	65,000		1,240,200
^a	Skyworks Solutions Inc.	60,700		523,234
^a	Stratex Networks Inc.	61,100		135,031
^a	Synopsys Inc.	102,400		4,725,760
^a	Tekelec	101,000		1,055,450
^a	Tektronix Inc.	375,000		6,821,250
^a	Varian Semiconductor Equipment Associates Inc.	440,000		10,454,840
^a	Waters Corp.	100,000		2,178,000

				118,364,525

	Energy Minerals 4.2%
	Cabot Oil & Gas Corp., A	190,000		4,708,200
	Chesapeake Energy Corp.	331,900		2,568,906
^a	Newfield Exploration Co.	220,000		7,931,000
^a	Spinnaker Exploration Co.	90,000		1,984,500
^a	Stone Energy Corp.	80,000		2,668,800
^a	Swift Energy Co.	125,000		1,208,750
^a	Tom Brown Inc.	135,000		3,388,500

				24,458,656

	Finance 8.9%
	Allied Capital Corp.	150,000		3,274,500
	American Capital Strategies Ltd.	340,500		7,351,395
	Federated Investors Inc., B	192,900		4,893,873
	General Growth Properties Inc.	52,000		2,704,000
	Glenborough Realty Trust Inc.	49,000		873,180
^a	Investment Technology Group Inc.	55,000		1,229,800
^a	Labranche & Co. Inc.	275,000		7,326,000
	MeriStar Hospitality Corp.	225,000		1,485,000
	National Commerce Financial Corp.	153,000		3,649,050
	Radian Group Inc.	77,676		2,885,663
	Reinsurance Group of America Inc.	50,400		1,364,832
^a	Silicon Valley Bancshares	145,100		2,648,075
	SL Green Realty Corp.	80,000		2,528,000
	TCF Financial Corp.	85,000		3,713,650
	Waddell & Reed Financial Inc., A	110,000		2,163,700
	Westcorp	75,000		1,575,000
^a	WFS Financial Inc.	85,100		1,779,518

				51,445,236

	Health Services 1.4%
^a	Community Health Systems Inc.	40,000		823,600
^a	Pharmaceutical Product Development Inc.	140,000		4,097,800
^a	Renal Care Group Inc.	97,350		3,080,154

				8,001,554

182

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Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Fund	SHARES	VALUE

	Common Stocks (cont.)
	Health Technology 7.1%
	Alpharma Inc., A	140,400	$	1,672,164
^a	Cerus Corp.	195,000		4,192,500
^a	Conceptus Inc.	100,000		1,198,000
^a	First Horizon Pharmaceutical Corp.	654,400		4,893,603
	Galen Holdings PLC, ADR (United Kingdom)	100,000		3,229,000
	ICN Pharmaceuticals Inc.	70,000		763,700
^a	Integra LifeSciences Holdings Corp.	85,900		1,516,135
^a	Intermune Inc.	85,000		2,168,350
^a	Kosan Biosciences Inc.	134,820		818,357
^a	Medimmune Inc.	70,000		1,901,900
^a	Millennium Pharmaceuticals Inc.	101,292		804,259
^a	NPS Pharmaceuticals Inc.	100,000		2,517,000
^a	OSI Pharmaceuticals Inc.	300,400		4,926,560
^a	Thoratec Corp.	420,800		3,210,704
^a	Varian Medical Systems Inc.	133,400		6,616,640
^a	Ventana Medical Systems Inc.	42,700		984,235

				41,413,107

	Industrial Services 5.8%
^a	Allied Waste Industries Inc.	250,000		2,500,000
^a	Atwood Oceanics Inc.	59,200		1,781,920
^a	Core Laboratories NV (Netherlands)	100,000		1,135,000
^a	Grey Wolf Inc.	568,800		2,269,512
^a	Hydril Co.	29,314		690,931
^a	Oil States International Inc.	200,000		2,580,000
^a	Pride International Inc.	270,000		4,023,000
	Rowan Cos. Inc.	300,000		6,810,000
^a	Superior Energy Services Inc.	285,000		2,337,000
^a	Trico Marine Services Inc.	88,000		293,040
^a	Varco International Inc.	475,000		8,265,000
^a	Waste Connections Inc.	16,600		640,926

				33,326,329

	Non-Energy Minerals .6%
	Lafarge North America Inc.	100,000		3,285,000
	Reliance Steel & Aluminum Co.	13,500		281,340

				3,566,340

	Process Industries 5.3%
	Bowater Inc.	50,000		2,097,500
	Bunge Ltd.	237,300		5,709,438
^a	CUNO Inc.	12,800		423,936
^a	FMC Corp.	150,000		4,098,000
	Millennium Chemicals Inc.	75,000		714,000
	Minerals Technologies Inc.	75,000		3,236,250
	Nova Chemicals Corp. (Canada)	300,000		5,490,000
	Olin Corp.	360,000		5,598,000
	Valspar Corp.	70,300		3,105,854

				30,472,978

	Producer Manufacturing 7.9%
	CNH Global NV (Netherlands)	650,000		2,470,000
	Cummins Inc.	150,000		4,219,500
	a Flowserve Corp.	175,000		2,588,250
^a	Gentex Corp.	300,000		9,492,000
	Gibraltar Steel Corp.	52,800		1,005,312

183

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Fund	SHARES	VALUE

	Common Stocks (cont.)
	Producer Manufacturing (cont.)
^a	Mettler-Toledo International Inc. (Switzerland)	300,000	$	9,618,000
	Milacron Inc.	441,000		2,623,950
	Oshkosh Truck Corp.	65,000		3,997,500
^a	Varian Inc.	195,100		5,597,419
^a	Wilson Greatbatch Technologies Inc.	150,000		4,380,000

				45,991,931

	Retail Trade 3.6%
^a	Barnes & Noble Inc.	121,000		2,186,470
^a	Charming Shoppes Inc.	925,000		3,866,500
^a	Foot Locker Inc.	300,000		3,150,000
	Fred’s Inc.	140,000		3,598,000
^a	J. Jill Group Inc.	200,000		2,796,000
^a	The Men’s Wearhouse Inc.	42,000		720,300
^a	Tuesday Morning Corp.	267,000		4,565,700

				20,882,970

	Technology Services 10.0%
^a	Affiliated Computer Services Inc., A	231,800		12,204,270
^a	Aspen Technology Inc.	925,000		2,617,750
^a	Borland Software Corp.	545,000		6,703,500
^a	Documentum Inc.	58,600		917,676
^a	Entrust Inc.	750,000		2,520,000
^a	Informatica Corp.	500,000		2,880,000
^a	Interwoven Inc.	300,000		780,000
^a	MatrixOne Inc.	27,300		117,390
^a	Mercury Interactive Corp.	90,000		2,668,500
^a	Micromuse Inc.	370,000		1,413,400
^a	National Instruments Corp.	250,000		8,122,500
^a	Netiq Corp.	265,000		3,272,750
^a	Openwave Systems Inc.	425,026		850,052
^a	Precise Software Solutions Ltd. (Israel)	100,000		1,651,000
^a	Quest Software Inc.	225,000		2,319,750
^a	Retek Inc.	175,000		476,000
^a	RSA Security Inc.	200,000		1,198,000
^a	Sapient Corp.	202,200		414,510
^a	VERITAS Software Corp.	32,650		509,993
^a	Verity Inc.	150,000		2,008,650
^a	webMethods Inc.	375,000		3,082,500
^a	Wind River Systems Inc.	335,000		1,373,500

				58,101,691

	Transportation 4.3%
	Airborne Inc.	200,000		2,966,000
^a	Alaska Air Group Inc.	61,100		1,322,815
^a	Atlantic Coast Airlines Holdings Inc.	248,000		2,983,440
	C.H. Robinson Worldwide Inc.	216,800		6,764,160
	Expeditors International of Washington Inc.	272,600		8,900,390
^a	Pacer International Inc.	34,100		453,530
	SkyWest Inc.	120,000		1,568,400

				24,958,735

	Utilities .7%
	Atmos Energy Corp.	75,000		1,749,000
	Energen Corp.	60,000		1,746,000
^a	Sierra Pacific Resources	54,700		355,550

				3,850,550

	Total Common Stocks (Cost $599,417,996)			519,644,016

184

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Fund	SHARES		VALUE

	Preferred Stock (Cost $229,176)
	Electronic Technology
^a,b	3Ware Inc., pfd., D		41,093	$	—

		PRINCIPAL AMOUNT
	Convertible Bond (Cost $170,520)
	Electronic Technology
^a,b	3Ware Inc., cvt., zero cpn.	$	170,520		—

	Total Long Term Investments (Cost $599,817,692)				519,644,016
		SHARES
	Short Term Investments (Cost $60,503,247) 10.4%
^c	Franklin Institutional Fiduciary Trust Money Market Portfolio		60,503,247		60,503,247

	Total Investments (Cost $660,320,939) 100.0%				580,147,263
	Other Assets, less Liabilities				154,413

	Net Assets 100.0%			$	580,301,676

^a	Non-income producing

^b	See Note 9 regarding restricted securities.

^c	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

185

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Small Cap Value Securities Fund	SHARES	VALUE

	Closed End Mutual Funds .7%
	High Income Opportunity Fund Inc.	71,500	$	448,305
	High Yield Income Fund Inc.	34,200		176,130
	Managed High Income Portfolio Inc.	73,000		451,140

	Total Closed End Mutual Funds (Cost $1,492,131)			1,075,575

	Common Stocks 94.4%
	Commercial Services .8%
	ABM Industries Inc.	80,000		1,240,000

	Consumer Durables 7.8%
	Action Performance Cos. Inc.	100,000		1,900,000
	Briggs & Stratton Corp.	39,500		1,677,565
^a	Clayton Homes Inc.	164,200		1,999,956
	D.R. Horton Inc.	14,250		247,237
	La-Z-Boy Inc.	55,000		1,318,900
	M/I Schottenstein Homes Inc.	7,000		194,600
^a	Monaco Coach Corp.	96,000		1,588,800
	Russ Berrie & Co. Inc.	93,000		3,141,540

				12,068,598

	Consumer Non-Durables 4.6%
	Brown Shoe Co. Inc.	89,000		2,120,870
	Standard Commercial Corp.	48,500		877,850
^a	Timberland Co., A	67,500		2,403,675
^a	Tommy Hilfiger Corp.	202,000		1,403,900
	Wolverine World Wide Inc.	13,000		196,430

				7,002,725

	Consumer Services 2.5%
^a	Aztar Corp.	165,000		2,356,200
	Intrawest Corp. (Canada)	125,200		1,552,480

				3,908,680

	Electronic Technology 4.8%
^a	Avocent Corp.	177,000		3,932,940
	Cohu Inc.	73,000		1,073,100
	Diebold Inc.	55,000		2,267,100
^a	ESCO Technologies Inc.	3,000		111,000
^a	SPACEHAB Inc.	13,500		11,880

				7,396,020

	Energy Minerals 8.2%
	Arch Coal Inc.	142,000		3,065,780
	Consol Energy Inc.	168,500		2,911,680
	Holly Corp.	39,000		852,150
^a	Nuevo Energy Co.	110,600		1,227,660
	Peabody Energy Corp.	119,000		3,478,370
^a	Pioneer Natural Resources Co.	45,000		1,136,250

				12,671,890

	Finance 10.9%
	American National Insurance Co.	30,000		2,460,600
	Arthur J. Gallagher & Co.	60,000		1,762,800
	First Indiana Corp.	28,000		518,560
	1st Source Corp.	40,000		670,000
	Hancock Holding Co.	22,500		1,004,625
	Harleysville Group Inc.	67,000		1,770,810
^a	IPC Holdings Ltd. (Bermuda)	62,500		1,971,250
	Peoples Bancorp Inc.	44,700		1,144,320

186

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Value Securities Fund	SHARES	VALUE

	Common Stocks (cont.)
	Finance (cont.)
	Presidential Life Corp.	170,000	$	1,688,100
	RLI Corp.	99,400		2,773,260
	StanCorp Financial Group Inc.	20,500		1,001,425

				16,765,750

	Health Technology 1.3%
	ICN Pharmaceuticals Inc.	55,000		600,050
	West Pharmaceutical Services Inc.	57,000		1,390,800

				1,990,850

	Industrial Services 6.5%
^a	Atwood Oceanics Inc.	50,000		1,505,000
	ENSCO International Inc.	27,500		809,875
^a	Global Industries Ltd.	295,000		1,230,150
	GlobalSantaFe Corp.	17,500		425,600
^a	Offshore Logistics Inc.	87,500		1,918,000
^a	Oil States International Inc.	151,000		1,947,900
^a	Rowan Cos. Inc.	79,000		1,793,300
	Transocean Inc.	13,000		301,600

				9,931,425

	Non-Energy Minerals 2.6%
	Reliance Steel & Aluminum Co.	125,000		2,605,000
	United States Steel Corp.	110,000		1,443,200

				4,048,200

	Process Industries 6.7%
	AptarGroup Inc.	60,000		1,874,400
	Bunge Ltd.	117,000		2,815,020
	Myers Industries Inc.	145,000		1,551,500
	Olin Corp.	95,000		1,477,250
	RPM International Inc.	175,000		2,674,000

				10,392,170

	Producer Manufacturing 20.4%
^a	Cable Design Technologies Corp.	83,000		489,700
	Carlisle Cos. Inc.	15,000		620,700
	CIRCOR International Inc.	86,000		1,367,400
	CNH Global NV (Netherlands)	485,000		1,843,000
^a	Genlyte Group Inc.	37,500		1,168,500
	Graco Inc.	85,000		2,435,250
	JLG Industries Inc.	107,400		808,722
	Lancaster Colony Corp.	28,000		1,094,240
^a	Lone Star Technologies Inc.	97,000		1,444,330
^a	Mettler-Toledo International Inc. (Switzerland)	97,000		3,109,820
^a	Mueller Industries Inc.	50,000		1,362,500
^a	Powell Industries Inc.	20,000		341,580
	Roper Industries Inc.	72,000		2,635,200
	Stewart & Stevenson Services Inc.	135,000		1,908,900
	Superior Industries International Inc.	56,000		2,316,160
	Teleflex Inc.	39,100		1,676,999
	Thomas Industries Inc.	42,000		1,094,520
	Timken Co.	59,200		1,130,720
^a	Tower Automotive Inc.	135,000		607,500
	Watts Industries Inc., A	79,000		1,243,460
	York International Corp.	105,000		2,684,850

				31,384,051

187

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Franklin Small Cap Value Securities Fund	SHARES	VALUE

	Common Stocks (cont.)
	Retail Trade 4.4%
^a	American Eagle Outfitters Inc.	86,000	$	1,185,080
	Dillards Inc., A	78,000		1,237,080
	Fresh Brands Inc.	18,000		297,000
^a	Linens ‘n Things Inc.	72,000		1,627,200
^a	The Men’s Wearhouse Inc.	89,000		1,526,350
^a	Zale Corp.	29,000		925,100

				6,797,810

	Technology Services 1.6%
^a	NetIQ Corp.	86,651		1,070,140
	Reynolds & Reynolds Co., A	56,000		1,426,320

				2,496,460

	Transportation 10.1%
	Airborne Inc.	50,000		741,500
^a	Atlantic Coast Airlines Holdings Inc.	200,000		2,406,000
^a	Dollar Thrifty Automotive Group Inc.	35,000		740,250
^a	Midwest Express Holdings Inc.	180,000		963,000
^a	OMI Corp.	525,000		2,157,750
	Overseas Shipholding Group Inc.	75,000		1,342,500
	SkyWest Inc.	160,000		2,091,200
	Stolt Nielsen SA, ADR (Norway)	109,200		682,500
	Teekay Shipping Corp. (Bahamas)	72,500		2,950,750
	Tidewater Inc.	49,000		1,523,900

				15,599,350

	Utilities 1.2%
	Northeast Utilities	45,000		682,651
^a	Sierra Pacific Resources	168,000		1,092,000

				1,774,651

	Total Common Stocks (Cost $155,142,446)			145,468,630

	Total Long Term Investments (Cost $156,634,576)			146,544,205

	Short Term Investments (Cost $11,261,583) 7.3%
^b	Franklin Institutional Fiduciary Trust Money Market Portfolio	11,261,583		11,261,583

	Total Investments (Cost $167,896,159) 102.4%			157,805,788
	Other Assets, less Liabilities (2.4)%			(3,783,811	)

	Net Assets 100.0%		$	154,021,977

^a Non-income producing

^b See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

188

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Technology Securities Fund	SHARES/ WARRANTS	VALUE

	Common Stocks and Warrants 93.9%
	Commercial Services 1.0%
^a	ProBusiness Services Inc.	12,200	$	122,000

	Consumer Durables 2.0%
^a	Take-Two Interactive Software Inc.	10,500		246,645

	Consumer Services 1.1%
^a	eBay Inc.	2,000		135,640

	Electronic Technology 52.7%
^a	Advanced Fibre Communications Inc.	12,000		200,160
^a	Apple Computer Inc.	8,200		117,506
^a	Applied Materials Inc.	16,500		214,995
^a	Avocent Corp.	12,000		266,640
^a	Cisco Systems Inc.	27,100		355,010
^a	Dell Computer Corp.	11,400		304,836
^a	Foundry Networks Inc.	24,400		171,776
^a	Integrated Circuit Systems Inc.	16,600		302,950
	Intel Corp.	15,100		235,107
^a	Intersil Corp.	16,600		231,404
^a	KLA-Tencor Corp.	6,000		212,220
^a	Lexmark International Inc.	4,200		254,100
	Linear Technology Corp.	12,700		326,644
^a	Logitech International SA, ADR (Switzerland)	8,400		256,284
^a	Merrill Lynch International & Co. into Taiwan Semiconductor Manufacturing Co. Ltd., wts., 8/16/05 (Taiwan)	152,872		187,298
^a	Micrel Inc.	24,100		216,418
	Microchip Technology Inc.	12,100		295,845
^a	Netscreen Technologies Inc.	15,100		254,284
^a	Network Appliance Inc.	30,000		300,000
^a	Novellus Systems Inc.	8,000		224,640
	PerkinElmer Inc.	19,500		160,875
^a	QLogic Corp.	6,900		238,119
^a	QUALCOMM Inc.	7,400		269,286
^a	Tektronix Inc.	11,400		207,366
^a	Thermo Electron Corp.	15,000		301,800
^a	ViaSat Inc.	15,300		176,562
^a	Xilinx Inc.	12,100		249,260

				6,531,385

	Health Technology 2.7%
^a	Amgen Inc.	3,600		174,024
^a	Medimmune Inc.	6,000		163,020

				337,044

	Producer Manufacturing 1.7%
^a	Mettler-Toledo International Inc. (Switzerland)	6,500		208,390

	Technology Services 32.7%
^a	Accenture Ltd., A (Bermuda)	19,600		352,604
^a	Affiliated Computer Services Inc., A	7,500		394,875
^a	Cadence Design Systems Inc.	12,100		142,659
^a	Cognos Inc. (Canada)	5,700		133,665
^a	Computer Sciences Corp.	5,700		196,365
	First Data Corp.	7,500		265,575
^a	Hyperion Solutions Corp.	9,000		231,030
	International Business Machines Corp.	2,200		170,500
^a	Mercury Interactive Corp.	8,100		240,165
^a	Microsoft Corp.	9,900		511,830
^a	Netiq Corp.	16,300		201,305
^a	Network Associates Inc.	14,000		225,260

189

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Technology Securities Fund	SHARES/ WARRANTS	VALUE

	Common Stocks and Warrants (cont.)
	Technology Services (cont.)
^a	Oracle Corp.	31,500	$	340,200
	Paychex Inc.	9,100		253,890
^a	Symantec Corp.	6,600		267,366
^a	Yahoo! Inc.	8,000		130,800

				4,058,089

	Total Common Stocks and Warrants (Cost $12,268,289)			11,639,193

	Preferred Stock (Cost $8,740)
	Technology Services
^a,b	Micro Photonix Integration Corp., pfd., C	1,384		—

	Total Long Term Investments (Cost $12,277,029)			11,639,193

	Short Term Investments (Cost $1,191,509) 9.6%
^c	Franklin Institutional Fiduciary Trust Money Market Portfolio	1,191,509		1,191,509

	Total Investments (Cost $13,468,538) 103.5%			12,830,702
	Other Assets, less Liabilities (3.5)%			(433,517	)

	Net Assets 100.0%		$	12,397,185

^a Non-income producing

^b See Note 9 regarding restricted securities.

^c See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

190

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin U.S. Government Fund	PRINCIPAL AMOUNT		VALUE

	Mortgage-Backed Securities 73.0%
	Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate .5%
	FHLMC, Cap 12.522%, Margin 2.105%, + CMT, Resets Annually, 5.683%, 6/01/22	$	1,029,493	$	1,068,521
	FHLMC, Cap 13.458%, Margin 2.195%, + CMT, Resets Annually, 5.135%, 2/01/19		1,349,444		1,402,475

					2,470,996

	Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 11.3%
	FHLMC, 6.00%, 1/01/24 - 5/01/32		14,095,913		14,619,062
	FHLMC, 6.50%, 6/01/08 - 7/01/32		23,124,278		24,173,463
	FHLMC, 7.00%, 4/01/24 - 9/01/31		16,956,551		17,868,691
	FHLMC, 7.50%, 11/01/22 - 5/01/24		1,211,628		1,302,830
	FHLMC, 8.00%, 1/01/17 - 5/01/22		637,941		693,215
	FHLMC, 8.50%, 4/01/18 - 3/01/22		263,333		286,449
	FHLMC, 9.00%, 3/01/03		2,264		2,278

					58,945,988

	Federal National Mortgage Association (FNMA) - Adjustable Rate 1.9%
	FNMA, Cap 12.49%, Margin 2.00%, + CMT, Resets Annually, 4.608%, 2/01/19		1,371,208		1,413,790
	FNMA, Cap 12.819% Margin 2.127%, + CMT, Resets Annually, 4.756%, 9/01/18		1,502,300		1,548,491
	FNMA, Cap 13.313%, Margin 2.126%, + CMT, Resets Annually, 5.609%, 7/01/19		1,468,564		1,510,079
	FNMA, Cap 13.644%, Margin 2.011%, + CMT, Resets Annually, 4.716%, 1/01/18		4,557,594		4,681,279
	FNMA, Cap 15.156%, Margin 2.284%, + 3CMT, Resets Tri-Annually, 7.151%, 3/01/20		688,644		724,462

					9,878,101

	Federal National Mortgage Association (FNMA) - Fixed Rate 15.1%
	FNMA, 5.50%, 6/01/16 - 11/01/17		9,714,227		10,088,896
	FNMA, 6.00%, 8/01/17 - 11/01/32		49,866,530		51,781,927
	FNMA, 6.50%, 1/01/24 - 6/01/24		6,433,839		6,744,899
	FNMA, 7.00%, 5/01/24 - 9/01/31		3,673,941		3,869,497
	FNMA, PL, 7.00%, 3/17/35		2,305,994		2,448,451
	FNMA, 7.50%, 4/01/23 - 8/01/25		1,548,648		1,656,551
	FNMA, 8.00%, 7/01/16 - 2/01/25		1,785,922		1,948,267
	FNMA, 8.50%, 10/01/19 - 2/01/22		75,994		82,910

					78,621,398

	Government National Mortgage Association (GMNA) - Fixed Rate 44.2%
	GNMA, PL, 7.25%, 5/15/22 - 11/15/25		2,656,623		2,801,554
	GNMA I, 5.50%, 11/15/28 - 1/15/29		4,697,154		4,846,867
	GNMA I, 6.00%, 11/15/23 - 11/15/31		48,574,444		50,736,373
^a	GNMA I, SF, 6.50%, 1/01/30		8,000,000		8,397,500
	GNMA I, SF, 6.50%, 5/15/23 - 6/15/32		77,632,259		81,697,513
	GNMA I, SF, 7.00%, 3/15/22 - 11/15/31		33,540,158		35,698,589
	GNMA I, SF, 7.50%, 2/15/17 - 5/15/28		9,389,174		10,089,882
	GNMA I, SF, 8.00%, 4/15/05 - 6/15/25		5,257,691		5,761,423
	GNMA I, SF, 8.25%, 4/15/25		284,915		311,247
	GNMA I, SF, 8.50%, 8/15/21 - 12/15/24		1,315,231		1,448,260
	GNMA I, SF, 9.00%, 4/15/16 - 2/15/21		833,530		928,444
	GNMA I, SF, 9.50%, 7/15/16 - 12/15/21		1,156,514		1,302,336
	GNMA I, SF, 10.00%, 8/15/17 - 8/15/21		1,421,228		1,636,409
	GNMA II, 5.50%, 9/20/28 - 1/20/29		1,920,351		1,973,233
	GNMA II, 6.00%, 1/20/24 - 8/20/28		4,878,646		5,089,619
	GNMA II, 6.50%, 12/20/27 - 3/20/28		9,276,341		9,691,566
	GNMA II, 7.50%, 11/20/16 - 11/20/26		6,030,866		6,468,112
	GNMA II, 8.00%, 7/20/16 - 8/20/26		460,192		500,833
	GNMA II, 9.50%, 4/20/25		120,283		134,997

					229,514,757

	Total Mortgage-Backed Securities (Cost $363,386,722)				379,431,240

191

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Statement of Investments, December 31, 2002 (cont.)

	Franklin U.S. Government Fund	PRINCIPAL AMOUNT		VALUE

	Other Agency Securities 20.8%
	Federal Farm Credit Bank, 4.50%, 7/09/07	$	10,000,000	$	10,663,740
	Federal Home Loan Bank, 3.25%, 8/15/05		15,000,000		15,462,690
	Federal Home Loan Bank, 4.875%, 5/15/07		5,000,000		5,391,010
	FICO, Strip, zero cpn., 5/11/13		10,000,000		5,983,820
	FICO, Strip, Series 12, zero cpn., 6/01/14		9,454,000		5,241,553
	FICO, Strip, Series 12, zero cpn., 12/06/14		13,569,000		7,272,265
	FICO, Strip, Series 16, zero cpn., 10/05/10		4,745,000		3,382,265
	Housing Urban Development, 96-A, 7.625%, 8/01/14		5,000,000		5,620,765
	Housing Urban Development, 96-A, 7.66%, 8/01/15		5,000,000		5,604,365
	Student Loan Marketing Association, zero cpn., 5/15/14		15,000,000		6,545,115
	Small Business Administration, 6.00%, 9/01/18		7,762,614		8,349,801
	Small Business Administration, 6.45%, 12/01/15		2,860,952		3,110,973
	Small Business Administration, 6.70%, 12/01/16		3,131,985		3,441,773
	Small Business Administration, 6.85%, 7/01/17		3,407,124		3,773,250
	Small Business Administration, Cap 10.875%, Margin Prime - .125%, Resets Quarterly, 4.625%, 3/25/18		1,775,875		1,868,107
	Small Business Administration, Cap 10.85%, Margin Prime - .40%, Resets Quarterly, 4.35%, 6/25/19		1,154,745		1,201,737
	Tennessee Valley Authority, 5.98%, 4/01/36		10,000,000		11,360,591
	Tennessee Valley Authority, Strip, zero cpn., 4/15/42		6,000,000		3,575,370

	Total Other Agency Securities (Cost $97,777,897)				107,849,190

	Treasury Note (Cost $15,089,063) 2.9%
	U.S. Treasury Note, 2.125%, 10/31/04		15,000,000		15,169,934

	Total Long Term Investments (Cost $476,253,682)				502,450,364

	Repurchase Agreement (Cost $22,069,880) 4.2%
^b	Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $22,071,282)		22,069,880		22,069,880
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $2,042,476)
	Banc of America Securities LLC (Maturity Value $2,042,476)
	Barclays Capital Inc. (Maturity Value $2,042,476)
	Bear, Stearns & Co. Inc. (Maturity Value $2,042,476)
	BNP Paribas Securities Corp. (Maturity Value $2,042,476)
	Deutsche Bank Securities Inc. (Maturity Value $2,042,476)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $2,042,476)
	Goldman, Sachs & Co. (Maturity Value $2,042,476)
	Lehman Brothers Inc. (Maturity Value $1,646,522)
	Morgan Stanley & Co. Inc. (Maturity Value $2,042,476)
	UBS Warburg LLC (Maturity Value $2,042,476)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $498,323,562) 100.9%				524,520,244
	Other Assets, less Liabilities (0.9)%				(4,982,055	)

	Net Assets 100.0%			$	519,538,189

^a Sufficient assets have been segregated for securities traded on a when-issued or delayed delivery basis.

^b See Note 1(c) regarding joint repurchase agreement.

See notes to financial statements.

192

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Zero Coupon Fund - 2005	PRINCIPAL AMOUNT		VALUE

	U.S. Government and Agency Securities 92.2%
	FHLB, Strip, A-1, 2/25/04	$	800,000	$	785,738
	FICO, Strip, 1, 5/11/05		3,500,000		3,313,544
	FICO, Strip, 10/06/05		11,400,000		10,671,677
	FICO, Strip, 19, 12/06/05		10,000,000		9,309,500
	FICO, Strip, 3/26/05		5,000,000		4,755,090
	FNMA, Strip, 2/12/06		250,000		231,143
	FNMA, Strip, 2/12/08		120,000		101,592
	FNMA, Strip, 1, 8/01/04		450,000		437,698
	FNMA, Strip, 1, 2/12/05		1,000,000		957,900
	FNMA, Strip, 1, 8/12/05		875,000		824,885
	FNMA, Strip, 1, 2/01/06		4,307,000		3,990,302
	FNMA, Strip, 1, 8/01/06		530,000		482,392
	FNMA, Strip, 1, 2/01/08		1,730,000		1,466,822
	REFCO, Strip, 1/15/06		6,500,000		6,075,972
	REFCO, Strip, 4/15/06		3,000,000		2,770,815
	Tennessee Valley Authority, Strip, 10/15/04		6,200,000		5,980,055
	Tennessee Valley Authority, Strip, 10/15/05		1,000,000		936,741
	Tennessee Valley Authority, Strip, 4/15/05		2,260,000		2,145,902
	U.S. Treasury, Strip, 2/15/06		11,000,000		10,279,984

	Total U.S. Government and Agency Securities (Cost $57,427,507)				65,517,752

	Other Securities - A+ Rated (Cost $3,030,629) 4.5%
	Diageo PLC, 1/06/04		3,250,000		3,187,020

	Other Securities - AAA Rated (Cost $1,312,288) 2.0%
	Exxon Capital Corp., 11/15/04		1,500,000		1,436,587

	Total Long Term Investments (Cost $61,770,424)				70,141,359

	Repurchase Agreement (Cost $874,048) 1.2%
^a	Joint Repurchase Agreement, 1.144% 1/2/03, (Maturity Value $874,104)		874,048		874,048
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $80,890)
	Banc of America Securities LLC (Maturity Value $80,890)
	Barclays Capital Inc. (Maturity Value $80,890)
	Bear, Stearns & Co. Inc. (Maturity Value $80,890)
	BNP Paribas Securities Corp. (Maturity Value $80,890)
	Deutsche Bank Securities Inc. (Maturity Value $80,890)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $80,890)
	Goldman, Sachs & Co. (Maturity Value $80,890)
	Lehman Brothers Inc. (Maturity Value $65,204)
	Morgan Stanley & Co. Inc. (Maturity Value $80,890)
	UBS Warburg LLC (Maturity Value $80,890)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $62,644,472) 99.9%				71,015,407
	Other Assets, less Liabilities .1%				35,942

	Net Assets 100.0%			$	71,051,349

^a See Note 1(c) regarding joint repurchase agreement.

See notes to financial statements.

193

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Franklin Zero Coupon Fund—2010	PRINCIPAL AMOUNT		VALUE

	U.S. Government and Agency Securities 87.2%
	FICO, Strip, 19, 6/06/10	$	9,800,000	$	7,090,878
	FICO, Strip, A, 8/08/10		7,000,000		5,024,509
	FNMA, Strip, 8/12/09		1,975,000		1,540,156
	FNMA, Strip, 8/01/10		8,250,000		6,017,888
	FNMA, Strip, 8/12/10		1,230,000		895,957
	REFCO, Strip, 10/15/10		10,000,000		7,363,650
	SLMA, 5/15/14		8,650,000		3,774,350
	Tennessee Valley Authority, Strip, 1/01/10		412,000		306,354
	Tennessee Valley Authority, Strip, 4/15/10		12,000,000		8,834,208
	Tennessee Valley Authority, Strip, 10/15/10		1,320,000		949,123
	Tennessee Valley Authority, Strip, 10/15/11		7,295,000		4,913,934
	U.S. Treasury, Strip, 2/15/11		17,900,000		13,017,614

	Total U.S. Government and Agency Securities (Cost $48,550,813)				59,728,621

	Other Securities—AAA Rated 10.9%
	International Bank for Reconstruction and Development, 2/15/11		1,392,000		953,725
	International Bank for Reconstruction and Development, 2/15/12		2,800,000		1,802,021
	International Bank for Reconstruction and Development, 2/15/13		3,287,000		1,974,300
	International Bank for Reconstruction and Development, 8/15/13		4,100,000		2,381,571
	International Bank for Reconstruction and Development, 2, 2/15/11		500,000		342,574

	Total Other Securities—AAA Rated (Cost $6,032,557)				7,454,191

	Total Long Term Investments (Cost $54,583,370)				67,182,812

	Repurchase Agreement (Cost $1,109,269) 1.6%
^a	Joint Repurchase Agreement, 1.144%, 1/02/03, (Maturity Value $1,109,340)		1,109,269		1,109,269
	ABN AMRO Bank, N.V., New York Branch (Maturity Value $102,657)
	Banc of America Securities LLC (Maturity Value $102,657)
	Barclays Capital Inc. (Maturity Value $102,657)
	Bear, Stearns & Co. Inc. (Maturity Value $102,657)
	BNP Paribas Securities Corp. (Maturity Value $102,657)
	Deutsche Bank Securities Inc. (Maturity Value $102,657)
	Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $102,657)
	Goldman, Sachs & Co. (Maturity Value $102,657)
	Lehman Brothers Inc. (Maturity Value $82,770)
	Morgan Stanley & Co. Inc. (Maturity Value $102,657)
	UBS Warburg LLC (Maturity Value $102,657)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities

	Total Investments (Cost $55,692,639) 99.7%				68,292,081
	Other Assets, less Liabilities .3%				197,132

	Net Assets 100.0%			$	68,489,213

^a	See Note 1(c) regarding joint repurchase agreement.

See notes to financial statements.

194

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Mutual Discovery Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests 74.0%
	Aerospace & Defense .2%
	Northrop Grumman Corp.	United States	4,000	$	388,000

	Auto Components .7%
	Trelleborg AB, B	Sweden	134,441		1,087,773

	Banks 3.4%
^a	Banca Nazionale del Lavoro SpA	Italy	224,600		248,657
	Bank of America Corp.	United States	4,600		320,022
	Bank of Ireland	Irish Republic	106,925		1,097,380
	Danske Bank	Denmark	40,100		662,824
	DNB Holding ASA	Norway	266,600		1,254,543
	Fleet Boston Financial Corp.	United States	36,400		884,520
	Gjensidige NOR ASA	Norway	3,400		111,407
	Greenpoint Financial Corp.	United States	6,264		283,008
^a,c	Nippon Investment LLC	Japan	477,000		512,823

					5,375,184

	Beverages 4.9%
	Allied Domecq PLC	United Kingdom	201,000		1,284,645
	Brown-Forman Corp., A	United States	3,700		247,900
	Brown-Forman Corp., B	United States	31,900		2,084,984
	Carlsberg AS, B	Denmark	57,500		2,530,427
	Heineken Holding NV, A	Netherlands	58,800		1,706,128

					7,854,084

	Chemicals 2.6%
	Akzo Nobel NV	Netherlands	49,770		1,578,864
	Solvay SA	Belgium	22,100		1,523,690
	Syngenta AG	Switzerland	17,860		1,033,987

					4,136,541

	Commercial Services & Supplies 1.5%
^a	Alderwoods Group Inc.	United States	26,228		124,032
^a	Cendant Corp.	United States	77,400		811,152
^a	Republic Services Inc.	United States	41,000		860,180
	Waste Management Inc.	United States	25,300		579,876

					2,375,240

	Computers & Peripherals
^a	DecisionOne Corp.	United States	5,288		10,576

	Construction & Engineering 3.4%
	Acciona SA	Spain	19,100		786,705
	Actividades de Construcciones y Servicios SA	Spain	26,800		861,994
	Fomento de Construcciones y Contratas SA	Spain	18,300		410,964
	Grupo Dragados SA	Spain	71,800		1,220,614
	Vinci SA	France	37,980		2,140,269

					5,420,546

	Construction Materials 1.0%
	Ciments Francais SA	France	20,350		1,093,386
	RMC Group PLC	United Kingdom	80,400		475,027

					1,568,413

	Diversified Financials 4.0%
	E-L Financial Corp. Ltd.	Canada	6,600		960,881
	Household International Inc.	United States	2,900		80,649
	Irish Life & Permanent PLC	Irish Republic	147,300		1,588,818
^a,c	Leucadia National Corp.	United States	34,780		1,167,878
	Pargesa Holdings SA	Switzerland	1,047		1,893,035
^a	Principal Financial Group.	United States	16,200		488,106

195

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests (cont.)
	Diversified Financials (cont.)
^a	Tsx Group Inc.	Canada	4,800	$	64,565
	Value Catalyst Fund Ltd.	Cayman Islands	1,815		170,955

					6,414,887

	Diversified Telecommunication Services .4%
	BCE Inc.	Canada	32,600		588,112
^a	McLeodUSA Inc., wts., 4/16/07	United States	11,131		3,896

					592,008

	Electric Utilities .9%
	E.On AG	Germany	19,700		793,846
^a	PG & E Corp.	United States	28,000		389,200
^a,c	PG & E Corp., wts., 9/02/06	United States	667		8,338
	Public Service Enterprise Group Inc.	United States	5,700		182,970

					1,374,354

	Electrical Equipment .5%
	Kidde PLC	United Kingdom	767,490		874,170

	Food & Drug Retailing 1.8%
^a	Kroger Co.	United States	129,100		1,994,595
^a	Safeway Inc.	United States	34,100		796,576

					2,791,171

	Food Products 6.7%
	Cadbury Schweppes PLC	United Kingdom	229,627		1,430,640
	Farmer Brothers Co.	United States	4,200		1,297,800
	Greencore Group PLC	Irish Republic	241,100		645,173
	Groupe Danone	France	16,700		2,246,692
	Hershey Foods Corp.	United States	7,800		526,032
^a	Lotte Confectionery Co. Ltd.	South Korea	1,900		764,133
	Nestle SA	Switzerland	10,750		2,277,971
	Orkla ASA	Norway	85,150		1,450,356
	Weetabix Ltd., A	United Kingdom	1,200		42,501

					10,681,298

	Health Care Providers & Services .8%
	CIGNA Corp.	United States	9,400		386,528
^a	Genesis Health Ventures Inc.	United States	13,881		214,461
^a,g	Kindred Healthcare Inc.	United States	28,754		495,818
^a,g	Kindred Healthcare Inc., Series A, wts., 4/20/06	United States	5,258		21,879
^a,g	Kindred Healthcare Inc., Series B, wts., 4/20/06	United States	13,145		47,641
^a	Rotech Healthcare Inc.	United States	8,260		138,355

					1,304,682

	Household Durables .2%
	Nintendo Co. Ltd.	Japan	3,800		355,119

	Industrial Conglomerates .9%
	Brascan Corp., A	Canada	73,100		1,469,126

	Insurance 8.1%
^a	Alleghany Corp.	United States	3,544		629,060
^a	Berkshire Hathaway Inc., A	United States	45		3,273,750
^a	Berkshire Hathaway Inc., B	United States	960		2,326,080
	Canada Life Financial Corp.	Canada	400		10,201
^a	IPC Holdings Ltd.	Bermuda	15,500		488,870
^a,c	Montpelier Re Holdings Ltd.	Bermuda	6,420		175,651
	Muenchener Rueckversicherungs-Gesellschaft	Germany	2,500		298,815
	Old Republic International Corp.	United States	37,100		1,038,800

196

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests (cont.)
	Insurance (cont.)
^a,c	Olympus Re Holdings Ltd.	Bermuda	2,140	$	248,861
	Prudential Financial Inc.	United States	23,800		755,412
^a	Travelers Property Casualty, A	United States	55,550		813,808
	United Fire & Casualty Co.	United States	29,800		996,810
	White Mountains Insurance Group Inc.	United States	1,200		387,600
^c	White Mountains Insurance Group Inc.	United States	5,000		1,534,250

					12,977,968

	IT Consulting & Services .1%
^a	Comdisco Contingent Equity	United States	2,066,357		7,749
^a	Comdisco Holding Co. Inc.	United States	1,767		137,826

					145,575

	Machinery .7%
^a	Alfa Laval AB	Sweden	80,700		648,319
^a	Joy Global Inc.	United States	40,030		450,738
	Schindler Holding AG, Reg D	Switzerland	500		94,019

					1,193,076

	Marine .8%
	Koninklijke Nedlloyd Groep NV	Netherlands	31,400		395,412
	Peninsular & Oriental Steam Navigation Co.	United Kingdom	319,300		845,593

					1,241,005

	Media 5.3%
	Astral Media Inc., A	Canada	70,900		1,039,849
	E.W. Scripps Co., A	United States	2,400		184,680
^a	Hispanic Broadcasting Corp., A	United States	1,800		36,990
	Lagardere SCA	France	44,835		1,821,291
^a	Liberty Media Corp., A	United States	195,846		1,750,863
	NV Holdingsmig de Telegraaf	Netherlands	45,878		743,346
	Omnicom Group Inc.	United States	5,900		381,140
	Reuters Group PLC	United Kingdom	132,600		378,912
	TVA Group Inc., B	Canada	13,700		120,974
^a	TVMAX Holdings Inc.	United States	3,535		14,140
	Washington Post Co., B	United States	2,721		2,008,098

					8,480,283

	Metals & Mining 2.8%
	Anglo American PLC	South Africa	36,300		539,100
^a	Glamis Gold Ltd.	Canada	4,800		54,083
	Impala Platinum Holdings Ltd.	South Africa	19,100		1,213,158
^a,c	International Steel Group	United States	33		1,526,250
	Newmont Mining Corp.	United States	41,600		1,207,648

					4,540,239

	Multi-Utilities 1.1%
	Suez SA	France	103,095		1,789,419

	Oil & Gas 2.9%
	Amerada Hess Corp.	United States	11,600		638,580
	BP PLC	United Kingdom	94,600		650,303
	BP PLC, ADR	United Kingdom	9,000		365,850
	Conocophillips	United States	30,634		1,482,379
^a	Southwest Royalties Inc., A	United States	3,410		102,295
	Total Fina Elf SA, B	France	5,324		760,388
	Total Fina Elf SA, B, ADR	France	9,670		691,405

					4,691,200

197

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Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests (cont.)
	Paper & Forest Products 1.6%
	Abitibi-Consolidated Inc.	Canada	97,600	$	749,391
	MeadWestvaco Corp.	United States	18,400		454,664
	Potlatch Corp.	United States	53,100		1,268,028

					2,472,083

	Pharmaceuticals 3.1%
	Bristol-Myers Squibb Co.	United States	24,500		567,175
	Daiichi Pharmaceutical Co.	Japan	64,700		928,492
	Merck & Co. Inc.	United States	12,800		724,608
	Pharmacia Corp.	United States	26,600		1,111,880
	Schering-Plough Corp.	United States	24,700		548,340
	Takeda Chemical Industries Ltd.	Japan	20,000		835,931
	Wyeth	United States	5,000		187,000

					4,903,426

	Real Estate 2.7%
	Canary Wharf Group PLC	United Kingdom	186,900		708,593
	Fastighets AB Tornet	Sweden	46,700		830,741
	iStar Financial Inc.	United States	34,300		962,115
^a,c	Security Capital European Realty	Luxembourg	6,486		91,307
^a,c	Torre Mayor Investments, LP	United States	10		1,000,000
	Ventas Inc.	United States	55,600		636,620

					4,229,376

	Road & Rail 1.0%
	Canadian National Railway Co.	Canada	20,400		842,833
	Florida East Coast Industries Inc., A	United States	26,800		621,760
	Florida East Coast Industries Inc., B	United States	3,200		70,624

					1,535,217

	Tobacco 8.9%
	Altadis SA	Spain	137,500		3,136,904
	Altadis SA (Paris Listed)	Spain	3,300		75,009
	British American Tobacco PLC	United Kingdom	301,300		3,009,798
	Gallaher Group PLC	United Kingdom	72,170		716,867
	Gallaher Group PLC, ADR	United Kingdom	1,000		39,200
	Imperial Tobacco Group PLC	United Kingdom	164,637		2,796,253
	ITC Ltd.	India	58,468		805,261
	Korea Tobacco & Ginseng Corp.	South Korea	92,920		1,284,843
	Korea Tobacco & Ginseng Corp., 144A, GDR	South Korea	36,250		241,062
	Philip Morris Cos. Inc.	United States	40,100		1,625,253
	Rothmans Inc.	Canada	21,300		390,055

					14,120,505

	Trading Companies & Distributors .5%
	Compania de Distribucion Intefral Logista SA	Spain	35,300		760,876

	Transportation Infrastructure .5%
	Mersey Docks & Harbour Co.	United Kingdom	98,230		737,721

	Total Common Stocks and Other Equity Interests (Cost $111,242,644)				117,891,141

198

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	SHARES/ WARRANTS			VALUE

	Preferred Stocks .9%
	Construction Materials
	Dyckerhoff AG, pfd.	Germany		5,503		$	44,293

	Diversified Telecommunication Services
^a	McLeodUSA Inc., 2.50%, cvt., pfd.	United States		5,023			20,594

	Health Care Providers & Services
^a	Genesis Health Ventures Inc., 6.00%, cvt., pfd.	United States		162			15,439

	Household Products .3%
	Henkel KGAA, pfd.	Germany		7,800			493,572

	Insurance .6%
	United Fire & Casualty Co., 6.375%, cvt., pfd.	United States		5,300			142,782
^c	White Mountains Insurance Group Inc., cvt., pfd.	United States		2,796			812,797

							955,579

	Total Preferred Stocks (Cost $1,562,573)						1,529,477

			PRINCIPAL AMOUNT^f
	Corporate Bonds & Notes 3.2%
	Alderwoods Group Inc.,
	11.00%, 1/02/07	United States	$	38,600			38,793
	12.25%, 1/02/09	United States		280,600			256,749
	Calpine Canada Energy Finance,
	8.375%, 10/15/08	Canada		10,000	EUR		4,310
	senior note, 8.50%, 5/01/08	Canada		389,000			171,160
	Calpine Corp.,
	7.625%, 4/15/06	United States		40,000			18,400
	7.875%, 4/01/08	United States		75,000			31,875
	7.75%, 4/15/09	United States		15,000			6,375
	senior note, 8.625%, 8/15/10	United States		62,000			26,660
	senior note, 8.50%, 2/15/11	United States		377,000			165,880
	Comdisco Holding Co. Inc., 11.00%, 8/12/05	United States		198,950			199,945
	DecisionOne Corp., Term Loan	United States		171,788			146,020
	Edison International, 6.875%, 9/15/04	United States		170,000			158,950
	Eurotunnel Finance Ltd., Equity Note, 12/31/03	United Kingdom		113,009	GBP		60,038
	Eurotunnel PLC,
	12/31/18, Tier 2	United Kingdom		160,314	GBP		189,694
	12/31/25, Tier 3	United Kingdom		254,024	GBP		251,505
	12/31/50, Resettable Advance R5	United Kingdom		140,058	GBP		90,191
	Stabilization Advance S8, Tier 1	United Kingdom		115,706	GBP		44,706
	Stabilization Advance S8, Tier 2	United Kingdom		107,912	GBP		38,220
	Eurotunnel SA,
	5.28%, 12/31/18, Tier 2 (Pibor)	France		17,565	EUR		13,548
	12/31/18, Tier 2 (Libor)	France		39,763	EUR		30,669
	12/31/25, Tier 3 (Libor)	France		82,595	EUR		53,305
	Stabilization Advance S6, Tier 1 (Pibor)	France		10,849	EUR		2,732
	Stabilization Advance S6, Tier 2 (Libor)	France		21,402	EUR		4,941
	Stabilization Advance S7, Tier 1 (Pibor)	France		36,561	EUR		9,208
	Level 3 Communications Inc., Term Loan, 1/15/08	United States		65,000			49,075
	Mirant Mid-Atlantic LLC, 8.625%, 6/30/12	United States		36,882			27,236
	Providian Financial Corp., cvt., zero cpn., 2/15/21	United States		684,000			229,995
	Qwest Capital Funding,
	5.875%, 8/03/04	United States		354,000			299,130
	7.00%, 8/03/09	United States		275,000			182,875
	7.90%, 8/15/10	United States		25,000			16,875
	7.25%, 2/15/11	United States		951,000			632,415

199

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Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f		VALUE

	Corporate Bonds & Notes (cont.)
	Qwest Corp.,
	7.625%, 6/09/03	United States	$	15,000	$	14,775
	8.875%, 3/15/12	United States		30,000		29,250
	South Point Energy, 9.825%, 5/30/19	United States		55,000		32,725
	Southern California Edison Co.,
	7.20%, 11/03/03	United States		448,000		443,520
	6.375%, 1/15/06	United States		25,000		22,125
	7.125%, 7/15/25	United States		25,000		21,250
	Southwest Royalties Inc., 10.50%, 6/30/04	United States		227,000		227,000
	Tyco International Group SA,
	2.228%, 7/30/03	Luxembourg		8,000		7,762
	6.375%, 2/15/06	Luxembourg		269,000		261,146
	Tyco International Ltd., cvt., zero cpn., 11/17/20	Bermuda		100,000		72,125
	U.S. West Capital Funding Inc., 6.375%, 7/15/08	United States		108,000		69,660
	U.S. West Communications Inc., 6.625%, 9/15/05	United States		61,000		57,035
	Williams Production RMT Co., Term Loan	United States		279,606		321,547
	Wiltel Communications Group Inc., FRN, 6.129%, 1/21/03	United States		177,332		125,906

	Total Corporate Bonds & Notes (Cost $4,581,413)					5,157,301

	Bonds & Notes in Reorganization 5.3%
^b	Adelphia Communications Corp.,
	9.25%, 10/01/02	United States		76,000		28,120
	8.125%, 7/15/03	United States		30,000		11,250
	7.50%, 1/15/04	United States		80,000		30,000
	10.50%, 7/15/04	United States		124,000		47,120
	10.25%, 11/01/06	United States		236,000		89,680
	9.875%, 3/01/07	United States		56,000		21,280
	8.375%, 2/01/08	United States		305,000		114,375
	7.75%, 1/15/09	United States		210,000		78,750
	7.875%, 5/01/09	United States		85,000		31,875
	9.375%, 11/15/09	United States		60,000		23,400
	10.875%, 10/01/10	United States		120,000		46,200
	cvt., 6.00%, 2/15/06	United States		1,056,000		84,480
	cvt., 3.25%, 5/01/21	United States		123,000		9,840
	senior note, 10.25%, 6/15/11	United States		269,000		104,910
^b	Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11	United States		20,000		1,260
^b	Century Communications Corp.,
	9.50%, 3/01/05	United States		15,000		3,975
	8.875%, 1/15/07	United States		11,000		2,915
	8.375%, 12/15/07	United States		20,000		5,300
	zero cpn., 3/15/03	United States		223,000		54,635
^b	Dow Corning Corp., 9.375%, 2/01/08	United States		300,000		570,000
^b	Frontier Corp., 7.25%, 5/15/04	United States		45,000		2,475
^b	Global Crossing Holdings Ltd.,
	9.125%, 11/15/06	United States		270,000		9,450
	9.625%, 5/15/08	United States		135,000		4,725
	9.50%, 11/15/09	United States		222,000		7,770
	Bank Claim	United States		15,000		2,887
	Revolver	United States		841,657		162,019
	Term Loan	United States		400,000		77,000
^b	Global Crossing Ltd., 6.00%, 10/15/03	United States		43,000		2,365
^b	Guangdong Int’l Trust & Investment Corp., 144A, 8.75%, 10/24/16	China		120,000		14,100
^b	Guangdong Int’l Trust & Investment Corp.,
	Revolver—Admitted Claim	Hong Kong		130,067		14,958
	Structured Note—Admitted Claim	Hong Kong		205,745		23,661
	Syndicated Loan—Admitted Claim	Hong Kong		355,733		40,909

200

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f			VALUE

	Bonds & Notes in Reorganization (cont.)
^b	Harnischfeger Industries Inc.,
	8.90%, 3/01/22	United States	$	162,000		$	1,296
	8.70%, 6/15/22	United States		159,000			1,304
	7.25%, 12/15/25	United States		232,000			1,879
	6.875%, 2/15/27	United States		216,000			1,728
	Bank Claim	United States		250,450			1,979
^b	Intermedia Communications Inc.,
	senior note, 8.50%, 1/15/08	United States		40,000			16,200
	senior note, 8.60%, 6/01/08	United States		55,000			22,275
	senior note, 9.50%, 3/01/09	United States		52,000			21,060
^b	Laidlaw Inc.,
	7.70%, 8/15/02	Canada		305,000			147,544
	7.05%, 5/15/03	Canada		185,000			90,187
	6.65%, 10/01/04	Canada		40,000			19,000
	7.875%, 4/15/05	Canada		175,000			84,000
	6.50%, 5/01/05	Canada		137,000			64,561
	7.65%, 5/15/06	Canada		100,000			49,250
	6.70%, 5/01/08	Canada		130,000			61,262
	8.75%, 4/15/25	Canada		179,000			86,591
	6.72%, 10/01/27	Canada		379,000			180,025
	Revolver	Canada		850,708			414,720
^b	MCI Communications Corp.,
	8.25%, 1/20/23	United States		39,000			19,305
	7.75%, 3/15/24	United States		39,000			19,305
^b	Metromedia Fiber Network Inc.,
	14.00%, 3/15/07	United States		880,000			193,600
	10.00%, 11/15/08	United States		577,000			10,097
	senior note, 10.00%, 12/15/09	United States		575,000			10,062
	senior note, 10.00%, 12/15/09	United States		280,000	EUR		5,142
^b	NTL Communications Corp.,
	12.75%, 4/15/05	United Kingdom		103,000			9,270
	9.25%, 11/15/06	United Kingdom		220,000	EUR		21,932
	10.00%, 2/15/07	United Kingdom		435,000			39,150
	12.375%, 2/01/08	United Kingdom		240,000	EUR		23,926
	11.50%, 10/01/08	United Kingdom		394,000			37,430
	9.875%, 11/15/09	United Kingdom		310,000	EUR		30,905
	cvt., 7.00%, 2/15/08	United Kingdom		455,000			91,000
	senior note, B, 11.875%, 10/01/10	United Kingdom		179,000			17,005
	Series B, 12.375%, 10/01/08	United Kingdom		151,000			12,080
	Series B, 9.75%, 4/15/09	United Kingdom		810,000	GBP		149,961
	Series B, 11.50%, 11/15/09	United Kingdom		250,000	EUR		25,110
^b	NTL Inc.,
	cvt., 5.75%, 12/15/09	United Kingdom		693,000			121,275
	Series B, 11.50%, 2/01/06	United Kingdom		363,000			32,670
	Series B, 9.50%, 4/01/08	United Kingdom		441,000	GBP		67,446
	Series B, 10.75%, 4/01/08	United Kingdom		1,215,000	GBP		176,042
	zero cpn., 4/01/08	United Kingdom		1,482,000			103,740
^b	Owens Corning, Revolver	United States		844,566			536,299
	PG & E Corp.,
	5.00%, 1/31/03	United States		12,120			12,120
	7.375%, 11/01/05	United States		853,000			838,073
	6.50%, 9/02/06	United States		180,000			181,800
	Commercial Paper, 1/18/01	United States		35,000			33,425
	Commercial Paper, 1/30/01	United States		18,000			17,280
	Commercial Paper, 2/16/01	United States		54,000			51,570
	FRN, 144A, 7.575%, 10/31/01	United States		271,000			257,450
	MTN, 5.94, 10/07/03	United States		44,000			40,700

201

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f		VALUE

	Bonds & Notes in Reorganization (cont.)
^b	PG & E National Energy Group Inc., 10.375%, 5/16/11	United States	$ 345,000		$	132,825
^b	Port Seattle Wash Ref-Beloit Proj., 6.00%, 12/01/17	United States	10,000			630
^b	Safety Kleen Corp.,
	9.25%, 5/15/09	United States	31,000			1,318
	Revolver	United States	278,669			126,795
	Term Loan	United States	29,291	CAD		6,582
	Term Loan A	United States	230,196			89,777
	Term Loan B	United States	267,895			104,479
	Term Loan C	United States	244,795			95,470
^b	Safety Kleen Services, 9.25%, 6/01/08	United States	3,000			120
^b	Spectrasite Holdings Inc.,
	10.75%, 3/15/10	United States	301,000			112,875
	12.50%, 11/15/10	United States	59,000			22,125
	cvt., 6.75%, 11/15/10	United States	41,000			10,353
	senior disc. note, zero cpn., 4/15/09	United States	236,000			71,980
	senior disc. note, zero cpn., 3/15/10	United States	173,000			45,845
	zero cpn., 7/15/08	United States	264,000			85,800
^b	Telewest Communications PLC,
	11.00%, 10/01/07	United Kingdom	132,000			24,420
	11.25%, 11/01/08	United Kingdom	46,000			8,510
	senior disc. note, zero cpn., 4/15/09	United Kingdom	90,000			13,050
	senior disc. note, zero cpn., 2/01/10	United Kingdom	95,000			12,350
	zero cpn., 4/15/09	United Kingdom	269,000	GBP		41,141
^b	Telewest Finance Ltd., cvt., 6.00%, 7/07/05	United Kingdom	219,000			39,420
^b	WorldCom Inc.,
	7.875%, 5/15/03	United States	25,000			6,000
	6.25%, 8/15/03	United States	35,000			8,400
	6.50%, 5/15/04	United States	46,000			11,040
	6.40%, 8/15/05	United States	80,000			19,200
	8.00%, 5/15/06	United States	46,000			11,040
	7.75%, 4/01/07	United States	15,000			3,600
	8.25%, 5/15/10	United States	315,000			75,600
	7.375%, 1/15/11	United States	617,000			148,080
	7.50%, 5/15/11	United States	697,000			167,280
	7.75%, 4/01/27	United States	65,000			15,600
	6.95%, 8/15/28	United States	130,000			31,200
	8.25%, 5/15/31	United States	968,000			232,320
^b	WorldCom Inc. - MCI Group,
	6.50%, 4/15/10	United States	40,000			20,600
	7.125%, 6/15/27	United States	20,000			10,700
^b	XO Communications Inc.,
	Revolver	United States	165,750			82,875
	Term Loan A	United States	288,000			144,000
	Term Loan B	United States	300,050			150,025

	Total Bonds & Notes in Reorganization (Cost $11,727,498)					8,355,140

			SHARES/PRINCIPAL AMOUNT^f
	Companies in Liquidation .3%
^a	Brunos Inc., Liquidating Unit	United States	2,247			9,887
^a	Fine Host Corp.	United States	49,920			392,870
	United Companies Financial Corp., Revolver	United States	1,199,266			11,993

	Total Companies in Liquidation (Cost $449,280)					414,750

202

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Discovery Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f	VALUE

	Government Agencies 8.7%
	Federal Home Loan Bank, 0.75%, 1/02/03	United States	$3,400,000	$	3,400,000
	Federal Home Loan Mortgage Corp., 1.242%, 2/25/03	United States	1,500,000		1,497,322
^d	Federal National Mortgage Association, 1.253% to 2.125%, with maturities to 11/26/04	United States	9,000,000		8,992,134

	Total Government Agencies (Cost $13,872,168)				13,889,456

	Short Term Investments 8.9%
	Danske Bank, 1.312%, 1/27/03	Denmark	4,000,000		3,996,010
	U.S. Treasury Bill, 1.243%, 6/12/03	United States	1,000,000		994,812
	Westlb Financial Curacao NV, 1.293%, 2/12/03	Germany	1,500,000		1,494,840
	Yorkshire Building Society, 1.363% to 1.767%, with maturities to 1/28/03	United Kingdom	7,700,000		7,695,729

	Total Short Term Investments (Cost $14,183,355)				14,181,391

	Total Investments (Cost $157,618,931) 101.3%				161,418,656
	Options Written				(4,491	)
	Securities Sold Short (1.6)%				(2,514,027	)
	Net Equity in Forward Exchange Contracts (1.3)%				(2,106,133	)
	Other Assets, less Liabilities 1.6%				2,457,160

	Net Assets 100.0%			$	159,251,165


	Options Written ISSUER	COUNTRY	SHARES	VALUE

	BP PLC, January/3.90 GBP/Puts	United Kingdom	6,200	$	250
	Groupe Danone, January/130 EUR/Puts	France	800		3,299
	Peninsular & Oriental Steam Navigation Co., February/1.80 GBP/Puts	United Kingdom	3,000		942

	Total Options Written (Premiums received $5,571)			$	4,491

	Securities Sold Short—Equity & Bond ISSUER	COUNTRY	SHARES/PRINCIPAL AMOUNT^f	VALUE

^e	Electronic Data Systems Corp., 7.125%, 10/15/09	United States	$ 85,000	$	87,484
^e	General Motors Corp.	United States	4,400		162,184
^e	HSBC Holdings PLC, ADR	Hong Kong	1,600		87,968
^e	Kraft Foods Inc., A	United States	23,500		914,855
^e	Manulife Financial Corp.	Canada	400		8,707
^e	Pfizer Inc.	United States	39,700		1,213,629
^e	Univision Communications Inc., A	United States	1,600		39,200

	Total Securities Sold Short (Proceeds $2,474,336)			$	2,514,027

Currency Abbreviations:

CAD - Canadian Dollar

EUR - European Unit

GBP - British Pound

^a	Non-income producing

^b	See Note 8 regarding defaulted securities.

^c	See Note 9 regarding restricted securities.

^d	See Note 1(h) regarding securities segregated with broker for securities sold short.

^e	See Note 1(h) regarding securities sold short.

^f	The principal amount is stated in U.S. dollars unless otherwise indicated.

^g	See Note 11 regarding other considerations.

See notes to financial statements.

203

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Mutual Shares Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests 60.1%
	Aerospace & Defense .2%
	Northrop Grumman Corp.	United States	21,100	$	2,046,700

	Banks 3.8%
	Bank of America Corp.	United States	45,700		3,179,349
	Bank of Ireland	Irish Republic	474,550		4,870,346
	Fleet Boston Financial Corp.	United States	276,800		6,726,240
	Greenpoint Financial Corp.	United States	102,394		4,626,161
^a,c	Nippon Investment LLC	Japan	1,148,000		1,234,215
	Sovereign Bancorp Inc.	United States	714,200		10,034,510
	U.S. Bancorp	United States	112,152		2,379,865

					33,050,686

	Beverages 1.8%
	Allied Domecq PLC	United Kingdom	1,073,700		6,862,304
	Brown-Forman Corp., A	United States	3,800		254,600
	Brown-Forman Corp., B	United States	132,150		8,637,324

					15,754,228

	Chemicals 1.8%
	Akzo Nobel NV	Netherlands	301,830		9,575,017
	Syngenta AG	Switzerland	111,695		6,466,467

					16,041,484

	Commercial Services & Supplies 1.9%
^a	Alderwoods Group Inc.	United States	66,448		314,233
^a	Cendant Corp.	United States	599,877		6,286,711
^a	Republic Services Inc.	United States	361,800		7,590,564
	Waste Management Inc.	United States	123,500		2,830,620

					17,022,128

	Computers & Peripherals
^a	DecisionOne Corp.	United States	26,349		52,698

	Construction Materials .6%
	Martin Marietta Materials Inc.	United States	174,700		5,356,302

	Diversified Financials 1.4%
	Household International Inc.	United States	16,000		444,960
^a,c	Leucadia National Corp.	United States	184,830		6,206,406
^a	Principal Financial Group	United States	94,100		2,835,233
	The Bear Stearns Cos. Inc.	United States	37,420		2,222,748
^a	TSX Group Inc.	Canada	25,800		347,038

					12,056,385

	Diversified Telecommunication Services .4%
	BCE Inc.	Canada	204,000		3,680,213
^a	McLeodUSA Inc., wts., 4/16/07	United States	47,355		16,574

					3,696,787

	Electric Utilities 1.5%
	E.On AG	Germany	106,800		4,303,695
^a,c	PG & E Corp, wts., 9/02/06	United States	1,520		19,001
^a	PG & E Corp.	United States	141,200		1,962,680
	PPL Corp.	United States	159,700		5,538,396
	Public Service Enterprise Group Inc.	United States	32,300		1,036,830

					12,860,602

	Food & Drug Retailing 2.2%
^a	Kroger Co.	United States	894,500		13,820,025
^a	Safeway Inc.	United States	229,000		5,349,440

					19,169,465

204

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Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests (cont.)
	Food Products 3.9%
	Cadbury Schweppes PLC	United Kingdom	916,524	$	5,710,200
	Groupe Danone	France	62,100		8,354,465
	Hershey Foods Corp.	United States	38,900		2,623,417
	Nestle SA	Switzerland	60,460		12,811,731
	Orkla ASA	Norway	283,260		4,824,752

					34,324,565

	Health Care Providers & Services .9%
	CIGNA Corp.	United States	82,500		3,392,400
^a	Genesis Health Ventures Inc.	United States	29,163		450,568
^a	Health Net Inc., A	United States	82,965		2,190,276
^a,g	Kindred Healthcare Inc.	United States	70,034		1,207,628
^a,g	Kindred Healthcare Inc., Series A, wts., 4/20/06	United States	12,897		53,664
^a,g	Kindred Healthcare Inc., Series B, wts., 4/20/06	United States	32,243		116,857
^a	Rotech Healthcare Inc.	United States	42,340		709,195
^a,c	Rotech Medical Corp.	United States	3,239		—

					8,120,588

	Hotels Restaurants & Leisure 1.4%
	P & O Princess Cruises PLC	United Kingdom	551,360		3,825,684
^a	Park Place Entertainment Corp.	United States	965,700		8,111,880

					11,937,564

	Insurance 9.2%
^a	Alleghany Corp.	United States	21,144		3,753,060
^a	Berkshire Hathaway Inc., A	United States	106		7,711,500
^a	Berkshire Hathaway Inc., B	United States	9,612		23,289,876
	Canada Life Financial Corp.	Canada	2,300		58,658
^a	Montpelier Re Holdings Ltd.	Bermuda	7,500		216,000
^a,c	Montpelier Re Holdings Ltd.	Bermuda	48,840		1,336,262
	Muenchener Rueckversicherungs-Gesellschaft	Germany	14,075		1,682,330
	Old Republic International Corp.	United States	337,500		9,450,000
^a,c	Olympus Re Holdings Ltd.	Bermuda	16,280		1,893,201
	Prudential Financial Inc.	United States	184,100		5,843,334
^a	Travelers Property Casualty, A	United States	358,985		5,259,130
	White Mountains Insurance Group Inc.	United States	49,651		16,037,273
^c	White Mountains Insurance Group Inc.	United States	15,000		4,602,750

					81,133,374

	IT Consulting & Services .1%
^a	Comdisco Contingent Equity	United States	8,175,255		30,657
^a	Comdisco Holding Co. Inc.	United States	6,987		544,986

					575,643

	Machinery .2%
^a	Joy Global Inc.	United States	171,170		1,927,374

	Marine .5%
	Peninsular & Oriental Steam Navigation Co.	United Kingdom	1,732,340		4,587,706

	Media 6.9%
	Dow Jones & Co. Inc.	United States	19,600		847,308
^a	Fox Entertainment Group Inc., A	United States	111,800		2,898,974
^a	Hispanic Broadcasting Corp., A	United States	8,500		174,675
	Lagardere SCA	France	240,297		9,761,364
^a	Liberty Media Corp., A	United States	1,797,790		16,072,243
	Meredith Corp.	United States	99,659		4,096,982
	Omnicom Group Inc.	United States	32,400		2,093,040
	Scripps Co., A	United States	114,916		8,842,786
^a	TVMAX Holdings Inc.	United States	7,459		29,836
	Washington Post Co., B	United States	21,524		15,884,712

					60,701,920

205

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Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	SHARES/ WARRANTS	VALUE

	Common Stocks and Other Equity Interests (cont.)
	Metals & Mining 1.6%
	Anglo American PLC	South Africa	198,700	$	2,950,943
	Anglo American PLC, ADR	South Africa	200		2,920
^a	Glamis Gold Ltd.	Canada	25,700		289,568
^a,c	International Steel Group	United States	161		7,446,250
	Newmont Mining Corp.	United States	112,100		3,254,263

					13,943,944

	Multi-Utilities .8%
	Suez SA	France	387,485		6,725,575

	Oil & Gas 3.0%
	Amerada Hess Corp.	United States	59,200		3,258,960
	BP PLC	United Kingdom	540,900		3,718,274
	BP PLC, ADR	United Kingdom	5,100		207,315
	Burlington Resources Inc.	United States	134,000		5,715,100
	Conocophillips	United States	185,719		8,986,942
^a	Southwest Royalties Inc., A	United States	6,820		204,590
	Total Fina Elf SA, B	France	32,200		4,598,890

					26,690,071

	Paper & Forest Products 1.1%
	Abitibi-Consolidated Inc.	Canada	665,492		5,109,772
	MeadWestvaco Corp.	United States	193,600		4,783,856

					9,893,628

	Pharmaceuticals 4.2%
	Bristol-Myers Squibb Co.	United States	138,900		3,215,535
	Daiichi Pharmaceutical Co.	Japan	396,300		5,687,191
	ICN Pharmaceuticals Inc.	United States	531,800		5,801,938
	Merck & Co. Inc.	United States	86,600		4,902,426
	Pharmacia Corp.	United States	190,900		7,979,620
	Schering-Plough Corp.	United States	132,500		2,941,500
	Takeda Chemical Industries Ltd.	Japan	117,700		4,919,457
	Wyeth	United States	32,400		1,211,760

					36,659,427

	Real Estate 1.4%
^a	Alexander’s Inc.	United States	8,000		516,400
	Canary Wharf Group PLC	United Kingdom	1,543,998		5,853,750
	General Growth Properties Inc.	United States	32,800		1,705,600
^a,c	Security Capital European Realty	Luxembourg	12,731		179,221
	St. Joe Co.	United States	97,000		2,910,000
	Ventas Inc.	United States	97,800		1,119,810

					12,284,781

	Road & Rail 2.0%
	Burlington Northern Santa Fe Corp.	United States	125,600		3,266,856
	Canadian National Railway Co.	Canada	159,200		6,577,405
	Florida East Coast Industries Inc., A	United States	285,800		6,630,560
	Florida East Coast Industries Inc., B	United States	68,413		1,509,875

					17,984,696

	Semiconductor Equipment & Products .2%
^a	Integrated Device Technology Inc.	United States	172,500		1,443,825

	Software .5%
^a	BMC Software Inc.	United States	252,700		4,323,697

	Tobacco 6.6%
	Altadis SA	Spain	869,535		19,837,439
	Altadis SA (Paris Listed)	Spain	60,400		1,372,886
	British American Tobacco PLC	United Kingdom	1,799,856		17,979,436
	British American Tobacco PLC, ADR	United Kingdom	4,300		84,710

206

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	SHARES/ WARRANTS			VALUE

	Common Stocks and Other Equity Interests (cont.)
	Tobacco (cont.)
	Gallaher Group PLC	United Kingdom		203,707		$	2,023,427
	Gallaher Group PLC, ADR	United Kingdom		2,400			94,080
	Philip Morris Cos. Inc.	United States		309,070			12,526,607
	UST Inc.	United States		110,441			3,692,042

							57,610,627

	Total Common Stocks and Other Equity Interests (Cost $518,089,857)						527,976,470

	Preferred Stocks 1.4%
	Diversified Telecommunication Services
^a	McLeodUSA Inc., 2.50%, cvt., pfd.	United States		21,372			87,625

	Health Care Providers & Services
^a	Genesis Health Ventures Inc., 6.00%, cvt., pfd.	United States		339			32,307

	Household Products .3%
	Henkel KGAA, pfd.	Germany		43,700			2,765,271

	Insurance 1.1%
^c	White Mountains Insurance Group Inc., cvt., pfd.	United States		30,898			8,982,049

	Total Preferred Stocks (Cost $11,950,431)						11,867,252

			PRINCIPAL AMOUNT^f
	Corporate Bonds & Notes 2.5%
	Alderwoods Group Inc.,
	11.00%, 1/02/07	United States	$	129,600			130,248
	12.25%, 1/02/09	United States		655,400			599,691
	Calpine Canada Energy Finance,
	8.375%, 10/15/08	Canada		60,000	EUR		25,857
	senior note, 8.50%, 5/01/08	Canada		1,754,000			771,760
	Calpine Corp.,
	7.625%, 4/15/06	United States		215,000			98,900
	7.875%, 4/01/08	United States		209,000			88,825
	7.75%, 4/15/09	United States		3,000,000			1,275,000
	senior note, 8.625%, 8/15/10	United States		309,000			132,870
	senior note, 8.50%, 2/15/11	United States		1,574,000			692,560
	Comdisco Holding Co. Inc., 11.00%, 8/12/05	United States		787,357			791,293
	DecisionOne Corp., Term Loan	United States		895,953			727,713
	Eurotunnel Finance Ltd., Equity Note, 12/31/03	United Kingdom		286,406	GBP		152,157
	Eurotunnel PLC,
	12/31/18, Tier 2	United Kingdom		385,556	GBP		456,217
	12/31/25, Tier 3	United Kingdom		531,240	GBP		525,972
	12/31/50, Resettable Advance R5	United Kingdom		277,688	GBP		178,819
	PTC loan note, zero cpn., 4/30/40	United Kingdom		58,000	GBP		31,280
	Stabilization Advance S8, Tier 1	United Kingdom		150,980	GBP		58,335
	Stabilization Advance S8, Tier 2	United Kingdom		128,063	GBP		45,357
	Eurotunnel SA,
	5.28%, 12/31/18, Tier 2 (Pibor)	France		45,056	EUR		34,752
	5.28%, 12/31/25, Tier 3 (Pibor)	France		84,795	EUR		54,725
	12/31/18, Tier 2 (Libor)	France		60,952	EUR		47,012
	12/31/25, Tier 3 (Libor)	France		619,054	EUR		399,524
	12/31/50, Resettable Advance R4	France		7,060	EUR		2,964
	Stabilization Advance S6, Tier 2 (Libor)	France		43,127	EUR		9,957
	Stabilization Advance S7, Tier 1 (Pibor)	France		55,949	EUR		14,091
	Stabilization Advance S6, Tier 1 (Pibor)	France		22,154	EUR		5,579
	Level 3 Communications Inc., Term Loan, 1/15/08	United States		351,000			265,005
	Providian Financial Corp., cvt., zero cpn., 2/15/21	United States		2,717,000			913,591

207

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f			VALUE

	Corporate Bonds & Notes (cont.)
	Qwest Capital Funding,
	5.875%, 8/03/04	United States	$	1,802,000		$	1,522,690
	7.00%, 8/03/09	United States		1,366,000			908,390
	7.90%, 8/15/10	United States		128,000			86,400
	7.25%, 2/15/11	United States		4,814,000			3,201,310
	Qwest Corp.,
	7.625%, 6/09/03	United States		75,000			73,875
	8.875%, 3/15/12	United States		147,000			143,325
	South Point Energy, 9.825%, 5/30/19	United States		286,000			170,170
	Southern California Edison Co.,
	7.20%, 11/03/03	United States		1,236,000			1,223,640
	6.375%, 1/15/06	United States		65,000			57,525
	7.125%, 7/15/25	United States		55,000			46,750
	Southwest Royalties Inc., 10.50%, 6/30/04	United States		454,000			454,000
	Tyco International Group SA,
	2.228%, 7/30/03	Luxembourg		40,000			38,812
	6.375%, 2/15/06	Luxembourg		1,265,000			1,228,067
	Tyco International Ltd., cvt., zero cpn., 11/17/20	Bermuda		485,000			349,806
	U.S. West Capital Funding Inc., 6.375%, 7/15/08	United States		543,000			350,235
	U.S. West Communications Inc., 6.625%, 9/15/05	United States		290,000			271,150
	Williams Production RMT Co., Term Loan	United States		1,348,870			1,551,201
	Wiltel Communications Group Inc., FRN, 6.129%, 1/21/03	United States		756,090			536,824
	Xerox Credit Corp., 1.50%, 6/06/05	United States		200,000,000	JPY		1,264,009

	Total Corporate Bonds & Notes (Cost $19,401,965)						22,008,233

	Bonds & Notes in Reorganization 4.4%
^b	Adelphia Communications Corp.,
	9.25%, 10/01/02	United States		365,000			135,050
	8.125%, 7/15/03	United States		145,000			54,375
	7.50%, 1/15/04	United States		350,000			131,250
	10.50%, 7/15/04	United States		577,000			219,260
	cvt., 6.00%, 2/15/06	United States		4,861,000			388,880
	10.25%, 11/01/06	United States		1,078,000			409,640
	9.875%, 3/01/07	United States		265,000			100,700
	8.375%, 2/01/08	United States		1,408,000			528,000
	7.75%, 1/15/09	United States		991,000			371,625
	7.875%, 5/01/09	United States		383,000			143,625
	9.375%, 11/15/09	United States		280,000			109,200
	10.875%, 10/01/10	United States		580,000			223,300
	senior note, 10.25%, 6/15/11	United States		1,278,000			498,420
	cvt., 3.25%, 5/01/21	United States		565,000			45,200
^b	Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11	United States		45,000			2,835
^b	Century Communications Corp.,
	9.50%, 3/01/05	United States		75,000			19,875
	8.875%, 1/15/07	United States		55,000			14,575
	8.375%, 12/15/07	United States		90,000			23,850
	zero cpn., 3/15/03	United States		1,010,000			247,450
^b	Dow Corning Corp.,
	9.375%, 2/01/08	United States		550,000			1,045,000
	Bank Debt #1	United States		100,000			141,000
^b	Edison International, 6.875%, 9/15/04	United States		900,000			841,500
^b	Frontier Corp., 7.25%, 5/15/04	United States		185,000			10,175
^b	Global Crossing Holdings Ltd.,
	9.125%, 11/15/06	United States		1,135,000			39,725
	9.625%, 5/15/08	United States		550,000			19,250
	9.50%, 11/15/09	United States		915,000			32,025
	Bank Claim	United States		62,800			12,089
	Revolver	United States		3,524,074			678,384
	Term Loan	United States		1,675,000			322,437

208

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f			VALUE

	Bonds & Notes in Reorganization (cont.)
^b	Global Crossing Ltd., 6.00%, 10/15/03	United States	$	200,000		$	11,000
^b	Guangdong Int’l Trust & Investment Corp. 144A, 8.75%, 10/24/16	China		630,000			74,025
^b	Harnischfeger Industries Inc.,
	8.90%, 3/01/22	United States		410,000			3,280
	8.70%, 6/15/22	United States		360,000			2,952
	6.875%, 2/15/27	United States		463,000			3,704
	7.25%, 12/15/25	United States		519,000			4,204
	Bank Claim	United States		603,475			4,767
^b	Intermedia Communications Inc.,
	senior note, 8.50%, 1/15/08	United States		185,000			74,925
	senior note, 8.60%, 6/01/08	United States		255,000			103,275
	senior note, 9.50%, 3/01/09	United States		240,000			97,200
^b	Laidlaw Inc.,
	7.70%, 8/15/02	Canada		2,889,000			1,397,554
	7.05%, 5/15/03	Canada		420,000			204,750
	6.65%, 10/01/04	Canada		174,000			82,650
	7.875%, 4/15/05	Canada		385,000			184,800
	6.50%, 5/01/05	Canada		330,000			155,513
	7.65%, 5/15/06	Canada		240,000			118,200
	6.70%, 5/01/08	Canada		295,000			139,019
	8.75%, 4/15/25	Canada		361,000			174,634
	6.72%, 10/01/27	Canada		835,000			396,625
	Revolver	Canada		1,619,330			789,423
^b	MCI Communications Corp.,
	8.25%, 1/20/23	United States		208,000			102,960
	7.75%, 3/15/24	United States		208,000			102,960
^b	Metromedia Fiber Network Inc.,
	14.00%, 3/15/07	United States		2,897,000			637,340
	10.00%, 11/15/08	United States		2,297,000			40,198
	senior note, 10.00%, 12/15/09	United States		2,418,000			42,315
	senior note, 10.00%, 12/15/09	United States		1,085,000	EUR		19,925
^b	NTL Communications Corp.,
	12.75%, 4/15/05	United Kingdom		347,000			31,230
	9.25%, 11/15/06	United Kingdom		3,755,000	EUR		374,345
	10.00%, 2/15/07	United Kingdom		720,000			64,800
	12.375%, 2/01/08	United Kingdom		590,000	EUR		58,819
	11.50%, 10/01/08	United Kingdom		1,892,000			179,740
	9.875%, 11/15/09	United Kingdom		3,887,000	EUR		387,505
	cvt., 7.00%, 2/15/08	United Kingdom		1,807,000			361,400
	Series B, 12.375%, 10/01/08	United Kingdom		540,000			43,200
	Series B, 9.75%, 4/15/09	United Kingdom		8,985,000	GBP		1,663,460
	Series B, 11.50%, 11/15/09	United Kingdom		4,900,000	EUR		492,149
	senior note, B, 11.875%, 10/01/10	United Kingdom		485,000			46,075
^b	NTL Inc.,
	9.75%, 4/01/08	United Kingdom		6,484,000			453,880
	cvt., 5.75%, 12/15/09	United Kingdom		2,794,000			488,950
	Series B, 11.50%, 2/01/06	United Kingdom		1,349,000			121,410
	Series B, 9.50%, 4/01/08	United Kingdom		565,000	GBP		86,411
	Series B, 10.75%, 4/01/08	United Kingdom		4,849,000	GBP		702,573
^b	Owens Corning, Revolver	United States		2,360,480			1,498,905
	PG & E Corp.,
	5.00%, 1/31/03	United States		32,205			32,205
	7.375%, 11/01/05	United States		2,269,000			2,229,293
	6.50%, 9/02/06	United States		410,000			414,100
	Commercial Paper, 1/18/01	United States		92,000			87,860
	Commercial Paper, 1/30/01	United States		45,000			43,200
	Commercial Paper, 2/16/01	United States		136,000			129,880
	FRN, 144A, 7.575%, 10/31/01	United States		610,000			579,500
	MTN, 5.94, 10/07/03	United States		115,000			106,375

209

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	PRINCIPAL AMOUNT^f		VALUE

	Bonds & Notes in Reorganization (cont.)
^b	PG & E National Energy Group Inc., 10.375%, 5/16/11	United States	$ 8,700,000		$	3,349,500
^b	Piv Investment Finance (Cayman) Ltd, .000001, 2/20/49	Hong Kong	12,200,000			2,684,000
^b	Port Seattle Wash Ref-Beloit Proj., 6.00%, 12/01/17	United States	20,000			1,260
^b	Safety Kleen Corp.,
	9.25%, 5/15/09	United States	63,000			2,678
	Term Loan B	United States	407,988			159,115
	Term Loan C	United States	407,988			159,115
	Term Loan A	United States	440,050			171,620
	Revolver	United States	530,484			241,370
	Term Loan	United States	55,747	CAD		12,527
^b	Safety Kleen Services, 9.25%, 6/01/08	United States	5,000			200
^b	Spectrasite Holdings Inc.,
	zero cpn., 7/15/08	United States	1,355,000			440,375
	10.75%, 3/15/10	United States	1,285,000			481,875
	12.50%, 11/15/10	United States	309,000			115,875
	cvt., 6.75%, 11/15/10	United States	200,000			50,500
	senior disc. note, zero cpn., 4/15/09	United States	625,000			190,625
	senior disc. note, zero cpn., 3/15/10	United States	830,000			219,950
^b	Telewest Communications PLC,
	11.00%, 10/01/07	United Kingdom	703,000			130,055
	11.25%, 11/01/08	United Kingdom	230,000			42,550
	senior disc. note, zero cpn., 4/15/09	United Kingdom	475,000			68,875
	senior disc. note, zero cpn., 2/01/10	United Kingdom	485,000			63,050
	zero cpn., 4/15/09	United Kingdom	1,291,000	GBP		197,445
^b	Telewest Finance Ltd., cvt., 6.00%, 7/07/05	United Kingdom	1,150,000			207,000
^b	WorldCom Inc.,
	6.40%, 8/15/05	United States	810,000			194,400
	8.25%, 5/15/10	United States	1,445,000			346,800
	7.375%, 1/15/11	United States	2,897,000			695,280
	7.50%, 5/15/11	United States	2,220,000			532,800
	7.75%, 4/01/27	United States	340,000			81,600
	8.25%, 5/15/31	United States	2,077,000			498,480
^b	WorldCom Inc. - MCI Group,
	6.50%, 4/15/10	United States	190,000			97,850
	7.125%, 6/15/27	United States	100,000			53,500
^b	WorldCom Inc. - WorldCom Group,
	6.95%, 08/15/06	United States	3,050,000			1,570,750
	7.75%, 03/23/25	United States	3,050,000			1,509,750
^b	XO Communications Inc.,
	Revolver	United States	772,800			386,400
	Term Loan A	United States	1,343,200			671,600
	Term Loan B	United States	1,398,000			699,000

	Total Bonds & Notes in Reorganization (Cost $53,696,014)					38,781,928

			SHARES/PRINCIPAL AMOUNT^f
	Companies in Liquidation .1%		3
^a	Brunos Inc., Liquidating Unit	United States	5,044			22,193
^a	Fine Host Corp.	United States	139,062			1,094,418
	Peregrine Investments Holdings Ltd, .000001, 2/20/49	Hong Kong	5,000,000	JPY		4,635
	United Companies Financial Corp., Revolver	United States	2,450,427			24,504

	Total Companies in Liquidation (Cost $1,251,558)					1,145,750

210

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Mutual Shares Securities Fund	COUNTRY	SHARES/PRINCIPAL AMOUNT^f		VALUE

	Government Agencies 30.8%
	Federal Home Loan Bank, 0.75% to 2.80%, with maturities to 9/06/05	United States	$	90,253,000	$	90,065,919
^h	Federal Home Loan Mortgage Corp., 1.242% to 2.455%, with maturities to 12/31/03	United States		88,070,000		87,508,289
^h	Federal National Mortgage Association, 1.264% to 2.457%, with maturities to 11/26/04	United States		93,216,000		92,913,312

	Total Government Agencies (Cost $270,082,639)					270,487,520

	Short Term Investments 2.1%
^d	Franklin Institutional Fiduciary Trust Money Market Portfolio	United States		15,766,811		15,766,811
	U.S. Treasury Bill, 1.243%, 6/12/03	United States		3,000,000		2,984,436

	Total Short Term Investments (Cost $18,750,036)					18,751,247

	Total Investments (Cost $893,222,500) 101.4%					891,018,400
	Options Written					(25,225	)
	Securities Sold Short (1.9)%					(16,394,417	)
	Net Equity in Forward Exchange Contracts (.7)%					(6,007,154	)
	Other Assets, less Liabilities 1.2%					10,073,866

	Net Assets 100.0%				$	878,665,470

	Options Written
	ISSUER	COUNTRY	SHARES		VALUE

	BP PLC, January/3.90 GBP/Puts	United Kingdom		33,500	$	1,348
	Groupe Danone, January/130 EUR/Puts	France		4,800		19,796
	Peninsular & Oriental Steam Navigation Co., February/1.80 GBP/Puts	United Kingdom		13,000		4,081

	Total Options Written (Premiums received $31,802)				$	25,225


	Securities Sold Short—Equity & Bonds ISSUER	COUNTRY	SHARES/PRINCIPAL AMOUNT^f		VALUE

^e	Electronic Data Systems Corp., 7.125%, 10/15/09	United States	$	410,000	$	421,980
^e	General Motors Corp.	United States		23,400		862,524
^e	HSBC Holdings PLC, ADR	Hong Kong		8,600		472,828
^e	Kraft Foods Inc., A	United States		160,300		6,240,479
^e	Manulife Financial Corp.	Canada		2,300		50,068
^e	Pfizer Inc.	United States		267,260		8,170,138
^e	Univision Communications Inc., A	United States		7,200		176,400

	Total Securities Sold Short (Proceeds $16,190,283)				$	16,394,417

Currency Abbreviations:

EUR - European Unit

GBP - British Pound

JPY - Japanese Yen

^a	Non-income producing

^b	See Note 8 regarding defaulted securities.

^c	See Note 9 regarding restricted securities.

^d	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

^e	See Note 1(h) regarding securities sold short.

^f	The principal amount is stated in U.S. dollars unless otherwise indicated.

^g	See Note 11 regarding other considerations.

^h	See Note 1(h) regarding securities segregated with broker for securities sold short.

See notes to financial statements.

211

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Statement of Investments, December 31, 2002

	Templeton Developing Markets Securities Fund	INDUSTRY	SHARES	VALUE

	Long Term Investments 97.7%
	Argentina 1.3%
^a	Molinos Rio de la Plata SA, B	Food Products	886,191	$	1,261,472
^a	Quilmes Industrial SA, B, ADR	Beverages	159,795		995,523
^a	Tenaris SA	Energy Equipment & Services	16,463		32,290
^a	Tenaris SA, ADR	Energy Equipment & Services	93,059		1,788,594

					4,077,879

	Austria 3.1%
	BBAG Oesterreichische Brau-Beteiligungs AG	Beverages	9,480		661,560
	Erste Bank der Oester Sparkassen AG	Banks	17,300		1,164,613
	Mayr-Melnhof Karton AG	Containers & Packaging	12,774		945,051
	OMV AG	Oil & Gas	56,595		5,557,764
	Wienerberger AG	Building Products	66,142		1,176,484

					9,505,472

	Brazil 6.6%
	Banco Bradesco SA, ADR, pfd.	Banks	327,581		4,880,957
	Centrais Eletricas Brasileiras SA (Eletrobras)	Electric Utilities	192,645,000		1,284,301
	Cia de Bebidas das Americas (AMBEV)	Beverages	60,000		8,102
	Cia de Bebidas das Americas (AMBEV), ADR, pfd.	Beverages	40,400		628,624
	Cia Vale do Rio Doce, ADR	Metals & Mining	44,134		1,275,914
	Cia Vale do Rio Doce, ADR, pfd., A	Metals & Mining	36,910		1,015,025
	Companhia Paranaense de Energia-Copel, ADR, pfd.	Electric Utilities	299,265		840,935
	Duratex SA, pfd.	Building Products	42,947,583		630,869
	Embraer-Empresa Brasileira de Aeronautica SA	Aerospace & Defense	52,000		188,022
	Embraer-Empresa Brasileira de Aeronautica SA, ADR	Aerospace & Defense	112,982		1,796,414
	Petroleo Brasileiro SA, ADR, pfd.	Oil & Gas	354,311		4,747,767
	Souza Cruz SA	Tobacco	297,200		1,496,074
	Unibanco Uniao de Bancos Brasileiros SA, GDR	Banks	136,995		1,500,095

					20,293,099

	Chile .3%
	Cia de Petroleos de Chile SA (COPEC)	Industrial Conglomerates	216,762		770,472

	China 4.2%
	Beijing Datang Power Generation Co. Ltd., H	Electric Utilities	432,000		139,876
^a	China Mobile (Hong Kong) Ltd.	Wireless Telecommunication Services	996,000		2,369,193
	China Petroleum & Chemical Corp., H	Oil & Gas	23,828,000		4,002,729
	China Resources Enterprise Ltd.	Distributors	2,824,000		2,498,682
	China Shipping Development Co. Ltd., H	Marine	1,728,000		361,184
	People’s Food Holdings Ltd.	Food & Drug Retailing	1,772,000		755,999
	PetroChina Co. Ltd., H	Oil & Gas	9,704,000		1,928,767
	Qingling Motors Co. Ltd., H	Automobiles	2,674,000		312,033
	Travelsky Technology Ltd., H	Commercial Services & Supplies	873,000		604,512

					12,972,975

	Croatia .9%
	Pliva D D, GDR, Reg S	Pharmaceuticals	190,000		2,726,500

	Czech Republic .2%
	Philip Morris CR AS	Tobacco	1,170		433,590
^a	Unipetrol	Chemicals	81,500		91,988

					525,578

	Egypt .3%
	Commercial International Bank Ltd.	Banks	155,690		908,248

	Greece .8%
	Coca-Cola Hellenic Bottling Company SA	Beverages	117,700		1,635,323
	Hellenic Telecommunications Organization SA	Diversified Telecommunication Services	82,110		904,741

					2,540,064

212

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Developing Markets Securities Fund	INDUSTRY	SHARES	VALUE

	Long Term Investments (cont.)
	Hong Kong 8.5%
	Beijing Enterprises Holdings Ltd.	Industrial Conglomerates	1,346,000	$	1,225,464
	Cheung Kong Holdings Ltd.	Real Estate	382,000		2,485,975
	Cheung Kong Infrastructure Holdings Ltd.	Construction Materials	416,000		712,151
	China Merchants Holdings International Co. Ltd.	Industrial Conglomerates	3,882,000		2,712,997
	China Travel International Investment Hong Kong Ltd.	Hotels Restaurants & Leisure	4,118,000		649,514
	Citic Pacific Ltd.	Industrial Conglomerates	2,219,000		4,097,482
	Cosco Pacific Ltd.	Transportation Infrastructure	5,066,000		4,157,598
	Dairy Farm International Holdings Ltd.	Food & Drug Retailing	1,511,833		1,436,241
	Giordano International Ltd.	Specialty Retail	1,748,000		683,658
	Hang Lung Group Ltd.	Real Estate	1,457,000		1,195,740
	Henderson Investment Ltd.	Real Estate	1,963,000		1,812,383
	Henderson Land Development Company Limited	Real Estate	206,000		618,131
	Hutchison Whampoa Ltd.	Industrial Conglomerates	81,000		506,876
	MTR Corp. Ltd.	Road & Rail	1,378,028		1,457,838
	Shanghai Industrial Holdings Ltd.	Industrial Conglomerates	1,590,000		2,191,810

					25,943,858

	Hungary 3.0%
	Egis Rt.	Pharmaceuticals	11,638		719,578
	Gedeon Richter Ltd.	Pharmaceuticals	50,992		3,368,316
	Matav RT	Diversified Telecommunication Services	145,800		528,566
	MOL Magyar Olaj-Es Gazipari RT	Oil & Gas	197,590		4,609,935

					9,226,395

	India 3.1%
	Bharat Heavy Electricals Ltd.	Electrical Equipment	505,200		1,818,509
	Bharat Petroleum Corp. Ltd.	Oil & Gas	179,600		811,852
	Dr. Reddy’s Laboratories Ltd.	Pharmaceuticals	36,260		679,185
	Grasim Industries Ltd.	Industrial Conglomerates	357,627		2,351,239
	Hindalco Industries Inc.	Metals & Mining	30,072		367,731
	Hindustan Petroleum Corporation Ltd.	Oil & Gas	32,000		192,167
	ITC Ltd.	Tobacco	179,100		2,466,687
	Mahanagar Telephone Nigam Ltd.	Diversified Telecommunication Services	461,285		912,469

					9,599,839

	Indonesia 4.3%
	PT Gudang Garam TBK	Tobacco	1,830,000		1,697,095
	PT Indofoods Sukses Makmur TBK	Food Products	11,633,525		779,901
	PT Indosat (Persero) TBK	Diversified Telecommunication Services	3,410,500		3,524,819
	PT Telekomunikasi Indonesia TBK, B	Diversified Telecommunication Services	16,634,900		7,155,795

					13,157,610

	Israel .3%
^a	Check Point Software Technologies Ltd.	Software	34,400		446,168
	Elbit Systems Ltd.	Aerospace & Defense	35,675		569,298

					1,015,466

	Malaysia .7%
	Genting Bhd.	Hotels Restaurants & Leisure	280,600		989,484
	Petronas Dagangan Bhd.	Oil & Gas	198,000		270,948
	SIME Darby Bhd.	Industrial Conglomerates	772,000		1,007,663

					2,268,095

	Mexico 5.3%
	Cemex SA	Construction Materials	591,720		2,540,709
	Fomento Economico Mexicano SA De CV Femsa	Beverages	59,250		2,157,885
^a	Grupo Carso SA de CV	Industrial Conglomerates	703,500		1,721,101
	Kimberly Clark de Mexico SA de CV, A	Household Products	2,789,400		6,397,706
	Telefonos de Mexico SA de CV (Telmex), L, ADR	Diversified Telecommunication Services	102,252		3,270,019

					16,087,420

213

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Developing Markets Securities Fund	INDUSTRY	SHARES	VALUE

	Long Term Investments (cont.)
	Peru .1%
	Credicorp Ltd.	Banks	45,200	$	424,880

	Philippines 1.6%
	San Miguel Corp., B	Beverages	3,892,630		4,812,467

	Poland 1.6%
	Polski Koncern Naftowy Orlen SA	Oil & Gas	1,068,116		4,930,345

	Portugal .1%
	BPI Socieda de Gestora de Participacoes Socias SA	Diversified Financials	72,000		164,713

	Russia 3.5%
^b	Lukoil Holdings, ADR	Oil & Gas	95,307		5,878,536
	Mosenergo, ADR	Electric Utilities	184,480		562,664
	Sberbank RF	Banks	2,550		490,875
	Unified Energy Systems	Electric Utilities	30,404,900		3,916,151

					10,848,226

	Singapore 3.7%
	Cycle & Carriage Ltd.	Distributors	193,268		378,848
	DBS Group Holdings Ltd.	Banks	23,000		145,863
	Fraser & Neave Ltd.	Beverages	1,014,090		4,560,336
	Keppel Corp., Ltd.	Diversified Financials	1,614,600		3,444,232
	Singapore Airlines Ltd.	Airlines	384,000		2,258,172
	Singapore Telecommunications Ltd.	Diversified Telecommunication Services	803,000		574,067

					11,361,518

	South Africa 15.8%
	Alexander Forbes Ltd.	Diversified Financials	86,116		140,006
	Anglo American PLC	Metals & Mining	636,470		9,383,306
	Barloworld Ltd.	Industrial Conglomerates	726,900		5,150,693
	Bidvest Group Ltd.	Industrial Conglomerates	2,500		13,111
^a	Datatec Ltd.	IT Consulting & Services	16,438		12,931
	Firstrand Ltd.	Banks	478,500		410,438
^a	Imperial Holdings Ltd.	Air Freight & Couriers	286,177		1,834,361
	Investec Ltd.	Diversified Financials	19,070		251,140
	Investec PLC	Diversified Financials	24,430		321,785
^a	Johnnic Holdings Ltd.	Wireless Telecommunication Services	48,123		255,239
	Nampak Ltd.	Containers & Packaging	410,000		676,126
	Old Mutual PLC	Insurance	2,765,960		3,918,547
	Remgro Ltd.	Industrial Conglomerates	677,070		4,884,405
	Reunert Ltd.	Electronic Equipment & Instruments	320,500		737,705
	SABMiller PLC	Beverages	1,304,424		9,242,931
	Sanlam Ltd.	Insurance	3,621,000		3,207,226
	Sasol Ltd.	Chemicals	353,300		4,323,349
	Shoprite Holdings Ltd.	Food & Drug Retailing	178,300		147,536
	Standard Bank Group Ltd.	Banks	221,606		778,675
	Tiger Brands Ltd.	Food Products	228,442		1,900,910
	Tongaat-Hulett Group Ltd.	Food Products	131,595		720,816

					48,311,236

214

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Developing Markets Securities Fund	INDUSTRY	SHARES	VALUE

	Long Term Investments (cont.)
	South Korea 16.2%
^a	Chohung Bank Co. Ltd.	Banks	353,770	$	1,222,931
	CJ Corp.	Food Products	55,900		2,158,610
	Daelim Industrial Co.	Construction & Engineering	140,180		1,684,216
	Dongkuk Steel Mill Co. Ltd.	Metals & Mining	214,670		806,336
	Hanjin Heavy Industries Co. Ltd.	Machinery	130,740		308,648
	Hankook Tire Co. Ltd.	Auto Components	469,880		873,560
	Hankuk Electric Glass Co. Ltd.	Electronic Equipment & Instruments	11,370		555,055
^a	Hyundai Development Co.	Construction & Engineering	302,020		1,782,505
	Hyundai Motor Co. Ltd.	Automobiles	188,510		4,410,567
	Kangwon Land Inc.	Hotels Restaurants & Leisure	34,253		3,234,548
	Kookmin Bank	Banks	50,360		1,783,331
	Kookmin Credit Card Co. Ltd.	Diversified Financials	52,315		1,274,738
	Korea Electric Power Corp.	Electric Utilities	371,049		5,709,409
	Korea Gas Corp.	Gas Utilities	98,240		1,834,675
	KT Corp.	Diversified Telecommunication Services	64,450		2,755,040
^a	LG Card Co. Ltd.	Diversified Financials	16,890		484,179
	LG Chem Investment Ltd.	Industrial Conglomerates	248,643		1,547,140
	LG Chem Ltd.	Chemicals	4,030		137,952
	LG Household & Health Care Ltd.	Household Products	60,500		1,917,963
	LG Petrochemical Co. Ltd.	Chemicals	121,060		1,388,151
	POSCO	Metals & Mining	15,200		1,512,246
	Samsung Electronics Co. Ltd.	Semiconductor Equipment & Products	3,118		825,473
^a	Samsung Fine Chemicals	Chemicals	168,350		2,086,543
^a	Samsung Heavy Industries Co. Ltd.	Machinery	731,430		2,497,611
	Samsung Securities Co. Ltd.	Diversified Financials	30,320		732,404
^a	SK Corp.	Oil & Gas	300,980		3,324,344
^a	SK Telecom Co. Ltd.	Wireless Telecommunication Services	14,600		2,818,937

					49,667,112

	Taiwan 4.0%
	Advantech Co. Ltd.	Computers & Peripherals	316,000		568,018
	Asustek Computer Inc.	Computers & Peripherals	1,534,000		2,691,228
	Avision Inc.	Computers & Peripherals	657,000		377,912
	Chinatrust Financial Holding Co.	Banks	826,000		672,298
	Chunghwa Telcom Co. Ltd.	Diversified Telecommunication Services	241,000		356,960
	Delta Electronics Inc.	Electronic Equipment & Instruments	683,100		797,638
	Guangshen Railway Co. Ltd., H	Road & Rail	3,366,000		569,751
	International Bank of Taipei	Banks	21,000		10,267
	Kinpo Electronics, Inc.	Office Electronics	199,000		102,448
^a	Mega Financial Holdings Co. Ltd.	Banks	841,484		406,584
	Phoenixtec Power Co. Ltd.	Electrical Equipment	1,254,000		948,525
	Sinopac Holdings Co.	Banks	4,522,708		1,892,591
	Sunplus Technology Co. Ltd.	Semiconductor Equipment & Products	516,000		964,625
	Taiwan Cellular Corp.	Wireless Telecommunication Services	802,060		668,960
	UNI-President Enterprises Corp.	Food Products	2,617,600		813,060
	Yuanta Core Pacific Securities Co.	Diversified Financials	659,000		316,517

					12,157,382

215

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Developing Markets Securities Fund	INDUSTRY	SHARES		VALUE

	Long Term Investments (cont.)
	Thailand 3.1%
	Advanced Info Service Public Co. Ltd., fgn.	Wireless Telecommunication Services		364,600	$	302,423
	Electricity Generating Public Co. Ltd., fgn.	Electric Utilities		261,500		227,523
	Hana Microelectronics Co. Ltd., fgn.	Electronic Equipment & Instruments		168,000		257,262
	PTT Exploration & Production Public Co. Ltd., fgn.	Oil & Gas		1,125,900		3,709,462
	Shin Corporation Public Co. Ltd., fgn.	Wireless Telecommunication Services		6,707,000		1,587,272
	Siam Cement Public Co. Ltd., fgn.	Construction Materials		110,810		3,213,747
^a	Telecomasia Corp. Public Co. Ltd., purch. rts.	Diversified Telecommunication Services		344,616		—
^a	Total Access Communication Public Co. Ltd.	Diversified Telecommunication Services		518,000		287,490

						9,585,179

	Turkey 5.1%
^a	Akbank	Banks		2,066,863,255		6,848,035
^a	Arcelik AS, Br.	Household Durables		362,089,600		2,835,643
^a	KOC Holding AS	Diversified Financials		240,283,328		2,496,921
	Migros Turk T.A.S.	Food & Drug Retailing		35,883,000		313,436
	Tupras-Turkiye Petrol Rafineleri AS	Oil & Gas		665,183,000		3,125,563

						15,619,598

	Total Long Term Investments (Cost $318,062,041)					299,501,626


			PRINCIPAL AMOUNT
	Short Term Investments (Cost $3,013,220) 1.0%
	U.S. Treasury Bills, 1.175%—1.63%, 1/9/03—3/20/03		$	3,018,000		3,013,767

	Total Investments (Cost $321,075,261) 98.7%					302,515,393
	Other Assets, less Liabilities 1.3%					3,889,957

	Net Assets 100.0%				$	306,405,350

^a	Non-income producing

^b	See Note 11 regarding other considerations.

See notes to financial statements.

216

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Templeton Foreign Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks 85.3%
	Aerospace & Defense .8%
	BAE Systems PLC	United Kingdom	2,624,811	$	5,239,819

	Air Freight & Couriers 1.0%
	Deutsche Post AG	Germany	677,613		7,117,948

	Auto Components 3.2%
	Autoliv Inc., SDR	Sweden	393,611		8,063,485
	Denso Corp.	Japan	323,000		5,299,410
	Michelin SA, B	France	266,820		9,200,786

					22,563,681

	Automobiles .9%
	Volkswagen AG	Germany	181,815		6,582,454

	Banks 5.8%
	DBS Group Holdings Ltd.	Singapore	662,000		4,198,328
	DBS Group Holdings Ltd., 144A	Singapore	650,000		4,122,226
	HSBC Holdings PLC	Hong Kong	147,855		1,616,321
	HSBC Holdings PLC, ADR	Hong Kong	105,243		5,786,260
	Lloyds TSB Group PLC	United Kingdom	1,387,500		9,962,409
	Nordea AB, FDR	Sweden	2,135,083		9,567,129
	San Paolo-IMI SpA	Italy	804,000		5,231,024

					40,483,697

	Biotechnology
^a	CK Life Sciences International (Holdings) Inc.	Hong Kong	67,245		12,072

	Chemicals 3.2%
	Akzo Nobel NV	Netherlands	329,003		10,437,032
	BASF AG	Germany	132,069		4,975,472
	Bayer AG, Br.	Germany	333,400		6,997,366

					22,409,870

	Commercial Services & Supplies .7%
	Chubb PLC	United Kingdom	2,724,071		3,848,239
	Societe BIC SA	France	23,250		801,489

					4,649,728

	Computers & Peripherals .6%
	NEC Corp.	Japan	1,058,000		3,958,473

	Construction Materials .4%
	Cemex SA, ADR	Mexico	143,200		3,080,232

	Diversified Financials 4.1%
	Housing Development Finance Corp. Ltd.	India	41,040		306,837
	ING Groep NV	Netherlands	450,610		7,632,088
	Nomura Holdings Inc.	Japan	525,730		5,909,866
	Rodamco Europe NV	Netherlands	164,000		6,927,056
	Swire Pacific Ltd., B	Hong Kong	12,648,627		8,069,261

					28,845,108

	Diversified Telecommunication Services 7.9%
	BCE Inc.	Canada	572,460		10,327,326
	Cable & Wireless PLC	United Kingdom	2,145,348		1,545,565
	KT Corp., ADR	South Korea	420,880		9,069,964
	Nippon Telegraph & Telephone Corp.	Japan	2,248		8,164,557
	Telecom Corp. of New Zealand Ltd.	New Zealand	2,964,626		7,024,445
	Telefonica SA, ADR	Spain	320,467		8,514,808
	Telefonos de Mexico SA de CV (Telmex), L, ADR	Mexico	333,129		10,653,466

					55,300,131

217

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Templeton Foreign Securities Fund	COUNTRY	SHARES	VALUE

Common Stocks (cont.)
Electric Utilities 5.4%
CLP Holdings Ltd.	Hong Kong	1,848,189	$	7,441,720
E.On AG	Germany	142,653		5,748,455
Endesa SA	Spain	547,398		6,404,969
Hong Kong Electric Holdings Ltd.	Hong Kong	1,800,000		6,809,133
Iberdrola SA, Br.	Spain	528,222		7,400,086
Korea Electric Power Corp.	South Korea	250,000		3,846,802

				37,651,165

Electrical Equipment .4%
Kidde PLC	United Kingdom	2,724,071		3,102,711

Electronic Equipment & Instruments .8%
Hitachi Ltd.	Japan	1,494,867		5,731,562

Energy Equipment & Services .9%
IHC Caland NV	Netherlands	115,874		6,116,359

Food & Drug Retailing 1.5%
J.Sainsbury PLC	United Kingdom	2,300,000		10,321,415

Food Products 2.6%
Nestle SA	Switzerland	39,390		8,346,908
Unilever PLC	United Kingdom	1,056,934		10,056,153

				18,403,061

Health Care Equipment & Supplies 1.2%
Amersham PLC	United Kingdom	918,222		8,151,370

Health Care Providers & Services .9%
Mayne Group Ltd.	Australia	3,390,208		6,223,438

Hotels Restaurants & Leisure .8%
P & O Princess Cruises PLC	United Kingdom	789,853		5,480,499

Household Durables 1.9%
Koninklijke Philips Electronics NV	Netherlands	576,739		10,107,292
Sony Corp.	Japan	75,634		3,161,242

				13,268,534

Industrial Conglomerates 2.6%
Hutchison Whampoa Ltd.	Hong Kong	1,369,000		8,566,838
Smiths Group PLC	United Kingdom	837,500		9,377,314

				17,944,152

Insurance 7.6%
Ace Ltd.	Bermuda	269,803		7,916,020
AXA SA	France	479,792		6,439,654
AXA SA, 144A	France	40,480		543,313
Sampo OYJ, A	Finland	1,292,550		9,833,868
Sompo Japan Insurance Inc.	Japan	1,700,000		9,927,530
Swiss Reinsurance Co.	Switzerland	164,318		10,778,652
XL Capital Ltd., A	Bermuda	99,328		7,673,088

				53,112,125

IT Consulting & Services
Satyam Computers Services Ltd.	India	18,000		104,321

Machinery 2.7%
Invensys PLC	United Kingdom	4,349,526		3,693,694
Komatsu Ltd.	Japan	2,196,343		7,162,592
Volvo AB, B	Sweden	491,704		8,013,263

				18,869,549

218

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Foreign Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks (cont.)
	Media 2.9%
	APN News & Media Ltd.	Australia	103,453	$	177,676
	United Business Media PLC	United Kingdom	1,173,940		5,480,755
	Wolters Kluwer NV	Netherlands	380,280		6,624,462
	WPP Group PLC	United Kingdom	1,020,000		7,791,712

					20,074,605

	Metals & Mining 2.6%
	Barrick Gold Corp.	Canada	428,374		6,602,676
	BHP Billiton Ltd.	Australia	1,338,050		7,647,593
	Pechiney SA, A	France	101,700		3,568,833

					17,819,102

	Multi-Utilities .9%
	Suez SA	France	354,000		6,144,376

	Multiline Retail 1.0%
	Marks & Spencer Group PLC	United Kingdom	1,435,117		7,277,704

	Oil & Gas 6.5%
	Eni SpA	Italy	955,840		15,196,264
	Repsol YPF SA	Spain	730,405		9,657,691
	Shell Transport & Trading Co. PLC	United Kingdom	1,679,653		11,059,599
	Total Fina Elf SA, B	France	66,077		9,437,293

					45,350,847

	Paper & Forest Products 1.8%
	Stora Enso OYJ, R (SEK Traded)	Finland	584,330		6,069,097
	UPM-Kymmene Corp.	Finland	204,542		6,568,148

					12,637,245

	Pharmaceuticals 4.8%
	Aventis SA	France	157,648		8,569,534
	Merck KGAA	Germany	316,710		8,345,406
	Ono Pharmaceutical Co. Ltd.	Japan	351,000		10,618,438
^a	Shire Pharmaceuticals Group PLC	United Kingdom	928,000		5,938,567

					33,471,945

	Real Estate 1.6%
	Cheung Kong Holdings Ltd.	Hong Kong	1,681,137		10,940,481

	Road & Rail 1.5%
	East Japan Railway Co.	Japan	1,100		5,459,678
	Stagecoach Group PLC	United Kingdom	9,845,827		4,675,960

					10,135,638

	Semiconductor Equipment & Products 2.6%
	ASM Pacific Technology Ltd.	Hong Kong	252,500		485,680
	Samsung Electronics Co. Ltd.	South Korea	54,850		14,521,226
	Taiwan Semiconductor Manufacturing Co.	Taiwan	2,310,000		2,830,198

					17,837,104

	Software 1.0%
^a	Check Point Software Technologies Ltd.	Israel	268,550		3,483,094
	SAP AG, ADR	Germany	161,600		3,151,200

					6,634,294

	Wireless Telecommunication Services .2%
^a	China Mobile (Hong Kong) Ltd.	China	611,000		1,453,391

	Total Common Stocks (Cost $695,504,171)				594,500,206

219

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Foreign Securities Fund	COUNTRY	SHARES	VALUE

	Preferred Stocks 1.7%
	Cia Vale do Rio Doce, ADR, pfd., A	Brazil	132,792	$	3,651,780
	Petroleo Brasileiro SA, pfd.	Brazil	300,000		3,932,203
	Volkswagen AG, pfd.	Germany	160,254		4,153,793

	Total Preferred Stocks (Cost $13,751,151)				11,737,776

	Total Long Term Investments (Cost $709,255,322)				606,237,982

	Short Term Investments (Cost $82,942,069) 11.9%
^b	Franklin Institutional Fiduciary Trust Money Market Portfolio	United States	82,942,069		82,942,069

	Total Investments (Cost $792,197,391) 98.9%				689,180,051
	Other Assets, less Liabilities 1.1%				7,999,401

	Net Assets 100.0%			$	697,179,452

Currency

Abbreviations:

SEK

- Swedish Krona

^a	Non-income producing

^b	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

See notes to financial statements.

220

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Templeton Global Asset Allocation Fund	COUNTRY	SHARES	VALUE

	Common Stocks 64.1%
	Aerospace & Defense 1.1%
	BAE Systems PLC	United Kingdom	153,055	$	305,538
	Rolls-Royce PLC	United Kingdom	2,733,657		4,708,953

					5,014,491

	Air Freight & Couriers .9%
	Deutsche Post AG	Germany	382,790		4,020,996

	Airlines .9%
^a	British Airways PLC	United Kingdom	1,925,900		4,185,661

	Auto Components 2.6%
	Autoliv Inc.	Sweden	246,900		5,167,617
	Autoliv Inc., SDR	Sweden	129,000		2,642,684
	Valeo SA	France	140,790		4,417,555

					12,227,856

	Automobiles .7%
	Ford Motor Co.	United States	154,148		1,433,576
	General Motors Corp.	United States	42,700		1,573,922

					3,007,498

	Banks 2.8%
^a	Banca Nazionale del Lavoro SpA	Italy	225,160		249,277
	DBS Group Holdings Ltd.	Singapore	476,000		3,018,737
	DNB Holding ASA	Norway	1,006,850		4,737,947
	Nordea AB, FDR	Sweden	1,158,460		5,190,963

					13,196,924

	Biotechnology
^a	CK Life Sciences International (Holdings) Inc.	Hong Kong	26,100		4,686

	Chemicals 2.1%
	Akzo Nobel NV	Netherlands	63,665		2,019,658
	BASF AG	Germany	198,840		7,490,955

					9,510,613

	Commercial Services & Supplies 1.4%
^a	Ceridian Corp.	United States	305,700		4,408,194
	Chubb PLC	United Kingdom	1,581,900		2,234,718

					6,642,912

	Communications Equipment .1%
	Alcatel SA	France	101,525		445,336

	Computers & Peripherals 1.7%
	Hewlett-Packard Co.	United States	393,649		6,833,747
	NEC Corp.	Japan	319,000		1,193,528

					8,027,275

	Diversified Financials 3.1%
	ING Groep NV	Netherlands	312,632		5,295,122
	Nomura Holdings Inc.	Japan	244,600		2,749,611
	Swire Pacific Ltd., A	Hong Kong	1,557,000		5,949,797
	Swire Pacific Ltd., B	Hong Kong	945,000		602,868

					14,597,398

	Diversified Telecommunication Services 8.8%
	AT&T Corp.	United States	38,724		1,011,084
	Cable & Wireless PLC	United Kingdom	975,500		702,776
	KT Corp., ADR	South Korea	331,260		7,138,653
	Nippon Telegraph & Telephone Corp.	Japan	1,152		4,183,972
	Nippon Telegraph & Telephone Corp., ADR	Japan	5,680		100,309

221

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Global Asset Allocation Fund	COUNTRY	SHARES	VALUE

	Common Stocks (cont.)
	Diversified Telecommunication Services (cont.)
	PT Indosat (Persero) TBK, ADR	Indonesia	370,800	$	3,986,100
	SBC Communications Inc.	United States	181,510		4,920,736
	Telecom Corp. of New Zealand Ltd.	New Zealand	2,562,970		6,072,753
	Telefonica SA, ADR	Spain	225,259		5,985,132
	Telefonos de Mexico SA de CV (Telmex), L, ADR	Mexico	212,758		6,804,001

					40,905,516

	Electric Utilities 1.9%
	E.On AG	Germany	131,690		5,306,682
	Endesa SA	Spain	122,000		1,427,492
	Endesa SA, ADR	Spain	88,000		994,400
	Iberdrola SA, Br.	Spain	85,000		1,190,801

					8,919,375

	Electrical Equipment .8%
^a	Alstom SA	France	375,880		1,873,621
	Kidde PLC	United Kingdom	1,581,900		1,801,781

					3,675,402

	Food & Drug Retailing 1.1%
	J.Sainsbury PLC	United Kingdom	1,166,200		5,233,406

	Food Products 4.4%
	Kraft Foods Inc., A	United States	133,290		5,188,980
	Nestle SA	Switzerland	29,910		6,338,056
	Unilever PLC	United Kingdom	930,650		8,854,629

					20,381,665

	Health Care Providers & Services .5%
^a	Wellpoint Health Networks Inc.	United States	35,030		2,492,735

	Household Durables .4%
	Koninklijke Philips Electronics NV	Netherlands	115,767		2,028,805

	Insurance 4.4%
	Ace Ltd.	Bermuda	25,200		739,368
	AXA SA	France	316,124		4,242,941
	Riunione Adriatica di Sicurta SpA	Italy	455,420		5,543,820
	Torchmark Corp.	United States	90,000		3,287,700
	XL Capital Ltd., A	Bermuda	85,510		6,605,647

					20,419,476

	Leisure Equipment & Products 1.6%
	Mattel Inc.	United States	377,100		7,221,465

	Machinery 4.2%
	Atlas Copco AB, A	Sweden	431,300		8,414,837
	Invensys PLC	United Kingdom	3,015,770		2,561,045
	Kurita Water Industries Ltd.	Japan	432,000		4,350,215
	Volvo AB, B	Sweden	260,000		4,237,200

					19,563,297

	Media 1.3%
^a	Comcast Corp.	United States	62,636		1,476,331
	Wolters Kluwer NV	Netherlands	262,741		4,576,937

					6,053,268

	Metals & Mining 2.4%
	AngloGold Ltd., ADR	South Africa	85,380		2,925,119
	Barrick Gold Corp.	Canada	127,490		1,965,047
	Consol Energy Inc.	United States	250,000		4,320,000
^a	Corus Group PLC	United Kingdom	3,943,000		1,729,776

					10,939,942

222

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Global Asset Allocation Fund	COUNTRY	SHARES		VALUE

	Common Stocks (cont.)
	Multiline Retail 1.2%
	Marks & Spencer Group PLC	United Kingdom	1,083,960		$	5,496,932

	Oil & Gas 4.1%
	Eni SpA	Italy	374,725			5,957,504
	Husky Energy Inc.	Canada	549,350			5,727,177
	Repsol YPF SA	Spain	24,000			317,338
	Shell Transport & Trading Co. PLC	United Kingdom	1,070,600			7,049,317

						19,051,336

	Paper & Forest Products .9%
	Stora Enso OYJ, R (EUR/FIM Traded)	Finland	416,260			4,390,053

	Pharmaceuticals 3.6%
	Aventis SA	France	80,930			4,399,246
	Bristol-Myers Squibb Co.	United States	217,420			5,033,273
	Ono Pharmaceutical Co. Ltd.	Japan	247,000			7,472,234

						16,904,753

	Real Estate .9%
	Cheung Kong Holdings Ltd.	Hong Kong	652,500			4,246,331

	Road & Rail 1.0%
	Nippon Express Co. Ltd.	Japan	1,175,000			4,604,154

	Semiconductor Equipment & Products .8%
	Samsung Electronics Co. Ltd.	South Korea	13,890			3,677,299

	Software 2.4%
^a	Check Point Software Technologies Ltd.	Israel	336,000			4,357,920
^a	Synopsys Inc.	United States	148,800			6,867,120

						11,225,040

	Total Common Stocks (Cost $378,152,157)					298,311,896

	Preferred Stocks (Cost $6,398,094) .8%
	Oil & Gas
	Petroleo Brasileiro SA, pfd.	Brazil	274,580			3,599,015


			PRINCIPAL AMOUNT^d
	Bonds 34.0%
	Buoni Poliennali Del Tesoro,
	7.75%, 11/01/06	Italy	3,974,190	EUR		4,796,070
	5.50%, 11/01/10	Italy	2,300,000	EUR		2,642,631
	5.00%, 2/01/12	Italy	1,810,000	EUR		2,004,062
	Federal Republic of Germany,
	3.75%, 8/26/03	Germany	1,614,000	EUR		1,704,902
	3.25%, 2/17/04	Germany	4,937,000	EUR		5,219,202
	4.00%, 6/25/04	Germany	500,000	EUR		534,509
	5.00%, 8/19/05	Germany	3,268,000	EUR		3,625,723
	6.00%, 7/04/07	Germany	5,242,000	EUR		6,088,923
	5.00%, 7/04/11	Germany	3,015,000	EUR		3,365,202
	Federation of Russia, Reg S, 5.00% to 3/31/07, 7.50% thereafter, 3/31/30	Russia	10,400,000			8,242,000
	French Treasury Note, 4.75% 7/12/07	France	5,400,000	EUR		5,980,670
	Government of Canada,
	6.00%, 6/01/08	Canada	2,212,000	CAD		1,524,667
	6.00%, 6/01/11	Canada	6,849,000	CAD		4,719,710
	Government of France,
	6.75%, 10/25/03	France	2,126,000	EUR		2,301,202
	3.50%, 7/12/04	France	5,460,000	EUR		5,794,104
	4.00%, 10/25/09	France	6,420,000	EUR		6,762,818
	Government of Hong Kong, 5.92%, 12/05/11	Hong Kong	1,300,000	HKD		189,232

223

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Global Asset Allocation Fund	COUNTRY	PRINCIPAL AMOUNT^d		VALUE

	Bonds (cont.)
	Government of Netherlands,
	5.75%, 2/15/07	Netherlands	3,958,000	EUR	$	4,537,289
	5.00%, 7/15/12	Netherlands	1,760,000	EUR		1,957,936
	Government of New Zealand, 7.00%, 7/15/09	New Zealand	20,308,000	NZD		11,174,467
	Government of Spain,
	4.50%, 7/30/04	Spain	1,850,000	EUR		1,993,767
	10.15%, 1/31/06	Spain	2,450,000	EUR		3,097,048
	4.80%, 10/31/06	Spain	7,480,000	EUR		8,293,127
	5.00%, 7/30/12	Spain	2,920,000	EUR		3,237,669
	Kingdom of Belgium,
	7.50%, 7/29/08	Belgium	4,193,000	EUR		5,236,575
	5.00%, 9/28/12	Belgium	1,760,000	EUR		1,947,039
	Kingdom of Denmark,
	5.00%, 8/15/05	Denmark	11,696,000	DKK		1,724,571
	6.00%, 11/15/11	Denmark	14,660,000	DKK		2,322,433
	5.00%, 11/15/13	Denmark	25,080,000	DKK		3,710,438
	Kingdom of Norway, 5.75%, 11/30/04	Norway	5,030,000	NOK		724,396
	Kingdom of Sweden,
	6.00%, 2/09/05	Sweden	35,430,000	SEK		4,246,229
	5.50%, 10/08/12	Sweden	86,010,000	SEK		10,485,258
	New South Wales Treasury Corp.,
	6.50%, 5/01/06	Australia	9,688,000	AUD		5,737,364
	8.00%, 3/01/08	Australia	2,430,000	AUD		1,550,116
^b	Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02	Mexico	62,039			4,963
	Republic of Bulgaria, 144A, 8.25%, 1/15/15	Bulgaria	2,748,000			3,010,434
	Republic of Panama, 8.875%, 9/30/27	Panama	960,000			955,200
	Republic of Peru, FRN, 4.50%, 3/07/17	Peru	1,078,000			846,263
	Republic of Philippines,
	9.875%, 1/15/19	Philippines	1,400,000			1,389,500
	10.625%, 3/16/25	Philippines	1,070,000			1,107,450
	Republic of Venezuela,
	144A, 9.125%, 6/18/07	Venezuela	1,640,000			1,279,200
	Reg S, 9.125%, 6/18/07	Venezuela	600,000			468,000
	United Kingdom, 7.50%, 12/07/06	United Kingdom	2,717,000	GBP		4,913,616
	United Mexican States,
	9.875%, 2/01/10	Mexico	724,000			885,090
	11.375%, 9/15/16	Mexico	1,330,000			1,783,862
	11.50%, 5/15/26	Mexico	2,895,000			3,955,294

	Total Bonds (Cost $140,228,369)					158,070,221

	Total Long Term Investments (Cost $524,778,620)					459,981,132

224

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Global Asset Allocation Fund	COUNTRY	SHARES	VALUE

	Short Term Investments (Cost $1,600,437) .3%
^c	Franklin Institutional Fiduciary Trust Money Market Portfolio	United States	1,600,437	$	1,600,437

	Total Investments (Cost $526,379,057) 99.2%				461,581,569
	Other Assets, less Liabilities .8%				3,815,201

	Net Assets 100.0%			$	465,396,770

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

DKK - Danish Krone

EUR - European Unit

FIM - Finnish Markka

GBP - British Pound

HKD - Hong Kong Dollar

NOK - Norwegian Krona

NZD - New Zealand Dollar

SEK - Swedish Krone

^a	Non-income producing

^b	See Note 8 regarding defaulted securities.

^c	See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.

^d	The principal amount is stated in U.S. dollars unless otherwise indicated.

See notes to financial statements.

225

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

Templeton Global Income Securities Fund	PRINCIPAL AMOUNT^b		VALUE

Long Term Investments 94.5%
Australia 5.0%
New South Wales Treasury Corp.,
6.50%, 5/01/06	2,337,000	AUD	$	1,384,003
8.00%, 3/01/08	1,990,000	AUD		1,269,437

				2,653,440

Austria 2.1%
Republic of Austria, 5.00%, 1/15/08	1,000,000	EUR		1,119,600

Belgium 4.3%
Kingdom of Belgium,
5.75%, 3/28/08	100,000	EUR		115,664
7.50%, 7/29/08	1,731,000	EUR		2,161,820

				2,277,484

Bulgaria 2.5%
Republic of Bulgaria, FRN, 2.6875%, 7/28/11	1,389,040			1,295,280

Canada 3.3%
Government of Canada, 6.00%, 6/01/11	2,497,000	CAD		1,720,706

Colombia .6%
Republic of Colombia,
10.00%, 1/23/12	132,000			133,980
11.75%, 2/25/20	159,000			170,488

				304,468

Denmark 3.8%
Kingdom of Denmark,
4.00%, 11/15/04	1,900,000	DKK		272,934
5.00%, 8/15/05	9,295,000	DKK		1,370,544
5.00%, 11/15/13	2,350,000	DKK		347,668

				1,991,146

Finland 1.9%
Government of Finland, 5.00%,
7/04/07	700,000	EUR		781,217
4/25/09	200,000	EUR		224,056

				1,005,273

France 5.2%
Government of France,
6.75%, 10/25/03	1,306,000	EUR		1,413,626
4.00%, 10/25/09	1,255,000	EUR		1,322,015

				2,735,641

Germany 13.7%
Federal Republic of Germany,
3.25%, 2/17/04	4,257,000	EUR		4,500,332
5.00%, 8/19/05	1,898,000	EUR		2,105,760
5.00%, 7/04/11	532,000	EUR		593,794

				7,199,886

Hong Kong .2%
Government of Hong Kong, 5.92%, 12/05/11	700,000	HKD		101,894

Italy 5.0%
Buoni Poliennali Del Tesoro,
7.75%, 11/01/06	2,011,293	EUR		2,427,238
5.50%, 11/01/10	164,000	EUR		188,431

				2,615,669

226

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

Templeton Global Income Securities Fund	PRINCIPAL AMOUNT^b			VALUE

Long Term Investments (cont.)
Mexico 4.0%
United Mexican States,
9.875%, 2/01/10	$	1,300,000		$	1,589,250
11.375%, 9/15/16		404,000			541,865

					2,131,115

Netherlands 5.2%
Government of Netherlands, 5.75%, 2/15/07		2,408,000	EUR		2,760,433

New Zealand 6.6%
Government of New Zealand,
7.00%, 7/15/09		5,140,000	NZD		2,828,283
6.00%, 11/15/11		1,300,000	NZD		677,922

					3,506,205

Norway 3.0%
Kingdom of Norway,
6.75%, 1/15/07		7,300,000	NOK		1,081,657
5.50%, 5/15/09		3,600,000	NOK		511,855

					1,593,512

Philippines 3.5%
Republic of Philippines, 10.625%, 3/16/25		1,800,000			1,863,000

Russia 4.7%
Federation of Russia,
11.00%, 7/24/18		1,930,000			2,316,646
12.75%, 6/24/28		105,000			139,771
Reg S, 5.00% to 3/31/07, 7.50% thereafter, 3/31/30		34,000			26,945

					2,483,362

Spain 5.0%
Bonos Y Oblig Del Estado, 6.00%, 1/31/08		400,000	EUR		466,391
Government of Spain,
10.15%, 1/31/06		1,168,000	EUR		1,476,470
5.00%, 7/30/12		650,000	EUR		720,714

					2,663,575

Sweden 7.0%
Kingdom of Sweden,
6.00%, 2/09/05		5,500,000	SEK		659,166
5.50%, 10/08/12		24,780,000	SEK		3,020,866

					3,680,032

Ukraine 1.0%
Republic of Ukraine, 11.00%, 3/15/07		495,600			513,806

United Kingdom 3.6%
United Kingdom,
6.50%, 12/07/03		270,000	GBP		445,798
7.50%, 12/07/06		800,000	GBP		1,446,777

					1,892,575

Venezuela 3.3%
Republic of Venezuela, 144A, 9.125%, 6/18/07		2,240,000			1,747,200

Total Long Term Investments (Cost $45,296,562)					49,855,302

227

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Global Income Securities Fund	PRINCIPAL AMOUNT^b		VALUE

	Repurchase Agreement (Cost $1,408,000) 2.7%
^a	Dresdner Kleinwort Wasserstein Securities LLC, 1.00%, 1/02/03 (Maturity Value $ 1,408,078)
	Collateralized by U.S. Treasury Bills	$	1,408,000	$	1,408,000

	Total Investments (Cost $46,704,562) 97.2%				51,263,302
	Other Assets, less Liabilities 2.8%				1,477,613

	Net Assets 100.0%			$	52,740,915

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

DKK - Danish Krone

EUR - European Unit

GBP - British Pound

HKD - Hong Kong Dollar

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

^a See Note 1(c) regarding repurchase agreements.

^b The principal amount is stated in U.S. dollars unless otherwise indicated.

See notes to financial statements.

228

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002

	Templeton Growth Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks 93.1%
	Aerospace & Defense 2.5%
	BAE Systems PLC	United Kingdom	3,247,043	$	6,481,958
	BAE Systems PLC, 144A	United Kingdom	35,823		71,512
	Boeing Co.	United States	225,000		7,422,750
	Rolls-Royce PLC	United Kingdom	4,427,334		7,626,453

					21,602,673

	Airlines .9%
	Singapore Airlines Ltd.	Singapore	1,303,100		7,663,084

	Automobiles .7%
	Volkswagen AG	Germany	165,400		5,988,163

	Banks 8.4%
	Abbey National PLC	United Kingdom	1,028,959		8,580,732
	DBS Group Holdings Ltd.	Singapore	725,000		4,597,867
	Foreningssparbanken AB, A	Sweden	350,000		4,137,353
	HSBC Holdings PLC	Hong Kong	800,401		8,749,823
	Kookmin Bank	South Korea	198,000		7,011,509
	Lloyds TSB Group PLC	United Kingdom	1,406,237		10,096,943
	San Paolo-IMI SpA	Italy	1,022,000		6,649,387
	Standard Chartered PLC	United Kingdom	774,545		8,803,348
^a	UBS AG	Switzerland	270,250		13,134,303

					71,761,265

	Chemicals 3.8%
	Akzo Nobel NV	Netherlands	355,200		11,268,085
	BASF AG	Germany	223,200		8,408,676
	Bayer AG, Br.	Germany	418,290		8,779,029
	Lyondell Chemical Co.	United States	333,830		4,219,611

					32,675,401

	Commercial Services & Supplies 1.1%
	Waste Management Inc.	United States	415,640		9,526,469

	Computers & Peripherals 2.1%
^a	EMC Corp.	United States	1,283,940		7,883,392
	Hewlett-Packard Co.	United States	557,390		9,676,290

					17,559,682

	Diversified Financials 3.2%
	Merrill Lynch & Co. Inc.	United States	250,000		9,487,500
	Morgan Stanley	United States	100,000		3,992,000
	Nomura Holdings Inc.	Japan	726,000		8,161,153
	Swire Pacific Ltd., A	Hong Kong	1,589,800		6,075,136

					27,715,789

	Diversified Telecommunication Services 7.8%
	Cable & Wireless PLC	United Kingdom	3,079,546		2,218,586
	KT Corp., ADR	South Korea	651,550		14,040,902
	Nippon Telegraph & Telephone Corp.	Japan	3,501		12,715,354
^a	Philippine Long Distance Telephone Co.	Philippines	36,500		184,602
	SBC Communications Inc.	United States	441,280		11,963,101
	Telecom Corp. of New Zealand Ltd.	New Zealand	2,415,827		5,724,110
^a	Telefonica SA	Spain	1,067,040		9,551,437
	Telefonos de Mexico SA de CV (Telmex), L, ADR	Mexico	315,225		10,080,896

					66,478,988

229

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Growth Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks (cont.)
	Electric Utilities 5.0%
	E.On AG	Germany	278,000	$	11,202,502
	Endesa SA	Spain	800,000		9,360,604
	Hong Kong Electric Holdings Ltd.	Hong Kong	1,033,498		3,909,569
	Iberdrola SA, Br.	Spain	831,200		11,644,633
	Korea Electric Power Corp.	South Korea	458,200		7,050,419

					43,167,727

	Electrical Equipment .4%
^a	Alstom SA	France	760,228		3,789,453

	Electronic Equipment & Instruments 2.0%
^a	Celestica Inc.	Canada	470,940		6,640,254
	Hitachi Ltd.	Japan	1,000,500		3,836,079
^a	Jabil Circuit Inc.	United States	370,300		6,635,776

					17,112,109

	Food & Drug Retailing 3.6%
	Albertson’s Inc.	United States	537,800		11,971,428
	J.Sainsbury PLC	United Kingdom	1,854,319		8,321,389
^a	Kroger Co.	United States	654,190		10,107,236

					30,400,053

	Food Products 4.2%
^a	Del Monte Foods Co.	United States	102,905		792,369
	General Mills Inc.	United States	305,670		14,351,207
	H.J. Heinz Co.	United States	230,419		7,573,873
	Nestle SA	Switzerland	34,650		7,342,482
	Unilever PLC	United Kingdom	622,400		5,921,798

					35,981,729

	Gas Utilities .9%
	TransCanada PipeLines Ltd.	Canada	521,413		7,564,746

	Health Care Providers & Services .5%
	CIGNA Corp.	United States	94,950		3,904,344

	Hotels Restaurants & Leisure .6%
	Carnival Corp.	United States	204,140		5,093,293

	Household Durables 1.5%
	Koninklijke Philips Electronics NV	Netherlands	562,480		9,857,404
	Newell Rubbermaid Inc.	United States	88,000		2,669,040

					12,526,444

	Industrial Conglomerates 2.4%
	Hutchison Whampoa Ltd.	Hong Kong	1,068,000		6,683,260
	Smiths Group PLC	United Kingdom	850,100		9,518,394
	Tyco International Ltd.	United States	262,920		4,490,673

					20,692,327

	Insurance 6.0%
	Ace Ltd.	Bermuda	302,000		8,860,680
	Allstate Corp.	United States	101,990		3,772,610
	American International Group Inc.	United States	20,600		1,191,710
	AXA SA	France	526,640		7,068,437
	Muenchener Rueckversicherungs-Gesellschaft	Germany	34,000		4,063,887
	Sampo OYJ, A	Finland	354,000		2,693,273
	Swiss Reinsurance Co.	Switzerland	135,000		8,855,500
	Torchmark Corp.	United States	135,740		4,958,582
	XL Capital Ltd., A	Bermuda	127,100		9,818,475

					51,283,154

230

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Growth Securities Fund	COUNTRY	SHARES	VALUE

	Common Stocks (cont.)
	Internet Software & Services .5%
^a	VeriSign Inc.	United States	541,300	$	4,341,226

	IT Consulting & Services 1.7%
	Electronic Data Systems Corp.	United States	450,000		8,293,500
	Satyam Computers Services Ltd.	India	1,078,580		6,251,040

					14,544,540

	Machinery 2.3%
	Invensys PLC	United Kingdom	3,000,000		2,547,653
	Komatsu Ltd.	Japan	2,400,000		7,826,746
	Volvo AB, B	Sweden	595,620		9,706,775

					20,081,174

	Media 1.7%
^a	AOL Time Warner Inc.	United States	380,000		4,978,000
	APN News & Media Ltd.	Australia	2,486,697		4,270,799
	United Business Media PLC	United Kingdom	1,074,184		5,015,026

					14,263,825

	Metals & Mining 4.1%
^a	AK Steel Holding Corp.	United States	795,400		6,363,200
	Barrick Gold Corp.	Canada	348,800		5,375,008
	BHP Billiton PLC	Australia	2,590,463		13,835,181
	POSCO	South Korea	98,092		9,759,164

					35,332,553

	Multiline Retail 1.2%
	Marks & Spencer Group PLC	United Kingdom	1,099,900		5,577,766
	Sears, Roebuck & Co.	United States	208,370		4,990,461

					10,568,227

	Oil & Gas 7.5%
	Burlington Resources Inc.	United States	193,400		8,248,510
	Eni SpA	Italy	1,081,305		17,190,949
	Occidental Petroleum Corp.	United States	178,380		5,074,911
	PetroChina Co. Ltd., H	China	29,950,000		5,952,861
	Repsol YPF SA	Spain	833,660		11,022,967
	Shell Transport & Trading Co. PLC	United Kingdom	2,540,483		16,727,696

					64,217,894

	Paper & Forest Products 3.1%
	Bowater Inc.	United States	191,800		8,046,010
	International Paper Co.	United States	240,000		8,392,800
	UPM-Kymmene Corp.	Finland	312,200		10,025,206

					26,464,016

	Pharmaceuticals 6.8%
	Abbott Laboratories	United States	230,310		9,212,400
	Aventis SA	France	145,000		7,882,006
	Bristol-Myers Squibb Co.	United States	510,430		11,816,455
	Mylan Laboratories Inc.	United States	264,440		9,228,956
	Pharmacia Corp.	United States	300,000		12,540,000
^a	Shire Pharmaceuticals Group PLC	United Kingdom	1,111,940		7,115,657

					57,795,474

	Real Estate 1.5%
	Cheung Kong Holdings Ltd.	Hong Kong	2,011,499		13,090,407

	Road & Rail .8%
	East Japan Railway Co.	Japan	1,316		6,531,760

231

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Statement of Investments, December 31, 2002 (cont.)

	Templeton Growth Securities Fund	COUNTRY	SHARES		VALUE

	Common Stocks (cont.)
	Semiconductor Equipment & Products 1.8%
^a	Agere Systems Inc., A	United States		1,229,680	$	1,770,739
	Samsung Electronics Co. Ltd.	South Korea		50,320		13,321,934

						15,092,673

	Software .3%
^a	Check Point Software Technologies Ltd.	Israel		227,000		2,944,190

	Specialty Retail .4%
^a	Toys R Us Inc.	United States		375,000		3,750,000

	Wireless Telecommunication Services 1.8%
^a	AT&T Wireless Services Inc.	United States		1,522,000		8,599,300
^a	China Mobile (Hong Kong) Ltd.	China		2,227,500		5,298,573
	SK Telecom Co. Ltd., ADR	South Korea		54,400		1,161,440

						15,059,313

	Total Common Stocks (Cost $951,420,511)					796,564,165

	Preferred Stocks 1.5%
	Cia Vale do Rio Doce, ADR, pfd., A	Brazil		245,000		6,737,500
	Petroleo Brasileiro SA, ADR, pfd.	Brazil		350,000		4,690,000
	Volkswagen AG, Pfd.	Germany		60,000		1,555,203

	Total Preferred Stocks (Cost $17,677,726)					12,982,703

	Total Long Term Investments (Cost $969,098,237)					809,546,868

			PRINCIPAL AMOUNT
	Repurchase Agreements 4.5%
^b	BZW Securities Inc. 1.05%,1/02/03 (Maturity Value $30,001,750)
	Collateralized by U.S. Treasury Bills, Notes and Bonds, and U.S. Government Agency Securities	United States	$	30,000,000		30,000,000
^b	Dresdner Bank AG., 1.00%, 1/02/03 (Maturity Value $8,441,469)
	Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities	United States		8,441,000		8,441,000

	Total Repurchase Agreements (Cost $38,441,000)					38,441,000

	Total Investments (Cost $1,007,539,237) 99.1%					847,987,868
	Other Assets, less Liabilities .9%					7,604,057

	Net Assets 100.0%				$	855,591,925

^a Non-income producing

^b See Note 1(c) regarding repurchase agreements.

See notes to financial statements.

232

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements

Statements of Assets and Liabilities

December 31, 2002

	Franklin Aggressive Growth Securities Fund			Franklin Global Communications Securities Fund			Franklin Growth and Income Securities Fund			Franklin High Income Fund			Franklin Income Securities Fund
Assets:
Investments in securities:
Cost	$	5,738,505		$	140,869,733		$	476,268,104		$	169,634,397		$	551,128,549

Value		5,023,077			115,823,577			480,897,122			108,842,364			471,127,055
Repurchase agreements, at value and cost		—			16,230,419			12,393,783			8,260,282			26,715,152
Receivables:
Investment securities sold		—			302,972			—			—			—
Capital shares sold		4,213			6,865			72,103			25,696			491,204
Dividends and interest		523			116,734			1,225,962			2,079,529			5,967,147

Total assets		5,027,813			132,480,567			494,588,970			119,207,871			504,300,558

Liabilities:
Payables:
Investment securities purchased		207,456			523,587			—			—			6,633,745
Capital shares redeemed		113			123,853			274,787			56,809			242,659
Affiliates		2,802			69,039			227,411			62,801			230,536
Professional fees		14,304			14,697			20,216			14,823			20,285
Other liabilities		17			4,134			6,793			1,700			7,160

Total liabilities		224,692			735,310			529,207			136,133			7,134,385

Net assets, at value	$	4,803,121		$	131,745,257		$	494,059,763		$	119,071,738		$	497,166,173

Net assets consist of:
Undistributed net investment income	$	—		$	1,267,035		$	16,876,313		$	10,080,163		$	31,394,413
Net unrealized appreciation (depreciation)		(715,428	)		(25,046,156	)		4,629,018			(60,792,033	)		(79,981,934	)
Accumulated net realized loss		(9,370,134	)		(266,464,849	)		(23,871,383	)		(101,437,128	)		(17,280,660	)
Capital shares		14,888,683			421,989,227			496,425,815			271,220,736			563,034,354

Net assets, at value	$	4,803,121		$	131,745,257		$	494,059,763		$	119,071,738		$	497,166,173

Class 1:
Net assets, at value	$	4,801,462		$	130,255,117		$	455,680,290		$	111,745,683		$	427,036,292

Shares outstanding		1,272,752			28,722,798			38,535,671			19,716,565			37,201,269

Net asset value and offering price per share		$3.77			$4.53			$11.82			$5.67			$11.48

Class 2:
Net assets, at value	$	1,659		$	1,490,140		$	38,379,473		$	7,326,055		$	70,129,881

Shares outstanding		442			330,413			3,268,114			1,303,162			6,162,292

Net asset value and offering price per share		$3.75			$4.51			$11.74			$5.62			$11.38

See notes to financial statements.

233

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Assets and Liabilities (cont.)

December 31, 2002

	Franklin Large Cap Growth Securities Fund			Franklin Money Market Fund		Franklin Real Estate Fund			Franklin Rising Dividends Securities Fund		Franklin S&P 500 Index Fund

Assets:
Investments in securities:
Cost	$	203,930,022		$	104,809,817	$	310,875,250		$	265,079,055	$	29,057,793

Value		194,307,464			104,809,817		332,142,358			356,284,470		26,015,667
Repurchase agreements, at value and cost		13,989,281			15,565,000		27,592,915			—		—
Cash		—			3,026		15,773			—		—
Receivables:
Investment securities sold		262,427			—		—			—		186,085
Capital shares sold		168,415			—		517,958			261,266		—
Dividends and interest		316,446			92,287		2,279,136			624,932		39,021
Affiliates		—			—		—			—		2,402
Variation margin (Note 1d)		—			—		—			—		2,800

Total assets		209,044,033			120,470,130		362,548,140			357,170,668		26,245,975

Liabilities:
Payables:
Investment securities purchased		2,609,794			—		—			—		—
Capital shares redeemed		65,098			96,422		149,491			138,592		33,762
Affiliates		146,138			64,232		256,157			250,744		—
Professional fees		14,545			9,610		32,100			19,575		14,350
Other liabilities		2,779			2,103		2,953			2,160		89

Total liabilities		2,838,354			172,367		440,701			411,071		48,201

Net assets, at value	$	206,205,679		$	120,297,763	$	362,107,439		$	356,759,597	$	26,197,774

Net assets consist of:
Undistributed net investment income		$1,757,894		$	—	$	13,858,989		$	4,002,858	$	533,367
Net unrealized appreciation (depreciation)		(9,622,558	)		—		21,267,108			91,205,415		(3,076,665	)
Accumulated net realized gain (loss)		(52,741,468	)		—		(3,682,212	)		11,960,507		(21,826,464	)
Capital shares		266,811,811			120,297,763		330,663,554			249,590,817		50,567,536

Net assets, at value	$	206,205,679		$	120,297,763	$	362,107,439		$	356,759,597	$	26,197,774

Class 1:
Net assets, at value	$	175,916,627		$	119,818,958	$	112,991,026		$	292,880,731	$	20,232,336

Shares outstanding		15,854,801			119,818,958		6,259,301			21,580,705		3,140,749

Net asset value and offering price per share		$11.10			$1.00		$18.05			$13.57		$6.44

Class 2:
Net assets, at value	$	30,289,052		$	478,805	$	249,116,413		$	63,878,866	$	5,965,438

Shares outstanding		2,753,010			478,805		13,936,473			4,751,798		930,892

Net asset value and offering price per share		$11.00			$1.00		$17.88			$13.44		$6.41

See notes to financial statements.

234

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Assets and Liabilities (cont.)

December 31, 2002

	Franklin Small Cap Fund			Franklin Small Cap Value Securities Fund			Franklin Technology Securities Fund			Franklin U.S. Government Fund			Franklin Zero Coupon Fund - 2005

Assets:
Investments in securities:
Cost	$	660,320,939		$	167,896,159		$	13,468,538		$	476,253,682		$	61,770,424

Value		580,147,263			157,805,788			12,830,702			502,450,364			70,141,359
Repurchase agreements, at value and cost		—			—			—			22,069,880			874,048
Cash		—			—			119,233			—			—
Receivables:
Investment securities sold		170,562			—			7,006			16,117			—
Capital shares sold		1,282,924			610,533			—			941,776			86,206
Dividends and interest		152,592			100,092			144			3,223,454			—

Total assets		581,753,341			158,516,413			12,957,085			528,701,591			71,101,613

Liabilities:
Payables:
Investment securities purchased		477,459			4,283,532			529,949			8,391,250			—
Capital shares redeemed		396,601			54,268			—			487,397			300
Affiliates		548,421			141,076			11,878			265,653			37,032
Professional fees		23,653			14,374			17,936			14,665			12,221
Other liabilities		5,531			1,186			137			4,437			711

Total liabilities		1,451,665			4,494,436			559,900			9,163,402			50,264

Net assets, at value	$	580,301,676		$	154,021,977		$	12,397,185		$	519,538,189		$	71,051,349

Net assets consist of:
Undistributed net investment income	$	—		$	509,154		$	—		$	25,975,527		$	3,639,961
Net unrealized appreciation (depreciation)		(80,173,676	)		(10,090,371	)		(637,836	)		26,196,682			8,370,935
Accumulated net realized gain (loss)		(127,128,846	)		(1,390,204	)		(15,043,356	)		(7,099,753	)		255,889
Capital shares		787,604,198			164,993,398			28,078,377			474,465,733			58,784,564

Net assets, at value	$	580,301,676		$	154,021,977		$	12,397,185		$	519,538,189		$	71,051,349

Class 1:
Net assets, at value	$	164,349,756		$	28,720,420		$	1,861,897		$	382,663,120		$	71,051,349

Shares outstanding		12,845,221			2,960,180			619,961			28,120,204			4,323,939

Net asset value and offering price per share		$12.79			$9.70			$3.00			$13.61			$16.43

Class 2:
Net assets, at value	$	415,951,920		$	125,301,557		$	10,535,288		$	136,875,069			—

Shares outstanding		32,742,602			13,037,219			3,529,217			10,144,900			—

Net asset value and offering price per share		$12.70			$9.61			$2.99			$13.49			—

See notes to financial statements.

235

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Assets and Liabilities (cont.)

December 31, 2002

	Franklin Zero Coupon Fund - 2010			Mutual Discovery Securities Fund			Mutual Shares Securities Fund			Templeton Developing Markets Securities Fund			Templeton Foreign Securities Fund

Assets:
Investments in securities:
Cost	$	54,583,370		$	157,618,931		$	893,222,500		$	321,075,261		$	792,197,391

Value		67,182,812			161,418,656			891,018,400			302,515,393			689,180,051
Repurchase agreements, at value and cost		1,109,269			—			—			—			—
Cash		—			45,978			192,378			—			—
Foreign currency, at value (cost $874,476, $4,003,184, and $7,986,127, respectively)		—			880,218			4,213,296			—			7,912,850
Receivables:
Investment securities sold		—			479,523			5,173,621			1,658,227			—
Capital shares sold		251,133			127,957			1,006,066			3,051,041			1,851,126
Dividends and interest		—			435,526			1,552,562			702,585			1,831,274
Unrealized gain on forward exchange contracts (Note 7)		—			77,635			210,024			—			—
Deposits with broker for securities sold short		—			3,396,114			13,168,276			—			—

Total assets		68,543,214			166,861,607			916,534,623			307,927,246			700,775,301

Liabilities:
Payables:
Investment securities purchased		—			2,679,917			13,981,763			620,278			—
Capital shares redeemed		5,781			27,774			388,446			342,900			2,852,436
Affiliates		35,327			142,696			764,495			408,216			601,497
Professional fees		12,257			—			37,625			22,220			26,577
Options written, at value (premiums received $5,571 and $31,802, respectively)		—			4,491			25,225			—			—
Securities sold short, at value (proceeds $2,474,336 and $16,190,283, respectively)		—			2,514,027			16,394,417			—			—
Unrealized loss on forward exchange contracts (Note 7)		—			2,183,768			6,217,178			—			—
Deferred tax liability (Note 1l)		—			11,568			—			—			45,801
Funds advanced by custodian		—			—			—			33,237			—
Other liabilities		636			46,201			60,004			95,045			69,538

Total liabilities		54,001			7,610,442			37,869,153			1,521,896			3,595,849

Net assets, at value	$	68,489,213		$	159,251,165		$	878,665,470		$	306,405,350		$	697,179,452

Net assets consist of:
Undistributed net investment income		$3,095,324		$	2,896,047		$	10,495,227		$	3,131,753		$	14,477,229
Net unrealized appreciation (depreciation)		12,599,442			1,672,667			(8,255,269	)		(18,565,087	)		(102,990,987	)
Accumulated net realized loss		(452,645	)		(9,101,796	)		(39,579,151	)		(219,386,956	)		(115,487,998	)
Capital shares		53,247,092			163,784,247			916,004,663			541,225,640			901,181,208

Net assets, at value	$	68,489,213		$	159,251,165		$	878,665,470		$	306,405,350		$	697,179,452

Class 1:
Net assets, at value		$68,489,213		$	122,010,569		$	288,927,889		$	225,453,793		$	397,419,611

Shares outstanding		4,122,960			11,032,974			23,899,317			47,832,788			41,768,921

Net asset value and offering price per share		$16.61		$	11.06		$	12.09		$	4.71		$	9.51

Class 2:
Net assets, at value		—		$	37,240,596		$	589,737,581		$	80,951,557		$	299,759,841

Shares outstanding		—			3,394,077			49,056,022			17,262,440			31,832,731

Net asset value and offering price per share		—		$	10.97		$	12.02		$	4.69		$	9.42

See notes to financial statements.

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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Assets and Liabilities (cont.)

December 31, 2002

	Templeton Global Asset Allocation Fund			Templeton Global Income Securities Fund			Templeton Growth Securities Fund

Assets:
Investments in securities:
Cost	$	526,379,057		$	45,296,562		$	969,098,237

Value		461,581,569			49,855,302			809,546,868
Repurchase agreements, at value and cost		—			1,408,000			38,441,000
Cash		—			—			901
Foreign currency, at value (cost $6,820,403)		—			—			6,885,940
Receivables:
Investment securities sold		—			831,838			243,571
Capital shares sold		44,448			396			332,018
Dividends and interest		4,360,914			1,237,585			2,036,802

Total assets		465,986,931			53,333,121			857,487,100

Liabilities:
Payables:
Capital shares redeemed		217,791			17,215			614,306
Affiliates		315,062			28,265			680,862
Professional fees		25,212			14,254			41,701
Deferred tax liability (Note 1l)		—			—			501,249
Funds advanced by custodian		—			526,607			—
Other liabilities		32,096			5,865			57,057

Total liabilities		590,161			592,206			1,895,175

Net assets, at value	$	465,396,770		$	52,740,915		$	855,591,925

Net assets consist of:
Undistributed net investment income	$	12,858,724		$	3,745,859		$	15,907,519
Net unrealized appreciation (depreciation)		(64,561,457	)		4,616,150			(159,904,746	)
Accumulated net realized loss		(5,880,228	)		(11,724,109	)		(61,498,820	)
Capital shares		522,979,731			56,103,015			1,061,087,972

Net assets, at value	$	465,396,770		$	52,740,915		$	855,591,925

Class 1:
Net assets, at value	$	425,470,456		$	50,621,689		$	665,537,469

Shares outstanding		29,165,391			3,704,345			76,787,415

Net asset value and offering price per share		$14.59			$13.67			$8.67

Class 2:
Net assets, at value	$	39,926,314		$	2,119,226		$	190,054,456

Shares outstanding		2,755,698			155,990			22,114,144

Net asset value and offering price per share		$14.49			$13.59			$8.59

See notes to financial statements.

237

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Operations

for the year ended December 31, 2002

	Franklin Aggressive Growth Securities Fund			Franklin Global Communications Securities Fund			Franklin Growth and Income Securities Fund			Franklin High Income Fund			Franklin Income Securities Fund

Investment income: ^a
Dividends	$	18,000		$	2,122,272		$	18,043,310		$	59,063		$	11,512,194
Interest		—			391,609			1,599,506			13,476,354			28,196,215

Total investment income		18,000			2,513,881			19,642,816			13,535,417			39,708,409

Expenses:
Management fees (Note 3)		29,589			1,002,084			2,863,445			766,799			2,501,800
Administrative fees (Note 3)		12,576			—			—			—			—
Distribution fees - Class 2 (Note 3)		5			1,701			63,558			7,471			62,248
Transfer agent fees		148			2,607			8,674			1,765			6,187
Custodian fees		57			4,077			8,169			1,235			12,014
Reports to shareholders		5,513			41,813			156,598			17,052			102,762
Professional fees		16,794			810			22,499			10,383			17,927
Trustees’ fees and expenses		68			1,927			6,202			1,356			5,178
Other		262			2,257			26,567			9,454			28,693

Total expenses		65,012			1,057,276			3,155,712			815,515			2,736,809

Net investment income (loss)		(47,012	)		1,456,605			16,487,104			12,719,902			36,971,600

Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(1,414,412	)		(89,249,174	)		(22,369,381	)		(55,072,193	)		(16,145,984	)
Foreign currency transactions		—			(161,212	)		(18,878	)		41			(16,759	)

Net realized loss		(1,414,412	)		(89,410,386	)		(22,388,259	)		(55,072,152	)		(16,162,743	)
Net unrealized appreciation (depreciation) on:
Investments		(1,467,907	)		6,275,419			(93,969,652	)		29,111,763			(22,079,385	)
Translation of assets and liabilities denominated in foreign currencies		—			—			—			—			38,457

Net unrealized appreciation (depreciation)		(1,467,907	)		6,275,419			(93,969,652	)		29,111,763			(22,040,928	)

Net realized and unrealized loss		(2,882,319	)		(83,134,967	)		(116,357,911	)		(25,960,389	)		(38,203,671	)

Net decrease in net assets resulting from operations	$	(2,929,331	)	$	(81,678,362	)	$	(99,870,807	)	$	(13,240,487	)	$	(1,232,071	)

Net of foreign taxes and fees of $41,690, $130,785 and $86,275 for the Franklin Global Communications Securities Fund, the Franklin Growth and Income Securities Fund and the Franklin Income Securities Fund, respectively.

See notes to financial statements.

238

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Operations (cont.)

for the year ended December 31, 2002

	Franklin Large Cap Growth Securities Fund			Franklin Money Market Fund			Franklin Real Estate Fund			Franklin Rising Dividends Securities Fund			Franklin S&P 500 Index Fund

Investment income: ^a
Dividends	$	3,483,925		$	—		$	13,960,108		$	6,934,240		$	726,346
Interest		285,078			3,107,324			469,606			—			4,001

Total investment income		3,769,003			3,107,324			14,429,714			6,934,240			730,347
Expenses:
Management fees (Note 3)		1,843,297			906,226			1,598,854			2,721,160			67,017
Administrative fees (Note 3)		—			—			—			—			47,241
Distribution fees (Note 3)
Class 2		36,090			1,706			432,473			81,617			15,339
Class 3		—			—			—			—			23,397
Transfer agent fees		3,079			1,991			3,264			4,354			1,318
Transfer agent fees—Class 3 (Note 3)		—			—			—			—			25,611
Custodian fees		2,457			1,426			3,074			3,548			433
Reports to shareholders		91,051			48,407			56,944			72,775			2,183
Registration and filing fees—Class 3		—			—			—			—			5,076
Professional fees		20,049			9,522			46,420			26,248			16,547
Trustees’ fees and expenses		3,350			1,669			2,950			3,768			525
Other		11,205			8,474			12,256			15,469			—

Total expenses		2,010,578			979,421			2,156,235			2,928,939			204,687
Expenses waived/paid by affiliate—Class 3 (Note 3)		—			—			—			—			(7,755	)

Net expenses		2,010,578			979,421			2,156,235			2,928,939			196,932
Net investment income		1,758,425			2,127,903			12,273,479			4,005,301			533,415

Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(30,320,684	)		(444	)		9,960,012			12,430,771			(14,757,978	)
Financial futures contracts		—			—			—			—			(294,569	)

Net realized gain (loss)		(30,320,684	)		(444	)		9,960,012			12,430,771			(15,052,547	)
Net unrealized appreciation (depreciation) on investments		(38,629,313	)		—			(21,421,211	)		(21,892,359	)		2,527,479

Net realized and unrealized loss		(68,949,997	)		(444	)		(11,461,199	)		(9,461,588	)		(12,525,068	)

Net increase (decrease) in net assets resulting from operations	$	(67,191,572	)	$	2,127,459		$	812,280		$	(5,456,287	)	$	(11,991,653	)

^a	Net of foreign taxes and fees of $12,523, $8,134 and $19,314 for the Franklin Large Cap Growth Securities Fund, the Franklin Real Estate Fund and the Franklin Rising Dividends Securities Fund, respectively.

See notes to financial statements.

239

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Operations (cont.)

for the year ended December 31, 2002

	Franklin Small Cap Fund			Franklin Small Cap Value Securities Fund			Franklin Technology Securities Fund			Franklin U.S. Government Fund		Franklin Zero Coupon Fund - 2005
Investment income: ^a
Dividends		$3,810,658		$	1,562,558		$	21,739		$	—	$	—
Interest		—			—			—			26,857,457		4,064,690

Total investment income		3,810,658			1,562,558			21,739			26,857,457		4,064,690

Expenses:
Management fees (Note 3)		2,929,313			633,663			58,570			2,304,255		388,606
Administrative fees (Note 3)		1,508,163			168,238			27,830			—		—
Distribution fees - Class 2 (Note 3)		990,231			195,488			20,252			179,878		—
Transfer agent fees		7,622			1,165			203			5,454		696
Custodian fees		5,274			1,023			190			4,849		1,009
Reports to shareholders		234,039			27,847			7,948			96,111		18,476
Professional fees		32,797			18,924			14,942			24,334		13,861
Trustees’ fees and expenses		7,086			1,059			124			4,567		621
Other		28,127			4,614			3,593			19,546		2,508

Total expenses		5,742,652			1,052,021			133,652			2,638,994		425,777

Net investment income (loss)		(1,931,994	)		510,537			(111,913	)		24,218,463		3,638,913

Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(80,345,797	)		(1,240,229	)		(5,664,856	)		3,804,636		257,652
Foreign currency transactions		(247	)		—			—			—		—

Net realized gain (loss)		(80,346,044	)		(1,240,229	)		(5,664,856	)		3,804,636		257,652
Net unrealized appreciation (depreciation) on investments		(129,271,878)			(15,328,688	)		(873,460	)		15,233,412		1,993,444

Net realized and unrealized gain (loss)		(209,617,922	)		(16,568,917	)		(6,538,316	)		19,038,048		2,251,096

Net increase (decrease) in net assets resulting from operations	$	(211,549,916	)	$	(16,058,380	)	$	(6,650,229	)	$	43,256,511	$	5,890,009

^a Net of foreign taxes and fees of $21,571 for the Franklin Small Cap Fund.

240

See notes to financial statements.

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Operations (cont.)

for the year ended December 31, 2002

	Franklin Zero Coupon Fund - 2010			Mutual Discovery Securities Fund			Mutual Shares Securities Fund			Templeton Developing Markets Securities Fund			Templeton Foreign Securities Fund

Investment income: ^a
Dividends	$	—		$	2,781,040		$	10,366,184		$	9,571,250		$	21,492,435
Interest		3,479,900			1,493,045			7,938,528			151,792			47,596

Total investment income		3,479,900			4,274,085			18,304,712			9,723,042			21,540,031

Expenses:
Management fees (Note 3)		352,727			1,326,093			4,593,292			3,999,544			5,123,281
Administrative fees (Note 3)		—			248,647			1,065,153			461,956			1,029,203
Distribution fees - Class 2 (Note 3)		—			44,723			1,063,290			198,373			672,052
Transfer agent fees		664			—			—			4,764			8,231
Custodian fees		561			30,300			58,200			359,778			251,935
Reports to shareholders		13,400			33,100			198,300			182,862			144,345
Professional fees		13,806			35,450			143,600			30,483			35,846
Trustees’ fees and expenses		558			1,650			8,500			4,010			9,135
Dividends on securities sold short		—			15,636			70,410			—			—
Other		2,611			19,250			29,900			25,344			40,389

Total expenses		384,327			1,754,849			7,230,645			5,267,114			7,314,417

Net investment income		3,095,573			2,519,236			11,074,067			4,455,928			14,225,614

Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(432,337	)		(1,186,891	)		(21,411,796	)		(8,659,032	)		(90,019,792	)
Foreign currency transactions		—			(6,502,253	)		(15,883,942	)		(609,706	)		257,632

Net realized loss		(432,337	)		(7,689,144	)		(37,295,738	)		(9,268,738	)		(89,762,160	)
Net unrealized appreciation (depreciation) on:
Investments		7,466,700			(7,905,789	)		(69,005,760	)		6,863,521			(61,400,604	)
Translation of assets and liabilities denominated in foreign currencies		—			(2,181,162	)		(5,741,808	)		13,788			266,688
Deferred taxes (Note 1l)		—			(11,568	)		—			—			(45,801	)

Net unrealized appreciation (depreciation)		7,466,700			(10,098,519	)		(74,747,568	)		6,877,309			(61,179,717	)

Net realized and unrealized gain (loss)		7,034,363			(17,787,663	)		(112,043,306	)		(2,391,429	)		(150,941,877	)

Net increase (decrease) in net assets resulting from operations	$	10,129,936		$	(15,268,427	)	$	(100,969,239	)	$	2,064,499		$	(136,716,263	)

^a	Net of foreign taxes and fees of $232,128, $577,517, $1,028,373 and $2,335,508 for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Developing Markets Securities Fund and the Templeton Foreign Securities Fund, respectively.

See notes to financial statements.

241

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Operations (cont.)

for the year ended December 31, 2002

	Templeton Global Asset Allocation Fund			Templeton Global Income Securities Fund		Templeton Growth Securities Fund

Investment income: ^a
Dividends	$	9,725,550		$	—	$	24,242,243
Interest		7,321,780			3,273,258		834,726

Total investment income		17,047,330			3,273,258		25,076,969

Expenses:
Management fees (Note 3)		3,019,158			364,481		7,944,393
Administrative fees (Note 3)		714,026			—		—
Distribution fees—Class 2 (Note 3)		102,972			4,055		372,496
Transfer agent fees		6,683			851		12,387
Custodian fees		114,140			20,421		218,200
Reports to shareholders		165,926			21,322		261,536
Professional fees		32,720			14,528		61,168
Trustees’ fees and expenses		5,968			1,325		10,982
Other		23,776			2,688		43,930

Total expenses		4,185,369			429,671		8,925,092

Net investment income		12,861,961			2,843,587		16,151,877

Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		3,491,473			1,145,196		(59,564,323	)
Foreign currency transactions		199,881			43,012		(156,962	)

Net realized gain (loss)		3,691,354			1,188,208		(59,721,285	)
Net unrealized appreciation (depreciation) on:
Investments		(38,311,242	)		6,983,875		(147,995,767	)
Translation of assets and liabilities denominated in foreign currencies		260,219			59,599		299,014
Deferred taxes (Note 1l)		—			—		(501,249	)

Net unrealized appreciation (depreciation)		(38,051,023	)		7,043,474		(148,198,002	)

Net realized and unrealized gain (loss)		(34,359,669	)		8,231,682		(207,919,287	)

Net increase (decrease) in net assets resulting from operations	$	(21,497,708	)	$	11,075,269	$	(191,767,410	)

^a	Net of foreign taxes and fees of $916,957 and $2,040,328 for the Templeton Global Asset Allocation Fund and the Templeton Growth Securities Fund, respectively.

See notes to financial statements.

242

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets

for the years ended December 31, 2002 and 2001

	Franklin Aggressive Growth Securities Fund						Franklin Global Communications Securities Fund						Franklin Growth and Income Securities Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(47,012	)	$	(36,818	)	$	1,456,605		$	1,686,748		$	16,487,104		$	16,647,765
Net realized gain (loss) from investments and foreign currency transactions		(1,414,412	)		(5,674,601	)		(89,410,386	)		(142,646,006	)		(22,388,259	)		37,731,780
Net unrealized appreciation (depreciation) on investments		(1,467,907	)		3,431,979			6,275,419			3,509,969			(93,969,652	)		(72,162,954	)

Net decrease in net assets resulting from operations		(2,929,331	)		(2,279,440	)		(81,678,362	)		(137,449,289	)		(99,870,807	)		(17,783,409	)
Distributions to shareholders from:
Net investment income:
Class 1		—			(17,313	)		(1,655,159	)		(284,737	)		(17,112,240	)		(2,210,457	)
Class 2		—			(2	)		(4,896	)		(247	)		(789,171	)		(15,510	)
Net realized gains:
Class 1		—			—			—			(86,469,749	)		(34,010,678	)		(65,292,798	)
Class 2		—			—			—			(74,871	)		(1,599,783	)		(458,094	)

Total distributions to shareholders		—			(17,315	)		(1,660,055	)		(86,829,604	)		(53,511,872	)		(67,976,859	)
Capital share transactions: (Note 2)
Class 1		(563,955	)		(2,430,035	)		(51,646,759	)		(34,177,686	)		(45,168,545	)		(78,718,268	)
Class 2		—			2,587			1,363,628			36,233			33,971,092			9,970,609

Total capital share transactions		(563,955)			(2,427,448	)		(50,283,131	)		(34,141,453	)		(11,197,453	)		(68,747,659	)
Net decrease in net assets		(3,493,286	)		(4,724,203	)		(133,621,548	)		(258,420,346	)		(164,580,132	)		(154,507,927	)
Net assets:
Beginning of year		8,296,407			13,020,610			265,366,805			523,787,151			658,639,895			813,147,822

End of year		$4,803,121		$	8,296,407		$	131,745,257		$	265,366,805		$	494,059,763		$	658,639,895

Undistributed net investment income included in net assets:
End of year		$ —		$	—		$	1,267,035		$	1,658,752		$	16,876,313		$	16,763,647

See notes to financial statements.

243

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Franklin High Income Fund						Franklin Income Securities Fund						Franklin Large Cap Growth Securities Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income	$	12,719,902		$	18,700,702		$	36,971,600		$	46,663,374		$	1,758,425		$	2,020,033
Net realized gain (loss) from investments and foreign currency transactions		(55,072,152	)		(16,308,270	)		(16,162,743	)		6,412,034			(30,320,684	)		(20,528,995	)
Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies		29,111,763			6,997,700			(22,040,928	)		(47,192,654	)		(38,629,313	)		(27,646,640	)

Net increase (decrease) in net assets resulting from operations		(13,240,487	)		9,390,132			(1,232,071	)		5,882,754			(67,191,572	)		(46,155,602	)
Distributions to shareholders from:
Net investment income:
Class 1		(19,700,643	)		(28,836,782	)		(46,080,044	)		(40,945,074	)		(1,919,600	)		(1,998,581	)
Class 2		(340,095	)		(79,441	)		(1,712,911	)		(290,468	)		(96,711	)		(4,651	)
Net realized gains:
Class 1		—			—			(9,646,747	)		(35,098,053	)		—			(80,683,920	)
Class 2		—			—			(361,202	)		(248,988	)		—			(305,474	)

Total distributions to shareholders		(20,040,738	)		(28,916,223	)		(57,800,904	)		(76,582,583	)		(2,016,311	)		(82,992,626	)
Capital shares transactions: (Note 2)
Class 1		(7,270,704	)		(18,555,423	)		(41,449,431	)		(50,150,600	)		(58,273,965	)		(2,477,345	)
Class 2		6,868,444			418,524			61,535,455			7,060,162			28,262,526			4,585,478

Total capital share transactions		(402,260	)		(18,136,899	)		20,086,024			(43,090,438	)		(30,011,439	)		2,108,133
Net decrease in net assets		(33,683,485	)		(37,662,990	)		(38,946,951	)		(113,790,267	)		(99,219,322	)		(127,040,095	)
Net assets:
Beginning of year		152,755,223			190,418,213			536,113,124			649,903,391			305,425,001			432,465,096

End of year	$	119,071,738		$	152,755,223		$	497,166,173		$	536,113,124		$	206,205,679		$	305,425,001

Undistributed net investment income included in net assets:
End of year	$	10,080,163		$	16,872,617		$	31,394,413		$	42,722,222		$	1,757,894		$	2,015,780

See notes to financial statements.

244

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Franklin Money Market Fund						Franklin Real Estate Fund						Franklin Rising Dividends Securities Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income	$	2,127,903		$	10,885,261		$	12,273,479		$	8,507,378		$	4,005,301		$	4,798,342
Net realized gain (loss) from investments		(444	)		960			9,960,012			1,891,909			12,430,771			7,477,923
Net unrealized appreciation (depreciation) on investments		—			—			(21,421,211	)		5,339,878			(21,892,359	)		33,117,628

Net increase (decrease) in net assets resulting from operations		2,127,459			10,886,221			812,280			15,739,165			(5,456,287	)		45,393,893
Distributions to shareholders from:
Net investment income: ^a
Class 1		(2,119,738	)		(9,847,143	)		(3,665,154	)		(5,720,085	)		(4,426,633	)		(287,341	)
Class 2		(7,721	)		(1,039,078	)		(4,495,007	)		(1,934,491	)		(372,154	)		(2,621	)
Net realized gains:
Class 1		—			—			—			—			(6,786,420	)		(20,433,946	)
Class 2		—			—			—			—			(588,470	)		(186,374	)

Total distributions to shareholders		(2,127,459	)		(10,886,221	)		(8,160,161	)		(7,654,576	)		(12,173,677	)		(20,910,282	)
Capital share transactions: (Note 2)
Class 1		(81,091,795	)		(73,669,011	)		(20,526,649	)		(23,904,085	)		(39,872,739	)		(39,938,709	)
Class 2		(473,226	)		(20,657,326	)		160,033,068			68,822,468			55,095,055			10,096,993

Total capital share transactions		(81,565,021	)		(94,326,337	)		139,506,419			44,918,383			15,222,316			(29,841,716	)
Net increase (decrease) in net assets		(81,565,021	)		(94,326,337	)		132,158,538			53,002,972			(2,407,648	)		(5,358,105	)
Net assets:
Beginning of year		201,862,784			296,189,121			229,948,901			176,945,929			359,167,245			364,525,350

End of year	$	120,297,763		$	201,862,784		$	362,107,439		$	229,948,901		$	356,759,597		$	359,167,245

Undistributed net investment income included in net assets:
End of year	$	—		$	—		$	13,858,989		$	9,745,671		$	4,002,858		$	4,796,344

^a	For the Franklin Money Market Fund, distributions were decreased by net realized losses of $444 and increased by net realized gains of $960 from security transactions for the years ended December 31, 2002 and December 31, 2001, respectively.

See notes to financial statements.

245

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Franklin S&P 500 Index Fund						Franklin Small Cap Fund						Franklin Small Cap Value Securities Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	533,415		$	523,986		$	(1,931,994	)	$	2,096,281		$	510,537		$	457,784
Net realized gain (loss) from investments, financial futures contracts and foreign currency transactions		(15,052,547	)		(5,706,726	)		(80,346,044	)		(28,388,262	)		(1,240,229	)		3,231,290
Net unrealized appreciation (depreciation) on investments		2,527,479			(2,037,148	)		(129,271,878	)		(80,822,391	)		(15,328,688	)		1,845,897

Net increase (decrease) in net assets resulting from operations		(11,991,653	)		(7,219,888	)		(211,549,916	)		(107,114,372	)		(16,058,380	)		5,534,971
Distributions to shareholders from:
Net investment income:
Class 1		(421,572	)		(384,081	)		(968,151	)		(1,494,401	)		(158,450	)		(138,408	)
Class 2		(102,463	)		(334	)		(994,005	)		(1,228,650	)		(299,301	)		(66,481	)
Class 3		—			(106,478	)		—			—			—			—
Net realized gains:
Class 1		—			(8,813	)		—			—			(959,618	)		(696,403	)
Class 2		—			(12	)		—			—			(2,093,611	)		(384,593	)
Class 3		—			(2,980	)		—			—			—			—

Total distributions to shareholders		(524,035	)		(502,698	)		(1,962,156	)		(2,723,051	)		(3,510,980	)		(1,285,885	)
Capital share transactions: (Note 2)
Class 1		(14,571,701	)		4,411,938			(25,542,310	)		(60,969,661	)		1,083,853			11,101,212
Class 2		6,399,757			1,513,630			150,999,228			150,270,069			105,621,633			24,871,679
Class 3		(18,102,808	)		11,424,867			—			—			—			—

Total capital share transactions		(26,274,752	)		17,350,435			125,456,918			89,300,408			106,705,486			35,972,891
Net increase (decrease) in net assets		(38,790,440	)		9,627,849			(88,055,154	)		(20,537,015	)		87,136,126			40,221,977
Net assets:
Beginning of year		64,988,214			55,360,365			668,356,830			688,893,845			66,885,851			26,663,874

End of year	$	26,197,774		$	64,988,214		$	580,301,676		$	668,356,830		$	154,021,977		$	66,885,851

Undistributed net investment income included in net assets:
End of year	$	533,367		$	523,987		$	—		$	2,200,458		$	509,154		$	457,436

See notes to financial statements.

246

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Franklin Technology Securities Fund						Franklin U.S. Government Fund						Franklin Zero Coupon Fund — 2005

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(111,913	)	$	(39,285	)	$	24,218,463		$	25,560,912		$	3,638,913		$	3,568,103
Net realized gain (loss) from investments		(5,664,856	)		(7,742,755	)		3,804,636			1,863,562			257,652			432,311
Net unrealized appreciation (depreciation) on investments		(873,460	)		3,434,350			15,233,412			3,462,516			1,993,444			1,200,230

Net increase (decrease) in net assets resulting from operations		(6,650,229	)		(4,347,690	)		43,256,511			30,886,990			5,890,009			5,200,644
Distributions to shareholders from:
Net investment income:
Class 1		—			—			(22,736,492	)		(28,682,700	)		(3,567,547	)		(3,743,860	)
Class 2		—			—			(3,744,993	)		(994,935	)		—			—
Net realized gains:
Class 1		—			—			—			—			(432,090	)		(659,346	)

Total distributions to shareholders		—			—			(26,481,485	)		(29,677,635	)		(3,999,637	)		(4,403,206	)
Capital share transactions: (Note 2)
Class 1		(1,342,089	)		(909,781	)		(23,721,662	)		(33,635,462	)		8,928,215			(2,852,980	)
Class 2		6,523,061			8,202,992			110,675,553			19,761,020			—			—

Total capital share transactions		5,180,972			7,293,211			86,953,891			(13,874,442	)		8,928,215			(2,852,980	)
Net increase (decrease) in net assets		(1,469,257	)		2,945,521			103,728,917			(12,665,087	)		10,818,587			(2,055,542	)
Net assets:
Beginning of year		13,866,442			10,920,921			415,809,272			428,474,359			60,232,762			62,288,304

End of year	$	12,397,185		$	13,866,442		$	519,538,189		$	415,809,272		$	71,051,349		$	60,232,762

Undistributed net investment income included in net assets:
End of year	$	—		$	—		$	25,975,527		$	26,340,500		$	3,639,961		$	3,567,384

See notes to financial statements.

247

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Franklin Zero Coupon Fund - 2010						Mutual Discovery Securities Fund						Mutual Shares Securities Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income	$	3,095,573		$	3,017,181		$	2,519,236		$	3,239,128		$	11,074,067		$	7,154,316
Net realized gain (loss) from investments and foreign currency transactions		(432,337	)		2,105,507			(7,689,144	)		919,258			(37,295,738	)		14,556,700
Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies		7,466,700			(2,254,369	)		(10,098,519	)		(3,108,272	)		(74,747,568	)		11,361,345

Net increase (decrease) in net assets resulting from operations		10,129,936			2,868,319			(15,268,427	)		1,050,114			(100,969,239	)		33,072,361
Distributions to shareholders from:
Net investment income:
Class 1		(3,019,579	)		(3,592,642	)		(2,341,069	)		(3,692,922	)		(3,339,385	)		(7,851,268	)
Class 2		—			—			(221,015	)		(35,475	)		(3,698,558	)		(1,837,489	)
Net realized gains:
Class 1		(2,117,685	)		(2,438,929	)		(2,749,123	)		(22,821,911	)		(7,639,415	)		(25,705,025	)
Class 2		—			—			(269,767	)		(229,100	)		(9,170,486	)		(6,177,652	)

Total distributions to shareholders		(5,137,264)			(6,031,571	)		(5,580,974	)		(26,779,408	)		(23,847,844	)		(41,571,434	)
Capital share transactions: (Note 2)
Class 1		12,494,918			(2,555,552	)		(24,189,253	)		(774,421	)		(56,246,676	)		(3,039,328	)
Class 2		—			—			34,081,590			4,626,027			397,772,006			229,345,621

Total capital share transactions		12,494,918			(2,555,552	)		9,892,337			3,851,606			341,525,330			226,306,293
Net increase (decrease) in net assets		17,487,590			(5,718,804	)		(10,957,064	)		(21,877,688	)		216,708,247			217,807,220
Net assets:
Beginning of year		51,001,623			56,720,427			170,208,229			192,085,917			661,957,223			444,150,003

End of year		$68,489,213		$	51,001,623		$	159,251,165		$	170,208,229		$	878,665,470		$	661,957,223

Undistributed net investment income included in net assets:
End of year		$3,095,324		$	3,017,107		$	2,896,047		$	2,400,505		$	10,495,227		$	6,140,179

248

See notes to financial statements.

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Templeton Developing Markets Securities Fund						Templeton Foreign Securities Fund						Templeton Global Asset Allocation Fund

	2002			2001			2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income	$	4,455,928		$	5,298,349		$	14,225,614		$	13,400,247		$	12,861,961		$	13,298,302
Net realized gain (loss) from investments and foreign currency transactions		(9,268,738	)		(64,139,840	)		(89,762,160	)		(25,399,603	)		3,691,354			(10,154,128	)
Net unrealized appreciation (depreciation) on investments, translation of assets and liabilities denominated in foreign currencies, and deferred tax liability		6,877,309			34,395,953			(61,179,717	)		(126,607,879	)		(38,051,023	)		(66,464,381	)

Net increase (decrease) in net assets resulting from operations		2,064,499			(24,445,538	)		(136,716,263	)		(138,607,235	)		(21,497,708	)		(63,320,207	)
Distributions to shareholders from:
Net investment income:
Class 1		(3,878,945	)		(2,724,470	)		(8,763,684	)		(20,393,444	)		(9,120,690	)		(7,936,813	)
Class 2		(1,149,535	)		(485,657	)		(4,308,628	)		(5,735,164	)		(750,622	)		(475,131	)
Net realized gains:
Class 1		—			—			—			(152,779,558	)		—			(51,727,081	)
Class 2		—			—			—			(45,106,353	)		—			(3,403,336	)

Total distributions to shareholders		(5,028,480	)		(3,210,127	)		(13,072,312	)		(224,014,519	)		(9,871,312	)		(63,542,361	)
Capital share transactions: (Note 2)
Class 1		(12,115,583	)		(34,976,459	)		(64,156,384	)		77,008,936			(46,847,936	)		(7,898,282	)
Class 2		17,115,195			8,739,887			120,399,514			112,727,197			3,566,120			14,218,515

Total capital share transactions		4,999,612			(26,236,572	)		56,243,130			189,736,133			(43,281,816	)		6,320,233
Net increase (decrease) in net assets		2,035,631			(53,892,237	)		(93,545,445	)		(172,885,621	)		(74,650,836	)		(120,542,335	)
Net assets:
Beginning of year		304,369,719			358,261,956			790,724,897			963,610,518			540,047,606			660,589,941

End of year	$	306,405,350		$	304,369,719		$	697,179,452		$	790,724,897		$	465,396,770		$	540,047,606

Undistributed net investment income included in net assets:
End of year	$	3,131,753		$	4,501,180		$	14,477,229		$	13,066,295		$	12,858,724		$	8,598,433

See notes to financial statements.

249

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Financial Statements (continued)

Statements of Changes in Net Assets (cont.)

for the years ended December 31, 2002 and 2001

	Templeton Global Income Securities Fund						Templeton Growth Securities Fund

	2002			2001			2002			2001

Increase (decrease) in net assets:
Operations:
Net investment income	$	2,843,587		$	3,839,197		$	16,151,877		$	23,937,177
Net realized gain (loss) from investments and foreign currency transactions		1,188,208			(4,508,098	)		(59,721,285	)		20,181,710
Net unrealized appreciation (depreciation) on investments, translation of assets and liabilities denominated in foreign currencies, and deferred tax liability		7,043,474			2,398,784			(148,198,002	)		(56,838,661	)

Net increase (decrease) in net assets resulting from operations		11,075,269			1,729,883			(191,767,410	)		(12,719,774	)
Distributions to shareholders from:
Net investment income:
Class 1		(721,350	)		(2,604,868	)		(20,070,527	)		(21,511,485	)
Class 2		(15,678	)		(36,450	)		(3,259,082	)		(1,649,342	)
Net realized gains:
Class 1		—			—			(18,428,918	)		(179,283,207	)
Class 2		—			—			(3,204,573	)		(14,800,192	)

Total distributions to shareholders		(737,028	)		(2,641,318	)		(44,963,100	)		(217,244,226	)
Capital share transactions: (Note 2)
Class 1		(23,182,049	)		(16,473,714	)		(102,174,647	)		17,018,594
Class 2		518,247			43,998			113,847,109			50,914,824

Total capital share transactions		(22,663,802	)		(16,429,716	)		11,672,462			67,933,418
Net decrease in net assets		(12,325,561	)		(17,341,151	)		(225,058,048	)		(162,030,582	)
Net assets:
Beginning of year		65,066,476			82,407,627			1,080,649,973			1,242,680,555

End of year	$	52,740,915		$	65,066,476		$	855,591,925		$	1,080,649,973

Undistributed net investment income included in net assets:
End of year	$	3,745,859		$	(204,621	)	$	15,907,519		$	23,378,838

See notes to financial statements.

250

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (the Trust) is registered under the Investment Company Act of 1940 as an open-end investment company, consisting of twenty-four series (the Funds). All funds included in this report are diversified except the Franklin Small Cap Value Securities Fund, the Franklin Technology Securities Fund and the Templeton Global Income Securities Fund. Shares of the Funds are sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. As of December 31, 2002, over 60% of the total Trust shares were sold through one insurance company. The Funds included in this report and their investment objectives are:

Capital Growth

Growth and Income

Current Income

Capital Preservation
and Income

Total Return

Franklin Aggressive Growth
Securities Fund

Franklin Large Cap Growth Securities Fund

Franklin S&P 500 Index Fund

Franklin Small Cap Fund

Franklin Technology Securities Fund

Mutual Discovery Securities Fund

Templeton Developing Markets Securities Fund

Templeton Foreign Securities Fund

Templeton Growth Securities Fund

Franklin Global Communications Securities Fund

Franklin Growth and Income Securities Fund

Franklin Income Securities
Fund

Franklin Real Estate Fund

Franklin Rising Dividends Securities Fund

Mutual Shares Securities Fund

Franklin High Income Fund

Franklin U.S. Government Fund

Franklin Zero Coupon
Fund - 2005

Franklin Zero Coupon
Fund - 2010

Templeton Global Income
Securities Fund

Franklin Money Market Fund

Franklin Small Cap Value Securities Fund

Templeton Global Asset Allocation Fund

The following fund name changes occurred on May 1, 2002:

Former Name		New Name

Franklin Value Securities Fund		Franklin Small Cap Value Securities Fund
Templeton Asset Strategy Fund		Templeton Global Asset Allocation Fund
Templeton International Securities Fund		Templeton Foreign Securities Fund

The funds’ investment objectives and other policies did not change as a result of the name changes.

Effective June 1, 2002, the Franklin S&P 500 Index Fund was closed to all new investors and will liquidate in 2003. On June 3, 2002, the Franklin S&P 500 Index Fund - Class 3 was liquidated.

On November 12, 2002, the Board of Trustees approved a proposal to merge the Franklin Technology Securities Fund into the Franklin Small Cap Fund, subject to shareholder approval.

The following summarizes the Funds’ significant accounting policies.

a. Security Valuation

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

Securities in the Franklin Money Market Fund are valued at amortized cost which approximates value.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.

251

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)

b. Foreign Currency Translation (cont.)

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

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

c. Repurchase Agreements

Certain funds may enter into a joint repurchase agreement whereby their uninvested cash balances are deposited into a joint cash account to be used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. Certain funds may enter into repurchase agreements which are accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. At December 31, 2002, all repurchase agreements held by the funds had been entered into on that date.

d. Futures Contracts

The Franklin S&P 500 Index Fund may purchase financial futures contracts to gain exposure to market changes, as this may be more efficient and cost effective than buying the securities. A financial futures contract is an agreement between two parties to buy or sell a security for a set price on a future date. Required initial margin deposits of cash or securities are maintained by the fund’s custodian in segregated accounts as disclosed in the Statement of Investments. Subsequent payments, known as variation margin, are made or received by the fund depending on the fluctuations in the value of the underlying securities. Such variation margin is accounted for as unrealized gains or losses until the contract is closed, at which time the gains or losses are reclassified to realized. Realized and unrealized gains and losses are included in the Statement of Operations.

The risks of these contracts include the possibility there may be an illiquid secondary market and/or a change in the value of the contract may not correlate with the changes in the value of the underlying securities.

e. Foreign Currency Contracts

The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund may enter into forward exchange contracts to hedge against fluctuations in foreign exchange rates. A forward exchange contract is an agreement between two parties to exchange different currencies at an agreed upon forward exchange rate at a future date. These contracts are valued daily and each 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.

When the funds purchase or sell foreign securities they may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. Realized and unrealized gains and losses are included in the Statement of Operations.

The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counter parties to fulfill their obligations under the contracts.

f. Synthetic Equity Swaps

The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund may engage in synthetic equity swaps. Synthetic equity swaps 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

252

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Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)

f. Synthetic Equity Swaps (cont.)

economic consequences that would apply had a short sale of the underlying security taken place. Upon entering into synthetic equity swaps, the funds are required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount (“initial margin”). Subsequent payments known as “variation margin”, are made or received by the funds periodically, depending on fluctuations in the value of the underlying security. When the contract is closed, the funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Should market conditions move unexpectedly, the funds may not achieve the anticipated benefits of the synthetic equity swaps and may realize a loss.

g. Options

The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund may purchase or write options. Options are contracts entitling the holder to purchase or sell a specified number of shares or units of a particular security at a specified price at any time until the contract stated expiration date. Options purchased are recorded as investments; options written (sold) are recorded as liabilities. When the exercise of an option results in a cash settlement, the difference between the premium (original option value) and the settlement proceeds is realized as a gain or loss. When securities are acquired or delivered upon exercise of an option, the acquisition cost or sale proceeds are adjusted by the amount of the premium. When an option is closed, the difference between the premium and the cost to close the position is realized as a gain or loss. When an option expires, the premium is realized as a gain for options written or as a loss for options purchased. The risks include price movements in the underlying securities, the possibility there may be an illiquid options market, or the inability of the counterparties to fulfill their obligations under the contract.

h. Securities Sold Short

The Mutual Discovery Securities Fund and Mutual Shares Securities Fund are engaged in selling securities short, which obligates the funds to replace a security borrowed with the same security at the current market value. The funds would incur a loss if the price of the security increases between the date of the short sale and the date on which the funds replace the borrowed security. The funds would realize a gain if the price of the security declines between those dates.

The funds are required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale and the funds must maintain a deposit with the broker consisting of cash and securities having a value equal to a specified percentage of the value of the securities sold short.

i. Securities Lending

The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund may loan securities to certain brokers for which they receive collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities.

j. Income Taxes

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

k. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Certain income from foreign securities is recorded as soon as information is available to the funds. Interest income and estimated expenses are accrued daily. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. Dividend income, dividends declared on securities sold short, and distributions to shareholders are recorded on the ex-dividend date. For the Franklin Money Market Fund, dividends from net investment income and capital gains or losses are normally declared daily. Such distributions are reinvested in additional shares of the fund.

253

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Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)

k. Security Transactions, Investment Income, Expenses and Distributions (cont.)

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

Distributions received by the Trust from securities may be a return of capital (ROC). Such distributions reduce the cost basis of the securities, and any distributions in excess of the cost basis are recognized as capital gains.

Realized and unrealized gains and losses and net investment income, other than class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class.

l. Deferred Taxes

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

m. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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

The classes of shares offered within each fund are indicated below. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class, and its exchange privilege.

Class 1		Class 1 & Class 2

Franklin Zero Coupon Fund – 2005		Franklin Aggressive Growth Securities Fund
Franklin Zero Coupon Fund – 2010		Franklin Global Communications Securities Fund
		Franklin Growth and Income Securities Fund
		Franklin High Income Fund
		Franklin Income Securities Fund
		Franklin Large Cap Growth Securities Fund
		Franklin Money Market Fund
		Franklin Real Estate Fund
		Franklin Rising Dividends Securities Fund
		Franklin S&P 500 Index Fund
		Franklin Small Cap Fund
		Franklin Small Cap Value Securities Fund
		Franklin Technology Securities Fund
		Franklin U.S. Government Fund
		Mutual Discovery Securities Fund
		Mutual Shares Securities Fund
		Templeton Developing Markets Securities Fund
		Templeton Foreign Securities Fund
		Templeton Global Asset Allocation Fund
		Templeton Global Income Securities Fund
		Templeton Growth Securities Fund

254

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST (cont.)

At December 31, 2002, there were an unlimited number of shares authorized ($.01 par value). Transactions in the Funds’ shares were as follows:

	Franklin Aggressive Growth Securities Fund					Franklin Global Communications Securities Fund					Franklin Growth and Income Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount
Class 1 Shares:
Year ended December 31, 2002
Shares sold	312,751		$	1,490,797		307,366		$	1,672,275		545,381		$	8,254,474
Shares issued on merger (Note 10)	—			—		—			—		1,625,533			25,081,974
Shares issued in reinvestment of distributions	—			—		320,767			1,655,159		3,683,207			51,122,918
Shares redeemed	(454,102	)		(2,054,752	)	(10,514,281	)		(54,974,193	)	(9,675,660	)		(129,627,911	)

Net decrease	(141,351	)	$	(563,955	)	(9,886,148	)	$	(51,646,759	)	(3,821,539	)	$	(45,168,545	)

Year ended December 31, 2001
Shares sold	1,463,471		$	8,614,379		367,334		$	3,445,872		1,586,744		$	25,733,210
Shares issued in reinvestment of distributions	2,866			17,312		11,340,455			86,754,486		4,371,973			67,503,255
Shares redeemed	(1,766,643	)		(11,061,726	)	(13,717,775	)		(124,378,044	)	(10,844,202	)		(171,954,733	)

Net decrease	(300,306	)	$	(2,430,035	)	(2,009,986	)	$	(34,177,686	)	(4,885,485	)	$	(78,718,268	)

Class 2 Shares:
Year ended December 31, 2002
Shares sold	—		$	—		308,075		$	1,482,602		2,734,254		$	36,986,172
Shares issued on merger (Note 10)	—			—		—			—		429,930			6,599,428
Shares issued in reinvestment of distributions	—			—		953			4,896		173,113			2,388,954
Shares redeemed	—			—		(24,284	)		(123,870	)	(844,623	)		(12,003,462	)

Net increase	—		$	—		284,744		$	1,363,628		2,492,674		$	33,971,092

Year ended December 31, 2001a
Shares sold	442		$	2,587		102,790		$	1,306,840		2,027,589		$	31,846,578
Shares issued in reinvestment of distributions	—			—		9,845			75,118		30,753			473,604
Shares redeemed	—			—		(105,801	)		(1,345,725	)	(1,417,816	)		(22,349,573	)

Net increase	442		$	2,587		6,834		$	36,233		640,526		$	9,970,609


	Franklin High Income Fund					Franklin Income Securities Fund					Franklin Large Cap Growth Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount
Class 1 Shares:
Year ended December 31, 2002
Shares sold	8,163,015		$	51,125,305		508,864		$	6,691,697		1,297,340		$	17,726,425
Shares issued in reinvestment of distributions	3,333,442			19,700,643		4,663,330			55,726,791		149,735			1,919,600
Shares redeemed	(12,198,620	)		(78,096,652	)	(8,642,050	)		(103,867,919	)	(6,261,147	)		(77,919,990	)

Net decrease	(702,163	)	$	(7,270,704	)	(3,469,856	)	$	(41,449,431	)	(4,814,072	)	$	(58,273,965	)

Year ended December 31, 2001
Shares sold	15,929,139		$	130,407,425		1,503,572		$	20,997,718		1,600,232		$	28,048,545
Shares issued in reinvestment of distributions	3,865,520			28,836,782		5,791,556			76,043,127		5,269,758			82,682,499
Shares redeemed	(21,618,721	)		(177,799,630	)	(10,657,735	)		(147,191,445	)	(6,712,443	)		(113,208,389	)

Net increase (decrease)	(1,824,062	)	$	(18,555,423	)	(3,362,607	)	$	(50,150,600	)	157,547		$	(2,477,345	)

255

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST (cont.)

	Franklin High Income Fund					Franklin Income Securities Fund					Franklin Large Cap Growth Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount
Class 2 Shares:
Year ended December 31, 2002
Shares sold	2,136,319		$	13,142,002		5,631,345		$	63,504,458		3,035,459		$	36,852,947
Shares issued in reinvestment of distributions	57,938			340,095		174,883			2,074,113		7,597			96,711
Shares redeemed	(1,003,347	)		(6,613,653	)	(347,804	)		(4,043,116	)	(656,684	)		(8,687,132	)

Net increase	1,190,910		$	6,868,444		5,458,424		$	61,535,455		2,386,372		$	28,262,526

Year ended December 31, 2001
Shares sold	660,207		$	4,862,272		575,101		$	7,691,563		1,138,160		$	17,546,320
Shares issued in reinvestment of distributions	10,706			79,441		41,274			539,456		19,867			310,124
Shares redeemed	(609,485	)		(4,523,189	)	(85,356	)		(1,170,857	)	(843,047	)		(13,270,966	)

Net increase	61,428		$	418,524		531,019		$	7,060,162		314,980		$	4,585,478


	Franklin Money Market Fund					Franklin Real Estate Fund					Franklin Rising Dividends Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount
Class 1 Shares:
Year ended December 31, 2002
Shares sold	25,235,589		$	25,235,589		378,683		$	7,219,909		1,165,077		$	17,506,981
Shares issued in reinvestment of distributions	2,119,892			2,119,892		187,668			3,665,154		741,604			11,213,053
Shares redeemed	(108,447,276	)		(108,447,276	)	(1,698,569	)		(31,411,712	)	(4,810,513	)		(68,592,773	)

Net decrease	(81,091,795	)	$	(81,091,795	)	(1,132,218	)	$	(20,526,649	)	(2,903,832	)	$	(39,872,739	)

Year ended December 31, 2001
Shares sold	483,483,425		$	483,483,425		496,158		$	8,759,819		2,293,568		$	31,059,696
Shares issued in reinvestment of distributions	9,861,631			9,861,631		327,424			5,720,085		1,561,514			20,721,286
Shares redeemed	(567,014,067	)		(567,014,067	)	(2,199,336	)		(38,383,989	)	(6,846,242	)		(91,719,691	)

Net decrease	(73,669,011	)	$	(73,669,011	)	(1,375,754	)	$	(23,904,085	)	(2,991,160	)	$	(39,938,709	)

Class 2 Shares:
Year ended December 31, 2002
Shares sold	341,277		$	341,277		9,199,579		$	170,461,629		4,272,940		$	59,907,271
Shares issued in reinvestment of distributions	7,721			7,721		232,180			4,495,007		64,042			960,624
Shares redeemed	(822,224	)		(822,224	)	(824,400	)		(14,923,568	)	(425,107	)		(5,772,840	)

Net increase (decrease)	(473,226	)	$	(473,226	)	8,607,359		$	160,033,068		3,911,875		$	55,095,055

Year ended December 31, 2001
Shares sold	1,891,965,521		$	1,891,965,521		4,223,454		$	73,341,370		2,084,799		$	27,935,810
Shares issued in reinvestment of distributions	1,039,110			1,039,110		111,498			1,934,491		14,329			188,994
Shares redeemed	(1,913,661,957	)		(1,913,661,957	)	(372,218	)		(6,453,393	)	(1,338,138	)		(18,027,811	)

Net increase (decrease)	(20,657,326	)	$	(20,657,326	)	3,962,734		$	68,822,468		760,990		$	10,096,993

256

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST (cont.)

	Franklin S&P 500 Index Fund					Franklin Small Cap Fund					Franklin Small Cap Value Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount
Class 1 Shares:
Year ended December 31, 2002
Shares sold	683,836		$	5,667,466		1,153,418		$	18,182,473		1,067,913		$	12,265,267
Shares issued on merger (Note 10)	—			—		1,202,758			20,098,091		—			—
Shares issued in reinvestment of distributions	55,911			421,572		63,569			968,152		97,904			1,118,068
Shares redeemed	(2,799,641	)		(20,660,739	)	(4,419,152	)		(64,791,026	)	(1,177,077	)		(12,299,482	)

Net increase (decrease)	(2,059,894	)	$	(14,571,701	)	(1,999,407	)	$	(25,542,310	)	(11,260	)	$	1,083,853

Year ended December 31, 2001
Shares sold	3,442,942		$	29,522,800		5,216,738		$	93,510,478		2,603,644		$	27,580,868
Shares issued in reinvestment of distributions	44,495			392,894		81,975			1,494,401		77,083			834,811
Shares redeemed	(2,955,317	)		(25,503,756	)	(8,687,695	)		(155,974,540	)	(1,682,135	)		(17,314,467	)

Net increase (decrease)	532,120		$	4,411,938		(3,388,982	)	$	(60,969,661	)	998,592		$	11,101,212

Class 2 Shares:
Year ended December 31, 2002
Shares sold	1,180,076		$	9,690,271		23,004,447		$	326,745,200		10,964,657		$	116,028,421
Shares issued on merger (Note 10)	—			—		36,720			609,184		—			—
Shares issued in reinvestment of distributions	13,643			102,463		65,654			994,005		211,202			2,392,912
Shares redeemed	(453,052	)		(3,392,977	)	(12,868,867	)		(177,349,161	)	(1,285,701	)		(12,799,700	)

Net increase	740,667		$	6,399,757		10,237,954		$	150,999,228		9,890,158		$	105,621,633

Year ended December 31, 2001
Shares sold	192,134		$	1,599,877		24,732,130		$	440,412,015		2,766,851		$	28,619,896
Shares issued in reinvestment of distributions	39			347		67,732			1,228,650		41,921			451,074
Shares redeemed	(10,283	)		(86,594	)	(16,555,130	)		(291,370,596	)	(396,376	)		(4,199,291	)

Net increase	181,890		$	1,513,630		8,244,732		$	150,270,069		2,412,396		$	24,871,679

Class 3 Shares^b:
Year ended December 31, 2002
Shares sold	1,362,841		$	11,137,224
Shares redeemed	(3,734,683	)		(29,240,032	)

Net increase	(2,371,842	)	$	(18,102,808	)

Year ended December 31, 2001
Shares sold	2,180,403		$	18,706,567
Shares issued in reinvestment of distributions	12,467			109,458
Shares redeemed	(878,876	)		(7,391,158	)

Net increase	1,313,994		$	11,424,867


	Franklin Technology Securities Fund					Franklin U.S. Government Fund					Franklin Zero Coupon Fund - 2005

	Shares		Amount			Shares		Amount			Shares		Amount
Class 1 Shares:
Year ended December 31, 2002
Shares sold	1,573		$	7,267		2,108,070		$	27,924,326		950,914		$	15,344,598
Shares issued in reinvestment of distributions	—			—		1,762,519			22,736,492		258,041			3,999,637
Shares redeemed	(339,920	)		(1,349,356	)	(5,568,427	)		(74,382,480	)	(645,333	)		(10,416,020	)

Net increase (decrease)	(338,347	)	$	(1,342,089	)	(1,697,838	)	$	(23,721,662	)	563,622		$	8,928,215

Year ended December 31, 2001
Shares sold	980,416		$	6,176,847		3,465,164		$	45,802,899		467,781		$	7,482,642
Shares issued in reinvestment of distributions	—			—		2,260,260			28,682,700		287,603			4,403,206
Shares redeemed	(1,217,667	)		(7,086,628	)	(8,169,867	)		(108,121,061	)	(917,469	)		(14,738,828	)

Net decrease	(237,251	)	$	(909,781	)	(2,444,443	)	$	(33,635,462	)	(162,085	)	$	(2,852,980	)

257

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST (cont.)

	Franklin Technology Securities Fund					Franklin U.S. Government Fund

	Shares		Amount			Shares		Amount

Class 2 Shares:
Year ended December 31, 2002
Shares sold	2,246,276		$	7,887,144		9,927,016		$	131,615,360
Shares issued in reinvestment of distributions	—			—		292,349			3,744,993
Shares redeemed	(356,916	)		(1,364,083	)	(1,859,896	)		(24,684,800	)

Net increase	1,889,360		$	6,523,061		8,359,469		$	110,675,553

Year ended December 31, 2001
Shares sold	1,758,618		$	10,174,555		6,896,233		$	90,405,523
Shares issued in reinvestment of distributions	—			—		78,838			994,935
Shares redeemed	(363,746	)		(1,971,563	)	(5,491,777	)		(71,639,438	)

Net increase	1,394,872		$	8,202,992		1,483,294		$	19,761,020


	Franklin Zero Coupon Fund - 2010					Mutual Discovery Securities Fund					Mutual Shares Securities Fund

	Shares		Amount			Shares		Amount			Shares		Amount

Class 1 Shares:
Year ended December 31, 2002
Shares sold	2,523,146		$	40,144,293		500,372		$	6,299,567		1,104,143		$	15,457,891
Shares issued in reinvestment of distributions	347,582			5,137,264		403,663			5,090,192		805,488			10,978,800
Shares redeemed	(2,073,783	)		(32,786,639	)	(2,970,808	)		(35,579,012	)	(6,372,892	)		(82,683,367	)

Net increase (decrease)	796,945		$	12,494,918		(2,066,773	)	$	(24,189,253	)	(4,463,261	)	$	(56,246,676	)

Year ended December 31, 2001
Shares sold	774,932		$	12,454,014		683,165		$	9,492,676		3,012,112		$	43,758,966
Shares issued in reinvestment of distributions	405,893			6,031,571		2,008,699			26,514,833		2,336,789			33,556,293
Shares redeemed	(1,291,546	)		(21,041,137	)	(2,721,296	)		(36,781,930	)	(5,577,485	)		(80,354,587	)

Net decrease	(110,721	)	$	(2,555,552	)	(29,432	)	$	(774,421	)	(228,584	)	$	(3,039,328	)

Class 2 Shares:
Year ended December 31, 2002
Shares sold						8,904,270		$	107,444,507		36,489,325		$	472,129,169
Shares issued in reinvestment of distributions						39,168			490,782		948,345			12,869,044
Shares redeemed						(6,003,911	)		(73,853,699	)	(7,102,935	)		(87,226,207	)

Net increase						2,939,527		$	34,081,590		30,334,735		$	397,772,006

Year ended December 31, 2001
Shares sold						9,516,328		$	118,869,743		17,449,242		$	247,933,275
Shares issued in reinvestment of distributions						20,135			264,575		559,326			8,015,141
Shares redeemed						(9,153,280	)		(114,508,291	)	(1,896,089	)		(26,602,795	)

Net increase						383,183		$	4,626,027		16,112,479		$	229,345,621


	Templeton Developing Markets Securities Fund					Templeton Foreign Securities Fund					Templeton Global Asset Allocation Fund

	Shares		Amount			Shares		Amount			Shares		Amount

Class 1 Shares:
Year ended December 31, 2002
Shares sold	20,100,040		$	96,134,388		16,717,042		$	179,100,108		526,225		$	7,952,010
Shares issued on merger (Note 10)	—			—		1,133,785			13,775,492		—			—
Shares issued in reinvestment of distributions	751,734			3,878,945		754,190			8,763,684		578,357			9,120,690
Shares redeemed	(23,322,593	)		(112,128,916	)	(24,542,240	)		(265,795,668	)	(4,250,902	)		(63,920,636	)

Net decrease	(2,470,819	)	$	(12,115,583	)	(5,937,223	)	$	(64,156,384	)	(3,146,320	)	$	(46,847,936	)

258

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

2. SHARES OF BENEFICIAL INTEREST (cont.)

	Templeton Developing Markets Securities Fund					Templeton Foreign Securities Fund					Templeton Global Asset Allocation Fund

	Shares		Amount			Shares		Amount			Shares		Amount

Year ended December 31, 2001
Shares sold	23,829,962		$	119,530,717		29,920,018		$	420,670,202		482,742		$	8,364,185
Shares issued in reinvestment of distributions	523,937			2,724,470		13,351,812			173,173,002		3,678,415			59,663,894
Shares redeemed	(31,504,501	)		(157,231,646	)	(36,903,986	)		(516,834,268	)	(4,534,037	)		(75,926,361	)

Net increase (decrease)	(7,150,602	)	$	(34,976,459	)	6,367,844		$	77,008,936		(372,880	)	$	(7,898,282	)

Class 2 Shares:
Year ended December 31, 2002
Shares sold	65,809,894		$	323,925,644		160,323,831		$	1,703,285,592		2,038,410		$	29,793,094
Shares issued on merger (Note 10)	—			—		1,702,025			20,475,362		—			—
Shares issued in reinvestment of distributions	223,645			1,149,535		374,013			4,308,628		47,872			750,622
Shares redeemed	(62,244,002	)		(307,959,984	)	(149,780,718	)		(1,607,670,068	)	(1,859,712	)		(26,977,596	)

Net increase	3,789,537		$	17,115,195		12,619,151		$	120,399,514		226,570		$	3,566,120

Year ended December 31, 2001
Shares sold	167,290,965		$	796,982,738		187,930,112		$	2,573,046,300		1,417,616		$	23,183,700
Shares issued in reinvestment of distributions	93,937			485,657		3,950,390			50,841,516		240,301			3,878,467
Shares redeemed	(164,748,164	)		(788,728,508	)	(182,688,657	)		(2,511,160,619	)	(819,294	)		(12,843,652	)

Net increase	2,636,738		$	8,739,887		9,191,845		$	112,727,197		838,623		$	14,218,515

	Templeton Global Income Securities Fund					Templeton Growth Securities Fund

	Shares		Amount			Shares		Amount


Class 1 Shares:
Year ended December 31, 2002
Shares sold	256,364		$	3,077,773		27,335,041		$	291,949,245
Shares issued in reinvestment of distributions	60,012			721,350		3,694,764			38,499,445
Shares redeemed	(2,210,800	)		(26,981,172	)	(41,405,187	)		(432,623,337	)

Net decrease	(1,894,424	)	$	(23,182,049	)	(10,375,382	)	$	(102,174,647	)

Year ended December 31, 2001
Shares sold	891,523		$	10,054,626		34,407,516		$	411,498,298
Shares issued in reinvestment of distributions	241,863			2,604,868		17,864,296			200,794,692
Shares redeemed	(2,571,685	)		(29,133,208	)	(49,693,524	)		(595,274,396	)

Net increase (decrease)	(1,438,299	)	$	(16,473,714	)	2,578,288		$	17,018,594


Class 2 Shares:
Year ended December 31, 2002
Shares sold	54,900		$	671,632		21,239,772		$	207,175,310
Shares issued in reinvestment of distributions	1,310			15,678		624,508			6,463,655
Shares redeemed	(13,677	)		(169,063	)	(10,095,406	)		(99,791,856	)

Net increase	42,533		$	518,247		11,768,874		$	113,847,109

Year ended December 31, 2001
Shares sold	1,316,779		$	15,116,152		24,877,364		$	299,417,251
Shares issued in reinvestment of distributions	3,397			36,450		1,471,336			16,449,534
Shares redeemed	(1,314,468	)		(15,108,604	)	(21,775,179	)		(264,951,961	)

Net increase	5,708		$	43,998		4,573,521		$	50,914,824

^a	For the Franklin Aggressive Growth Securities Fund – Class 2, for the period February 12, 2001 (effective date) to December 31, 2001.

^b	On June 3, 2002 the Franklin S&P 500 Index Fund – Class 3 was liquidated.

259

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES

Certain officers and trustees of the Trust are also officers and/or directors of the following entities:

Entity		Affiliation

Franklin Templeton Services LLC (FT Services)		Administrative manager
Franklin Advisers Inc. (Advisers)		Investment manager
Franklin Advisory Services LLC (Advisory Services)		Investment manager
Franklin Mutual Advisers LLC (Franklin Mutual)		Investment manager
Templeton Asset Management Ltd. (TAML)		Investment manager
Templeton Global Advisors Ltd. (TGAL)		Investment manager
Templeton Investment Counsel LLC (TIC)		Investment manager
Franklin/Templeton Distributors Inc. (Distributors)		Principal underwriter
Franklin/Templeton Investor Services LLC (Investor Services)		Transfer agent

The Franklin Global Communications Securities Fund, the Franklin Growth and Income Securities Fund, the Franklin High Income Fund, the Franklin Income Securities Fund, the Franklin Money Market Fund, the Franklin Real Estate Fund, the Franklin U.S. Government Fund, the Franklin Zero Coupon Fund - 2005, the Franklin Zero Coupon Fund - 2010, and the Templeton Global Income Securities Fund pay an investment management fee to Advisers based on the average net assets of the funds, as follows:

Annualized Fee Rate		Daily Net Assets

.625%		First $100 million
.50%		Over $100 million, up to and including $250 million
.45%		Over $250 million, up to and including $10 billion

Fees are further reduced on net assets over $10 billion.

The Templeton Foreign Securities Fund pays an investment management fee to TIC based on the average net assets of the fund as follows:

Annualized Fee Rate		Daily Net Assets

.75%		First $200 million
.675%		Over $200 million, up to and including $1.3 billion
.60%		Over $1.3 billion

The Franklin Aggressive Growth Securities Fund pays an investment management fee to Advisers based on the average net assets of the fund as follows:

Annualized Fee Rate		Daily Net Assets

.50%		First $500 million
.40%		Over $500 million, up to and including $1 billion
.35%		Over $1 billion, up to and including $1.5 billion

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

The Franklin Small Cap Fund and the Franklin Technology Securities Fund pay an investment management fee to Advisers based on the average net assets of each fund as follows:

Annualized Fee Rate		Daily Net Assets

.55%		First $500 million
.45%		Over $500 million, up to and including $1 billion
.40%		Over $1 billion, up to and including $1.5 billion

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

260

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES (cont.)

The Templeton Growth Securities Fund pays an investment management fee to TGAL based on the average net assets of the fund as follows:

Annualized Fee Rate		Daily Net Assets

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

Under a subadvisory agreement, TAML, an affiliate of TGAL, provides subadvisory services to the Templeton Growth Securities Fund and receives from TGAL fees based on the average daily net assets of the Fund.

The Franklin Large Cap Growth Securities Fund and the Franklin Rising Dividends Securities Fund pay an investment management fee to Advisers and Advisory Services, respectively, based on the average net assets of each fund as follows:

Annualized Fee Rate		Daily Net Assets

.75%		First $500 million
.625%		Over $500 million, up to and including $1 billion
.50%		Over $1 billion

The Franklin Small Cap Value Securities Fund pays an investment management fee to Advisory Services based on the average net assets of the fund as follows:

Annualized Fee Rate		Daily Net Assets

.60%		First $200 million
.50%		Over $200 million, up to and including $1.3 billion
.40%		Over $1.3 billion

The Templeton Global Asset Allocation Fund pays an investment management fee to TIC based on the average net assets of the fund as follows:

Annualized Fee Rate		Daily Net Assets

.65%		First $200 million
.585%		Over $200 million, up to and including $1.3 billion
.52%		Over $1.3 billion

Under a subadvisory agreement, Advisers, an affiliate of TIC, provides subadvisory services to the Templeton Global Asset Allocation Fund and receives from TIC fees based on the average daily net assets of the Fund.

The Franklin S&P 500 Index Fund pays an investment management fee to Advisers of .15% per year of the average daily net assets of the fund.

Under a subadvisory agreement, State Street Global Advisors (SSGA) provides subadvisory services to the Franklin S&P 500 Index Fund and receives from Advisers fees based on the average daily net assets of the fund.

The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund pay an investment management fee to Franklin Mutual of .80% and .60%, respectively, per year of the average daily net assets of each fund.

The Templeton Developing Markets Securities 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 their respective investment managers, FT Services provides administrative services to the Funds, except for the Franklin Aggressive Growth Securities Fund, the Franklin S&P 500 Index Fund, the Franklin Small Cap Fund, the Franklin Small Cap Value Securities Fund, the Franklin Technology Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Developing Markets Securities Fund, the Templeton Foreign Securities Fund and the Templeton Global Asset Allocation Fund. The fee is paid by each fund’s respective investment manager based on the average daily net assets, and is not an additional expense of the Funds.

261

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES (cont.)

The Franklin Small Cap Value Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Developing Markets Securities Fund, the Templeton Foreign Securities Fund and the Templeton Global Asset Allocation Fund, pay administrative fees to FT Services based on the average daily net assets of each fund as follows:

Annualized Fee Rate		Daily Net Assets

.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

Fees are further reduced on net assets over $1.2 billion.

The Franklin Aggressive Growth Securities Fund, the Franklin S&P 500 Index Fund, the Franklin Small Cap Fund, and the Franklin Technology Securities Fund pay an administrative fee to FT Services of .20%, .10%, .25%, and .25%, respectively, per year of the average daily net assets of each fund.

Advisers and FT Services agreed in advance to waive Class 3 expenses for the Franklin S&P 500 Index Fund, as noted in the Statement of Operations.

The Funds reimburse Distributors up to .25% per year of their average daily net assets of Class 2 and Class 3, for costs incurred in marketing the Funds’ shares. No payments were made by the Franklin Zero Coupon Fund - 2005 and the Franklin Zero Coupon - 2010, for the year ended December 31, 2002.

Investor Services, under terms of an agreement, performs shareholder servicing for the Funds and is not paid by the Funds, except for Class 3 of the Franklin S&P 500 Index Fund.

4. INCOME TAXES

At December 31, 2002, certain funds had tax basis capital losses, which may be carried over to offset future capital gains. Such losses expire as follows:

	Franklin Aggressive Growth Securities Fund		Franklin Global Communications Securities Fund		Franklin Growth and Income Securities Fund		Franklin High Income Fund		Franklin Income Securities Fund

Capital loss carryovers expiring in:
2007	$	—	$	—	$	—	$	2,294,320	$	—
2008		596,259		—		—		26,944,467		—
2009		7,013,264		156,814,955		—		14,152,532		—
2010		1,650,322		108,979,162		16,950,178		46,366,314		9,035,077

	$	9,259,845	$	265,794,117	$	16,950,178	$	89,757,633	$	9,035,077


	Franklin Large Cap Growth Securities Fund		Franklin Money Market Fund		Franklin Real Estate Fund		Franklin S&P 500 Index Fund		Franklin Small Cap Fund

Capital loss carryovers expiring in:
2006	$	—	$	371	$	—	$	—	$	—
2008		—		486		3,525,702		—		11,665,898
2009		8,952,191		—		—		957,548		23,790,865
2010		39,271,476		444		—		15,794,879		89,640,011

	$	48,223,667	$	1,301	$	3,525,702	$	16,752,427	$	125,096,774

262

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

4. INCOME TAXES (cont.)

	Franklin Small Cap Value Securities Fund		Franklin Technology Securities Fund		Franklin U.S. Government Fund		Franklin Zero Coupon Fund - 2010		Mutual Discovery Securities Fund

Capital loss carryovers expiring in:
2003	$	—	$	—	$	826,481	$	—	$	—
2005		—		—		169,754		—		—
2008		—		133,401		5,752,213		—		—
2009		—		7,345,627		—		—		—
2010		968,401		6,569,890		—		274,229		6,699,672

	$	968,401	$	14,048,918	$	6,748,448	$	274,229	$	6,699,672

	Mutual Shares Securities Fund		Templeton Developing Markets Securities Fund		Templeton Foreign Securities Fund		Templeton Global Asset Allocation Fund		Templeton Global Income Securities Fund

Capital loss carryovers expiring in:
2003	$	—	$	—	$	—	$	—	$	1,605,323
2006		—		37,259,962		—		—		—
2007		—		91,657,992		—		—		5,870,061
2008		—		—		—		—		2,370,518
2009		—		62,323,035		25,468,205		5,082,133		1,649,033
2010		33,868,516		24,165,498		54,671,097		443,666		177,730

	$	33,868,516	$	215,406,487	$	80,139,302	$	5,525,799	$	11,672,665


	Templeton Growth Securities Fund
Capital loss carryovers expiring in:
2010	$	52,333,376

At December 31, 2002, the following funds had expired capital loss carryovers, which were reclassified to paid-in capital:

Franklin U.S. Government Fund		Templeton Global Income Securities Fund

$	5,129,504	$	1,294,963

At December 31, 2002, the following funds had deferred capital losses occurring subsequent to October 31, 2002. For tax purposes, such losses will be reflected in the year ending December 31, 2003.

Franklin Growth and Income Securities Fund		Franklin High Income Fund		Franklin Income Securities Fund		Franklin Large Cap Growth Securities Fund		Franklin S&P 500 Index Fund

$	2,092,513	$	11,679,495	$	7,988,605	$	2,638,079	$	657,675

Franklin Small Cap Fund		Franklin Small Cap Value Securities Fund		Franklin Technology Securities Fund		Franklin U.S. Government Fund		Mutual Discovery Securities Fund

$	1,879,520	$	312,657	$	429,864	$	351,305	$	3,691,853

Mutual Shares Securities Fund		Templeton Developing Markets Securities Fund		Templeton Foreign Securities Fund		Templeton Global Asset Allocation Fund		Templeton Growth Securities Fund

$	8,980,840	$	1,289,566	$	35,348,694	$	352,080	$	8,457,744

263

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

4. INCOME TAXES (cont.)

At December 31, 2002, the following funds had deferred currency losses occurring subsequent to October 31, 2002. For tax purposes, such losses will be reflected in the year ending December 31, 2003.

Franklin Global

Communications

Securities Fund

Franklin Income

Securities Fund

Franklin Small

Cap Fund

Templeton

Developing Markets

Securities Fund

$31,830

$439

$247

$121,846

Net investment income (loss) differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions, passive foreign investment company shares, paydown losses, mortgage dollar rolls, and bond discounts and premiums.

Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions, passive foreign investment company shares, mortgage dollar rolls, paydown losses, bond discounts and premiums, payment in kind bonds, and financial futures transactions.

The tax character of distributions paid during the years ended December 31, 2002 and 2001, were as follows:

	Franklin Aggressive Growth Securities Fund				Franklin Global Communications Securities Fund				Franklin Growth and Income Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	—	$	17,315	$	1,660,055	$	285,840	$	17,935,266	$	20,704,520
Long-term capital gains		—		—		—		86,543,764		35,576,606		47,272,339

	$	—	$	17,315	$	1,660,055	$	86,829,604	$	53,511,872	$	67,976,859

	Franklin High Income Fund				Franklin Income Securities Fund				Franklin Large Cap Growth Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	20,040,738	$	28,916,223	$	52,277,504	$	47,296,525	$	2,016,311	$	28,171,645
Long-term capital gains		—		—		5,523,400		29,286,058		—		54,820,981

	$	20,040,738	$	28,916,223	$	57,800,904	$	76,582,583	$	2,016,311	$	82,992,626

	Franklin Money Market Fund				Franklin Real Estate Fund				Franklin Rising Dividends Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	2,127,614	$	10,900,741	$	8,160,161	$	7,654,576	$	4,798,787	$	2,341,023
Long-term capital gains		—		—		—		—		7,374,890		18,569,259

	$	2,127,614	$	10,900,741	$	8,160,161	$	7,654,576	$	12,173,677	$	20,910,282

264

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

4. INCOME TAXES (cont.)

	Franklin S&P 500 Index Fund				Franklin Small Cap Fund				Franklin Small Cap Value Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	524,035	$	502,698	$	1,962,156	$	2,723,051	$	1,793,020	$	649,926
Long-term capital gains		—		—		—		—		1,717,960		635,959

	$	524,035	$	502,698	$	1,962,156	$	2,723,051	$	3,510,980	$	1,285,885


	Franklin U.S. Government Fund				Franklin Zero Coupon Fund - 2005				Franklin Zero Coupon Fund - 2010

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	26,481,485	$	29,677,635	$	3,839,357	$	3,835,736	$	3,247,895	$	3,643,036
Long-term capital gains		—		—		160,280		567,470		1,889,369		2,388,535

	$	26,481,485	$	29,677,635	$	3,999,637	$	4,403,206	$	5,137,264	$	6,031,571


	Mutual Discovery Securities Fund				Mutual Shares Securities Fund				Templeton Developing Markets Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	4,560,237	$	10,023,072	$	8,944,526	$	26,160,340	$	5,028,480	$	3,210,127
Long-term capital gains		1,020,737		16,756,336		14,903,318		15,411,094		—		—

	$	5,580,974	$	26,779,408	$	23,847,844	$	41,571,434	$	5,028,480	$	3,210,127


	Templeton Foreign Securities Fund				Templeton Global Asset Allocation Fund				Templeton Global Income Securities Fund

	2002		2001		2002		2001		2002		2001

Distributions paid from:
Ordinary income	$	13,072,312	$	68,164,597	$	9,871,312	$	12,066,412	$	737,028	$	2,641,318
Long-term capital gains		—		155,849,922		—		51,475,949		—		—

	$	13,072,312	$	224,014,519	$	9,871,312	$	63,542,361	$	737,028	$	2,641,318

	Templeton Growth Securities Fund

	2002		2001

Distributions paid from:
Ordinary income	$	33,239,449	$	65,123,660
Long-term capital gains		11,723,651		152,120,566

	$	44,963,100	$	217,244,226

265

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

4. INCOME TAXES (cont.)

At December 31, 2002, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:

	Franklin Aggressive Growth Securities Fund			Franklin Global Communications Securities Fund			Franklin Growth and Income Securities Fund			Franklin High Income Fund			Franklin Income Securities Fund

Cost of investments	$	5,848,794		$	157,739,054		$	493,757,421		$	178,337,517		$	579,297,513

Unrealized appreciation	$	300,471		$	3,392,440		$	36,987,354		$	2,922,441		$	50,632,346
Unrealized depreciation		(1,126,188	)		(29,077,498	)		(37,453,870	)		(64,157,312	)		(132,087,652	)
Net unrealized appreciation (depreciation)	$	(825,717	)	$	(25,685,058	)	$	(466,516	)	$	(61,234,871	)	$	(81,455,306	)

Undistributed ordinary income	$	—		$	1,267,036		$	17,143,153		$	11,749,771		$	34,263,915
Undistributed long-term capital gains		—			—			—			—			—

Distributable earnings	$	—		$	1,267,036		$	17,143,153		$	11,749,771		$	34,263,915


	Franklin Large Cap Growth Securities Fund			Franklin Real Estate Fund			Franklin Rising Dividends Securities Fund			Franklin S&P 500 Index Fund			Franklin Small Cap Fund

Cost of investments	$	219,799,024		$	338,624,676		$	265,547,099		$	33,508,695		$	660,473,242

Unrealized appreciation	$	15,934,790		$	36,198,299		$	99,417,111		$	2,439,511		$	67,539,045
Unrealized depreciation		(27,437,069	)		(15,087,702	)		(8,679,740	)		(9,932,539	)		(147,865,024	)

Net unrealized appreciation (depreciation)	$	(11,502,279	)	$	21,110,597		$	90,737,371		$	(7,493,028	)	$	(80,325,979	)

Undistributed ordinary income	$	1,757,894		$	13,858,989		$	4,038,995		$	533,367		$	—
Undistributed long-term capital gains		—			—			12,392,415			—			—

Distributable earnings	$	1,757,894		$	13,858,989		$	16,431,410		$	533,367		$	—


	Franklin Small Cap Value Securities Fund			Franklin Technology Securities Fund			Franklin U.S. Government Fund			Franklin Zero Coupon Fund - 2005			Franklin Zero Coupon Fund - 2010

Cost of investments	$	168,005,305		$	14,033,112		$	498,814,568		$	62,644,381		$	55,868,514

Unrealized appreciation	$	10,794,779		$	536,262		$	25,843,191		$	8,371,026		$	12,423,567
Unrealized depreciation		(20,994,296	)		(1,738,672	)		(137,515	)		—			—

Net unrealized appreciation (depreciation)	$	(10,199,517	)	$	(1,202,410	)	$	25,705,676		$	8,371,026		$	12,423,567

Undistributed ordinary income	$	509,154		$	—		$	26,466,533		$	3,660,335		$	3,092,781
Undistributed long-term capital gains		—			—			—			235,423			—

Distributable earnings	$	509,154		$	—		$	26,466,533		$	3,895,758		$	3,092,781


	Mutual Discovery Securities Fund			Mutual Shares Securities Fund			Templeton Developing Markets Securities Fund			Templeton Foreign Securities Fund			Templeton Global Asset Allocation Fund

Cost of investments	$	158,213,774		$	896,360,217		$	325,124,249		$	792,231,381		$	527,530,395

Unrealized appreciation	$	17,072,607		$	66,729,995		$	25,545,773		$	80,274,143		$	53,834,216
Unrealized depreciation		(13,867,725	)		(72,071,812	)		(48,154,629	)		(183,325,473	)		(119,783,042	)

Net unrealized appreciation (depreciation)	$	3,204,882		$	(5,341,817	)	$	(22,608,856	)	$	(103,051,330	)	$	(65,948,826	)

Undistributed ordinary income	$	3,219,509		$	11,864,093		$	4,611,683		$	14,511,219		$	14,007,715
Undistributed long-term capital gains		—			—			—			—			—

Distributable earnings	$	3,219,509		$	11,864,093		$	4,611,683		$	14,511,219		$	14,007,715

266

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Notes to Financial Statements (continued)

4. INCOME TAXES (cont.)

	Templeton Global Income Securities Fund			Templeton Growth Securities Fund

Cost of investments	$	47,314,037		$	1,008,246,937

Unrealized appreciation	$	4,620,578		$	67,672,563
Unrealized depreciation		(671,313	)		(227,931,634	)

Net unrealized appreciation (depreciation)	$	3,949,265		$	(160,259,069	)

Undistributed ordinary income	$	4,303,891		$	15,907,519
Undistributed long-term capital gains		—			—

Distributable earnings	$	4,303,891		$	15,907,519

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities and securities sold short) for the year ended December 31, 2002 were as follows:

	Franklin Aggressive Growth Securities Fund		Franklin Global Communications Securities Fund		Franklin Growth and Income Securities Fund		Franklin High Income Fund		Franklin Income Securities Fund


Purchases	$	6,841,256	$	155,010,676	$	547,370,948	$	67,729,566	$	299,942,199
Sales	$	7,086,366	$	184,302,233	$	590,742,204	$	82,010,100	$	295,080,423

	Franklin Large Cap Growth Securities Fund		Franklin Real Estate Fund		Franklin Rising Dividends Securities Fund		Franklin S&P 500 Index Fund		Franklin Small Cap Fund

Purchases	$	138,545,315	$	186,538,522	$	57,888,363	$	12,530,749	$	354,689,448
Sales	$	169,870,689	$	49,832,322	$	50,396,818	$	38,444,050	$	156,387,207

	Franklin Small Cap Value Securities Fund		Franklin Technology Securities Fund		Franklin U.S. Government Fund		Franklin Zero Coupon Fund - 2005		Franklin Zero Coupon Fund - 2010

Purchases	$	109,866,263	$	22,352,755	$	460,968,802	$	12,104,145	$	16,954,893
Sales	$	5,242,511	$	17,042,503	$	384,937,310	$	7,843,566	$	10,674,983

	Mutual Discovery Securities Fund		Mutual Shares Securities Fund		Templeton Developing Markets Securities Fund		Templeton Foreign Securities Fund		Templeton Global Asset Allocation Fund

Purchases	$	74,782,345	$	496,350,063	$	179,676,065	$	197,703,396	$	131,722,754
Sales	$	65,128,682	$	278,490,204	$	178,301,597	$	192,795,172	$	167,050,036

							Templeton Global Income Securities Fund		Templeton Growth Securities Fund

Purchases							$	15,510,847	$	357,533,135
Sales							$	33,552,907	$	283,338,391

267

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Notes to Financial Statements (continued)

5. INVESTMENT TRANSACTIONS (cont.)

Transactions in call options written during the year ended December 31, 2002 were as follows:

Mutual Discovery Securities Fund

	Number of Contracts		Premiums Received

Options outstanding at December 31, 2001	—		$	—
Options written	18,576			44,622
Options expired	(7,756	)		(25,443	)
Options exercised	(805	)		(6,554	)
Options closed	(15	)		(7,054	)

Options outstanding at December 31, 2002	10,000		$	5,571

Mutual Shares Securities Fund

	Number of Contracts		Premiums Received

Options outstanding at December 31, 2001	—		$	—
Options written	88,441			206,557
Options expired	(33,528	)		(91,281	)
Options exercised	(3,538	)		(35,654	)
Options closed	(75	)		(47,820	)

Options outstanding at December 31, 2002	51,300		$	31,802

6. INVESTMENT IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

Certain funds in the Trust may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Advisers or one of its affiliates. Management fees paid by the Funds are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management fees paid by the Sweep Money Fund.

The Funds earned dividend income from investment in the Sweep Money Fund as follows:

Franklin Aggressive Growth Securities Fund	Franklin Rising Dividends Securities Fund	Franklin S&P 500 Index Fund	Franklin Small Cap Fund	Franklin Small Cap Value Securities Fund

$8,834	$155,980	$ 39,014	$1,324,238	$184,314

Franklin Technology Securities Fund	Mutual Shares Securities Fund	Templeton Foreign Securities Fund	Templeton Global Asset Allocation Fund

$11,882	$243,755	$586,484	$ 365,178

268

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

7. FINANCIAL FUTURES AND FORWARD CURRENCY CONTRACTS

At December 31, 2002, certain funds have outstanding forward exchange contracts as set out below. The contracts are reported in the financial statements at each fund’s net equity, as measured by the difference between the forward exchange rates at the reporting date and the forward exchange rates at the day of entry into the contracts.

Mutual Discovery Securities Fund

Contracts to Buy		In Exchange For			Settlement Date	Unrealized Gains (Losses)

800,000	British Pounds	U.S.	$	1,254,045	1/28/03	U.S.	$	31,222
2,523,050	Danish Krone			336,266	3/17/03			18,993
2,373,500	Norwegian Krone			313,636	4/15/03			24,208

		U.S.	$	1,903,947		U.S.	$	74,423

Contracts to Sell

549,494	British Pounds	U.S.	$	882,982	1/28/03	U.S.	$	109
1,176,200	Canadian Dollars			746,110	2/21/03			3,103

		U.S.	$	1,629,092			$	3,212

Unrealized gain on forward exchange contracts						U.S.	$	77,635

Contracts to Sell

800,000	European Unit	U.S.	$	779,834	1/08/03	U.S.	$	(59,386	)
5,707,631	Swiss Franc			3,931,025	1/13/03			(198,079	)
9,750,603	British Pounds			15,271,981	1/28/03			(393,213	)
900,000	European Unit			880,699	1/28/03			(62,593	)
7,628,586	Canadian Dollars			4,802,822	2/21/03			(16,170	)
2,787,550	Korean Won			2,284,323	3/05/03			(51,910	)
250,000	European Unit			249,250	3/10/03			(12,355	)
25,033,513	Danish Krone			3,283,443	3/17/03			(241,426	)
290,563,750	Japanese Yen			2,391,326	3/24/03			(64,847	)
19,167,563	Norwegian Krone			2,531,726	4/15/03			(196,578	)
5,890,164	European Unit			5,688,014	4/22/03			(465,153	)
50,000	European Unit			48,545	4/28/03			(3,676	)
9,630,538	European Unit			9,669,060	5/21/03			(380,735	)
21,607,278	Swedish Krona			2,413,796	6/23/03			(37,647	)

Unrealized loss on forward exchange contracts		U.S.	$	54,225,844			$	(2,183,768	)

Net unrealized loss on forward exchange contracts						U.S.	$	(2,106,133	)

269

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

7. FINANCIAL FUTURES AND FORWARD CURRENCY CONTRACTS (cont.)

Mutual Shares Securities Fund

Contracts to Buy			In Exchange for		Settlement Date		Unrealized Gains (Losses)

1,975,000	British Pounds	U.S.	$	3,095,441	1/28/03	U.S.	$	77,562
1,426,999	European Unit			1,435,347	3/10/03			57,892
1,500,000	Norwegian Krone			198,211	4/15/03			15,299

		U.S.	$	4,728,999		U.S.	$	150,753


Contracts to Sell
2,698,364	British Pounds	U.S.	$	4,336,001	1/28/03	U.S.	$	535
9,714,404	Canadian Dollars			6,195,343	2/21/03			58,736

		U.S.	$	10,531,344			$	59,271

Unrealized gain on forward exchange contracts						U.S.	$	210,024


Contracts to Sell
14,206,940	European Unit	U.S.	$	13,802,373	1/08/03	U.S.	$	(1,101,065	)
16,401,440	Swiss Franc			11,348,319	1/13/03			(517,070	)
31,120,686	British Pounds			48,771,056	1/28/03			(1,226,940	)
5,062,556	European Unit			4,938,759	1/28/03			(367,313	)
13,900,060	Canadian Dollars			8,751,652	2/21/03			(29,041	)
4,820,440	European Unit			4,805,979	3/10/03			(238,222	)
1,405,110,500	Japanese Yen			11,563,674	3/24/03			(313,910	)
4,826,333	European Unit			4,732,107	4/15/03			(311,031	)
33,881,079	Norwegian Krone			4,505,885	4/15/03			(316,787	)
11,377,124	European Unit			10,986,661	4/22/03			(898,465	)
225,000	European Unit			218,453	4/28/03			(16,542	)
2,390,420	British Pounds			3,731,445	5/19/03			(79,862	)
1,9585,129	European Unit			19,663,469	5/21/03			(774,282	)

		U.S.	$	147,819,832			$	(6,190,530	)

Unrealized loss on offsetting forward exchange contracts								(26,648	)

Unrealized loss on forward exchange contracts								(6,217,178	)

Net unrealized loss on forward exchange contracts						U.S.	$	(6,007,154	)

As of December 31, 2002, the Franklin S&P 500 Index Fund had the following futures contracts outstanding:

Contracts to Buy	Number of Contracts	Delivery Dates	Contract Face Value	Unrealized Loss

S&P 500 Index, March 03	8	3/21/03	$1,757,800	$(34,539)

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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

8. CREDIT RISK AND DEFAULTED SECURITIES

The Franklin High Income Fund and the Franklin Income Securities Fund have 100% and 33.9%, respectively, of their portfolio invested in below investment grade and comparable quality unrated high yield securities, which tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At December 31, 2002, the Franklin High Income Fund, the Franklin Income Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund and the Templeton Global Asset Allocation Fund held defaulted securities with values aggregating $3,275,983, $4,913,233, $6,789,897, $35,159,515, and $4,963 respectively, representing 2.8%, 1.0%, 4.3%, 4.0% and 0%, respectively, of each fund’s net assets. For information as to specific securities, see the accompanying Statements of Investments.

For financial reporting purposes, the funds discontinue accruing income on defaulted bonds and those bonds for which the income is deemed uncollectible and provide an estimate for losses on interest receivable.

9. RESTRICTED SECURITIES

At December 31, 2002, investments in securities included issues that are restricted or illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may also be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At December 31, 2002, the Funds held investments in restricted and illiquid securities that were valued under approved methods by the Trustees, as follows:

Principal Amount/Shares	Issuer	Acqusition Date	Cost		Value

Franklin Aggressive Growth Securities Fund
944	Micro Photonix Integration Corp., pfd., C	6/23/00	$	5,962	$	—

Franklin High Income Fund
7,000	McCaw International Ltd., wts., 4/15/07	3/03/97	$	70	$	—
8,000	Poland Telecom Finance, wts., 12/01/07	11/24/97		48,000		—

	Total Restricted Securities				$	—

Franklin Small Cap Fund
41,093	3 Ware Inc., pfd., D	7/28/00	$	229,176	$	—
$170,520	3 Ware Inc., cvt., zero cpn.	10/18/01 - 5/07/02		170,520		—

	Total Restricted Securities				$	—

Franklin Technology Securities Fund
1,384	Micro Photonix Integration Corp., pfd., C	6/23/00	$	8,740	$	—

Mutual Discovery Securities Fund
33	International Steel Group	4/10/02	$	402,500	$	1,526,250
34,780	Leucadia National Corp	12/20/02		1,225,995		1,167,878
6,420	Montpelier Re Holdings Ltd	12/11/01		107,000		175,651
477,000	Nippon Investment LLC	2/14/01		471,035		512,823
2,140	Olympus Re Holdings Ltd	12/19/01		214,000		248,861
667	PG & E Corp, wts., 9/02/06	10/29/02		—		8,338
6,486	Security Capital European Realty	4/08/98		139,335		91,307
10	Torre Mayor Investments, LP	10/28/02		1,000,000		1,000,000
5,000	White Mountains Insurance Group Inc	6/01/02		1,000,000		1,534,250
2,796	White Mountains Insurance Group Inc., cvt., pfd.	10/22/02		824,820		812,797

	Total Restricted Securities (4.44% of net assets)				$	7,078,155

271

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

9. RESTRICTED SECURITIES (cont.)

Shares	Issuer	Acquisition Date	Cost		Value

Mutual Shares Securities Fund
161	International Steel Group	4/10/02	$	2,008,750	$	7,446,250
184,830	Leucadia National Corp	12/20/02		6,515,258		6,206,406
48,840	Montpelier Re Holdings Ltd	12/11/01		814,000		1,336,262
1,148,000	Nippon Investment LLC	2/14/01		1,133,644		1,234,215
16,280	Olympus Re Holdings Ltd	12/19/01		1,628,000		1,893,201
1,520	PG & E Corp, wts., 9/02/06	10/29/02		—		19,001
3,239	Rotech Medical Corp	3/27/02		12,952		—
12,731	Security Capital European Realty	4/08/98		273,495		179,221
15,000	White Mountains Insurance Group Inc	6/01/01		3,000,000		4,602,750
30,898	White Mountains Insurance Group Inc., cvt., pfd.	10/22/02		9,114,910		8,982,049

	Total Restricted Securities (3.63% of net assets)				$	31,899,355

10. MERGERS

On May 1, 2002, the Franklin Templeton Variable Insurance Products Trust (FTVIPT) - Franklin Growth and Income Securities Fund (Growth and Income) acquired the net assets of the FTVIPT - Franklin Natural Resources Securities Fund (Natural Resources) pursuant to a plan of reorganization. The merger was accomplished by a taxable exchange, and accounted for as a purchase.

The selected financial information and shares outstanding immediately before and after the acquisition were as follows:

	Class 1					Class 2

Fund Name	Net Assets		NAV		Shares	Net Assets		NAV		Shares

Natural Resources	$	25,081,974	$	13.06	1,920,611	$	6,599,428	$	13.02	506,701
Growth and Income	$	614,084,421	$	15.43	39,800,178	$	19,126,972	$	15.35	1,246,259

Growth and Income - post merger	$	639,166,395	$	15.43	41,425,711	$	25,726,400	$	15.35	1,676,189

On May 1, 2002, the FTVIPT - Franklin Small Cap Fund (Small Cap) acquired the net assets of the FTVIPT - Franklin Global Health Care Securities Fund (Health Care) pursuant to a plan of reorganization. The merger was accomplished by a taxable exchange, and accounted for as a purchase.

The selected financial information and shares outstanding immediately before and after the acquisition were as follows:

	Class 1					Class 2

Fund Name	Net Assets		NAV		Shares	Net Assets		NAV		Shares

Health Care	$	20,098,091	$	11.53	1,742,889	$	609,184	$	11.46	53,181
Small Cap	$	233,620,637	$	16.71	13,979,515	$	438,722,582	$	16.59	26,447,283

Small Cap - post merger	$	253,718,728	$	16.71	15,182,273	$	439,331,766	$	16.59	26,484,003

On May 1, 2002, the FTVIPT - Templeton Foreign Securities Fund (Foreign) acquired the net assets of the FTVIPT - Templeton International Smaller Companies Fund (International) pursuant to a plan of reorganization. The merger was accomplished by a taxable exchange, and accounted for as a purchase.

272

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Notes to Financial Statements (continued)

10. MERGERS (cont.)

The selected financial information and shares outstanding immediately before and after the acquisition were as follows:

	Class 1					Class 2

Fund Name	Net Assets		NAV		Shares	Net Assets		NAV		Shares

International	$	13,775,492	$	11.13	1,234,290	$	20,475,362	$	11.11	1,839,213
Foreign	$	545,708,561	$	12.15	44,908,453	$	266,341,959	$	12.03	22,143,863
Foreign - post merger	$	559,484,053	$	12.15	46,042,238	$	286,817,321	$	12.03	23,845,888

11. OTHER CONSIDERATIONS

Advisers, as the Fund’s Manager for the Franklin High Income Fund and Franklin Income Securities Fund, serve as a member of various bondholders’ steering committees, on credit committees, or may represent the Funds in certain corporate restructuring negotiations. Currently, Advisers serves in one or more of these capacities for Adelphia Communications Corp., Holt Group Inc., Magellan Health Services Inc., and Styling Technology Corp. As a result of this involvement, Advisers may be in possession of certain material non-public information. If the Fund’s Manager, while in possession of such information, seeks to sell any of its holdings in these securities it will comply with all applicable federal securities laws.

Members of the Mutual Discovery Securities Fund, Mutual Shares Securities Fund, and the Templeton Developing Markets Securities Fund Portfolio Management teams serve as members on the board of directors of certain companies in which the Funds invest and may represent the Funds in certain corporate negotiations. Currently, members of the Portfolio Management teams serve in this capacity for Kindred Healthcare Inc. and Lukoil Holdings. As a result of this involvement, the Portfolio Managers could receive certain material non-public information which, pursuant to the Funds’ policies and the requirements of the federal securities laws, could prevent the Funds from trading in the securities of such companies for limited or extended periods of time.

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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Independent Auditors’ Report

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the funds included in this report constituting part of the Franklin Templeton Variable Insurance Products Trust (hereafter referred to as the “Funds”) at December 31, 2002, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of Templeton Developing Markets Securities Fund, Templeton Foreign Securities Fund, and Templeton Global Asset Allocation Fund for the period ended December 31, 1998 were audited by other independent accountants whose report dated January 28, 1999 expressed an unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP

San Francisco, California

February 6, 2003

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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

Tax Designation (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby designate the following amounts as capital gain dividends for the fiscal year ended December 31, 2002.

Franklin Rising Dividends Securities Fund	Franklin Zero Coupon Fund - 2005

$12,394,635	$235,633

Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2002.

Franklin Global Communications Securities Fund	Franklin Growth and Income Securities Fund	Franklin Income Securities Fund	Franklin Large Cap Growth Securities Fund

86.81%	92.10%	17.15%	100%

Franklin Rising Dividends Securities Fund	Franklin S&P 500 Index Fund	Franklin Small Cap Fund	Franklin Small Cap Value Securities Fund

100%	100%	100%	67.21%

Mutual Discovery Securities Fund	Mutual Shares Securities Fund	Templeton Global Asset Allocation Fund	Templeton Growth Securities Fund

15.02%	54.19%	10.30%	16.03%

At December 31, 2002, more than 50% of the Mutual Discovery Securities Fund, Templeton Developing Markets Securities Fund, Templeton Foreign Securities Fund, Templeton Global Asset Allocation Fund, and the Templeton Growth Securities Fund total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from dividends paid to the funds on these investments. The funds intend to make an election under Section 853 of the Internal Revenue Code. This election will allow record date shareholders as of the 2003 distribution, to treat their proportionate share of foreign taxes paid by the funds as having been paid directly by them.

The foreign tax information will be disclosed in the June 30, 2003 semi-annual report of the funds.

275

Board Members and Officers

The name, age and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until that person’s successor is elected and qualified.

Independent Board Members

Name, Age and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held


FRANK H. ABBOTT, III (81) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1988	106	None

Principal Occupation During Past 5 Years: President and Director, Abbott Corporation (an investment company); and formerly, Director, MotherLode Gold Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing) (until 1996).


HARRIS J. ASHTON (70) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1988	133	Director, Bar-S Foods (meat packing company).

Principal Occupation During Past 5 Years: Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).


ROBERT F. CARLSON (74) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1998	42	None

Principal Occupation During Past 5 Years: Vice President and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS); and formerly, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation.


S. JOSEPH FORTUNATO (70) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1989	134	None

Principal Occupation During Past 5 Years: Attorney; and formerly, member of the law firm of Pitney, Hardin, Kipp & Szuch.


FRANK W.T. LAHAYE (73) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1988	106	Director, The California Center for Land Recycling (redevelopment).

Principal Occupation During Past 5 Years: General Partner, Las Olas L.P. (Asset Management); and formerly, Chairman, Peregrine Venture Management Company (venture capital).


GORDON S. MACKLIN (74) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1993	133	Director, White Mountains Insurance Group, Ltd. (holding company); Martek Biosciences Corporation; MedImmune, Inc. (biotechnology); Overstock.com (Internet services); and Spacehab, Inc. (aerospace services).

Principal Occupation During Past 5 Years: Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and formerly, Chairman, White River Corporation (financial services) (until 1998) and Hambrecht & Quist Group (investment banking) (until 1992); and President, National Association of Securities Dealers, Inc. (until 1987).

277

Interested Board Members and Officers

Name, Age and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held


**CHARLES B. JOHNSON (69) One Franklin Parkway San Mateo, CA 94403-1906	Trustee and Chairman of the Board	Since 1988	133	None

Principal Occupation During Past 5 Years: Chairman of the Board, Chief Executive Officer, Member—Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.


**RUPERT H. JOHNSON, JR. (62) One Franklin Parkway San Mateo, CA 94403-1906	Trustee, President and Chief Executive Officer— Investment Management	Trustee since 1988 and President and Chief Executive Officer—Investment Management since 2002	116	None

Principal Occupation During Past 5 Years: Vice Chairman, Member—Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments.


**CHRISTOPHER H. PINKERTON (44) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2001	24	None

Principal Occupation During Past 5 Years: President, Chairman and Chief Executive Officer, USAllianz Investor Services, LLC and USAllianz Advisors; President and Chief Executive Officer, USAllianz Investment Advisor and USAllianz VIP Trust; Senior Vice President, Variable Products Division, Allianz Life Insurance Company of North America; fellow, Life Management Institute; and formerly, Vice President of Marketing, Nationwide Financial Services (until 1999).


HARMON E. BURNS (57) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 1988	Not Applicable	None

Principal Occupation During Past 5 Years: Vice Chairman, Member—Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments.


MARTIN L. FLANAGAN (42) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 1995	Not Applicable	None

Principal Occupation During Past 5 Years: President, Member—Office of the President, Chief Financial Officer and Chief Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.

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Name, Age and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held


JIMMY D. GAMBILL (55) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Senior Vice President and Chief Executive Officer —Finance and Administration	Since 2002	Not Applicable	None

Principal Occupation During Past 5 Years: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 50 of the investment companies in Franklin Templeton Investments.


DAVID P. GOSS (55) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2000	Not Applicable	None

Principal Occupation During Past 5 Years: Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive Officer and Director, Property Resources, Inc. and Franklin Properties, Inc.; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; officer of 50 of the investment companies in Franklin Templeton Investments; and formerly, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).


BARBARA J. GREEN (55) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2000	Not Applicable	None

Principal Occupation During Past 5 Years: Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior Vice President, Templeton Worldwide, Inc. and officer of one of the other subsidiaries of Franklin Resources, Inc., and of 50 of the investment companies in Franklin Templeton Investments; and formerly, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).


MICHAEL O. MAGDOL (65) 600 5th Avenue Rockefeller Center New York, NY 10048-0772	Vice President — AML Compliance	Since 2002	Not Applicable	Director, FTI Banque, Arch Chemicals, Inc. and Lingnan Foundation.

Principal Occupation During Past 5 Years: Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the case may be of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments.


KIMBERLEY MONASTERIO (39) One Franklin Parkway San Mateo, CA 94403-1906	Treasurer and Chief Financial Officer	Treasurer since 2000 and Chief Financial Officer since 2002	Not Applicable	None

Principal Occupation During Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; and officer of 34 of the investment companies in Franklin Templeton Investments.

279

Name, Age and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held


MURRAY L. SIMPSON (65) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Since 2000	Not Applicable	None

Principal Occupation During Past 5 Years: Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer of 50 of the investment companies in Franklin Templeton Investments; and formerly, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999).

*	We base the number of portfolios on each separate series of the registered investment companies comprising the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers.

Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested persons of the Trust under the federal securities laws due to their positions as officers and directors and major shareholders of Franklin Resources, Inc., which is the parent company of the Trust’s adviser and distributor. Mr. Pinkerton is considered an interested person of the Trust because of the share ownership of Allianz Life in the Trust.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Contract owners may call 1-800/321-8563 or their insurance companies to request the SAI.

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One Franklin Parkway

San Mateo, CA 94403-1906

Annual Report

Franklin Templeton Variable Insurance Products Trust

Investment Managers

Franklin Advisers, Inc.

Franklin Advisory Services, LLC

Franklin Mutual Advisers, LLC

Templeton Asset Management, Ltd., Singapore

Templeton Global Advisors Limited

Templeton Investment Counsel, LLC

Distributor

Franklin Templeton Distributors, Inc.

Franklin Templeton Variable Insurance Products Trust (FTVIP) shares are sold only to insurance company separate accounts (“Separate Account”) to serve as the investment vehicles for both variable annuity and variable life insurance contracts. This report must be preceded or accompanied by the current prospectus for the applicable contract, which includes the Separate Account and the FTVIP prospectuses, which contain more detailed information, including sales charges, risks and advantages. Please read the prospectuses carefully before investing or sending money. These reports and prospectuses do not constitute an offering in any jurisdiction in which such offering may not lawfully be made.

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

FTVIP A2002 02/03

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