Franklin Templeton Variable Insurance Products Trust N-CSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-05583

Franklin Templeton Variable Insurance Products Trust

(Exact name of registrant as specified in charter)

One Franklin Parkway,

San Mateo, CA 94403-1906

(Address of principal executive offices) (Zip code)

Craig S. Tyle,

One Franklin Parkway,

San Mateo, CA 94403-1906

(Name and address of agent for service)

Registrant’s telephone number, including area code: (650) 312-2000

Date of fiscal year end: 12/31

Date of reporting period: 12/31/11

Item 1. Reports to Stockholders.

DECEMBER 31, 2011

FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST

ANNUAL

REPORT

FRANKLIN TEMPLETON VARIABLE INSURANCE

PRODUCTS TRUST ANNUAL REPORT

TABLEOF CONTENTS

Important Notes to Performance Information	i
*Prospectus Supplement for all Funds	P-1
*Statement of Additional Information Supplement for all Funds	SAI-1
Fund Summaries
Franklin Global Real Estate Securities Fund	FGR-1
Franklin Growth and Income Securities Fund	FGI-1
Franklin High Income Securities Fund	FH-1
Franklin Income Securities Fund	FI-1
Franklin Large Cap Growth Securities Fund	FLG-1
Franklin Rising Dividends Securities Fund	FRD-1
Franklin Small Cap Value Securities Fund	FSV-1
Franklin Small-Mid Cap Growth Securities Fund	FSC-1
Franklin Strategic Income Securities Fund	FSI-1
Franklin Templeton VIP Founding Funds Allocation Fund	FFA-1
Franklin U.S. Government Fund	FUS-1
Mutual Global Discovery Securities Fund	MGD-1
Mutual Shares Securities Fund	MS-1
Templeton Developing Markets Securities Fund	TD-1
Templeton Foreign Securities Fund	TF-1
Templeton Global Bond Securities Fund	TGB-1
*Prospectus Supplement	TGB-10
Templeton Growth Securities Fund	TG-1
Index Descriptions	I-1
Board Members and Officers	BOD-1
Shareholder Information	SI-1

*Not part of the annual report

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

MASTER CLASS – 1

IMPORTANT NOTESTOPERFORMANCE INFORMATION

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. Inception dates of the funds may have preceded the effective dates of the subaccounts, contracts, or their availability in all states.

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.

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SUPPLEMENT DATED JANUARY 3, 2012

TOTHE PROSPECTUS

DATED MAY 1, 2011

(Franklin Templeton Variable Insurance Products Trust)

In the section titled “Additional Information, All Funds” the following replaces all text under the heading “Market Timing Trading Policy”:

The board of trustees has adopted the following policies and procedures with respect to market timing (Market Timing Trading Policy):

Market timing generally. The Fund discourages and does not intend to accommodate short-term or frequent purchases and redemptions of fund shares, often referred to as “market timing,” and asks its Fund of Fund investors and participating Insurers for their cooperation in trying to discourage such activity in their separate accounts by Contract Owners and their financial advisors. The Fund intends to seek to restrict or reject such trading or take other action, as described below, if in the judgment of the Fund manager or transfer agent such trading may interfere with the efficient management of the Fund’s portfolio, may materially increase the Fund’s transaction costs, administrative costs or taxes, or may otherwise be detrimental to the interests of the Fund and its shareholders.

Market timing consequences. If information regarding trading activity in the Fund or in any other Franklin Templeton fund or non-Franklin Templeton fund is brought to the attention of the Fund’s manager or transfer agent and based on that information the Fund or its manager or transfer agent in their sole discretion conclude that such trading may be detrimental to the Fund as described in this Market Timing Trading Policy, the Fund may temporarily or permanently bar future purchases into the Fund or, alternatively, may limit the amount, number or frequency of any future purchases and/or the method by which an Insurer or a Fund of Funds may request future purchases and redemptions (including purchases and/or redemptions by an exchange or transfer between the Fund and any other mutual fund). In determining what actions should be taken, the Fund’s transfer agent may consider a variety of factors, including the potential impact of such remedial actions on the Fund and its shareholders. If the Fund is a “fund of funds,” the Fund’s transfer agent may take into account the impact of the trading activity and of any proposed remedial action on both the Fund and the underlying funds in which the Fund invests.

In considering trading activity, the Fund may consider, among other factors, trading history both directly and, if known, through financial intermediaries, in the Fund, in other Franklin Templeton funds, in non-Franklin Templeton mutual funds, or in accounts under common control or ownership.

Market timing through Insurers. As a Contract Owner you are also subject to this policy. An Insurer’s order for purchases and/or redemptions pursuant to a Contract Owner’s instructions (including purchases and/or redemptions by an exchange or transfer between the Fund and any mutual fund) are submitted pursuant to aggregated orders (Aggregated Orders). A fund of fund’s order for purchases and/or redemptions pursuant to its investors’ instructions are also submitted pursuant to Aggregated Orders. While the Fund will encourage Insurers and funds of funds to apply the Fund’s Market Timing Trading Policy to their investors, the Fund is limited in its ability to monitor the trading activity or enforce the Fund’s Market Timing

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Trading Policy because Insurers and funds of funds have the relationships with, and are responsible for maintaining the account records of, the individual investors. For example, should it occur, the Fund may not be able to detect market timing that may be facilitated by financial intermediaries or made difficult to identify in the Aggregated Orders used by Insurers and Fund of Fund investors.

Therefore, the Fund or its agent selectively monitor the Aggregated Orders used by Insurers and Fund of Fund investors for purchases, exchange and redemptions in respect of all their investors and seek the cooperation of Insurers and Fund of Fund investors to apply the Fund’s Market Timing Trading Policy. There may be legal and technological limitations on the ability of an Insurer or Fund of Fund to impose trading restrictions and to apply the Fund’s Market Timing Trading Policy to their investors through such methods as implementing short-term trading limitations or restrictions, assessing the Fund’s redemption fee (if applicable) and monitoring trading activity for what might be market timing. As a result, the Fund may not be able to determine whether trading by Insurers or funds of funds in respect of their investors is contrary to the Fund’s Market Timing Trading Policy.

Risks from market timers. Depending on various factors, including the size of the Fund, the amount of assets the portfolio manager typically maintains in cash or cash equivalents and the dollar amount and number and frequency of trades and the types of securities in which the Fund typically invests, short-term or frequent trading may interfere with the efficient management of the Fund’s portfolio, increase the Fund’s transaction costs, administrative costs and taxes and/or impact Fund performance.

In addition, if the nature of the Fund’s portfolio holdings exposes the Fund to “arbitrage market timers,” the value of the Fund’s shares may be diluted if redeeming shareholders receive proceeds (and buying shareholders receive shares) based upon net asset values which do not reflect appropriate fair value prices. Arbitrage market timing occurs when an investor seeks to take advantage of the possible delay between the change in the value of a mutual fund’s portfolio holdings and the reflection of the change in the fund’s net asset value per share. A fund that invests significantly in foreign securities may be particularly vulnerable to arbitrage market timing. Arbitrage market timing in foreign investments may occur because of time zone differences between the foreign markets on which the Fund’s international portfolio securities trade and the time as of which the Fund’s NAV is calculated. Arbitrage market timers may purchase shares of the Fund based on events occurring after foreign market closing prices are established, but before calculation of the Fund’s NAV. One of the objectives of the Trust’s fair value pricing procedures is to minimize the possibilities of this type of arbitrage market timing (please see “Valuation – Foreign Securities – Potential Impact of Time Zones and Market Holidays”).

Since the Fund may invest significantly in securities that are, or may be, restricted, unlisted, traded infrequently, thinly traded, or relatively illiquid (relatively illiquid securities), the Fund may be particularly vulnerable to arbitrage market timing. An arbitrage market timer may seek to take advantage of a possible differential between the last available market prices for one or more of these relatively illiquid securities that are used to calculate the Fund’s net asset value and the latest indications of market values for those securities. One of the objectives of the Fund’s fair value pricing procedures is to minimize the possibilities of this type of arbitrage market timing (please see “Fair Valuation – Individual Securities” under the heading “Fund Account Policies”, below).

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The Fund is currently using several methods to reduce the risk of market timing. These methods include:

• seeking the cooperation of Insurers and funds of funds to assist the Fund in identifying potential market timing activity;

• committing staff to selectively review on a continuing basis recent trading activity in order to identify trading activity that may be contrary to the Fund’s Market Timing Trading Policy;

• monitoring potential price differentials following the close of trading in foreign markets to determine whether the application of fair value pricing procedures is warranted; and

• seeking the cooperation of financial intermediaries to assist the Fund in identifying market timing activity.

Though these methods involve judgments that are inherently subjective and involve some selectivity in their application, the Fund seeks to make judgments and applications that are consistent with the interests of the Fund’s shareholders. There is no assurance that the Fund or its agents will gain access to any or all information necessary to detect market timing in Insurers’ separate accounts. While the Fund will seek to take actions (directly and with the assistance of Insurers) that will detect market timing, it cannot represent that such trading activity can be minimized or completely eliminated.

Revocation of market timing trades. Transactions placed in violation of a Fund’s Market Timing Trading Policy or exchange limit guidelines are not necessarily deemed accepted by the Fund and may be cancelled or revoked by the Fund, in full or in part, as soon as practicable following receipt by the Fund and prompt inquiry of the intermediary.

Please keep this supplement for future reference.

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SUPPLEMENT DATED JANUARY 3, 2012

TOTHE STATEMENTOF ADDITIONAL INFORMATION

DATED MAY 1, 2011

(Franklin Templeton Variable Insurance Products Trust)

The Statement of Additional Information is amended as follows:

I.  The section entitled “Glossary of Investments, Techniques, Strategies and Their Risks – Derivative instruments – Credit default swaps” is revised to read as follows:

Credit default swaps. The “buyer” of protection in a credit default swap agreement is obligated to pay the “seller” a periodic stream of payments over the term of the agreement in return for a payment by the “seller” that is contingent upon the occurrence of a credit event with respect to a specific underlying reference debt obligation (whether as a single debt instrument or as part of an index of debt instruments). The contingent payment by the seller generally is the face amount of the debt obligation, in return for the buyer’s obligation to make periodic cash payments and deliver in physical form the reference debt obligation or a cash payment equal to the then-current market value of that debt obligation at the time of the credit event. If no credit event occurs, the seller would receive a fixed rate of income throughout the term of the contract, while the buyer would lose the amount of its payments and recover nothing. The buyer is also subject to the risk that the seller will not satisfy its contingent payment obligation, if and when due.

Purchasing protection through a credit default swap may be used to attempt to hedge against a decline in the value of debt security or securities due to a credit event. The seller of protection under a credit default swap receives periodic payments from the buyer but is exposed to the risk that the value of the reference debt obligation declines due to a credit event and that it will have to pay the face amount of the reference obligation to the buyer. Selling protection under a credit default swap may also permit the seller to gain exposure that is similar to owning the reference debt obligation directly. As the seller of protection, the Fund would effectively add leverage to its portfolio because, in addition to its total assets, the Fund would be subject to the risk that there would be a credit event and the Fund would have to make a substantial payment in the future.

Generally, a credit event means bankruptcy, failure to timely pay interest or principal, obligation acceleration, or modified restructuring of the reference debt obligation. There may be disputes between the buyer or seller of a credit default swap agreement or within the swaps market as a whole as to whether or not a credit event has occurred or what the payout should be which could result in litigation. In some instances where there is a dispute in the credit default swap market, a regional Determinations Committee set up by ISDA may make an official binding determination regarding the existence of credit events under the terms of the ISDA Master Agreement.

ISDA’s Determination Committees are comprised principally of dealers in the OTC derivatives markets which may have a conflicting interest in the determination regarding the existence of a particular credit event. In addition, in the sovereign debt market, a credit default swap agreement may not provide the protection generally anticipated because the government issuer of the sovereign debt instruments may be able to restructure or renegotiate the debt in such a manner as to avoid triggering a credit event.

SAI-1

Moreover, (1) sovereign debt obligations may not incorporate common, commercially acceptable provisions, such as collective action clauses, or (2) the negotiated restructuring of the sovereign debt may be deemed non-mandatory on all holders. As a result, the determination committee might then not be able to determine, or may be able to avoid having to determine, that a credit event under the credit default agreement has occurred.

For these and other reasons, the buyer of protection in a credit default swap agreement is subject to the risk that certain occurrences, such as particular restructuring events affecting the value of the underlying reference debt obligation, or the restructuring of sovereign debt, may not be deemed credit events under the credit default swap agreement. Therefore, if the credit default swap was purchased as a hedge or to take advantage of an anticipated increase in the value of credit protection for the underlying reference obligation, it may not provide any hedging benefit or otherwise increase in value as anticipated. Similarly, the seller of protection in a credit default swap agreement is subject to the risk that certain occurrences may be deemed to be credit events under the credit default swap agreement, even if these occurrences do not adversely impact the value or creditworthiness of the underlying reference debt obligation.

Please keep this supplement for future reference.

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FRANKLIN GLOBAL REAL ESTATE SECURITIES FUND

This annual report for Franklin Global Real Estate Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares* represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-5.45%		-8.90%		+4.73%

*The investment manager and administrator have contractually agreed to waive or limit their respective fees so that the increase in investment management and fund administration fees paid by the Fund is phased in over a five-year period, starting on 5/1/07, with there being no increase in the rate of such fees for the first year ended 4/30/08. For each of four years thereafter through 4/30/12, the investment manager and administrator will receive one-fifth of the increase in the rate of fees. Beginning 5/1/12, the full new investment management and administration fees will then be in effect. If the manager and administrator had not waived fees, the Fund’s total returns would have been lower.

Total Return Index Comparison

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

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance* is compared to the performance of the FTSE^® EPRA/NAREIT Developed Index and the Standard & Poor’s^® (S&P^®) Global REIT Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Global Real

Estate 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goal and Main Investments: Franklin Global Real Estate Securities Fund seeks high total return. The Fund normally invests at least 80% of its net assets in investments of companies located anywhere in the world that operate in the real estate sector.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund’s new benchmark, the FTSE EPRA/NAREIT Developed Index, had a -5.82% total return.¹ The Fund’s previous benchmark, the S&P Global REIT Index, posted a +1.70% total return for the same period.¹ The FTSE EPRA/NAREIT Developed Index replaced the S&P Global REIT Index as the Fund’s benchmark because we believe the new index provides a better comparison with the Fund’s portfolio composition.

Economic and Market Overview

Global stocks declined in 2011 as deepening sovereign debt, political paralysis and economic growth concerns led to escalating investor anxiety and severe market volatility. Stocks entered the year supported by positive momentum in corporate earnings and renewed economic stimulus measures in the developed world. However, a number of events interrupted the market’s rise early in 2011, including a severe natural disaster and nuclear crisis in Japan and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Global markets recovered quickly from these setbacks but soon faced more significant turmoil as Europe’s sovereign debt crisis worsened in the summer. Portugal, Greece and Ireland received bailouts and had their credit ratings slashed to junk grade, while rising bond yields in the larger economies of Italy and Spain, and eventually in the critical core economies of Germany and France, threatened the survival of the European Monetary Union. The U.S.’s sovereign debt issues and political dysfunction, accompanied by the downgrade of its AAA credit rating to AA+, further pressured investor sentiment during the summer months. Additionally, the precarious state of the global banking system as well as emerging signs of a renewed global economic slowdown and possible hard landing in China weighed on the markets.

Despite these global challenges, corporate profits remained remarkably resilient, some signs of U.S. economic improvement emerged toward

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. As a nondiversified Fund that invests at least 80% of its assets in companies located anywhere in the world that operate in the real estate sector, the Fund carries much greater risk of adverse developments affecting that sector than a fund that invests more broadly. REITs may be affected by any change in the value of the properties owned and by their location, rental income, financing and management. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Derivative instruments may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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year-end, and European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. Greek and Italian prime ministers were replaced with technocrats tasked with arresting a debt spiral, the European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks agreed to lower dollar funding costs for Europe’s distressed commercial banks. Meanwhile, the Federal Reserve Board increased purchases of long-dated bonds to reduce key borrowing costs and hinted at “additional policy accommodation.” Chinese policymakers lowered commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms. Commodities initially rallied due to the coordinated monetary stimulus, but most ultimately declined as global economic prospects weakened. Gold and oil, however, made annual gains. In currency markets, the euro declined with escalating weakness at year-end, while the dollar ultimately rose after a late surge. Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Global Real Estate Market Overview

Most global real estate markets fell during the reporting period, as real estate securities in many countries were affected by concerns about the European sovereign debt crisis and slowing global economic growth. According to the FTSE EPRA/NAREIT Developed Index, in U.S. dollar terms, Canada, New Zealand and the U.S. led developed country real estate markets. Switzerland also posted strong results. Many markets represented in the index lost value, however, such as Spain, Italy, Greece and Norway.

Investment Strategy

We are research-driven, fundamental investors. We seek to limit price volatility by investing across markets and property types. We also seek strong total return performance. We center our active investment strategy on the belief that unsynchronized regional economic activity within the global economy can provide consistent, attractive return opportunities in the global real estate markets. We use a bottom-up, value-oriented stock selection process that incorporates macro-level views in the evaluation process. We use top-down macro overlays to provide country/regional, property type, and company size perspectives in identifying international/local cyclical and thematic trends that highlight

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investment opportunities. We may use currency forward contracts from time to time to help manage currency risk and the Fund’s exposure to various currencies.

Manager’s Discussion

During the 12 months under review, major contributors to the Fund’s performance relative to the FTSE EPRA/NAREIT Developed Index included U.S.-based office REIT Boston Properties and two U.S.-based shopping mall operators, Simon Property Group and Taubman Centers. Boston Properties’ share price rose sharply during the year because the REIT’s office buildings, which are concentrated in a few major U.S. cities such as Boston, New York City and Washington, DC, benefited from higher occupancy and rents that, in turn, helped boost the company’s profits, which generally beat analyst earnings estimates. During the period, overweighting and stock selection in retail REITs that operate shopping malls boosted the Fund’s performance relative to the benchmark index. Within the sector, shares of Simon Property Group, the largest U.S. shopping mall owner, and luxury mall owner Taubman Centers rallied as sales for tenant stores at the better quality shopping centers held up well despite moderate U.S. economic growth during 2011. Late in the period under review, managements at Taubman Centers and Simon Property Group raised their guidance for funds from operation (FFO) in 2011. FFO per share, calculated primarily by adding back depreciation and amortization expenses to earnings, is used as a barometer of performance by REITs instead of earnings per share, the measure used by publicly traded companies in other sectors.

Significant detractors from relative Fund performance included Singapore-based Keppel Land, Hong Kong-based Hang Lung Properties and Japan-based Mitsui Fudosan. The stocks of these diversified property companies, which have been generally more volatile than stocks of more specialized landlords, were negatively affected by market uncertainties stemming largely from the European sovereign debt crisis. Keppel Land performed poorly due to the Singapore government’s policy to increase the land supply for residential development. Hang Lung Properties continued to generate robust profits from its core business, property leasing in Hong Kong and mainland China, but the company’s shares underperformed due to concerns about the impact of rising mortgage interest rates on property sales. Mitsui Fudosan’s share price fell because of Japan’s March earthquake and subsequent economic slowdown, and to some degree, the strengthening of Japanese yen.

What is a currency forward contract?

A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date.

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It is important to recognize the effect of currency movements on the Fund’s performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the 12 months ended December 31, 2011, the U.S. dollar rose in value relative to most currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s substantial investment in securities with non-U.S. currency exposure.

Thank you for your participation in Franklin Global Real Estate Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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 Global Real Estate Securities Fund 12/31/11

Company Sector/Industry, Country	% of Total Net Assets
Simon Property Group Inc.		6.0%
Retail REITs, U.S.
Sun Hung Kai Properties Ltd.		3.7%
Diversified Real Estate Activities, Hong Kong
Unibail-Rodamco SE		3.4%
Retail REITs, France
Boston Properties Inc.		2.9%
Office REITs, U.S.
Public Storage		2.9%
Specialized REITs, U.S.
Mitsubishi Estate Co. Ltd.		2.8%
Diversified Real Estate Activities, Japan
Equity Residential		2.8%
Residential REITs, U.S.
Mitsui Fudosan Co. Ltd.		2.7%
Diversified Real Estate Activities, Japan
Westfield Group		2.4%
Retail REITs, Australia
Prologis Inc.		2.2%
Industrial REITs, U.S.

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

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Global Real

Estate Securities Fund

Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	887.10	$	4.85
Hypothetical (5% return before expenses)	$	1,000	$	1,020.06	$	5.19

*Expenses are calculated using the most recent six-month annualized expense ratio, net of expense waivers, for the Fund’s Class 1 shares (1.02%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Global Real Estate Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	13.12		$	11.16		$	10.84		$	25.42		$	35.25
Income from investment operationsa:
Net investment incomeb		0.21			0.38			0.30			0.62			0.80
Net realized and unrealized gains (losses)		(0.83	)		1.94			1.36			(9.10	)		(7.56	)
Total from investment operations		(0.62	)		2.32			1.66			(8.48	)		(6.76	)
Less distributions from:
Net investment income and net foreign currency gains		(1.03	)		(0.36	)		(1.34	)		(0.32	)		(0.81	)
Net realized gains		—			—			—			(5.78	)		(2.26	)
Total distributions		(1.03	)		(0.36	)		(1.34	)		(6.10	)		(3.07	)
Net asset value, end of year	$	11.47		$	13.12		$	11.16		$	10.84		$	25.42
Total returnc		(5.45)%			21.24%			19.41%			(42.22)%			(20.65)%
Ratios to average net assets
Expenses before waiver and payments by affiliates		1.12%			1.11%			1.11%			1.08%			0.84%
Expenses net of waiver and payments by affiliates		0.98%			0.86%			0.76%	d		0.60%	d		0.52%	d
Net investment income		1.64%			3.24%			3.13%			3.41%			2.57%
Supplemental data
Net assets, end of year (000’s)	$	33,670		$	40,430		$	38,486		$	39,018		$	83,250
Portfolio turnover rate		28.95%			76.52%			87.34%			77.28%			121.84%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FGR-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Global Real Estate Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	12.83		$	10.92		$	10.61		$	24.97		$	34.67
Income from investment operationsa:
Net investment incomeb		0.17			0.34			0.27			0.56			0.72
Net realized and unrealized gains (losses)		(0.81	)		1.90			1.33			(8.93	)		(7.43	)
Total from investment operations		(0.64	)		2.24			1.60			(8.37	)		(6.71	)
Less distributions from:
Net investment income and net foreign currency gains		(0.99	)		(0.33	)		(1.29	)		(0.21	)		(0.73	)
Net realized gains		—			—			—			(5.78	)		(2.26	)
Total distributions		(0.99	)		(0.33	)		(1.29	)		(5.99	)		(2.99	)
Net asset value, end of year	$	11.20		$	12.83		$	10.92		$	10.61		$	24.97
Total returnc		(5.65)%			20.97%			19.08%			(42.39)%			(20.86)%
Ratios to average net assets
Expenses before waiver and payments by affiliates		1.37%			1.36%			1.36%			1.33%			1.09%
Expenses net of waiver and payments by affiliates		1.23%			1.11%			1.01%	d		0.85%	d		0.77%	d
Net investment income		1.39%			2.99%			2.88%			3.16%			2.32%
Supplemental data
Net assets, end of year (000’s)	$	292,356		$	352,854		$	345,445		$	343,701		$	893,837
Portfolio turnover rate		28.95%			76.52%			87.34%			77.28%			121.84%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FGR-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Global Real Estate Securities Fund	Country	Shares		Value
Common Stocks 97.2%
Diversified Real Estate Activities 11.9%
City Developments Ltd.	Singapore		69,000	$	473,441
Hang Lung Properties Ltd.	Hong Kong		1,636,000		4,655,267
Mitsubishi Estate Co. Ltd.	Japan		599,600		8,959,137
Mitsui Fudosan Co. Ltd.	Japan		598,000		8,717,677
Sun Hung Kai Properties Ltd.	Hong Kong		962,000		12,058,134
The Wharf Holdings Ltd.	Hong Kong		887,500		4,022,352
					38,886,008
Diversified REITs 11.1%
American Assets Trust Inc.	United States		82,300		1,687,973
British Land Co. PLC	United Kingdom		584,600		4,195,098
Canadian REIT	Canada		68,900		2,393,230
Colonial Properties Trust	United States		142,800		2,978,808
Dexus Property Group	Australia		945,626		802,961
GPT Group	Australia		1,232,072		3,869,647
H&R REIT	Canada		157,400		3,592,331
Kenedix Realty Investment Corp.	Japan		583		1,696,771
Land Securities Group PLC	United Kingdom		525,762		5,191,787
Liberty Property Trust	United States		35,000		1,080,800
Shaftesbury PLC	United Kingdom		175,400		1,273,112
Stockland	Australia		428,136		1,397,235
Vornado Realty Trust	United States		78,727		6,050,957
					36,210,710
Industrial REITs 4.3%
Ascendas REIT	Singapore		838,000		1,182,284
Goodman Group	Australia		4,146,121		2,417,763
Japan Logistics Fund Inc.	Japan		193		1,672,591
Mapletree Logistics Trust	Singapore		1,302,280		848,375
aMapletree Logistics Trust, 144A	Singapore		986,100		642,398
Prologis Inc.	United States		254,972		7,289,649
					14,053,060
Office REITs 11.9%
Alexandria Real Estate Equities Inc.	United States		47,500		3,276,075
Boston Properties Inc.	United States		95,900		9,551,640
CapitaCommercial Trust	Singapore		3,027,000		2,462,019
Champion REIT	Hong Kong		4,390,196		1,656,230
Commonwealth Property Office Fund	Australia		3,205,864		3,132,170
Derwent London PLC	United Kingdom		47,060		1,137,738
Digital Realty Trust Inc.	United States		26,000		1,733,420
Douglas Emmett Inc.	United States		52,000		948,480
Great Portland Estates PLC	United Kingdom		484,136		2,431,541
Highwoods Properties Inc.	United States		82,600		2,450,742
Japan Real Estate Investment Co.	Japan		355		2,767,492
Kilroy Realty Corp.	United States		80,600		3,068,442
Silic	France		12,500		1,212,274
SL Green Realty Corp.	United States		47,000		3,132,080
					38,960,343
Real Estate Development 2.6%
Agile Property Holdings Ltd.	China		1,040,000		931,991
China Overseas Land & Investment Ltd.	China		1,412,000		2,359,818
Evergrande Real Estate Group Ltd.	China		3,934,000		1,631,020

FGR-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Global Real Estate Securities Fund	Country	Shares		Value
Common Stocks (continued)
Real Estate Development (continued)
Keppel Land Ltd.	Singapore		952,000	$	1,629,358
Soho China Ltd.	China		2,253,500		1,502,991
bSunac China Holdings Ltd.	China		2,428,000		503,319
					8,558,497
Real Estate Operating Companies 5.1%
Brookfield Office Properties Inc.	Canada		193,600		3,033,697
Deutsche Euroshop AG	Germany		22,930		733,885
Fastighets AB Hufvudstaden, A	Sweden		302,080		3,075,348
a,bGlobal Logistic Properties Ltd., 144A	Singapore		1,378,000		1,864,459
bGSW Immobilien AG	Germany		20,180		585,065
a,bGSW Immobilien AG, 144A	Germany		17,399		504,437
Hysan Development Co. Ltd.	Hong Kong		930,000		3,053,460
PSP Swiss Property AG	Switzerland		27,700		2,320,264
Sponda OYJ	Finland		332,080		1,341,011
					16,511,626
Residential REITs 10.1%
American Campus Communities Inc.	United States		68,500		2,874,260
AvalonBay Communities Inc.	United States		36,890		4,817,834
Boardwalk REIT	Canada		47,100		2,331,084
Camden Property Trust	United States		54,700		3,404,528
Canadian Apartment Properties REIT	Canada		76,000		1,663,700
Equity Lifestyle Properties Inc.	United States		29,800		1,987,362
Equity Residential	United States		157,000		8,953,710
Essex Property Trust Inc.	United States		23,180		3,257,022
Nippon Accommodations Fund Inc.	Japan		231		1,554,706
UDR Inc.	United States		78,670		1,974,617
					32,818,823
Retail REITs 27.2%
CFS Retail Property Trust	Australia		477,976		823,954
Charter Hall Retail REIT	Australia		617,827		2,022,617
Corio NV	Netherlands		26,831		1,167,013
DDR Corp.	United States		266,276		3,240,579
Eurocommercial Properties NV	Netherlands		50,850		1,614,446
Federal Realty Investment Trust	United States		43,600		3,956,700
Frontier Real Estate Investment Corp.	Japan		187		1,516,118
General Growth Properties	United States		82,000		1,231,640
Hammerson PLC	United Kingdom		550,260		3,076,034
Japan Retail Fund Investment Corp.	Japan		1,279		1,894,446
aJapan Retail Fund Investment Corp., 144A	Japan		324		479,906
Kimco Realty Corp.	United States		144,700		2,349,928
The Link REIT	Hong Kong		1,329,100		4,894,324
The Macerich Co.	United States		98,990		5,008,894
Regency Centers Corp.	United States		23,900		899,118
RioCan REIT	Canada		144,900		3,757,746
Simon Property Group Inc.	United States		150,744		19,436,931
Suntec REIT	Singapore		1,825,000		1,512,509
Tanger Factory Outlet Centers Inc.	United States		81,600		2,392,512
Taubman Centers Inc.	United States		68,800		4,272,480
Unibail-Rodamco SE	France		61,603		11,074,881
Westfield Group	Australia		982,190		7,847,719

FGR-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Global Real Estate Securities Fund	Country	Shares		Value
Common Stocks (continued)
Retail REITs (continued)
Westfield Retail Trust	Australia		1,596,065	$	4,065,807
					88,536,302
Specialized REITs 13.0%
CDL Hospitality Trusts	Singapore		1,468,000		1,748,562
HCP Inc.	United States		141,100		5,845,773
Health Care REIT Inc.	United States		106,200		5,791,086
Host Hotels & Resorts Inc.	United States		379,439		5,604,314
bHyatt Hotels Corp.	United States		31,960		1,202,974
LaSalle Hotel Properties	United States		69,700		1,687,437
Pebblebrook Hotel Trust	United States		70,130		1,345,093
Public Storage	United States		69,700		9,371,862
Senior Housing Properties Trust	United States		79,000		1,772,760
Starwood Hotels & Resorts Worldwide Inc.	United States		55,840		2,678,645
Ventas Inc.	United States		97,550		5,377,932
					42,426,438
Total Common Stocks (Cost $254,454,597)					316,961,807
Convertible Preferred Stocks (Cost $910,000) 0.3%
Specialized REITs 0.3%
Health Care REIT Inc., 6.50%, cvt. pfd.	United States		18,200		931,294
Total Investments before Short Term Investments (Cost $255,364,597)					317,893,101
		Principal Amount
Short Term Investments 2.3%
Repurchase Agreements (Cost $7,452,478) 2.3%
cJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $7,452,487)	United States	$	7,452,478		7,452,478
BNP Paribas Securities Corp. (Maturity Value $901,751)
Credit Suisse Securities (USA) LLC (Maturity Value $1,082,027)
Deutsche Bank Securities Inc. (Maturity Value $1,140,454)
HSBC Securities (USA) Inc. (Maturity Value $1,803,501)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $1,082,027)
Morgan Stanley & Co. LLC (Maturity Value $360,700)
UBS Securities LLC (Maturity Value $1,082,027)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; dU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $7,605,466)
Total Investments (Cost $262,817,075) 99.8%					325,345,579
Other Assets, less Liabilities 0.2%					681,290
Net Assets 100.0%				$	326,026,869

See Abbreviations on page FGR-22.

^aSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $3,491,200, representing 1.07% of net assets.

^bNon-income producing.

^cSee Note 1(c) regarding joint repurchase agreement.

^dThe security is traded on a discount basis with no stated coupon rate.

The accompanying notes are an integral part of these financial statements.

FGR-12

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Global Real Estate Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	255,364,597
Cost - Repurchase agreements		7,452,478
Total cost of investments	$	262,817,075
Value - Unaffiliated issuers	$	317,893,101
Value - Repurchase agreements		7,452,478
Total value of investments		325,345,579
Cash		34,524
Receivables:
Capital shares sold		28,457
Dividends		1,443,423
Other assets		11
Total assets		326,851,994
Liabilities:
Payables:
Capital shares redeemed		282,694
Affiliates		381,939
Reports to shareholders		78,819
Professional fees		56,742
Accrued expenses and other liabilities		24,931
Total liabilities		825,125
Net assets, at value	$	326,026,869
Net assets consist of:
Paid-in capital	$	643,452,325
Distributions in excess of net investment income		(8,310,736	)
Net unrealized appreciation (depreciation)		62,526,082
Accumulated net realized gain (loss)		(371,640,802	)
Net assets, at value	$	326,026,869
Class 1:
Net assets, at value	$	33,670,438
Shares outstanding		2,934,971
Net asset value and maximum offering price per share	$	11.47
Class 2:
Net assets, at value	$	292,356,431
Shares outstanding		26,098,110
Net asset value and maximum offering price per share	$	11.20

The accompanying notes are an integral part of these financial statements.

FGR-13

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Global Real Estate Securities Fund
Investment income:
Dividends (net of foreign taxes $488,671)	$	9,654,992
Interest		5,186
Total investment income		9,660,178
Expenses:
Management fees (Note 3a)		2,955,116
Administrative fees (Note 3b)		923,474
Distribution fees: (Note 3c)
Class 2		828,198
Class 4		2
Unaffiliated transfer agent fees		712
Custodian fees (Note 4)		63,679
Reports to shareholders		89,572
Professional fees		72,368
Trustees’ fees and expenses		1,441
Other		27,309
Total expenses		4,961,871
Expenses waived/paid by affiliates (Note 3e)		(532,532	)
Net expenses		4,429,339
Net investment income		5,230,839
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		17,392,948
Realized gain distributions from REITs		993,312
Foreign currency transactions		12,306
Net realized gain (loss)		18,398,566
Net change in unrealized appreciation (depreciation) on:
Investments		(42,848,199	)
Translation of other assets and liabilities denominated in foreign currencies		20,657
Net change in unrealized appreciation (depreciation)		(42,827,542	)
Net realized and unrealized gain (loss)		(24,428,976	)
Net increase (decrease) in net assets resulting from operations	$	(19,198,137	)

The accompanying notes are an integral part of these financial statements.

FGR-14

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Global Real Estate Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	5,230,839		$	11,368,681
Net realized gain (loss) from investments, realized gain distributions from REITs and foreign currency transactions		18,398,566			30,326,027
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(42,827,542	)		30,011,274
Net increase (decrease) in net assets resulting from operations		(19,198,137	)		71,705,982
Distributions to shareholders from net investment income and net foreign currency gains:
Class 1		(2,965,988	)		(1,153,555	)
Class 2		(25,849,452	)		(9,661,113	)
Class 4		—			(70	)
Total distributions to shareholders		(28,815,440	)		(10,814,738	)
Capital share transactions: (Note 2)
Class 1		(1,885,405	)		(4,330,791	)
Class 2		(17,357,651	)		(47,207,542	)
Class 4		(2,896	)		—
Total capital share transactions		(19,245,952	)		(51,538,333	)
Net increase (decrease) in net assets		(67,259,529	)		9,352,911
Net assets:
Beginning of year		393,286,398			383,933,487
End of year	$	326,026,869		$	393,286,398
Undistributed net investment income (distributions in excess of net investment income) included in net assets:
End of year	$	(8,310,736	)	$	9,740,793

The accompanying notes are an integral part of these financial statements.

FGR-15

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Global Real Estate Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Global Real Estate Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 60.21% of the Fund’s shares were held through one insurance company. The Fund two offers classes of shares: Class 1 and Class 2. On March 4, 2011, the Fund liquidated Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

FGR-16

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

d. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

FGR-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

Distributions received by the Fund from certain 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.

f. 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 expenses during the reporting period. Actual results could differ from those estimates.

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011a						2010b
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		55,042		$	671,863			33,091		$	392,138
Shares issued in reinvestment of distributions		235,958			2,965,988			100,659			1,153,555
Shares redeemed		(438,527	)		(5,523,256	)		(500,801	)		(5,876,484	)
Net increase (decrease)		(147,527	)	$	(1,885,405	)		(367,051	)	$	(4,330,791	)

FGR-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

2. SHARES OF BENEFICIAL INTEREST (continued)

	Year Ended December 31,
	2011a						2010b
Class 2 Shares:	Shares			Amount			Shares			Amount
Shares sold		620,268		$	7,524,987			398,129		$	4,697,314
Shares issued in reinvestment of distributions		2,103,291			25,849,452			860,295			9,661,113
Shares redeemed		(4,127,293	)		(50,732,090	)		(5,381,053	)		(61,565,969	)
Net increase (decrease)		(1,403,734	)	$	(17,357,651	)		(4,122,629	)	$	(47,207,542	)
Class 4 Shares:
Shares redeemed		(214	)	$	(2,896	)
Net increase (decrease)		(214	)	$	(2,896	)

^a Effective March 4, 2011, Class 4 was liquidated.

^b During the year Class 4 did not report any share transactions

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Templeton Institutional, LLC (FT Institutional)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.800%	Up to and including $500 million
0.700%	Over $500 million, up to and including $1 billion
0.650%	Over $1 billion, up to and including $1.5 billion
0.600%	Over $1.5 billion, up to and including $6.5 billion
0.580%	Over $6.5 billion, up to and including $11.5 billion
0.560%	Over $11.5 billion, up to and including $16.5 billion
0.540%	Over $16.5 billion, up to and including $19 billion
0.530%	Over $19 billion, up to and including $21.5 billion
0.520%	In excess of $21.5 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.25% per year of the average daily net assets of the Fund.

c. Distribution Fees

The Fund’s Board of Trustees has adopted a distribution plan for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

c. Distribution Fees (continued)

the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

e. Waiver and Expense Reimbursements

FT Services and FT Institutional have contractually agreed in advance to waive or limit their respective fees so that the increase in the Fund’s investment management and fund administration fees that became effective May 1, 2007 is phased in over a five year period, with there being no increase in the rate of such fees for the first year ending April 30, 2008. For each of the four years thereafter through April 30, 2012, the manager and administrator will receive one-fifth of the increase in the rate of fees. Beginning May 1, 2012, the full new investment management and administration fees will then be in effect.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards expiring in:
2016	$	147,540,830
2017		207,448,609
2018		2,192,369
	$	357,181,808

During the year ended December 31, 2011, the Fund utilized $3,694,108 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	28,815,440	$	10,814,738

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	286,181,312
Unrealized appreciation	$	68,134,292
Unrealized depreciation		(28,970,025	)
Net unrealized appreciation (depreciation)	$	39,164,267
Distributable earnings – undistributed ordinary income	$	594,502

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of passive foreign investment company shares and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $105,857,790 and $141,517,101, respectively.

7. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Global Real Estate Securities Fund

9. FAIR VALUE MEASUREMENTS (continued)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Investmentsa,b	$	317,893,101	$	—	$	—	$	317,893,101
Short Term Investments		—		7,452,478		—		7,452,478
Total Investments in Securities	$	317,893,101	$	7,452,478	$	—	$	325,345,579

^aIncludes common and convertible preferred stocks.

^bFor detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

REIT - Real Estate Investment Trust

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Franklin Templeton Variable Insurance Products Trust

Franklin Global Real Estate Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Global Real Estate Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Global Real Estate Securities Fund

At December 31, 2011, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. The Fund elects to treat foreign taxes paid as allowed under Section 853 of the Internal Revenue Code. This election will allow shareholders of record as of the 2012 distribution date, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

FGR-24

FRANKLIN GROWTHAND INCOME SECURITIES FUND

We are pleased to bring you Franklin Growth and Income Securities Fund’s annual report for the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+2.64%		-0.90%		+3.20%

Total Return Index Comparison

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

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s 500^® Index (S&P 500^®), the Lipper VIP Equity Income Funds Classification Average and the Consumer Price Index (CPI). One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Growth and

Income 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FGI-1

Fund Goals and Main Investments: Franklin Growth and Income Securities Fund seeks capital appreciation with current income as a secondary goal. The Fund normally invests predominantly in equity securities, including securities convertible into common stock.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund outperformed its benchmark, the S&P 500, which produced a +2.11% total return.¹ The Fund also outperformed its peers as measured by the Lipper VIP Equity Income Funds Classification Average, which posted a +1.23% return for the same period.² Please note that the Fund invests primarily in stocks with above average dividend yields. As a result, its holdings and returns may differ from those of the S&P 500, which include nondividend-paying stocks and do not focus on dividend yield.

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.³

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

1. Source: © 2012 Morningstar.

2. Source: Lipper Inc.

One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

3. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The value of convertible securities may rise and fall with the market value of the underlying stock or, like a debt security, vary with changes in interest rates and the credit quality of the issuer. The Fund may have significant investments in particular sectors from time to time, such as financial services, energy, health care/pharmaceuticals, technology and telecommunications, and industrials, and may be at greater risk of adverse developments in a sector than a fund that invests more broadly. Changes in the financial strength of a debt issuer or in the rating of its securities may affect the securities’ value and, as a result, impact Fund performance. Investments in high yield, lower rated (junk) bonds, generally have greater price swings and higher risk of default and loss of principal than investment-grade bonds. Foreign investing, especially in developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Derivative instruments may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

FGI-2

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many U.S. companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 Index gained 2.11% in 2011.¹ The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.¹ Notably, the U.S. was a global market leader in 2011 as the country continued to be a relative haven. During the year, sector performance varied widely. Noncyclical, income-producing sectors such as utilities, consumer staples and health care led the market, while economically sensitive sectors such as materials and industrials lagged. Financials in the S&P 500 experienced the worst sector decline, as U.S. bank stocks generally tracked their European peers. Against this backdrop, growth stocks fared better than their value counterparts; large-capitalization stocks advanced slightly as a group, with modestly negative results for most small- and mid-sized company stocks, as measured by Russell capitalization-based indexes.

Investment Strategy

We invest in a broadly diversified portfolio of equity securities that we consider to be financially strong. To help identify such companies, we use a current relative yield analysis that focuses on a company’s dividend yield (calculated by dividing a stock’s annual per share dividends by its per share market price). This results in a relative yield range for each company that can assist us in determining whether we believe a stock is attractively priced for purchase or sale. A higher relative dividend yield is frequently accompanied by a lower stock price. Therefore, we seek to buy a stock when its relative dividend yield is high and to sell a stock when its relative dividend yield is low, which may be caused by an increase in the price of the stock.

Manager’s Discussion

The Fund’s absolute performance during 2011 was aided primarily by its investments in the health care, energy and utilities sectors. Within the health care sector, pharmaceuticals giants Pfizer and Roche Holding were key contributors, driven in part by strong free cash flow and dividend yields we found attractive. Natural gas infrastructure company Spectra Energy supported the Fund’s strong results within the energy sector, as did major oil conglomerates Chevron and Exxon Mobil. Among utilities stocks, the Fund benefited from positions in Southern

FGI-3

Company, one of the U.S.’s largest electricity distributors serving more than 4.4 million electricity customers in the southeast, and Progress Energy, a utility serving the Carolinas and Florida that agreed to be acquired by Duke Energy in 2011.

The Fund also had some disappointments, most notably within the economically sensitive financials and materials sectors. Financials stocks were key Fund detractors and included large institutions such as Bank of America and JPMorgan Chase & Co., as well as insurers such as MetLife, QBE Insurance Group and Aflac. Among the large detractors in the materials sector was Freeport-McMoRan Copper & Gold. Even though gold bullion prices rose considerably, shares of related mining stocks fared poorly. The gulf between the fortunes of physical gold and mining companies such as Freeport-McMoRan was primarily the result of rising mining costs, investor concerns over more aggressive government taxation of resources companies, and broad-based selling of stocks during a turbulent year for equities. The Fund’s position in Anglogold Ashanti Holdings also declined for similar reasons. With softening global growth forecast for 2012, these companies’ share prices also suffered generally from a perceived weakening in demand for copper and gold following all-time highs for both metals earlier in 2011. Furthermore, with a slowing global economy and reduced orders for steel — especially out of China where manufacturing and construction activity was ebbing toward year-end — the metal’s price retreated along with those of copper and other industrial metals, causing the Fund’s shares of steelmakers such as ArcelorMittal to fall in value and detract from our overall results.

Thank you for your participation in Franklin Growth and Income Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

FGI-4

Top 10 Holdings

Franklin Growth and Income Securities Fund 12/31/11

Company Sector/Industry	% of Total Net Assets
Verizon Communications Inc.		2.6%
Telecommunication Services
Wells Fargo & Co.		2.5%
Financials
Intel Corp.		2.3%
Information Technology
NIKE Inc.		2.3%
Consumer Discretionary
Merck & Co. Inc.		2.1%
Health Care
International Business Machines Corp.		2.1%
Information Technology
General Electric Co.		2.1%
Industrials
Chevron Corp.		2.1%
Energy
PepsiCo Inc.		2.0%
Consumer Staples
Microchip Technology Inc.		1.9%
Information Technology

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

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Growth and

Income Securities Fund

Class 1

FGI-5

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	975.60	$	2.94
Hypothetical (5% return before expenses)	$	1,000	$	1,022.23	$	3.01

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.59%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FGI-6

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Growth and Income Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.76		$	10.47		$	8.72		$	15.07		$	16.83
Income from investment operationsa:
Net investment incomeb		0.33			0.38			0.31			0.39			0.41
Net realized and unrealized gains (losses)		(0.03	)		1.32			1.92			(5.17	)		(0.82	)
Total from investment operations		0.30			1.70			2.23			(4.78	)		(0.41	)
Less distributions from:
Net investment income		(0.46	)		(0.41	)		(0.48	)		(0.45	)		(0.42	)
Net realized gains		—			—			—			(1.12	)		(0.93	)
Total distributions		(0.46	)		(0.41	)		(0.48	)		(1.57	)		(1.35	)
Net asset value, end of year	$	11.60		$	11.76		$	10.47		$	8.72		$	15.07
Total returnc		2.64%			16.93%			26.82%			(34.95)%			(3.46)%
Ratios to average net assets
Expenses		0.59%			0.59%			0.60%	d		0.55%	d		0.52%	d
Net investment income		2.80%			3.62%			3.46%			3.17%			2.47%
Supplemental data
Net assets, end of year (000’s)	$	156,830		$	176,590		$	174,403		$	162,936		$	306,691
Portfolio turnover rate		32.93%			26.83%			51.05%			30.66%			36.66%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FGI-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Growth and Income Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.60		$	10.33		$	8.59		$	14.86		$	16.62
Income from investment operationsa:
Net investment incomeb		0.29			0.35			0.28			0.35			0.37
Net realized and unrealized gains (losses)		(0.02	)		1.31			1.90			(5.10	)		(0.82	)
Total from investment operations		0.27			1.66			2.18			(4.75	)		(0.45	)
Less distributions from:
Net investment income		(0.43	)		(0.39	)		(0.44	)		(0.40	)		(0.38	)
Net realized gains		—			—			—			(1.12	)		(0.93	)
Total distributions		(0.43	)		(0.39	)		(0.44	)		(1.52	)		(1.31	)
Net asset value, end of year	$	11.44		$	11.60		$	10.33		$	8.59		$	14.86
Total returnc		2.41%			16.68%			26.55%			(35.14)%			(3.71)%
Ratios to average net assets
Expenses		0.84%			0.84%			0.85%	d		0.80%	d		0.77%	d
Net investment income		2.55%			3.37%			3.21%			2.92%			2.22%
Supplemental data
Net assets, end of year (000’s)	$	129,309		$	151,481		$	152,077		$	141,359		$	312,692
Portfolio turnover rate		32.93%			26.83%			51.05%			30.66%			36.66%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FGI-8

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Growth and Income Securities Fund	Country	Shares		Value
Common Stocks 82.9%
Consumer Discretionary 8.2%
Comcast Corp., A	United States		139,080	$	3,297,587
Limited Brands Inc.	United States		110,200		4,446,570
Lowe’s Cos. Inc.	United States		142,100		3,606,498
NIKE Inc., B	United States		68,500		6,601,345
Target Corp.	United States		105,000		5,378,100
					23,330,100
Consumer Staples 7.4%
The Coca-Cola Co.	United States		46,500		3,253,605
Diageo PLC, ADR	United Kingdom		53,400		4,668,228
PepsiCo Inc.	United States		85,200		5,653,020
The Procter & Gamble Co.	United States		53,400		3,562,314
Unilever NV, N.Y. shs.	Netherlands		114,700		3,942,239
					21,079,406
Energy 10.0%
Chevron Corp.	United States		55,200		5,873,280
ConocoPhillips	United States		65,000		4,736,550
Exxon Mobil Corp.	United States		54,544		4,623,150
Royal Dutch Shell PLC, A, ADR	Netherlands		75,000		5,481,750
Schlumberger Ltd.	United States		48,900		3,340,359
Spectra Energy Corp.	United States		150,500		4,627,875
					28,682,964
Financials 12.4%
Aflac Inc.	United States		122,900		5,316,654
Bank of America Corp.	United States		228,400		1,269,904
BlackRock Inc.	United States		26,700		4,759,008
JPMorgan Chase & Co.	United States		139,770		4,647,352
Marsh & McLennan Cos. Inc.	United States		117,500		3,715,350
People’s United Financial Inc.	United States		250,000		3,212,500
QBE Insurance Group Ltd.	Australia		275,000		3,643,337
T. Rowe Price Group Inc.	United States		81,100		4,618,645
Wells Fargo & Co.	United States		161,000		4,437,160
					35,619,910
Health Care 8.1%
Abbott Laboratories	United States		65,200		3,666,196
Johnson & Johnson	United States		77,800		5,102,124
Merck & Co. Inc.	United States		161,261		6,079,540
Pfizer Inc.	United States		209,900		4,542,236
Roche Holding AG	Switzerland		22,300		3,783,407
					23,173,503
Industrials 14.3%
3M Co.	United States		55,500		4,536,015
The Boeing Co.	United States		35,800		2,625,930
Caterpillar Inc.	United States		36,600		3,315,960
Emerson Electric Co.	United States		114,600		5,339,214
General Dynamics Corp.	United States		63,600		4,223,676
General Electric Co.	United States		330,000		5,910,300
Honeywell International Inc.	United States		60,000		3,261,000
J.B. Hunt Transport Services Inc.	United States		64,500		2,907,015
Republic Services Inc.	United States		135,200		3,724,760

FGI-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Growth and Income Securities Fund	Country	Shares		Value
Common Stocks (continued)
Industrials (continued)
United Parcel Service Inc., B	United States		70,800	$	5,181,852
					41,025,722
Information Technology 11.1%
Intel Corp.	United States		273,000		6,620,250
International Business Machines Corp.	United States		32,900		6,049,652
Microchip Technology Inc.	United States		151,800		5,560,434
Microsoft Corp.	United States		172,400		4,475,504
Paychex Inc.	United States		143,000		4,305,730
Xerox Corp.	United States		587,400		4,675,704
					31,687,274
Materials 2.6%
E. I. du Pont de Nemours and Co.	United States		101,800		4,660,404
Freeport-McMoRan Copper & Gold Inc., B	United States		80,738		2,970,351
					7,630,755
Telecommunication Services 4.2%
AT&T Inc.	United States		146,497		4,430,069
Verizon Communications Inc.	United States		185,200		7,430,224
					11,860,293
Utilities 4.6%
Progress Energy Inc.	United States		65,000		3,641,300
Sempra Energy	United States		92,242		5,073,310
The Southern Co.	United States		96,700		4,476,243
					13,190,853
Total Common Stocks (Cost $193,973,682)					237,280,780
aEquity-Linked Securities 4.0%
Energy 1.4%
Credit Suisse AG into Halliburton Co., 8.00%	United States		110,000		4,038,650
Information Technology 2.6%
bGoldman Sachs Group Inc. into Cisco Systems Inc., 5.00%, 144A	United States		300,000		5,461,200
bMorgan Stanley into Apple Inc., 7.50%, 144A	United States		5,000		1,911,820
					7,373,020
Total Equity-Linked Securities (Cost $14,295,900)					11,411,670
Convertible Preferred Stocks 9.0%
Consumer Discretionary 0.9%
General Motors Co., 4.75%, cvt. pfd., B	United States		77,000		2,637,250
Energy 1.2%
bChesapeake Energy Corp., 5.75%, cvt. pfd., 144A	United States		3,500		3,534,265
Financials 4.3%
Bank of America Corp., 7.25%, cvt. pfd., L	United States		4,100		3,230,882
Hartford Financial Services Group Inc., 7.25%, cvt. pfd.	United States		97,000		1,821,660
MetLife Inc., 5.00%, cvt. pfd.	United States		71,100		4,381,182
Wells Fargo & Co., 7.50%, cvt. pfd., A	United States		2,700		2,851,200
					12,284,924

FGI-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Growth and Income Securities Fund	Country	Shares		Value
Convertible Preferred Stocks (continued)
Health Care 0.6%
Tenet Healthcare Corp., 7.00%, cvt. pfd.	United States		1,900	$	1,624,500
Materials 1.1%
AngloGold Ashanti Holdings Finance PLC, 6.00%, cvt. pfd.	South Africa		65,000		3,102,450
Utilities 0.9%
Great Plains Energy Inc., 12.00%, cvt. pfd.	United States		40,000		2,664,400
Total Convertible Preferred Stocks (Cost $27,209,036)					25,847,789
Preferred Stocks (Cost $8,133,100) 0.2%
Financials 0.2%
cFannie Mae, 8.25%, pfd.	United States		325,000		448,500
		Principal Amount*
Convertible Bonds (Cost $1,000,000) 0.4%
Materials 0.4%
ArcelorMittal, cvt., senior note, 5.00%, 5/15/14	Luxembourg	$	1,000,000		1,056,250
Total Investments before Short Term Investments (Cost $244,611,718)					276,044,989
Short Term Investments (Cost $10,099,486) 3.5%
Repurchase Agreements 3.5%
dJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $10,099,498)	United States		10,099,486		10,099,486
BNP Paribas Securities Corp. (Maturity Value $1,222,039)
Credit Suisse Securities (USA) LLC (Maturity Value $1,466,346)
Deutsche Bank Securities Inc. (Maturity Value $1,545,526)
HSBC Securities (USA) Inc. (Maturity Value $2,444,079)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $1,466,346)
Morgan Stanley & Co. LLC (Maturity Value $488,816)
UBS Securities LLC (Maturity Value $1,466,346)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; eU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% -11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $10,306,814)
Total Investments (Cost $254,711,204) 100.0%					286,144,475
Other Assets, less Liabilities (0.0)%†					(5,807	)
Net Assets 100.0%				$	286,138,668

See Abbreviations on page FGI-22.

†Rounds to less than 0.1% of net assets.

*The principal amount is stated in U.S. dollars unless otherwise indicated.

^aSee Note 1(d) regarding equity-linked securities.

^bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $10,907,285, representing 3.81% of net assets.

^cNon-income producing.

^dSee Note 1(c) regarding joint repurchase agreement.

^eThe security is traded on a discount basis with no stated coupon rate.

The accompanying notes are an integral part of these financial statements.

FGI-11

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Growth and Income Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	244,611,718
Cost - Repurchase agreements		10,099,486
Total cost of investments	$	254,711,204
Value - Unaffiliated issuers	$	276,044,989
Value - Repurchase agreements		10,099,486
Total value of investments		286,144,475
Receivables:
Capital shares sold		118,373
Dividends and interest		650,683
Other assets		9
Total assets		286,913,540
Liabilities:
Payables:
Capital shares redeemed		495,054
Affiliates		183,093
Reports to shareholders		59,750
Accrued expenses and other liabilities		36,975
Total liabilities		774,872
Net assets, at value	$	286,138,668
Net assets consist of:
Paid-in capital	$	304,716,090
Undistributed net investment income		8,605,551
Net unrealized appreciation (depreciation)		31,436,192
Accumulated net realized gain (loss)		(58,619,165	)
Net assets, at value	$	286,138,668
Class 1:
Net assets, at value	$	156,830,095
Shares outstanding		13,519,588
Net asset value and maximum offering price per share	$	11.60
Class 2:
Net assets, at value	$	129,308,573
Shares outstanding		11,308,095
Net asset value and maximum offering price per share	$	11.44

The accompanying notes are an integral part of these financial statements.

FGI-12

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Growth and Income Securities Fund
Investment income:
Dividends	$	10,179,500
Interest		153,488
Total investment income		10,332,988
Expenses:
Management fees (Note 3a)		1,622,410
Distribution fees: (Note 3c)
Class 2		346,320
Class 4		2
Unaffiliated transfer agent fees		197
Custodian fees (Note 4)		6,540
Reports to shareholders		101,226
Professional fees		40,738
Trustees’ fees and expenses		1,172
Other		17,076
Total expenses		2,135,681
Net investment income		8,197,307
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		24,188,456
Foreign currency transactions		2,471
Net realized gain (loss)		24,190,927
Net change in unrealized appreciation (depreciation) on:
Investments		(24,900,763	)
Translation of other assets and liabilities denominated in foreign currencies		12
Net change in unrealized appreciation (depreciation)		(24,900,751	)
Net realized and unrealized gain (loss)		(709,824	)
Net increase (decrease) in net assets resulting from operations	$	7,487,483	��

The accompanying notes are an integral part of these financial statements.

FGI-13

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Growth and Income Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	8,197,307		$	10,986,035
Net realized gain (loss) from investments and foreign currency transactions		24,190,927			12,697,955
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(24,900,751	)		25,059,009
Net increase (decrease) in net assets resulting from operations		7,487,483			48,742,999
Distributions to shareholders from:
Net investment income:
Class 1		(6,502,022	)		(6,417,296	)
Class 2		(5,102,769	)		(5,249,987	)
Class 4		—			(134	)
Total distributions to shareholders		(11,604,791	)		(11,667,417	)
Capital share transactions: (Note 2)
Class 1		(17,555,780	)		(17,785,745	)
Class 2		(20,259,007	)		(17,698,877	)
Class 4		(4,301	)		—
Total capital share transactions		(37,819,088	)		(35,484,622	)
Net increase (decrease) in net assets		(41,936,396	)		1,590,960
Net assets:
Beginning of year		328,075,064			326,484,104
End of year	$	286,138,668		$	328,075,064
Undistributed net investment income included in net assets:
End of year	$	8,605,551		$	11,818,534

The accompanying notes are an integral part of these financial statements.

FGI-14

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Growth and Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Growth and Income Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 75.64% of the Fund’s shares were held through one insurance company. The Fund offers two classes of shares: Class 1 and Class 2. On March 4, 2011, the Fund liquidated Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt and certain preferred securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result,

FGI-15

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

d. Equity-Linked Securities

The Fund invests in equity-linked securities. Equity-linked securities are hybrid financial instruments that generally combine both debt and equity characteristics into a single note form. Income received from equity linked securities is recorded as realized gains in the Statement of Operations and may be based on the performance of an underlying equity security, an equity index, or an option position. The risks of investing in equity-linked securities include unfavorable price movements in the underlying security and the credit risk of the issuing financial institution. There may be no guarantee of a return of

FGI-16

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Equity-Linked Securities (continued)

principal with equity linked securities and the appreciation potential may be limited. Equity-linked securities may be more volatile and less liquid than other investments held by the Fund.

e. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

f. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

g. 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 expenses during the reporting period. Actual results could differ from those estimates.

FGI-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

h. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011a						2010b
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		187,427		$	2,361,235			71,404		$	762,743
Shares issued in reinvestment of distributions		570,854			6,502,022			641,089			6,417,296
Shares redeemed		(2,250,738	)		(26,419,037	)		(2,352,373	)		(24,965,784	)
Net increase (decrease)		(1,492,457	)	$	(17,555,780	)		(1,639,880	)	$	(17,785,745	)
Class 2 Shares:
Shares sold		624,568		$	7,137,921			846,978		$	8,699,858
Shares issued in reinvestment of distributions		453,579			5,102,769			530,838			5,249,987
Shares redeemed		(2,828,839	)		(32,499,697	)		(3,035,560	)		(31,648,722	)
Net increase (decrease)		(1,750,692	)	$	(20,259,007	)		(1,657,744	)	$	(17,698,877	)
Class 4 Shares:
Shares redeemed		(353	)	$	(4,301	)
Net increase (decrease)		(353	)	$	(4,301	)

^aEffective March 4, 2011, Class 4 was liquidated.

^bDuring the year Class 4 did not report any share transactions.

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FGI-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.625%	Up to and including $100 million
0.500%	Over $100 million, up to and including $250 million
0.450%	Over $250 million, up to and including $7.5 billion
0.440%	Over $7.5 billion, up to and including $10 billion
0.430%	Over $10 billion, up to and including $12.5 billion
0.420%	Over $12.5 billion, up to and including $15 billion
0.400%	In excess of $15 billion

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, the Fund had capital loss carryforwards of $58,122,192 expiring in 2017. During the year ended December 31, 2011, the Fund utilized $24,108,895 of capital loss carryforwards.

FGI-19

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

5. INCOME TAXES (continued)

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	11,604,791	$	11,667,417

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	255,261,073
Unrealized appreciation	$	52,490,725
Unrealized depreciation		(21,607,323	)
Net unrealized appreciation (depreciation)	$	30,883,402
Distributable earnings – undistributed ordinary income	$	8,792,149

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $98,347,520 and $141,755,009, respectively.

7. CREDIT RISK

At December 31, 2011, the Fund had 10.65% of its portfolio invested in high yield or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

FGI-20

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Investments:a
Energy	$	28,682,964	$	3,534,265	$	—	$	32,217,229
Financials		45,502,134		2,851,200		—		48,353,334
Health Care		23,173,503		1,624,500		—		24,798,003
Utilities		13,190,853		2,664,400		—		15,855,253
All Other Equity Investmentsb		142,353,250		—		—		142,353,250
Equity-Linked Securities		—		11,411,670		—		11,411,670
Convertible Bonds		—		1,056,250		—		1,056,250
Short Term Investments		—		10,099,486		—		10,099,486
Total Investments in Securities	$	252,902,704	$	33,241,771	$	—	$	286,144,475

^aIncludes common, preferred and convertible preferred stocks as well as other equity investments.

^bFor detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

FGI-21

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Growth and Income Securities Fund

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt

FGI-22

Franklin Templeton Variable Insurance Products Trust

Franklin Growth and Income Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Growth and Income Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FGI-23

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Growth and Income Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 68.24% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

FGI-24

FRANKLIN HIGH INCOME SECURITIES FUND

This annual report for Franklin High Income Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+4.63%		+6.13%		+7.18%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Credit Suisse (CS) High Yield Index and the Lipper VIP High Current Yield Funds Classification Average. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

**Source: Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin High Income 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FH-1

Fund Goals and Main Investments: Franklin High Income Securities Fund seeks a high level of current income with capital appreciation as a secondary goal. The Fund normally invests primarily to predominantly in high yield, lower rated debt securities and preferred stocks.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed the +5.47% total return of its benchmark, the Credit Suisse (CS) High Yield Index.¹ The Fund outperformed the +3.35% total return of its peers, as measured by the Lipper VIP High Current Yield Funds Classification Average.²

Economic and Market Overview

During the 12 months under review, Federal Reserve Board (Fed) policymakers maintained historically low interest rates while adopting a more restrained view of the economy largely because of the European sovereign debt crisis and signs the U.S. economic expansion lacked momentum. To promote a stronger recovery and help maintain inflation levels the Fed believed consistent with its dual mandate to foster maximum employment and price stability, the Fed undertook a second round of quantitative easing consisting of a $600 billion purchase of longer term U.S. Treasuries, which ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth. In September, the Fed announced plans designed to boost the economy by driving down long-term interest rates. The Fed intends to sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. The Fed also anticipated it would keep short-term rates near zero through mid-2013.

The economy grew more slowly than expected, and unemployment remained high. Home foreclosures increased, but federal lawmakers made efforts to strengthen the real estate market by removing some eligibility restrictions and changes associated with refinancing. After showing improvement early in the reporting period, manufacturing activity weakened partly because of global supply-chain disruptions following Japan’s natural disasters. Geopolitical instability in some oil-producing regions drove up oil prices for much of the period. However, investor concerns over weak economic data contributed to a drop

1. Source: © 2012 Morningstar.

2. Source: Lipper Inc.

One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Because the Fund invests in bonds and other debt obligations, its share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund invests primarily to predominantly in high yield, lower rated (junk) bonds, which generally have greater price swings and higher risk of default and loss of principal than investment-grade bonds. Foreign investing, especially in developing markets, involves additional risks including currency fluctuations, economic instability, market volatility, and political and social instability. Derivative instruments may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. Bank loans, corporate loans and loan participations involve credit, interest rate and illiquidity risks. The Fund is actively managed, but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

FH-2

in crude oil prices from their 12-month high of $114 per barrel on April 29 to $99 at period-end. Storms and droughts in several states reduced crop yields, pushing up grain prices. As oil and food prices rose, the pace of inflation accelerated during the period. By year-end, various U.S. economic gauges began to show some improvement, leading some economists to become more optimistic near year-end about the economy’s prospects.

Generally favorable economic improvements and positive corporate earnings reports somewhat eased investor concerns. During the 12 months under review, fixed income markets, as measured by the BC U.S. Aggregate Index, and U.S. stocks, as measured by the Standard & Poor’s^® 500 Index, posted gains.¹ Heightened volatility, however, roiled global financial markets amid U.S. lawmakers’ protracted debate and eventual compromise on the debt limit, independent credit rating agency Standard & Poor’s downgrade of the long-term U.S. credit rating to AA+ from AAA, and fears of sovereign debt crisis contagion in Europe. In November, the unemployment rate fell to its lowest level in more than two years, which helped consumer confidence climb to its highest level in more than eight years. During the final six months of 2011, however, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower for the 12-month period under review. This flight to perceived safety during the latter half of 2011 resulted in a wide disparity in performance between the BC U.S. Treasury Index, which returned +7.43% for the six months ended December 31, 2011, and the CS High Yield Index, which returned +0.60% for the same period.¹

Investment Strategy

We are research-driven, fundamental investors who rely on a team of analysts to provide in-depth industry expertise and use qualitative and quantitative analyses to evaluate companies. As bottom-up investors, we focus primarily on individual securities. We also consider sectors when choosing investments. In selecting securities for the Fund’s investment portfolio, we do not rely principally on ratings assigned by rating agencies, but perform our own independent analysis to evaluate an issuer’s creditworthiness. We consider a variety of factors, including an issuer’s experience and managerial strength, its sensitivity to economic conditions and its current financial condition. We may also enter into various transactions involving certain currency-, interest rate- or credit-related derivative instruments for hedging purposes, to enhance returns or to obtain exposure to various market sectors.

FH-3

Manager’s Discussion

The Fund generated the majority of its one-year positive return during the first half of the year as the market gained steadily through late May. June proved to be volatile, however, as weak U.S. housing data and high unemployment weighed on consumer confidence and the stock market. As a result, some investors pared exposure to higher-risk asset classes, including the high yield corporate bond market, pressuring prices in the sector. In early August, Europe’s increasing discord, combined with the downgrade of U.S. long-term debt by a rating agency, weighed on sentiment and the markets sharply declined. However, actions intended to stem the European crisis helped restore confidence, allowing the market to begin to recover by year-end.

Throughout 2011’s market volatility, which we believe was partly due to technical supply and demand factors, high yield bond valuations experienced a fair degree of fluctuation, even as corporate balance sheets remained healthy. We sought to take advantage of alternating periods of relative strength and weakness to reposition the Fund on an individual security level. Consistent with our disciplined approach, we drew on our fundamental research process to adjust industry positioning within the Fund. As a result of our analysis, we over- and underweighted certain industries relative to the CS High Yield Index. Overall, we maintained a neutral beta stance, though by year-end the Fund had a somewhat more aggressive positioning.

We remained cautious regarding the strength of the consumer recovery throughout the year and underweighted the retail industry.³ Despite periods of relative strength, the retail industry underperformed the benchmark for the year, aiding the Fund’s relative performance. We also had little confidence in a paper industry rebound as it faced declining demand and above-average input costs.⁴ We therefore maintained our underweighted position in this industry. With the industry also underperforming the benchmark, our relatively low exposure proved beneficial to the Fund. In this industry, the Fund held the bonds of NewPage, a large coated paper manufacturer that filed for bankruptcy in 2011. However, the Fund held the company’s senior secured bonds, and the company paid the December coupon for this tranche⁵ of bonds. Although the Fund’s position in Texas Competitive Electric Holdings, a

3. Retail holdings are part of food and staples retailing and retailing in the SOI.

4. Paper holdings are part of materials in the SOI.

5. A tranche is a portion of a debt financing. Although the tranches are provided by the same issuer, each tranche has a different level of risk, reward and/or maturity based on priority of payment.

Top 10 Sectors/Industries

Franklin High Income Securities Fund

% of Total Net Assets

12/31/11

Energy	18.7%
Telecommunication Services	9.9%
Media	9.1%
Materials	8.0%
Health Care Equipment & Services	5.1%
Consumer Services	4.7%
Automobiles & Components	4.3%
Capital Goods	4.2%
Diversified Financials	3.6%
Pharmaceuticals, Biotechnology & Life Sciences	2.8%

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

FH-4

Texas independent utility provider, was a drag on returns as the company continued to manage a heavy debt load, the utilities industry allocation, as well as the relative performance of certain individual utility bond holdings, helped drive a positive contribution.

In contrast, the Fund’s exposure to American Airlines (AMR), which entered into Chapter 11 protection in 2011, weighed on relative performance. Although the AMR bonds were secured, the bonds traded lower during the year, hampering relative performance. Our low exposure to the building industry was positive for relative performance. The Fund’s position in Cemex, a large Mexico-based building materials supplier, detracted from relative performance as its bonds declined in value amid refinancing concerns given the pullback in construction spending over the past three years.⁶ Conversely, we were more positive toward the wireless telecommunications industry and held a small overweighted position versus the index.⁷ However, the industry underperformed during a period of heavy competitive pricing pressures and turmoil among the largest constituents, which affected the remainder of the industry. The Fund’s overweighted allocation resulted in a drag on relative performance.

Thank you for your participation in Franklin High Income Securities Fund. We look forward to serving your future investment needs.

6. Building holdings are part of materials in the SOI.

7. Wireless telecommunications are part of telecommunications services in the SOI.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

FH-5

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then

8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin High Income Securities Fund – Class 1

FH-6

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	988.50	$	2.92
Hypothetical (5% return before expenses)	$	1,000	$	1,022.28	$	2.96

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.58%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FH-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin High Income Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	6.63		$	6.26		$	4.68		$	6.72		$	6.96
Income from investment operationsa:
Net investment incomeb		0.50			0.49			0.46			0.50			0.51
Net realized and unrealized gains (losses)		(0.19	)		0.32			1.50			(1.92	)		(0.30	)
	��
Total from investment operations		0.31			0.81			1.96			(1.42	)		0.21
Less distributions from net investment income		(0.42	)		(0.44	)		(0.38	)		(0.62	)		(0.45	)
Net asset value, end of year	$	6.52		$	6.63		$	6.26		$	4.68		$	6.72
Total returnc		4.63%			13.71%			42.99%			(23.16)%			3.02%
Ratios to average net assets
Expenses		0.58%			0.61%			0.63%	d		0.66%	d		0.61%	d
Net investment income		7.52%			7.71%			8.33%			8.30%			7.38%
Supplemental data
Net assets, end of year (000’s)	$	41,971		$	48,051		$	48,855		$	38,225		$	61,286
Portfolio turnover rate		45.11%			60.80%			26.41%			21.75%			40.65%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FH-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin High Income Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	6.47		$	6.13		$	4.59		$	6.60		$	6.85
Income from investment operationsa:
Net investment incomeb		0.47			0.47			0.44			0.47			0.48
Net realized and unrealized gains (losses)		(0.18	)		0.30			1.47			(1.88	)		(0.29	)
Total from investment operations		0.29			0.77			1.91			(1.41	)		0.19
Less distributions from net investment income		(0.40	)		(0.43	)		(0.37	)		(0.60	)		(0.44	)
Net asset value, end of year	$	6.36		$	6.47		$	6.13		$	4.59		$	6.60
Total returnc		4.56%			13.26%			42.70%			(23.38)%			2.72%
Ratios to average net assets
Expenses		0.83%			0.86%			0.88%	d		0.91%	d		0.86%	d
Net investment income		7.27%			7.46%			8.08%			8.05%			7.13%
Supplemental data
Net assets, end of year (000’s)	$	249,452		$	239,824		$	198,567		$	84,396		$	155,777
Portfolio turnover rate		45.11%			60.80%			26.41%			21.75%			40.65%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FH-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin High Income Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	6.57		$	6.22		$	4.67		$	6.55
Income from investment operationsb:
Net investment incomec		0.47			0.47			0.45			0.39
Net realized and unrealized gains (losses)		(0.18	)		0.31			1.48			(1.65	)
Total from investment operations		0.29			0.78			1.93			(1.26	)
Less distributions from net investment income		(0.40	)		(0.43	)		(0.38	)		(0.62	)
Net asset value, end of year	$	6.46		$	6.57		$	6.22		$	4.67
Total returnd		4.39%			13.31%			42.36%			(21.34)%
Ratios to average net assetse
Expenses		0.93%			0.96%			0.98%	f		1.01%	f
Net investment income		7.17%			7.36%			7.98%			7.95%
Supplemental data
Net assets, end of year (000’s)	$	27,055		$	25,934		$	15,105		$	2,244
Portfolio turnover rate		45.11%			60.80%			26.41%			21.75%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dTotal return does not include 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.

^eRatios are annualized for periods less than one year.

^fBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FH-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin High Income Securities Fund	Country	Shares		Value
Common Stocks (Cost $865,221) 0.0%†
Media 0.0%†
a,bDex One Corp.	United States		27,909	$	46,329
Preferred Stocks (Cost $770,000) 0.2%
Diversified Financials 0.2%
GMAC Capital Trust I, 8.125%, pfd.	United States		30,800		595,672
		Principal Amount*
Corporate Bonds 91.9%
Automobiles & Components 4.3%
cAllison Transmission Holdings Inc., senior note, 144A, 7.125%, 5/15/19	United States		1,000,000		985,000
cChrysler Group LLC/CG Co-Issuer Inc., senior secured note, 144A, 8.25%, 6/15/21	United States		1,500,000		1,372,500
Exide Technologies, senior secured note, 8.625%, 2/01/18	United States		800,000		620,000
Ford Motor Credit Co. LLC, senior note,
7.00%, 4/15/15	United States		2,000,000		2,155,000
6.625%, 8/15/17	United States		1,000,000		1,090,098
5.00%, 5/15/18	United States		1,000,000		1,004,822
8.125%, 1/15/20	United States		1,000,000		1,180,461
5.75%, 2/01/21	United States		1,000,000		1,044,263
The Goodyear Tire & Rubber Co., senior note, 8.25%, 8/15/20	United States		2,800,000		3,066,000
cInternational Automotive Components Group SL, senior secured note, 144A, 9.125%, 6/01/18	United States		1,400,000		1,277,500
					13,795,644
Banks 2.3%
cCIT Group Inc., secured bond, 144A, 7.00%, 5/02/17	United States		6,000,000		6,000,000
Regions Bank, sub. note, 7.50%, 5/15/18	United States		1,250,000		1,246,875
					7,246,875
Capital Goods 4.2%
cAbengoa Finance SAU, senior note, 144A, 8.875%, 11/01/17	Spain		3,000,000		2,880,000
The Manitowoc Co. Inc., senior note,
9.50%, 2/15/18	United States		1,400,000		1,498,000
8.50%, 11/01/20	United States		500,000		529,375
Meritor Inc., senior note, 10.625%, 3/15/18	United States		1,900,000		1,795,500
RBS Global & Rexnord Corp., senior note, 8.50%, 5/01/18	United States		2,500,000		2,662,500
RSC Equipment Rental Inc./RSC Holdings III LLC, senior note, 10.25%, 11/15/19	United States		1,000,000		1,095,000
United Rentals North America Inc., senior sub. note, 8.375%, 9/15/20	United States		2,900,000		2,842,000
					13,302,375
Commercial & Professional Services 0.2%
d,eGoss Graphic Systems Inc., senior sub. note, 12.25%, 11/19/05	United States		1,912,374		191
Interactive Data Corp., senior note, 10.25%, 8/01/18	United States		500,000		549,150
					549,341
Consumer Durables & Apparel 2.4%
KB Home, senior note, 6.25%, 6/15/15	United States		2,000,000		1,850,000
M/I Homes Inc., senior note, 8.625%, 11/15/18	United States		1,500,000		1,335,000
cShea Homes LP/Funding Corp., senior secured note, 144A, 8.625%, 5/15/19	United States		1,600,000		1,500,000
Visant Corp., senior note, 10.00%, 10/01/17	United States		3,100,000		2,852,000
					7,537,000
Consumer Services 4.7%
cCityCenter Holdings/Finance, senior secured note, 144A, 7.625%, 1/15/16	United States		200,000		206,000
ClubCorp Club Operations Inc., senior note, 10.00%, 12/01/18	United States		2,200,000		2,123,000

FH-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Consumer Services (continued)
c,dFontainebleau Las Vegas, 144A, 11.00%, 6/15/15	United States		1,700,000	$	1,062
Harrah’s Operating Co. Inc., senior secured note, 11.25%, 6/01/17	United States		3,000,000		3,198,750
MGM Resorts International,
senior note, 6.625%, 7/15/15	United States		2,000,000		1,910,000
senior note, 6.875%, 4/01/16	United States		1,200,000		1,116,000
senior secured note, 9.00%, 3/15/20	United States		600,000		667,500
NCL Corp. Ltd., senior note, 9.50%, 11/15/18	United States		1,000,000		1,047,500
Pinnacle Entertainment Inc.,
senior note, 8.625%, 8/01/17	United States		2,200,000		2,337,500
senior sub. note, 7.50%, 6/15/15	United States		400,000		398,000
cShingle Springs Tribal Gaming Authority, senior note, 144A, 9.375%, 6/15/15	United States		1,300,000		741,000
cSugarhouse HSP Gaming Prop Mezz LP/Finance Corp., senior secured note, 144A, 8.625%, 4/15/16	United States		1,200,000		1,236,000
					14,982,312
Diversified Financials 3.6%
Ally Financial Inc., senior note, 7.50%, 9/15/20	United States		1,500,000		1,520,625
fBank of America Corp., pfd., sub. bond, M, 8.125% to 5/15/18, FRN thereafter, Perpetual	United States		2,500,000		2,246,875
GMAC Inc.,
senior note, 6.875%, 8/28/12	United States		2,000,000		2,030,000
sub. note, 8.00%, 12/31/18	United States		800,000		790,000
International Lease Finance Corp.,
senior note, 8.25%, 12/15/20	United States		1,200,000		1,215,000
senior note, R, 5.65%, 6/01/14	United States		2,800,000		2,688,000
csenior secured note, 144A, 6.75%, 9/01/16	United States		1,200,000		1,236,000
					11,726,500
Energy 18.7%
Alpha Natural Resources Inc., senior note,
6.00%, 6/01/19	United States		1,100,000		1,072,500
6.25%, 6/01/21	United States		1,100,000		1,072,500
Antero Resources Finance Corp., senior note,
9.375%, 12/01/17	United States		2,600,000		2,821,000
c144A, 7.25%, 8/01/19	United States		200,000		206,000
cArch Coal Inc., senior note, 144A,
7.00%, 6/15/19	United States		700,000		717,500
7.25%, 6/15/21	United States		1,000,000		1,032,500
cAtlas Pipeline Partners LP/Finance Corp., senior note, 144A, 8.75%, 6/15/18	United States		1,500,000		1,575,000
cCalumet Specialty Products Partners LP/Finance Corp., senior note, 144A, 9.375%,
5/01/19	United States		900,000		877,500
5/01/19	United States		800,000		772,000
cCarrizo Oil & Gas Inc., senior note, 144A, 8.625%, 10/15/18	United States		1,000,000		1,010,000
Chaparral Energy Inc., senior note,
9.875%, 10/01/20	United States		1,400,000		1,519,000
8.25%, 9/01/21	United States		600,000		610,500
cCHC Helicopter SA, senior secured note, 144A, 9.25%, 10/15/20	Canada		3,500,000		3,167,500
Chesapeake Energy Corp., senior note,
6.625%, 8/15/20	United States		2,900,000		3,124,750
6.125%, 2/15/21	United States		1,000,000		1,032,500
cClayton Williams Energy Inc., senior note, 144A, 7.75%, 4/01/19	United States		1,400,000		1,344,000
Compagnie Generale de Geophysique-Veritas, senior note, 6.50%, 6/01/21	France		2,500,000		2,437,500

FH-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Energy (continued)
CONSOL Energy Inc., senior note,
8.00%, 4/01/17	United States		500,000	$	550,000
8.25%, 4/01/20	United States		500,000		555,000
c144A, 6.375%, 3/01/21	United States		300,000		304,500
cEagle Rock Energy Partners LP/Finance Corp., senior note, 144A, 8.375%, 6/01/19	United States		1,400,000		1,407,000
Energy Transfer Equity LP, senior note, 7.50%, 10/15/20	United States		1,200,000		1,317,000
Energy XXI Gulf Coast Inc., senior note, 9.25%, 12/15/17	United States		2,500,000		2,725,000
gEnterprise Products Operating LLC, junior sub. note, FRN, 7.034%, 1/15/68	United States		1,500,000		1,561,908
cExpro Finance Luxembourg, senior secured note, 144A, 8.50%, 12/15/16	United Kingdom		3,000,000		2,655,000
cGoodrich Petroleum Corp., senior note, 144A, 8.875%, 3/15/19	United States		1,700,000		1,708,500
cKinder Morgan Finance Co. LLC, senior secured note, 144A, 6.00%, 1/15/18	United States		1,500,000		1,533,750
cKodiak Oil & Gas Corp., senior note, 144A, 8.125%, 12/01/19	United States		900,000		938,250
Linn Energy LLC/Finance Corp., senior note,
8.625%, 4/15/20	United States		2,000,000		2,180,000
7.75%, 2/01/21	United States		700,000		731,500
c144A, 6.50%, 5/15/19	United States		600,000		598,500
Martin Midstream Partners LP, senior note, 8.875%, 4/01/18	United States		1,500,000		1,552,500
Oasis Petroleum Inc., senior note, 6.50%, 11/01/21	United States		900,000		897,750
Offshore Group Investment Ltd., senior secured note, 11.50%, 8/01/15	United States		1,700,000		1,846,625
Peabody Energy Corp., senior note, 6.50%, 9/15/20	United States		1,700,000		1,793,500
cPetroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14	Switzerland		1,600,000		872,000
Plains Exploration & Production Co., senior note, 7.625%, 6/01/18	United States		2,200,000		2,343,000
Quicksilver Resources Inc., senior note,
8.25%, 8/01/15	United States		2,000,000		2,080,000
9.125%, 8/15/19	United States		300,000		319,500
SandRidge Energy Inc., senior note,
8.75%, 1/15/20	United States		300,000		311,250
7.50%, 3/15/21	United States		400,000		399,000
c144A, 8.00%, 6/01/18	United States		2,500,000		2,537,500
cW&T Offshore Inc., senior note, 144A, 8.50%, 6/15/19	United States		1,500,000		1,560,000
					59,670,783
Food & Staples Retailing 1.0%
Rite Aid Corp., senior secured note,
9.75%, 6/12/16	United States		1,800,000		1,980,000
8.00%, 8/15/20	United States		1,000,000		1,110,000
					3,090,000
Food, Beverage & Tobacco 2.6%
cCEDC Finance Corp. International Inc., senior secured note, 144A, 9.125%, 12/01/16	Poland		700,000		498,750
Del Monte Corp., senior note, 7.625%, 2/15/19	United States		2,500,000		2,412,500
Dean Foods Co., senior note, 9.75%, 12/15/18	United States		2,800,000		2,996,000
Pinnacle Foods Finance LLC, senior note,
9.25%, 4/01/15	United States		1,300,000		1,340,625
8.25%, 9/01/17	United States		1,000,000		1,045,000
					8,292,875
Health Care Equipment & Services 5.1%
Amerigroup Corp., senior note, 7.50%, 11/15/19	United States		1,600,000		1,656,000
Aviv Healthcare Properties LP, senior note, 7.75%, 2/15/19	United States		2,000,000		1,970,000
Community Health Systems Inc., senior note, 8.875%, 7/15/15	United States		1,927,000		1,994,445
Emergency Medical Services Corp., senior note, 8.125%, 6/01/19	United States		1,000,000		1,002,500
cExamWorks Group Inc., senior note, 144A, 9.00%, 7/15/19	United States		700,000		637,000

FH-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Health Care Equipment & Services (continued)
HCA Inc.,
senior note, 7.50%, 2/15/22	United States		800,000	$	820,000
senior secured bond, 7.25%, 9/15/20	United States		900,000		954,000
senior secured note, 7.875%, 2/15/20	United States		1,000,000		1,085,000
cHealth Management Associates Inc., senior note, 144A, 7.375%, 1/15/20	United States		400,000		417,000
MedAssets Inc., senior note, 8.00%, 11/15/18	United States		2,000,000		1,970,000
hUnited Surgical Partners International Inc., senior sub. note, PIK, 9.25%, 5/01/17	United States		2,300,000		2,323,000
Vanguard Health Holding Co. II LLC/Inc., senior note, 8.00%, 2/01/18	United States		1,300,000		1,296,750
Vanguard Health Systems Inc., senior note, zero cpn., 2/01/16	United States		64,000		40,320
					16,166,015
Materials 8.0%
Atkore International Inc., senior secured note, 9.875%, 1/01/18	United States		1,600,000		1,540,000
cCemex SAB de CV, senior secured note, 144A, 9.00%, 1/11/18	Mexico		3,500,000		2,814,577
cEuramax International Inc., senior secured note, 144A, 9.50%, 4/01/16	United States		2,000,000		1,570,000
cExopack Holding Corp., senior note, 144A, 10.00%, 6/01/18	United States		1,400,000		1,407,000
cFMG Resources August 2006 Pty. Ltd., senior note, 144A,
7.00%, 11/01/15	Australia		800,000		795,500
6.875%, 2/01/18	Australia		2,000,000		1,925,000
8.25%, 11/01/19	Australia		500,000		511,250
cIneos Finance PLC, senior secured note, 144A, 9.00%, 5/15/15	United Kingdom		200,000		204,000
cIneos Group Holdings Ltd., senior secured note, 144A, 8.50%, 2/15/16	United Kingdom		2,000,000		1,600,000
cKinove German Bondco GmbH, senior secured note, 144A, 9.625%, 6/15/18	Germany		1,600,000		1,491,197
cMacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17	United States		2,500,000		2,500,000
dNewPage Corp., senior secured note, 11.375%, 12/31/14	United States		2,500,000		1,720,313
Novelis Inc., senior note, 8.75%, 12/15/20	Canada		1,300,000		1,400,750
cReynolds Group Issuer Inc./LLC/SA, senior note, 144A,
9.00%, 5/15/18	United States		2,800,000		2,695,000
9.00%, 4/15/19	United States		200,000		191,000
9.875%, 8/15/19	United States		200,000		195,000
8.25%, 2/15/21	United States		400,000		356,000
cSealed Air Corp., senior note, 144A,
8.125%, 9/15/19	United States		800,000		880,000
8.375%, 9/15/21	United States		400,000		444,000
Solo Cup Co., senior sub. note, 8.50%, 2/15/14	United States		1,500,000		1,387,500
					25,628,087
Media 8.4%
cBresnan Broadband Holdings LLC, senior note, 144A, 8.00%, 12/15/18	United States		1,200,000		1,254,000
Cablevision Systems Corp., senior note, 7.75%, 4/15/18	United States		1,000,000		1,065,000
CCO Holdings LLC/Capital Corp., senior note,
8.125%, 4/30/20	United States		700,000		770,000
6.50%, 4/30/21	United States		2,200,000		2,238,500
Clear Channel Communications Inc., senior note, 9.00%, 3/01/21	United States		4,000,000		3,390,000
Clear Channel Worldwide Holdings Inc., senior note, B, 9.25%, 12/15/17	United States		1,000,000		1,085,000
cCSC Holdings Inc., senior note, 144A, 6.75%, 11/15/21	United States		1,500,000		1,586,250
cCumulus Media Inc., senior note, 144A, 7.75%, 5/01/19	United States		700,000		624,750
DISH DBS Corp., senior note,
7.125%, 2/01/16	United States		3,000,000		3,247,500
6.75%, 6/01/21	United States		1,500,000		1,623,750
cLive Nation Entertainment Inc., senior note, 144A, 8.125%, 5/15/18	United States		2,500,000		2,531,250
Media General Inc., senior secured note, 11.75%, 2/15/17	United States		1,400,000		1,344,000
hRadio One Inc., senior sub. note, PIK, 9.00%, 5/24/16	United States		1,603,544		1,137,463

FH-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country		Principal Amount*		Value
Corporate Bonds (continued)
Media (continued)
cUnitymedia Hessen/NRW, senior secured note, 144A, 8.125%, 12/01/17		Germany		1,500,000	$	1,578,750
cUnivision Communications Inc., senior secured note, 144A,
6.875%, 5/15/19		United States		1,500,000		1,455,000
7.875%, 11/01/20		United States		700,000		714,000
cUPCB Finance III Ltd., senior secured note, 144A, 6.625%, 7/01/20		Netherlands		1,000,000		990,000
						26,635,213
Pharmaceuticals, Biotechnology & Life Sciences 2.8%
Endo Pharmaceuticals Holdings Inc., senior note, 7.00%,
7/15/19		United States		600,000		642,000
12/15/20		United States		1,000,000		1,067,500
Giant Funding Corp., senior secured note, 8.25%, 2/01/18		Spain		1,800,000		1,899,000
cinVentiv Health Inc., senior note, 144A, 10.00%, 8/15/18		United States		2,400,000		2,208,000
cJaguar Holding Co. II/Merger Sub Inc., senior note, 144A, 9.50%, 12/01/19		United States		700,000		738,500
cMylan Inc., senior note, 144A, 7.875%, 7/15/20		United States		2,200,000		2,439,250
						8,994,250
Real Estate 0.6%
Forest City Enterprises Inc., senior note,
7.625%, 6/01/15		United States		1,800,000		1,777,500
6.50%, 2/01/17		United States		300,000		282,000
						2,059,500
Retailing 2.4%
cAcademy Ltd./Finance Corp., senior note, 144A, 9.25%, 8/01/19		United States		1,200,000		1,191,000
Asbury Automotive Group Inc., senior sub. note, 8.375%, 11/15/20		United States		1,400,000		1,442,000
Michaels Stores Inc., senior note, 7.75%, 11/01/18		United States		1,500,000		1,522,500
cNeedle Merger Sub Corp., senior note, 144A, 8.125%, 3/15/19		United States		900,000		861,750
cPetco Animal Supplies Inc., senior note, 144A, 9.25%, 12/01/18		United States		2,500,000		2,693,750
						7,711,000
Semiconductors & Semiconductor Equipment 1.7%
Advanced Micro Devices Inc., senior note,
8.125%, 12/15/17		United States		500,000		521,250
7.75%, 8/01/20		United States		1,000,000		1,032,500
Freescale Semiconductor Inc., senior note,
10.125%, 12/15/16		United States		200,000		211,500
8.05%, 2/01/20		United States		1,200,000		1,134,000
10.75%, 8/01/20		United States		1,104,000		1,156,440
cNXP BV/NXP Funding LLC, senior secured note, 144A, 9.75%, 8/01/18		Netherlands		1,100,000		1,214,125
						5,269,815
Software & Services 2.4%
First Data Corp.,
csenior bond, 144A, 12.625%, 1/15/21		United States		808,000		707,000
senior note, 9.875%, 9/24/15		United States		71,000		66,740
senior note, 9.875%, 9/24/15		United States		111,000		104,895
csenior secured bond, 144A, 8.25%, 1/15/21		United States		2,500,000		2,250,000
Sitel LLC/Finance Corp., senior note, 11.50%, 4/01/18		United States		1,300,000		965,250
cSterling Merger Inc., senior note, 144A, 11.00%, 10/01/19		United States		1,200,000		1,176,000
SunGard Data Systems Inc., senior note, 7.625%, 11/15/20		United States		2,300,000		2,374,750
						7,644,635

FH-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Technology Hardware & Equipment 1.6%
CDW LLC/Finance Corp., senior note, 8.50%, 4/01/19	United States		2,600,000		$	2,632,500
cCommScope Inc., senior note, 144A, 8.25%, 1/15/19	United States		2,300,000			2,311,500
						4,944,000
Telecommunication Services 9.9%
Cricket Communications Inc., senior note, 7.75%, 10/15/20	United States		3,500,000			3,071,250
Crown Castle International Corp.,
senior bond, 7.125%, 11/01/19	United States		600,000			651,000
senior note, 9.00%, 1/15/15	United States		2,000,000			2,177,500
cDigicel Group Ltd., senior note, 144A, 8.875%, 1/15/15	Jamaica		2,000,000			1,980,000
ceAccess Ltd., senior note, 144A, 8.25%, 4/01/18	Japan		1,800,000			1,710,000
Frontier Communications Corp., senior note,
8.25%, 4/15/17	United States		400,000			411,000
8.50%, 4/15/20	United States		2,000,000			2,057,500
8.75%, 4/15/22	United States		900,000			895,500
cIntegra Telecom Inc., senior secured note, 144A, 10.75%, 4/15/16	United States		2,200,000			1,804,000
Intelsat Jackson Holdings SA, senior note,
7.25%, 10/15/20	Luxembourg		900,000			920,250
c144A, 7.50%, 4/01/21	Luxembourg		3,800,000			3,852,250
MetroPCS Wireless Inc., senior note, 7.875%, 9/01/18	United States		1,500,000			1,528,125
Sprint Nextel Corp., senior note,
8.375%, 8/15/17	United States		3,000,000			2,703,750
c144A, 9.00%, 11/15/18	United States		3,000,000			3,157,500
West Corp., senior note, 7.875%, 1/15/19	United States		3,000,000			2,992,500
cWind Acquisition Finance SA, senior secured note, 144A, 11.75%, 7/15/17	Italy		1,500,000			1,335,938
c,hWind Acquisition Holdings Finance SA, senior secured note, 144A, PIK, 12.25%, 7/15/17	Italy		482,691	EUR		430,942
						31,679,005
Transportation 2.5%
c,dAmerican Airlines Inc., senior secured note, 144A, 7.50%, 3/15/16	United States		3,300,000			2,376,000
cCeva Group PLC, senior secured note, 144A,
11.625%, 10/01/16	United Kingdom		200,000			199,500
8.375%, 12/01/17	United Kingdom		500,000			478,750
11.50%, 4/01/18	United Kingdom		1,800,000			1,662,482
Hertz Corp., senior note,
7.50%, 10/15/18	United States		1,100,000			1,155,000
6.75%, 4/15/19	United States		2,000,000			2,015,000
						7,886,732
Utilities 2.5%
cCalpine Corp., senior secured note, 144A,
7.875%, 7/31/20	United States		800,000			866,000
7.50%, 2/15/21	United States		1,500,000			1,612,500
7.875%, 1/15/23	United States		1,000,000			1,080,000
cIntergen NV, senior secured note, 144A, 9.00%, 6/30/17	Netherlands		2,000,000			2,115,000
Texas Competitive Electric Holdings Co. LLC, senior note, A, 10.25%, 11/01/15	United States		1,000,000			360,000
Texas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings Finance Inc., senior secured note, c144A, 11.50%, 10/01/20	United States		1,500,000			1,280,625
B, 15.00%, 4/01/21	United States		852,000			472,860
						7,786,985
Total Corporate Bonds (Cost $298,184,214)						292,598,942

FH-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund	Country	Principal Amount*		Value
g,iSenior Floating Rate Interests 1.0%
Media 0.7%
Cumulus Media Holdings Inc., Second Lien Term Loan, 7.50%, 9/16/19	United States		1,500,000	$	1,457,500
Univision Communications Inc., Initial Term Loan, 2.296%, 9/29/14	United States		874,148		836,875
					2,294,375
Utilities 0.3%
Texas Competitive Electric Holdings Co. LLC, 2017 Term Loan, 4.776%, 10/10/17	United States		1,431,288		911,254
Total Senior Floating Rate Interests (Cost $3,439,126)					3,205,629
Total Investments before Short Term Investments (Cost $303,258,561)					296,446,572
Short Term Investments (Cost $14,047,563) 4.4%
Repurchase Agreements 4.4%
jJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $14,047,580)			14,047,563		14,047,563
BNP Paribas Securities Corp. (Maturity Value $1,699,757)
Credit Suisse Securities (USA) LLC (Maturity Value $2,039,568)
Deutsche Bank Securities Inc. (Maturity Value $2,149,701)
HSBC Securities (USA) Inc. (Maturity Value $3,399,515)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $2,039,568)
Morgan Stanley & Co. LLC (Maturity Value $679,903)
UBS Securities LLC (Maturity Value $2,039,568)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; kU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $14,335,939)
Total Investments (Cost $317,306,124) 97.5%					310,494,135
Other Assets, less Liabilities 2.5%					7,984,364
Net Assets 100.0%				$	318,478,499

†Rounds to less than 0.1% of net assets.

*The principal amount is stated in U.S. dollars unless otherwise indicated.

^aNon-income producing.

^bAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading this security for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^cSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $117,850,698, representing 37.00% of net assets.

^dSee Note 7 regarding defaulted securities.

^eSecurity has been deemed illiquid because it may not be able to be sold within seven days. At December 31, 2011, the value of this security was $191, representing less than 0.01% of net assets.

^fPerpetual security with no stated maturity date.

^gThe coupon rate shown represents the rate at period end.

^hIncome may be received in additional securities and/or cash.

ⁱSee Note 1(e) regarding senior floating rate interests.

^jSee Note 1(c) regarding joint repurchase agreement.

^kThe security is traded on a discount basis with no stated coupon rate.

FH-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin High Income Securities Fund

Forward Exchange Contracts

At December 31, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Currency

Counterparty

Type

Quantity

Contract Amount

Settlement Date

Unrealized Appreciation

Unrealized Depreciation

Euro

DBAB

Sell

400,000

$

525,560

12/17/12

$

4,852

$

—

See Abbreviations on page FH-30.

The accompanying notes are an integral part of these financial statements.

FH-18

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin High Income Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	303,258,561
Cost - Repurchase agreements		14,047,563
Total cost of investments	$	317,306,124
Value - Unaffiliated issuers	$	296,446,572
Value - Repurchase agreements		14,047,563
Total value of investments		310,494,135
Receivables:
Investment securities sold		112,163
Capital shares sold		2,229,214
Interest		6,019,340
Unrealized appreciation on forward exchange contracts		4,852
Other assets		9
Total assets		318,859,713
Liabilities:
Payables:
Capital shares redeemed		29,867
Affiliates		256,316
Reports to shareholders		53,047
Professional fees		38,983
Accrued expenses and other liabilities		3,001
Total liabilities		381,214
Net assets, at value	$	318,478,499
Net assets consist of:
Paid-in capital	$	341,237,526
Undistributed net investment income		22,720,819
Net unrealized appreciation (depreciation)		(6,807,137	)
Accumulated net realized gain (loss)		(38,672,709	)
Net assets, at value	$	318,478,499
Class 1:
Net assets, at value	$	41,970,915
Shares outstanding		6,435,826
Net asset value and maximum offering price per share	$	6.52
Class 2:
Net assets, at value	$	249,452,363
Shares outstanding		39,245,742
Net asset value and maximum offering price per share	$	6.36
Class 4:
Net assets, at value	$	27,055,221
Shares outstanding		4,189,342
Net asset value and maximum offering price per share	$	6.46

The accompanying notes are an integral part of these financial statements.

FH-19

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin High Income Securities Fund
Investment income:
Dividends	$	121,755
Interest		26,829,693
Total investment income		26,951,448
Expenses:
Management fees (Note 3a)		1,747,002
Distribution fees: (Note 3c)
Class 2		650,086
Class 4		95,354
Custodian fees (Note 4)		4,894
Reports to shareholders		103,248
Professional fees		42,266
Trustees’ fees and expenses		1,218
Other		25,496
Total expenses		2,669,564
Net investment income		24,281,884
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		7,078,870
Foreign currency transactions		9,098
Net realized gain (loss)		7,087,968
Net change in unrealized appreciation (depreciation) on:
Investments		(18,165,861	)
Translation of other assets and liabilities denominated in foreign currencies		6,034
Net change in unrealized appreciation (depreciation)		(18,159,827	)
Net realized and unrealized gain (loss)		(11,071,859	)
Net increase (decrease) in net assets resulting from operations	$	13,210,025

The accompanying notes are an integral part of these financial statements.

FH-20

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin High Income Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	24,281,884		$	20,367,704
Net realized gain (loss) from investments and foreign currency transactions		7,087,968			8,248,722
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(18,159,827	)		5,468,339
Net increase (decrease) in net assets resulting from operations		13,210,025			34,084,765
Distributions to shareholders from:
Net investment income:
Class 1		(2,826,791	)		(3,172,829	)
Class 2		(16,984,105	)		(12,418,978	)
Class 4		(1,620,002	)		(1,394,573	)
Total distributions to shareholders		(21,430,898	)		(16,986,380	)
Capital share transactions: (Note 2)
Class 1		(5,339,666	)		(3,710,324	)
Class 2		16,598,368			28,368,422
Class 4		1,632,254			9,525,024
Total capital share transactions		12,890,956			34,183,122
Net increase (decrease) in net assets		4,670,083			51,281,507
Net assets:
Beginning of year		313,808,416			262,526,909
End of year	$	318,478,499		$	313,808,416
Undistributed net investment income included in net assets:
End of year	$	22,720,819		$	19,700,126

The accompanying notes are an integral part of these financial statements.

FH-21

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin High Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin High Income Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 87.29% of the Fund’s shares were held through one insurance company. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates market value.

Certain derivative financial instruments (derivatives) trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

FH-22

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

See Note 8 regarding other derivative information.

FH-23

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

f. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

g. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

h. 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 expenses during the reporting period. Actual results could differ from those estimates.

FH-24

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

i. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
	Shares			Amount			Shares			Amount
Class 1 Shares:
Shares sold		351,292		$	2,313,979			472,188		$	3,062,794
Shares issued in reinvestment of distributions		434,223			2,826,791			533,249			3,172,829
Shares redeemed		(1,598,692	)		(10,480,436	)		(1,559,378	)		(9,945,947	)
Net increase (decrease)		(813,177	)	$	(5,339,666	)		(553,941	)	$	(3,710,324	)
Class 2 Shares:
Shares sold		12,499,502		$	81,812,457			12,032,804		$	75,255,716
Shares issued in reinvestment of distributions		2,674,662			16,984,105			2,133,845			12,418,978
Shares redeemed		(12,968,695	)		(82,198,194	)		(9,532,012	)		(59,306,272	)
Net increase (decrease)		2,205,469		$	16,598,368			4,634,637		$	28,368,422
Class 4 Shares:
Shares sold		337,849		$	2,262,900			1,337,992		$	8,481,976
Shares issued on reinvestment of distributions		250,774			1,620,002			235,968			1,394,573
Shares redeemed		(344,910	)		(2,250,648	)		(55,035	)		(351,525	)
Net increase (decrease)		243,713		$	1,632,254			1,518,925		$	9,525,024

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FH-25

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.625%	Up to and including $100 million
0.500%	Over $100 million, up to and including $250 million
0.450%	Over $250 million, up to and including $7.5 billion
0.440%	Over $7.5 billion, up to and including $10 billion
0.430%	Over $10 billion, up to and including $12.5 billion
0.420%	Over $12.5 billion, up to and including $15 billion
0.400%	In excess of $15 billion

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

FH-26

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards expiring in:
2012	$	9,009,590
2013	$	6,321,190
2014	$	40,420
2015	$	4,493,289
2016	$	8,150,741
2017	$	10,621,353
	$	38,636,583

During the year ended December 31, 2011, the Fund utilized $7,004,581 of capital loss carryforwards.

On December 31, 2011, the Fund had expired pre-enactment capital loss carryforwards of $17,707,335, which were reclassified to paid-in capital.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	21,430,898	$	16,986,380

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	318,024,335
Unrealized appreciation	$	9,233,778
Unrealized depreciation	$	(16,763,978	)
Net unrealized appreciation (depreciation)	$	(7,530,200	)
Distributable earnings – undistributed ordinary income	$	23,525,282

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, defaulted securities, payments-in-kind, bond discounts and premiums, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $160,372,973 and $143,212,881, respectively.

7. CREDIT RISK AND DEFAULTED SECURITIES

At December 31, 2011, the Fund had 95.48% of its portfolio invested in high yield securities, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At December 31, 2011, the aggregate value of these securities was $4,097,566, representing 1.29% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments.

FH-27

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

8. OTHER DERIVATIVE INFORMATION

At December 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

	Asset Derivatives			Liability Derivatives
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value Amount		Statement of Assets and Liabilities Location	Fair Value Amount
Foreign exchange contracts	Unrealized appreciation on forward exchange contracts	$	4,852	Unrealized depreciation on forward exchange contracts	$	—

For the period ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year		Change in Unrealized Appreciation (Depreciation) for the Year
Foreign exchange contracts	Net realized gain (loss) from foreign currency transactions / Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies	$	8,667	$	5,776

For the year ended December 31, 2011, the average month end market value of derivatives represented 0.01% of average month end net assets. The average month end number of open derivative contracts for the year was two.

See Note 1(d) regarding derivative financial instruments.

9. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

FH-28

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

10. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Investmentsa,b	$	642,001	$	—	$	—	$	642,001
Corporate Bonds		—		292,598,751		191		292,598,942
Senior Floating Rate Interests		—		3,205,629		—		3,205,629
Short Term Investments		—		14,047,563		—		14,047,563
Total Investments in Securities	$	642,001	$	309,851,943	$	191	$	310,494,135
Forward Exchange Contracts		—		4,852		—		4,852

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common and preferred stocks.

11. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

12. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

FH-29

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin High Income Securities Fund

ABBREVIATIONS
Counterparty	Currency	Selected Portfolio
DBAB - Deutsche Bank AG	EUR - Euro	FRN - Floating Rate Note
		PIK - Payment-In-Kind

FH-30

Franklin Templeton Variable Insurance Products Trust

Franklin High Income Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin High Income Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FH-31

FRANKLIN INCOME SECURITIES FUND

This annual report for Franklin Income Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+2.71%		+2.95%		+7.68%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®) and the Barclays Capital (BC) U.S. Aggregate Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Income 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goal and Main Investments: Franklin Income Securities Fund seeks to maximize income while maintaining prospects for capital appreciation. The Fund normally invests in equity and debt securities.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund outperformed its equity benchmark, the S&P 500, which posted a +2.11% total return, but underperformed its fixed income benchmark, the BC U.S. Aggregate Index, which produced a +7.84% total return for the same period.¹

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.²

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many U.S. companies generated

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

2. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Changes in the financial strength of a debt issuer or in the rating of its securities may affect the securities’ value and, as a result, impact Fund performance. Because the Fund invests in bonds and other debt obligations, its share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund may invest all of its assets in high yield, lower rated (junk) bonds, which generally have greater price swings and higher risk of default and loss of principal than investment-grade bonds. The Fund may from time to time have significant investments in particular sectors, which can be highly volatile. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Derivative instruments may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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record profits. During the 12 months under review, fixed income markets, as measured by the BC U.S. Aggregate Index, and U.S. stocks, as measured by the S&P 500, posted gains.¹ Heightened volatility, however, roiled global financial markets amid U.S. lawmakers’ protracted debate and eventual compromise on the debt limit, independent credit rating agency Standard & Poor’s downgrade of the long-term U.S. credit rating to AA+ from AAA, and fears of sovereign debt crisis contagion in Europe. In November, the unemployment rate fell to its lowest level in more than two years, which helped consumer confidence climb to its highest level in more than eight years. Overall for the period, however, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower.

Investment Strategy

We search for undervalued or out-of-favor securities we believe offer opportunities for income today and growth tomorrow. We generally perform independent analysis of the debt securities being considered for the Fund’s portfolio, rather than relying principally on ratings assigned by rating agencies. In analyzing debt and equity securities, we consider a variety of factors, including: a security’s relative value based on such factors as anticipated cash flow, interest or dividend coverage, asset coverage, and earnings prospects; the experience and strength of a company’s management; a company’s sensitivity to changes in interest rates and business conditions; a company’s debt maturity schedules and borrowing requirements; and a company’s changing financial condition and market recognition of the change.

Manager’s Discussion

Continued investor uncertainty regarding regulatory reform, increased regulation and mortgage market weakness impacted Fund performance during the 12 months under review. The Fund outperformed its equity benchmark, but lagged its fixed income benchmark.

The Fund’s allocations to equity and fixed income did not change significantly for the year. However, within fixed income, our communications and capital goods allocations rose while transportation and banking declined.³ Among stock allocations, health care increased while utilities and energy decreased.

3. Communications fixed income holdings are part of telecommunication services in the SOI. Capital goods fixed income holdings are part of industrials and materials in the SOI. Transportation fixed income holdings are part of industrials in the SOI. Banking fixed income holdings are part of financials in the SOI.

Portfolio Breakdown

Franklin Income Securities Fund

12/31/11

	% of Total Net Assets
Equity		40.7%
Utilities		10.1%
Financials		8.3%
Health Care		6.6%
Energy		5.9%
Telecommunication Services		2.8%
Other		7.0%
Fixed Income*		56.0%
Financials		9.5%
Consumer Discretionary		9.1%
Information Technology		8.7%
Energy		7.5%
Utilities		7.5%
Health Care		4.6%
Industrials		3.2%
Materials		2.9%
Other		3.0%
Short-Term Investments & Other Net Assets		3.3%

*Does not include convertible bonds.

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We largely focused on corporate bonds within fixed income during the period, given the potential for higher yields and long-term total return relative to other fixed income securities. We maintained significant diversification with holdings across a range of sectors including financials, consumer non-cyclicals and technology.⁴ While sector diversification remains important, we emphasize bottom-up fundamental research to identify what we believe are the most attractive investment opportunities to help us meet the Fund’s objective.

Within fixed income, key individual contributors included financing solutions specialist CIT Group; oil and natural gas producer Chesapeake Energy; and payment processing company First Data. Major fixed income detractors included electricity provider Texas Competitive Electric Holdings, petroleum refiner Petroplus Finance and marketing solutions provider Dex One.

Within equity, the utilities, health care and energy sectors contributed to performance, and select holdings in financials and materials detracted from results. Utility holdings including The Southern Co., Progress Energy and Dominion Resources generated strong gains during the period. Many utilities benefited from stable and regulated operations, limited exposure to foreign economies and high dividend yields. Although our utilities exposure declined modestly following some profit-taking, the sector remained the Fund’s largest sector weighting with PG&E among the largest holdings. Top health care contributors included major pharmaceutical companies Roche Holding, Pfizer and Merck & Co., which benefited from stable operations, continued strong free cash flow generation and high dividend yields. Oil and gas producer Exxon Mobil in the energy sector was another notable equity contributor. Within equity convertible securities, we maintained positions in select financials including Wells Fargo & Co., Bank of America and iStar Financial.

Financial stocks generally were hurt by concerns about the European sovereign debt crisis. Notable equity detractors among financials included Bank of America, CitiGroup and JPMorgan Chase. Barrick Gold in the materials sector lost value due to investor concerns related to signs of rising mining costs and labor unrest.

4. Consumer non-cyclical fixed income holdings are part of consumer discretionary, consumer staples, financials and health care in the SOI. Technology holdings are in information technology in the SOI.

Top Five Equity Holdings

Franklin Income Securities Fund

12/31/11

Company Sector/Industry	% of Total Net Assets
Roche Holding AG (Switzerland)		2.1%
Health Care
Merck & Co. Inc.		2.0%
Health Care
Johnson & Johnson		1.3%
Health Care
Canadian Oil Sands Ltd. (Canada)		1.1%
Energy
Vodafone Group PLC (U.K.)		1.0%
Telecommunication Services

Top Five Fixed Income and Senior Floating Rate Interests Holdings*

Franklin Income Securities Fund

12/31/11

Issuer Sector/Industry	% of Total Net Assets
CIT Group Inc.		4.6%
Financials
First Data Corp.		4.0%
Information Technology
Texas Competitive Electric Holdings Co. LLC		3.9%
Utilities
Freescale Semiconductor Inc.		2.4%
Information Technology
HCA Inc.		1.9%
Health Care

*Does not include convertible bonds.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

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The Fund’s equity exposure continued to focus on dividend paying common stocks and convertible securities. We continued to seek what we considered attractive current yield as well as those companies with potential favorable outlooks for dividend growth. Convertible securities remained attractive to us given the possible opportunity for both high current income and the potential to participate in the appreciation of the underlying common stock. At period-end, we had limited holdings in other equity securities including preferred stocks and warrants. We remain largely focused on U.S. securities.

Thank you for your participation in Franklin Income Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Income Securities Fund – Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	972.80	$	2.39
Hypothetical (5% return before expenses)	$	1,000	$	1,022.79	$	2.45

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.48%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Income Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	15.16		$	14.43		$	11.53		$	17.63		$	17.65
Income from investment operationsa:
Net investment incomeb		0.96			0.89			0.91			1.10			1.03
Net realized and unrealized gains (losses)		(0.54	)		0.85			3.08			(5.99	)		(0.31	)
Total from investment operations		0.42			1.74			3.99			(4.89	)		0.72
Less distributions from:
Net investment income		(0.90	)		(1.01	)		(1.09	)		(0.86	)		(0.63	)
Net realized gains		—			—			—			(0.35	)		(0.11	)
Total distributions		(0.90	)		(1.01	)		(1.09	)		(1.21	)		(0.74	)
Net asset value, end of year	$	14.68		$	15.16		$	14.43		$	11.53		$	17.63
Total returnc		2.71%			12.87%			35.88%			(29.41)%			4.01%
Ratios to average net assets
Expensesd		0.47%			0.47%			0.47%			0.47%			0.47%
Net investment income		6.35%			6.28%			7.23%			7.28%			5.77%
Supplemental data
Net assets, end of year (000’s)	$	1,300,935		$	1,449,028		$	910,504		$	433,370		$	455,932
Portfolio turnover rate		28.65%			41.65%			42.30%			43.89%			32.11%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Income Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.82		$	14.12		$	11.30		$	17.31		$	17.36
Income from investment operationsa:
Net investment incomeb		0.90			0.86			0.86			1.04			0.97
Net realized and unrealized gains (losses)		(0.53	)		0.82			3.01			(5.87	)		(0.30	)
Total from investment operations		0.37			1.68			3.87			(4.83	)		0.67
Less distributions from:
Net investment income		(0.87	)		(0.98	)		(1.05	)		(0.83	)		(0.61	)
Net realized gains		—			—			—			(0.35	)		(0.11	)
Total distributions		(0.87	)		(0.98	)		(1.05	)		(1.18	)		(0.72	)
Net asset value, end of year	$	14.32		$	14.82		$	14.12		$	11.30		$	17.31
Total returnc		2.38%			12.67%			35.59%			(29.66)%			3.76%
Ratios to average net assets
Expensesd		0.72%			0.72%			0.72%			0.72%			0.72%
Net investment income		6.10%			6.03%			6.98%			7.03%			5.52%
Supplemental data
Net assets, end of year (000’s)	$	5,915,637		$	6,309,207		$	6,114,898		$	4,944,457		$	7,429,064
Portfolio turnover rate		28.65%			41.65%			42.30%			43.89%			32.11%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Income Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	15.04		$	14.33		$	11.49		$	16.90
Income from investment operationsb:
Net investment incomec		0.90			0.85			0.86			0.87
Net realized and unrealized gains (losses)		(0.54	)		0.84			3.06			(5.07	)
Total from investment operations		0.36			1.69			3.92			(4.20	)
Less distributions from:
Net investment income		(0.86	)		(0.98	)		(1.08	)		(0.86	)
Net realized gains		—			—			—			(0.35	)
Total distributions		(0.86	)		(0.98	)		(1.08	)		(1.21	)
Net asset value, end of year	$	14.54		$	15.04		$	14.33		$	11.49
Total returnd		2.29%			12.54%			35.37%			(26.61)%
Ratios to average net assetse
Expensesf		0.82%			0.82%			0.82%			0.82%
Net investment income		6.00%			5.93%			6.88%			6.93%
Supplemental data
Net assets, end of year (000’s)	$	431,435		$	415,541		$	347,733		$	135,360
Portfolio turnover rate		28.65%			41.65%			42.30%			43.89%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dTotal return does not include 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.

^eRatios are annualized for periods less than one year.

^fBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FI-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Income Securities Fund	Country	Shares/ Warrants			Value
Common Stocks and Other Equity Interests 34.6%
Consumer Discretionary 1.2%
aCharter Communications Inc., A	United States		500,000		$	28,470,000
aCharter Communications Inc., wts., 11/30/14	United States		311,018			5,411,713
Comcast Corp., A	United States		900,000			21,339,000
a,b,cDex One Corp.	United States		2,642,381			4,386,353
aGeneral Motors Co.	United States		6,485			131,451
aGeneral Motors Co., wts., 7/10/16	United States		129,731			1,521,745
aGeneral Motors Co., wts., 7/10/19	United States		129,731			1,014,496
Lowe’s Cos. Inc.	United States		400,000			10,152,000
aSuperMedia Inc., Litigation Trust	United States		3,472,135			8,680
Target Corp.	United States		453,900			23,248,758
						95,684,196
Consumer Staples 0.9%
Diageo PLC	United Kingdom		1,150,000			25,127,894
PepsiCo Inc.	United States		672,500	��		44,620,375
						69,748,269
Energy 5.4%
aAlpha Natural Resources Inc.	United States		135,000			2,758,050
BP PLC, ADR	United Kingdom		1,300,000			55,562,000
aCallon Petroleum Co.	United States		782,594			3,889,492
Canadian Oil Sands Ltd.	Canada		3,700,000			84,408,576
Chesapeake Energy Corp.	United States		400,000			8,916,000
Chevron Corp.	United States		250,000			26,600,000
ConocoPhillips	United States		1,000,000			72,870,000
Exxon Mobil Corp.	United States		804,650			68,202,134
a,dGreen Field Energy Services Inc., wts., 144A, 11/15/21	United States		3,400			156,400
Royal Dutch Shell PLC, A, ADR	Netherlands		591,700			43,247,353
Schlumberger Ltd.	United States		251,000			17,145,810
Spectra Energy Corp.	United States		500,000			15,375,000
aWeatherford International Ltd.	United States		1,000,000			14,640,000
						413,770,815
Financials 4.6%
Banco Santander SA	Spain		2,072,213			15,743,723
Bank of America Corp.	United States		8,000,000			44,480,000
Barclays PLC	United Kingdom		4,000,000			10,934,879
aCIT Group Inc.	United States		691,600			24,116,092
Citigroup Inc.	United States		580,000			15,259,800
aFannie Mae	United States		1,928,019			387,917
HSBC Holdings PLC	United Kingdom		5,000,000			38,140,052
JPMorgan Chase & Co.	United States		1,850,000			61,512,500
M&T Bank Corp.	United States		500,000			38,170,000
QBE Insurance Group Ltd.	Australia		1,000,000			13,248,498
Wells Fargo & Co.	United States		2,750,000			75,790,000
Westfield Retail Trust	Australia		6,384,600			16,264,096
						354,047,557
Health Care 6.4%
Johnson & Johnson	United States		1,500,000			98,370,000
Merck & Co. Inc.	United States		4,000,000			150,800,000
Pfizer Inc.	United States		3,518,775			76,146,291

FI-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Shares/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Health Care (continued)
Roche Holding AG	Switzerland		950,000	$	161,176,533
					486,492,824
Industrials 1.3%
The Boeing Co.	United States		250,000		18,337,500
Caterpillar Inc.	United States		80,000		7,248,000
General Electric Co.	United States		3,994,700		71,545,077
					97,130,577
Information Technology 1.3%
Cisco Systems Inc.	United States		1,000,000		18,080,000
Intel Corp.	United States		2,500,000		60,625,000
Xerox Corp.	United States		2,260,000		17,989,600
					96,694,600
Materials 0.6%
Barrick Gold Corp.	Canada		700,000		31,675,000
Freeport-McMoRan Copper & Gold Inc., B	United States		237,286		8,729,752
LyondellBasell Industries NV, A	Netherlands		250,000		8,122,500
					48,527,252
Telecommunication Services 2.8%
AT&T Inc.	United States		2,000,000		60,480,000
CenturyLink Inc.	United States		500,000		18,600,000
France Telecom SA	France		528,500		8,300,796
Frontier Communications Corp.	United States		988,047		5,088,442
SK Telecom Co. Ltd., ADR	South Korea		505,100		6,874,411
aSprint Nextel Corp.	United States		1,500,000		3,510,000
Telstra Corp. Ltd.	Australia		10,000,000		34,067,566
Vodafone Group PLC	United Kingdom		27,500,000		76,437,370
					213,358,585
Utilities 10.1%
AGL Resources Inc.	United States		450,000		19,017,000
American Electric Power Co. Inc.	United States		1,523,800		62,948,178
Dominion Resources Inc.	United States		600,000		31,848,000
Duke Energy Corp.	United States		1,000,000		22,000,000
aDynegy Inc.	United States		2,200,000		6,094,000
Entergy Corp.	United States		850,000		62,092,500
FirstEnergy Corp.	United States		750,000		33,225,000
NextEra Energy Inc.	United States		1,000,000		60,880,000
PG&E Corp.	United States		1,750,000		72,135,000
Pinnacle West Capital Corp.	United States		300,000		14,454,000
PPL Corp.	United States		1,250,000		36,775,000
Progress Energy Inc.	United States		1,200,000		67,224,000
Public Service Enterprise Group Inc.	United States		2,100,000		69,321,000
Sempra Energy	United States		1,100,000		60,500,000
The Southern Co.	United States		1,000,000		46,290,000
TECO Energy Inc.	United States		2,500,000		47,850,000
Xcel Energy Inc.	United States		2,070,464		57,227,625
					769,881,303
Total Common Stocks and Other Equity Interests (Cost $2,533,292,651)					2,645,335,978

FI-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Shares/ Warrants		Value
eEquity-Linked Securities 1.5%
Consumer Discretionary 0.2%
dJPMorgan Chase & Co. into Target Corp., 6.25%, 144A	United States		300,000	$	15,540,990
Energy 0.2%
dDeutsche Bank AG into Chesapeake Energy Corp., 8.50%, 144A	United States		500,000		11,578,550
Industrials 0.2%
Citgroup Funding Inc. into General Electric Co., 8.00%	United States		358,000		6,433,153
dJPMorgan Chase & Co. into General Electric Co., 7.50%, 144A	United States		500,000		9,049,350
					15,482,503
Information Technology 0.4%
Credit Suisse into Intel Corp., 9.00%	United States		750,000		17,960,400
dMorgan Stanley into Apple Inc., 7.50%, 144A	United States		40,000		15,294,560
					33,254,960
Materials 0.5%
dBarclays Bank PLC into Nucor Corp., 8.00%, 144A	United States		300,000		11,875,350
dUBS AG into Newmont Mining Corp., 8.00%, 144A	United States		400,000		24,160,920
					36,036,270
Total Equity-Linked Securities (Cost $114,856,400)					111,893,273
Convertible Preferred Stocks 3.1%
Consumer Discretionary 0.1%
General Motors Co., 4.75%, cvt. pfd., B	United States		322,400		11,042,200
Energy 0.3%
ATP Oil & Gas Corp., 8.00%, cvt. pfd., B	United States		50,000		1,900,000
Sandridge Energy Inc., 7.00%, cvt. pfd.	United States		190,000		22,681,250
					24,581,250
Financials 2.4%
Bank of America Corp., 7.25%, cvt. pfd., L	United States		90,000		70,921,800
Citigroup Inc., 7.50%, cvt. pfd.	United States		54,200		4,403,750
aFannie Mae, 5.375%, cvt. pfd.	United States		600		3,000,000
Felcor Lodging Trust Inc., 7.80%, cvt. pfd., A	United States		400,000		8,888,000
MetLife Inc., 5.00%, cvt. pfd.	United States		525,000		32,350,500
Wells Fargo & Co., 7.50%, cvt. pfd., A	United States		61,000		64,416,000
					183,980,050
Health Care 0.2%
Tenet Healthcare Corp., 7.00%, cvt. pfd.	United States		13,500		11,542,500
Materials 0.1%
AngloGold Ashanti Holdings Finance PLC, 6.00%, cvt. pfd.	South Africa		200,000		9,546,000
Total Convertible Preferred Stocks (Cost $302,876,866)					240,692,000
Preferred Stocks 0.4%
Consumer Discretionary 0.0%†
aMotors Liquidation Co., Escrow pfd., C	United States		1,400,000		354,900
Financials 0.4%
Ally Financial Inc., 8.50%, pfd., A	United States		75,000		1,379,250
aFannie Mae, 6.75%, pfd.	United States		500,000		515,000
aFannie Mae, 7.625%, pfd., R	United States		800,000		912,000
aFannie Mae, 8.25%, pfd.	United States		851,500		1,175,070

FI-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Shares/ Warrants		Value
Preferred Stocks (continued)
Financials (continued)
aFreddie Mac, 8.375%, pfd., Z	United States		1,549,200	$	2,060,436
dGMAC Inc., 7.00%, pfd., 144A	United States		36,265		25,998,607
					32,040,363
Total Preferred Stocks (Cost $109,243,385)					32,395,263
		Principal Amount*
Convertible Bonds 1.1%
Financials 0.9%
dForest City Enterprises Inc., cvt., senior note, 144A, 4.25%, 8/15/18	United States		20,000,000		17,550,000
fiStar Financial Inc., cvt., senior note, FRN, 0.872%, 10/01/12	United States		57,500,000		51,750,000
					69,300,000
Materials 0.2%
dCemex SAB de CV, cvt., sub. note, 144A,
3.25%, 3/15/16	Mexico		9,100,000		5,971,875
3.75%, 3/15/18	Mexico		7,920,000		5,177,700
					11,149,575
Total Convertible Bonds (Cost $88,781,641)					80,449,575
Corporate Bonds 47.2%
Consumer Discretionary 7.2%
dAcademy Ltd./Finance Corp., senior note, 144A, 9.25%, 8/01/19	United States		5,300,000		5,260,250
Cablevision Systems Corp., senior note,
7.75%, 4/15/18	United States		35,000,000		37,275,000
8.00%, 4/15/20	United States		27,500,000		29,631,250
CCH II LLC/CCH II Capital Corp., senior note, 13.50%, 11/30/16	United States		42,829,272		49,681,956
CCO Holdings LLC/Capital Corp., senior note,
8.125%, 4/30/20	United States		11,450,000		12,595,000
6.50%, 4/30/21	United States		20,000,000		20,350,000
dCequel Communications Holdings I LLC, senior note, 144A, 8.625%, 11/15/17	United States		10,000,000		10,650,000
dChrysler Group LLC/CG Co-Issuer Inc., senior secured note, 144A,
8.00%, 6/15/19	United States		25,000,000		23,000,000
8.25%, 6/15/21	United States		12,800,000		11,712,000
dCityCenter Holdings/Finance, senior secured note, 144A,
7.625%, 1/15/16	United States		4,100,000		4,223,000
gPIK, 11.50%, 1/15/17	United States		6,755,733		6,642,385
Clear Channel Communications Inc., senior note,
10.75%, 8/01/16	United States		12,000,000		8,100,000
9.00%, 3/01/21	United States		69,100,000		58,562,250
Clear Channel Worldwide Holdings Inc., senior note, B, 9.25%, 12/15/17	United States		17,000,000		18,445,000
ClubCorp Club Operations Inc., senior note, 10.00%, 12/01/18	United States		15,000,000		14,475,000
dCSC Holdings Inc., senior note, 144A, 6.75%, 11/15/21	United States		25,000,000		26,437,500
dCumulus Media Inc., senior note, 144A, 7.75%, 5/01/19	United States		10,000,000		8,925,000
b,c,gDex One Corp., senior sub. note, PIK, 7.00%, 1/29/17	United States		32,511,674		7,396,406
DISH DBS Corp., senior note, 6.75%, 6/01/21	United States		10,000,000		10,825,000
Ford Motor Credit Co. LLC, senior note, 12.00%, 5/15/15	United States		12,900,000		15,901,378
hThe Goodyear Tire & Rubber Co., senior note, 8.25%, 8/15/20	United States		9,700,000		10,621,500
Harrah’s Operating Co. Inc., senior secured note, 11.25%, 6/01/17	United States		10,000,000		10,662,500
Host Hotels & Resorts LP, senior note, T, 9.00%, 5/15/17	United States		10,000,000		10,925,000
dJaguar Land Rover PLC, 144A, 8.125%, 5/15/21	United Kingdom		2,118,000		2,022,690

FI-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Consumer Discretionary (continued)
KB Home, senior note,
5.75%, 2/01/14	United States		6,500,000		$	6,272,500
6.25%, 6/15/15	United States		15,000,000			13,875,000
7.25%, 6/15/18	United States		10,600,000			9,593,000
MGM Resorts International, senior note,
6.75%, 4/01/13	United States		7,500,000			7,584,375
6.625%, 7/15/15	United States		5,000,000			4,775,000
10.00%, 11/01/16	United States		20,000,000			21,100,000
dShea Homes LP/Funding Corp., senior secured note, 144A, 8.625%, 5/15/19	United States		11,700,000			10,968,750
dUnitymedia Hessen/NRW, senior secured note, 144A, 8.125%,
12/01/17	Germany		6,300,000			6,630,750
12/01/17	Germany		5,500,000	EUR		7,393,181
dUPC Germany GmbH, senior secured note, 144A, 9.625%, 12/01/19	Germany		3,000,000	EUR		4,009,094
dUPCB Finance III Ltd., senior secured note, 144A, 6.625%, 7/01/20	Netherlands		12,500,000			12,375,000
Virgin Media Secured Finance, senior secured note, 7.00%, 1/15/18	United Kingdom		2,100,000	GBP		3,436,398
Visant Corp., senior note, 10.00%, 10/01/17	United States		32,800,000			30,176,000
						552,509,113
Consumer Staples 0.7%
dBoparan Holdings Ltd., senior note, 144A,
9.75%, 4/30/18	United Kingdom		7,000,000	EUR		7,361,331
9.875%, 4/30/18	United Kingdom		7,500,000	GBP		9,494,240
JBS USA LLC/Finance Inc., senior note,
11.625%, 5/01/14	Brazil		10,000,000			11,362,500
d144A, 7.25%, 6/01/21	Brazil		7,500,000			7,031,250
SUPERVALU Inc., senior note, 8.00%, 5/01/16	United States		17,500,000			18,156,250
						53,405,571
Energy 7.5%
Antero Resources Finance Corp., senior note,
9.375%, 12/01/17	United States		14,600,000			15,841,000
d144A, 7.25%, 8/01/19	United States		3,900,000			4,017,000
dArch Coal Inc., senior note, 144A, 7.25%, 6/15/21	United States		11,100,000			11,460,750
ATP Oil & Gas Corp., senior secured note, 11.875%, 5/01/15	United States		15,000,000			9,937,500
Callon Petroleum Co., senior secured note, 13.00%, 9/15/16	United States		7,765,750			7,959,894
dCHC Helicopter SA, senior secured note, 144A, 9.25%, 10/15/20	Canada		25,000,000			22,625,000
Chesapeake Energy Corp., senior note,
9.50%, 2/15/15	United States		5,300,000			6,095,000
6.50%, 8/15/17	United States		34,000,000			36,380,000
6.875%, 8/15/18	United States		16,200,000			17,415,000
7.25%, 12/15/18	United States		33,000,000			36,630,000
Compagnie Generale de Geophysique-Veritas, senior note, 6.50%, 6/01/21	France		12,500,000			12,187,500
dConnacher Oil and Gas Ltd., secured note, 144A, 8.50%, 8/01/19	Canada		7,000,000			6,370,000
CONSOL Energy Inc., senior note, 8.25%, 4/01/20	United States		1,800,000			1,998,000
El Paso Corp., senior note, MTN, 7.75%, 1/15/32	United States		22,000,000			25,520,000
Energy Transfer Equity LP, senior note, 7.50%, 10/15/20	United States		5,900,000			6,475,250
Energy XXI Gulf Coast Inc., senior note, 9.25%, 12/15/17	United States		15,000,000			16,350,000
EXCO Resources Inc., senior note, 7.50%, 9/15/18	United States		10,500,000			9,975,000
dExpro Finance Luxembourg, senior secured note, 144A, 8.50%, 12/15/16	United Kingdom		27,500,000			24,337,500
dGreen Field Energy Services Inc., senior secured note, 144A, 13.00%, 11/15/16	United States		3,400,000			3,315,000
Linn Energy LLC/Finance Corp., senior note, 8.625%, 4/15/20	United States		20,000,000			21,800,000
dOGX Petroleo E Gas Participacoes SA, senior note, 144A, 8.50%, 6/01/18	Brazil		15,000,000			14,718,750
dPeabody Energy Corp, senior note, 144A, 6.25%, 11/15/21	United States		6,000,000			6,240,000

FI-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Energy (continued)
dPetroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14	Switzerland		17,515,000	$	9,545,675
7.00%, 5/01/17	Switzerland		30,000,000		15,300,000
9.375%, 9/15/19	Bermuda		5,000,000		2,600,000
Quicksilver Resources Inc., senior note, 9.125%, 8/15/19	United States		20,000,000		21,300,000
Sabine Pass LNG LP, senior secured note, 7.25%, 11/30/13	United States		10,000,000		10,150,000
7.50%, 11/30/16	United States		35,000,000		35,350,000
SandRidge Energy Inc., senior note, 8.75%, 1/15/20	United States		25,000,000		25,937,500
7.50%, 3/15/21	United States		13,300,000		13,266,750
d144A, 9.875%, 5/15/16	United States		18,700,000		20,102,500
d144A, 8.00%, 6/01/18	United States		21,800,000		22,127,000
SESI LLC, senior note, 6.875%, 6/01/14	United States		18,500,000		18,685,000
Tesoro Corp., senior note, 9.75%, 6/01/19	United States		10,400,000		11,726,000
dW&T Offshore Inc., senior note, 144A, 8.50%, 6/15/19	United States		40,500,000		42,120,000
dWestern Refining Inc., senior secured note, 144A, 11.25%, 6/15/17	United States		5,000,000		5,712,500
					571,571,069
Financials 8.2%
Ally Financial Inc., senior note,
6.25%, 12/01/17	United States		10,000,000		9,685,830
8.00%, 3/15/20	United States		10,000,000		10,275,000
iBank of America Corp., pfd., sub. bond, M, 8.125% to 5/15/18, FRN thereafter, Perpetual	United States		5,000,000		4,493,750
dCIT Group Inc., secured bond, 144A, 7.00%,
5/04/15	United States		72,500,000		72,681,250
5/02/16	United States		155,000,000		155,193,750
5/02/17	United States		125,000,000		125,000,000
CNL Income Properties Inc., senior note, 7.25%, 4/15/19	United States		15,000,000		13,950,000
FelCor Lodging LP, senior secured note, 10.00%, 10/01/14	United States		10,003,000		11,003,300
Hexion U.S. Finance Corp., senior secured note, 8.875%, 2/01/18	United States		8,000,000		7,540,000
International Lease Finance Corp., senior note,
8.75%, 3/15/17	United States		20,000,000		20,650,000
8.875%, 9/01/17	United States		20,000,000		20,800,000
iJPMorgan Chase & Co., junior sub. note, 1, 7.90% to 4/30/18, FRN thereafter, Perpetual	United States		110,000,000		117,511,020
dKinetic Concepts Inc./USA, secured note, 144A, 10.50%, 11/01/18	United States		4,000,000		3,930,000
d,fLiberty Mutual Group, junior sub. note, 144A, FRN, 10.75%, 6/15/88	United States		25,000,000		31,625,000
d,iM&T Bank Corp., 144A, 6.875% to 6/15/16, FRN thereafter, Perpetual	United States		12,000,000		11,760,000
Morgan Stanley, senior note, 5.50%, 1/26/20	United States		15,000,000		13,671,390
					629,770,290
Health Care 4.2%
Community Health Systems Inc., senior note, 8.875%, 7/15/15	United States		33,118,000		34,277,130
Giant Funding Corp., senior secured note, 8.25%, 2/01/18	Spain		4,900,000		5,169,500
HCA Holdings Inc., senior note, 7.75%, 5/15/21	United States		10,000,000		10,225,000
HCA Inc., senior note, 6.375%, 1/15/15	United States		5,000,000		5,118,750
senior note, 6.50%, 2/15/16	United States		20,000,000		20,400,000
senior note, 8.00%, 10/01/18	United States		12,000,000		12,720,000
senior note, 7.50%, 2/15/22	United States		34,500,000		35,362,500
senior secured note, 8.50%, 4/15/19	United States		20,000,000		22,000,000
senior secured note, 6.50%, 2/15/20	United States		30,000,000		31,200,000
senior secured note, 7.875%, 2/15/20	United States		20,000,000		21,700,000

FI-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Health Care (continued)
dHealth Management Associates Inc., senior note, 144A, 7.375%, 1/15/20	United States		4,300,000	$	4,482,750
dMylan Inc., senior note, 144A, 6.00%, 11/15/18	United States		3,500,000		3,618,125
Tenet Healthcare Corp., senior note, 8.00%, 8/01/20	United States		24,600,000		24,753,750
fsenior note, FRN, 9.25%, 2/01/15	United States		13,500,000		14,259,375
senior secured note, 10.00%, 5/01/18	United States		41,250,000		47,334,375
Vanguard Health Holding Co. II LLC/Inc., senior note,
8.00%, 2/01/18	United States		23,100,000		23,042,250
7.75%, 2/01/19	United States		4,000,000		3,860,000
Vanguard Health Systems Inc., senior note, zero cpn., 2/01/16	United States		228,000		143,640
					319,667,145
Industrials 2.7%
dAbengoa Finance SAU, senior note, 144A, 8.875%, 11/01/17	Spain		11,900,000		11,424,000
d,jAmerican Airlines Inc., senior secured note, 144A, 7.50%, 3/15/16	United States		25,000,000		18,000,000
dCeva Group PLC, senior secured note, 144A,
8.375%, 12/01/17	United Kingdom		7,500,000		7,181,250
11.50%, 4/01/18	United Kingdom		30,300,000		27,985,109
dDelta Air Lines Inc., senior secured note, 144A, 9.50%, 9/15/14	United States		9,568,000		9,902,880
Hertz Corp., senior note,
8.875%, 1/01/14	United States		6,951,000		7,020,510
6.75%, 4/15/19	United States		7,500,000		7,556,250
Interactive Data Corp., senior note, 10.25%, 8/01/18	United States		5,000,000		5,491,500
The Manitowoc Co. Inc., senior note, 9.50%, 2/15/18	United States		10,000,000		10,700,000
RBS Global & Rexnord Corp., senior note, 8.50%, 5/01/18	United States		28,900,000		30,778,500
senior sub. note, 11.75%, 8/01/16	United States		13,500,000		14,242,500
Terex Corp., senior sub. note, 8.00%, 11/15/17	United States		45,000,000		44,325,000
Tomkins LLC/Inc., senior secured note, 9.25%, 10/01/18	United States		3,212,000		3,577,365
United Rentals North America Inc., senior sub. note, 8.375%, 9/15/20	United States		9,800,000		9,604,000
					207,788,864
Information Technology 7.0%
Advanced Micro Devices Inc., senior note, 8.125%, 12/15/17	United States		4,100,000		4,274,250
CDW LLC/Finance Corp.,
senior note, 11.00%, 10/12/15	United States		442,000		466,310
senior note, 8.50%, 4/01/19	United States		28,725,000		29,084,062
senior sub. note, 12.535%, 10/12/17	United States		5,000,000		5,050,000
Ceridian Corp., senior note, 11.25%, 11/15/15	United States		20,000,000		15,700,000
dCommScope Inc., senior note, 144A, 8.25%, 1/15/19	United States		4,000,000		4,020,000
First Data Corp., dsenior bond, 144A, 12.625%, 1/15/21	United States		80,000,000		70,000,000
senior note, 9.875%, 9/24/15	United States		4,645,000		4,366,300
senior note, 9.875%, 9/24/15	United States		5,000,000		4,725,000
gsenior note, PIK, 10.55%, 9/24/15	United States		13,500,000		12,943,125
dsenior secured bond, 144A, 8.25%, 1/15/21	United States		45,000,000		40,500,000
dsenior secured note, 144A, 8.875%, 8/15/20	United States		3,000,000		3,015,000
d,gsenior secured note, 144A, PIK, 8.75%, 1/15/22	United States		33,188,000		28,707,620
senior sub. note, 11.25%, 3/31/16	United States		57,000,000		47,595,000
Freescale Semiconductor Inc.,
senior note, 10.125%, 12/15/16	United States		20,000,000		21,150,000
senior note, 8.05%, 2/01/20	United States		35,000,000		33,075,000
senior note, 10.75%, 8/01/20	United States		64,846,000		67,926,185

FI-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Information Technology (continued)
Freescale Semiconductor Inc., (continued)
dsenior secured note, 144A, 10.125%, 3/15/18	United States		4,438,000		$	4,859,610
dsenior secured note, 144A, 9.25%, 4/15/18	United States		51,700,000			55,512,875
dNXP BV/NXP Funding LLC, senior secured note, 144A, 9.75%, 8/01/18	Netherlands		8,600,000			9,492,250
Sanmina-SCI Corp., dsenior note, 144A, 7.00%, 5/15/19	United States		15,000,000			14,700,000
senior sub. note, 8.125%, 3/01/16	United States		10,600,000			10,997,500
dSterling Merger Inc., senior note, 144A, 11.00%, 10/01/19	United States		7,500,000			7,350,000
SunGard Data Systems Inc., senior note, 10.625%, 5/15/15	United States		7,500,000			8,025,000
senior note, 7.625%, 11/15/20	United States		10,000,000			10,325,000
senior sub. note, 10.25%, 8/15/15	United States		14,500,000			15,098,125
dUPCB Finance Ltd., senior secured note, 144A, 7.25%, 11/15/21	Netherlands		6,000,000			6,105,000
						535,063,212
Materials 2.9%
Berry Plastics Corp., senior secured note, 9.75%, 1/15/21	United States		5,000,000			5,012,500
dBuilding Materials Corp. of America, senior note, 144A, 6.75%, 5/01/21	United States		8,300,000			8,735,750
dCemex Finance LLC, senior secured note, 144A, 9.50%, 12/14/16	United States		3,000,000			2,647,500
dCemex SAB de CV, senior secured note, 144A, 9.00%, 1/11/18	Mexico		20,000,000			16,083,300
dDynacast International LLC/Finance Inc., secured note, 144A, 9.25%, 7/15/19	United States		10,000,000			9,450,000
dFMG Resources August 2006 Pty. Ltd., senior note, 144A,
7.00%, 11/01/15	Australia		14,000,000			13,921,250
6.875%, 2/01/18	Australia		11,900,000			11,453,750
8.25%, 11/01/19	Australia		15,000,000			15,337,500
Huntsman International LLC, senior note, 5.50%, 6/30/16	United States		1,750,000			1,723,750
dIneos Group Holdings Ltd.,
senior note, 144A, 7.875%, 2/15/16	United Kingdom		30,000,000	EUR		28,927,605
senior secured note, 144A, 8.50%, 2/15/16	United Kingdom		5,000,000			4,000,000
dKerling PLC, senior secured note, 144A, 10.625%, 1/28/17	United Kingdom		9,400,000	EUR		10,807,857
dKinove German Bondco GmbH,
senior secured bond, 144A, 10.00%, 6/15/18	Germany		9,900,000	EUR		11,468,145
senior secured note, 144A, 9.625%, 6/15/18	Germany		13,100,000			12,209,174
dReynolds Group Issuer Inc./LLC/SA,
senior note, 144A, 9.00%, 4/15/19	United States		5,000,000			4,775,000
senior note, 144A, 9.875%, 8/15/19	United States		7,400,000			7,215,000
senior note, 144A, 8.25%, 2/15/21	United States		5,200,000			4,628,000
senior secured note, 144A, 7.875%, 8/15/19	United States		10,000,000			10,500,000
senior secured note, 144A, 6.875%, 2/15/21	United States		10,000,000			10,000,000
dSealed Air Corp., senior note, 144A,
8.125%, 9/15/19	United States		5,000,000			5,500,000
8.375%, 9/15/21	United States		2,400,000			2,664,000
Vulcan Materials Co., senior note,
6.50%, 12/01/16	United States		11,200,000			11,620,000
7.50%, 6/15/21	United States		13,500,000			14,681,250
						223,361,331
Telecommunication Services 1.8%
Cricket Communications Inc., senior note, 7.75%, 10/15/20	United States		45,000,000			39,487,500
Frontier Communications Corp., senior note,
8.25%, 4/15/17	United States		1,200,000			1,233,000
8.50%, 4/15/20	United States		12,900,000			13,270,875
dIntelsat Jackson Holdings SA, senior note, 144A, 7.50%, 4/01/21	Luxembourg		18,400,000			18,653,000

FI-18

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Telecommunication Services (continued)
Sprint Nextel Corp.,
d144A, 11.50%, 11/15/21	United States		30,000,000	$	29,775,000
senior note, 8.375%, 8/15/17	United States		12,700,000		11,445,875
dsenior note, 144A, 9.00%, 11/15/18	United States		25,000,000		26,312,500
					140,177,750
Utilities 5.0%
dAES Corp., senior note, 144A, 7.375%, 7/01/21	United States		5,800,000		6,278,500
dCalpine Corp., senior secured note, 144A,
7.25%, 10/15/17	United States		5,000,000		5,275,000
7.875%, 7/31/20	United States		10,700,000		11,582,750
7.50%, 2/15/21	United States		15,000,000		16,125,000
7.875%, 1/15/23	United States		15,000,000		16,200,000
c,jDynegy Holdings Inc., senior note,
7.50%, 6/01/15	United States		20,000,000		13,300,000
7.50%, 6/01/15	United States		15,000,000		9,450,000
8.375%, 5/01/16	United States		64,699,000		43,348,330
7.75%, 6/01/19	United States		50,000,000		33,000,000
Energy Future Holdings Corp., senior note, R, 6.55%, 11/15/34	United States		35,000,000		15,050,000
GenOn Energy Inc., senior note,
7.625%, 6/15/14	United States		9,500,000		9,547,500
7.875%, 6/15/17	United States		25,000,000		24,250,000
dIntergen NV, senior secured note, 144A, 9.00%, 6/30/17	Netherlands		7,500,000		7,931,250
Niska Gas Storage U.S./Canada, senior note, 8.875%, 3/15/18	United States		15,000,000		14,737,500
Texas Competitive Electric Holdings Co. LLC, senior note,
A, 10.25%, 11/01/15	United States		152,939,000		55,058,040
B, 10.25%, 11/01/15	United States		64,193,000		22,467,550
gPIK, 11.25%, 11/01/16	United States		14,503,647		5,160,804
Texas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings Finance Inc., senior secured note,
d144A, 11.50%, 10/01/20	United States		17,800,000		15,196,750
B, 15.00%, 4/01/21	United States		100,125,000		55,569,375
					379,528,349
Total Corporate Bonds (Cost $3,728,398,607)					3,612,842,694
f,kSenior Floating Rate Interests 8.0%
Consumer Discretionary 1.9%
Chrysler Group LLC, Tranche B Term Loan, 6.00%, 5/24/17	United States		44,476,500		42,197,079
Clear Channel Communications Inc., Tranche B Term Loan, 3.946%, 1/29/16	United States		72,254,969		53,609,141
ClubCorp Club Operations Inc., Term B Loan, 6.00%, 11/30/16	United States		9,900,000		9,904,128
Cumulus Media Holdings Inc., Second Lien Term Loan, 7.50%, 9/16/19	United States		40,000,000		38,866,680
bDex Media West LLC, Term Loan B, 7.25%, 10/24/14	United States		4,265,968		2,396,941
SuperMedia Inc., Exit Term Loan, 11.00%, 12/31/15	United States		2,525,383		1,195,046
					148,169,015
Consumer Staples 0.2%
BJ’s Wholesale Club Inc., Initial Loan, 7.00%, 9/30/18	United States		15,000,000		15,072,975
Financials 0.8%
iStar Financial Inc., Tranche A2 Term Loan, 7.00%, 6/30/14	United States		60,000,000		58,350,000
Health Care 0.4%
Kinetic Concepts Inc., Term Loan B-1, 7.00%, 5/04/18	United States		30,000,000		30,308,250

FI-19

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country	Principal Amount*		Value
Senior Floating Rate Interests (continued)
Industrials 0.5%
Altegrity Inc.,
Term Loan B, 3.037%, 2/21/15	United States		13,821,896	$	12,871,640
Tranche D Term Loan, 7.75%, 2/21/15	United States		13,942,573		13,826,390
Ceva Group PLC,
Dollar Tranche B L/C, 5.579%, 8/31/16	United Kingdom		2,105,263		1,940,352
EGL Tranche B Term Loans, 5.428%, 8/31/16	United Kingdom		12,291,882		11,393,038
					40,031,420
Information Technology 1.7%
First Data Corp.,
2018 Term Loan, 4.294%, 3/24/18	United States		22,436,455		18,874,667
Term Loan B-1, 3.044%, 9/24/14	United States		13,650,417		12,498,595
Term Loan B-2, 3.044%, 9/24/14	United States		64,638,495		59,184,299
Term Loan B-3, 3.044%, 9/24/14	United States		2,387,693		2,186,219
Freescale Semiconductor Inc., Extended Term Loan, 4.52%, 12/01/16	United States		2,581,931		2,491,563
Go Daddy Operating Co. LLC, Initial Term Loan, 7.00%, 12/16/18	United States		17,456,250		17,425,876
lSophia LP (Datatel), Initial Term Loan, 7.25%, 7/31/18	United States		7,500,000		7,514,063
SRA International Inc., Term Loan, 6.50%, 7/20/18	United States		9,657,143		9,093,813
					129,269,095
Utilities 2.5%
Dynegy Midwest Generation LLC, Term Loan, 9.25%, 8/05/16	United States		10,473,750		10,586,343
Dynegy Power LLC, Term Loan, 9.25%, 8/05/16	United States		19,451,250		19,788,165
Samson Investment Co., Bridge Term Loan, 8.00%, 12/16/12	United States		10,000,000		10,000,000
Texas Competitive Electric Holdings Co. LLC,
2014 Term Loan, 3.776%, 10/10/14	United States		5,000,000		3,507,815
2017 Term Loan, 4.776%, 10/10/17	United States		224,606,875		142,999,786
					186,882,109
Total Senior Floating Rate Interests (Cost $675,544,729)					608,082,864
Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $33,245,301) 0.5%
Financials 0.5%
d,fBanc of America Large Loan, 2010-HLTN, 144A, FRN, 2.028%, 11/15/15	United States		38,212,989		34,608,377
Municipal Bonds 0.3%
California State GO,
7.95%, 3/01/36	United States		9,060,000		10,253,927
5.25%, 11/01/40	United States		1,405,000		1,476,768
Build America Bonds, 7.60%, 11/01/40	United States		6,603,000		8,159,393
San Joaquin County Transportation Authority Sales Tax Revenue, Refunding, 5.50%, 3/01/41	United States		4,395,000		4,871,110
Total Municipal Bonds (Cost $21,236,388)					24,761,198
Total Investments before Short Term Investments (Cost $7,607,475,968)					7,391,061,222

FI-20

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Income Securities Fund	Country		Principal Amount*		Value
Short Term Investments 2.3%
Repurchase Agreements (Cost $177,501,703) 2.3%
mJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $177,501,917)		United States		177,501,703	$	177,501,703
BNP Paribas Securities Corp. (Maturity Value $21,477,732) Credit Suisse Securities (USA) LLC (Maturity Value $25,771,503) Deutsche Bank Securities Inc. (Maturity Value $27,163,118) HSBC Securities (USA) Inc. (Maturity Value $42,955,465) Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $25,771,503) Morgan Stanley & Co. LLC (Maturity Value $8,591,093) UBS Securities LLC (Maturity Value $25,771,503)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; nU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50 % - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $181,145,557)
			Shares
oInvestments from Cash Collateral Received for Loaned Securities (Cost $1,380,000) 0.0%†
Money Market Funds 0.0%†
pBNY Mellon Overnight Government Fund, 0.039%		United States		1,380,000		1,380,000
Total Investments (Cost $7,786,357,671) 99.0%						7,569,942,925
Other Assets, less Liabilities 1.0%						78,064,037
Net Assets 100.0%					$	7,648,006,962

See Abbreviations on page FI-35.

†Rounds to less than 0.1% of net assets.

*The principal amount is stated in U.S. dollars unless otherwise indicated.

^aNon-income producing.

^bSee Note 9 regarding holdings of 5% voting securities.

^cAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading these securities for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^dSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $1,622,390,825, representing 21.21% of net assets.

^eSee Note 1(f) regarding equity-linked securities.

^fThe coupon rate shown represents the rate at period end.

^gIncome may be received in additional securities and/or cash.

^hA portion or all of the security is on loan at December 31, 2011. See Note 1(g).

ⁱPerpetual security with no stated maturity date.

^jSee Note 7 regarding defaulted securities.

^kSee Note 1(h) regarding senior floating rate interests.

^lSecurity purchased on a delayed delivery basis. See Note 1(d).

^mSee Note 1(c) regarding joint repurchase agreement.

ⁿThe security is traded on a discount basis with no stated coupon rate.

^oSee Note 1(g) regarding securities on loan.

^pThe rate shown is the annualized seven-day yield at period end.

The accompanying notes are an integral part of these financial statements.

FI-21

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Income Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	7,464,220,842
Cost - Non-controlled affiliated issuers (Note 9)		144,635,126
Cost - Repurchase agreements		177,501,703
Total cost of investments	$	7,786,357,671
Value - Unaffiliated issuers	$	7,378,261,522
Value - Non-controlled affiliated issuers (Note 9)		14,179,700
Value - Repurchase agreements		177,501,703
Total value of investments (includes securities loaned in the amount of $1,314,000)		7,569,942,925
Cash		564,611
Receivables:
Capital shares sold		2,335,811
Dividends and interest		94,012,839
Other assets		21,025
Total assets		7,666,877,211
Liabilities:
Payables:
Investment securities purchased		7,364,068
Capital shares redeemed		3,183,086
Affiliates		5,589,807
Reports to shareholders		1,137,839
Payable upon return of securities loaned		1,380,000
Accrued expenses and other liabilities		215,449
Total liabilities		18,870,249
Net assets, at value	$	7,648,006,962
Net assets consist of:
Paid-in capital	$	8,363,066,982
Undistributed net investment income		491,942,579
Net unrealized appreciation (depreciation)		(216,608,469	)
Accumulated net realized gain (loss)		(990,394,130	)
Net assets, at value	$	7,648,006,962

The accompanying notes are an integral part of these financial statements.

FI-22

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Franklin Income Securities Fund
Class 1:
Net assets, at value	$	1,300,934,635
Shares outstanding		88,643,213
Net asset value and maximum offering price per share	$	14.68
Class 2:
Net assets, at value	$	5,915,637,404
Shares outstanding		413,177,789
Net asset value and maximum offering price per share	$	14.32
Class 4:
Net assets, at value	$	431,434,923
Shares outstanding		29,666,638
Net asset value and maximum offering price per share	$	14.54

The accompanying notes are an integral part of these financial statements.

FI-23

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Income Securities Fund
Investment income:
Dividends	$	137,006,448
Interest:
Unaffiliated issuers		412,718,330
Non-controlled affiliated issuers (Note 9)		3,758,355
Income from securities loaned		443,260
Total investment income		553,926,393
Expenses:
Management fees (Note 3a)		36,750,388
Distribution fees: (Note 3c)
Class 2		15,490,776
Class 4		1,520,494
Unaffiliated transfer agent fees		4,861
Custodian fees (Note 4)		223,528
Reports to shareholders		1,016,771
Professional fees		205,931
Trustees’ fees and expenses		30,647
Other		157,121
Total expenses		55,400,517
Expense reductions (Note 4)		(31	)
Net expenses		55,400,486
Net investment income		498,525,907
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		223,883,734
Non-controlled affiliated issuers (Note 9)		145,148
Written options		415,499
Foreign currency transactions		(129,930	)
Net realized gain (loss)		224,314,451
Net change in unrealized appreciation (depreciation) on:
Investments		(562,165,563	)
Translation of other assets and liabilities denominated in foreign currencies		(155,625	)
Net change in unrealized appreciation (depreciation)		(562,321,188	)
Net realized and unrealized gain (loss)		(338,006,737	)
Net increase (decrease) in net assets resulting from operations	$	160,519,170

The accompanying notes are an integral part of these financial statements.

FI-24

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Income Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	498,525,907		$	459,831,319
Net realized gain (loss) from investments, written options and foreign currency transactions		224,314,451			1,566,016
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(562,321,188	)		446,658,211
Net increase (decrease) in net assets resulting from operations		160,519,170			908,055,546
Distributions to shareholders from:
Net investment income:
Class 1		(96,601,395	)		(70,751,613	)
Class 2		(356,087,463	)		(403,393,475	)
Class 4		(24,430,578	)		(24,551,628	)
Total distributions to shareholders		(477,119,436	)		(498,696,716	)
Capital share transactions: (Note 2)
Class 1		(55,103,339	)		469,690,616
Class 2		(185,660,731	)		(125,499,592	)
Class 4		31,595,919			47,090,132
Total capital share transactions		(209,168,151	)		391,281,156
Net increase (decrease) in net assets		(525,768,417	)		800,639,986
Net assets:
Beginning of year		8,173,775,379			7,373,135,393
End of year	$	7,648,006,962		$	8,173,775,379
Undistributed net investment income included in net assets:
End of year	$	491,942,579		$	459,449,020

The accompanying notes are an integral part of these financial statements.

FI-25

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Income Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers three classes of shares: Class 1, Class 2 and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in non-registered money market funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result,

FI-26

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

d. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

FI-27

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund purchased or wrote option contracts primarily to manage and/or gain exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. Options purchased are recorded as an asset while options written are recorded as a liability. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium and the cost to close the position is recorded as a realized gain or loss. Pursuant to the terms of the written option contract, cash or securities may be required to be deposited as collateral.

See Notes 6 and 8 regarding investment transactions and other derivative information, respectively.

f. Equity-Linked Securities

The Fund invests in equity-linked securities. Equity-linked securities are hybrid financial instruments that generally combine both debt and equity characteristics into a single note form. Income received from equity linked securities is recorded as realized gains in the Statement of Operations and may be based on the performance of an underlying equity security, an equity index, or an option position. The risks of investing in equity-linked securities include unfavorable price movements in the underlying security and the credit risk of the issuing financial institution. There may be no guarantee of a return of principal with equity linked securities and the appreciation potential may be limited. Equity-linked securities may be more volatile and less liquid than other investments held by the Fund.

g. Securities Lending

The Fund participates in an agency based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of Fund business each day, any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is invested in a non-registered money fund managed by the Fund’s custodian on the Fund’s behalf. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.

h. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

FI-28

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

h. Senior Floating Rate Interests (continued)

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

i. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

j. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

k. 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 expenses during the reporting period. Actual results could differ from those estimates.

FI-29

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

l. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		46,373,672		$	684,944,435			44,758,864		$	645,042,814
Shares issued in reinvestment of distributions		6,487,669			96,601,395			5,206,153			70,751,613
Shares redeemed		(59,777,035	)		(836,649,169	)		(17,515,669	)		(246,103,811	)
Net increase (decrease)		(6,915,694	)	$	(55,103,339	)		32,449,348		$	469,690,616
Class 2 Shares:
Shares sold		36,881,385		$	540,163,327			26,818,536		$	380,019,084
Shares issued in reinvestment of distributions		24,473,365			356,087,463			30,330,336			403,393,475
Shares redeemed		(74,034,875	)		(1,081,911,521	)		(64,334,274	)		(908,912,151	)
Net increase (decrease)		(12,680,125	)	$	(185,660,731	)		(7,185,402	)	$	(125,499,592	)
Class 4 Shares:
Shares sold		4,165,273		$	62,663,608			4,608,224		$	66,369,834
Shares issued on reinvestment of distributions		1,652,948			24,430,578			1,817,293			24,551,628
Shares redeemed		(3,777,871	)		(55,498,267	)		(3,057,456	)		(43,831,330	)
Net increase (decrease)		2,040,350		$	31,595,919			3,368,061		$	47,090,132

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FI-30

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.625%	Up to and including $100 million
0.500%	Over $100 million, up to and including $250 million
0.450%	Over $250 million, up to and including $7.5 billion
0.440%	Over $7.5 billion, up to and including $10 billion
0.430%	Over $10 billion, up to and including $12.5 billion
0.420%	Over $12.5 billion, up to and including $15 billion
0.400%	In excess of $15 billion

b. Administrative Fees

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

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

f. Other Affiliated Transactions

At December 31, 2011, Franklin Templeton Variable Insurance Products Trust – Franklin Templeton VIP Founding Funds Allocation Fund owned 13.38% of the Fund’s outstanding shares.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

FI-31

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2016	$	310,579,601
2017		521,405,875
2018		157,561,044
	$	989,546,520

During the year ended December 31, 2011, the Fund utilized $214,403,056 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	477,119,436	$	498,696,716

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	7,801,715,374
Unrealized appreciation	$	689,042,293
Unrealized depreciation		(920,814,742	)
Net unrealized appreciation (depreciation)	$	(231,772,449	)
Distributable earnings – undistributed ordinary income	$	511,305,799

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of defaulted securities, foreign currency transactions, payments-in-kind, bond discounts and premiums, corporate actions, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $2,271,631,420 and $2,446,351,263, respectively.

Transactions in options written during the year ended December 31, 2011, were as follows:

	Number of Contracts			Premiums Received
Options outstanding at December 31, 2010		3,690		$	415,499
Options written		—			—
Options expired		(3,690	)		(415,499	)
Options exercised		—			—
Options closed		—			—
Options outstanding at December 31, 2011		—		$	—

See Notes 1(e) and 8 regarding derivative financial instruments and other derivative information, respectively.

FI-32

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

7. CREDIT RISK AND DEFAULTED SECURITIES

At December 31, 2011, the Fund had 53.83% of its portfolio invested in high yield securities, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At December 31, 2011, the aggregate value of these securities was $117,098,330, representing 1.53% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments.

8. OTHER DERIVATIVE INFORMATION

For the year ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year		Change in Unrealized Appreciation (Depreciation) for the Year
Equity contracts	Net realized gain (loss) from written options / Net change in unrealized appreciation (depreciation) on investments	$	415,499		3,501

For the year ended December 31, 2011, the average month end market value of derivatives represented less than 0.01% of average month end net assets. The average month end number of open derivative contracts for the year was 1.

See Note 1(e) regarding derivative financial instruments.

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Fund for the year ended December 31, 2011, were as shown below.

Name of Issuer	Number of Shares/Principal Amount Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares/Principal Amount Held at End of Year		Value at End of Year		Investment Income		Realized Capital Gain (Loss)
Non-Controlled Affiliates
aDex Media West LLC, Term Loan B, 7.25%, 10/24/14		4,783,951		—		517,983		4,265,968	$	2,396,941	$	274,187	$	145,148
Dex One Corp.		2,642,381		—		—		2,642,381		4,386,353		—		—
Dex One Corp., senior sub. note, PIK, 7.00%, 1/29/17		32,511,674		—		—		32,511,674		7,396,406		3,484,168		—
Total Affiliated Securities (0.19% of Net Assets)									$	14,179,700	$	3,758,355	$	145,148

^aCompany is a wholly owned subsidiary of Dex One Corp.

FI-33

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

10. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

11. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

FI-34

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Income Securities Fund

11. FAIR VALUE MEASUREMENTS (continued)

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Investments:a
Consumer Discretionary	$	101,306,003	$	5,775,293	$	—	$	107,081,296
Energy		413,770,815		24,581,250		—		438,352,065
Financials		476,653,363		93,414,607		—		570,067,970
Health Care		486,492,824		11,542,500		—		498,035,324
All Other Equity Investmentsb		1,304,886,586		—		—		1,304,886,586
Equity-Linked Securities		—		111,893,273		—		111,893,273
Convertible Bonds		—		80,449,575		—		80,449,575
Corporate Bonds		—		3,612,842,694		—		3,612,842,694
Senior Floating Rate Interests		—		608,082,864		—		608,082,864
Asset-Backed Securities and Commercial Mortgage-Backed Securities		—		34,608,377		—		34,608,377
Municipal Bonds		—		24,761,198		—		24,761,198
Short Term Investments		—		178,881,703		—		178,881,703
Total Investments in Securities	$	2,783,109,591	$	4,786,833,334	$	—	$	7,569,942,925

^aIncludes common, preferred, and convertible preferred stocks as well as other equity investments.

^bFor detailed categories, see the accompanying Statement of Investments.

12. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

13. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS
Currency	Selected Portfolio
Euro - Euro	ADR - American Depository Receipt
GBP - British Pound	FRN - Floating Rate Note
	GO - General Obligation
	L/C - Letter of Credit
	MTN - Medium Term Note
	PIK - Payment-In-Kind

FI-35

Franklin Templeton Variable Insurance Products Trust

Franklin Income Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Income Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FI-36

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Income Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 20.93% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

FI-37

FRANKLIN LARGE CAP GROWTH SECURITIES FUND

This annual report for Franklin Large Cap Growth Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-1.22%		+0.08%		+1.83%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®) and the Russell 1000^® Growth Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Large Cap 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FLG-1

Fund Goal and Main Investments: Franklin Large Cap Growth Securities Fund seeks capital appreciation. The Fund normally invests at least 80% of its net assets in investments of large-capitalization companies. For this Fund, large-capitalization companies are those with market capitalization values within those of the top 50% of companies in the Russell 1000^® Index at the time of purchase.¹

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed its primary benchmark, the S&P 500, which posted a +2.11% total return.² The Fund also underperformed its secondary benchmark, the Russell 1000^® Growth Index, which delivered a +2.64% total return for the same period.²

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.³

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

1. Please see Index Descriptions following the Fund Summaries.

2. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

3. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund may have substantial investments in particular sectors from time to time, such as the technology sector (including health care technology, electronic technology and technology services), which has been among the most volatile sectors in the market, as well as the communications and financial services sectors, and may be at greater risk from adverse developments in a sector than a fund that invests more broadly. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

FLG-2

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many U.S. companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 gained 2.11% in 2011.² The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.² Notably, the U.S. was a global market leader in 2011 as the country continued to be a relative haven. During the year, sector performance varied widely. Noncyclical, income-producing sectors such as utilities, consumer staples and health care led the market, while economically sensitive sectors such as materials and industrials lagged. Financials in the S&P 500 experienced the worst sector decline, as U.S. bank stocks generally tracked their European peers. Against this backdrop, growth stocks fared better than their value counterparts; large-capitalization stocks advanced slightly as a group, with modestly negative results for most small- and mid-sized company stocks, as measured by Russell capitalization-based indexes.

Investment Strategy

We employ our long-held strategy: bottom-up, individual-company, fundamental research aimed at opportunistically finding what we believe to be outstanding large-cap companies across all sectors, at valuations we believe understate their fair worth, with future growth potential being a key driver of estimated worth. In doing so, we work hard seeking to ensure we are being adequately compensated for the risks that are inherent to all forecasting efforts, aiming to own those stocks that make the most sense from a risk/return perspective. We believe this disciplined, bottom-up analysis of future growth potential, current valuation and other risks on a stock-by-stock basis best supports our efforts to maintain a portfolio with superior risk/return characteristics and thus affords us the best prospects for strong performance over the long term.

Manager’s Discussion

Looking back on the key factors impacting the Fund’s returns during the year under review, we would like to remind shareholders that our investment strategy is primarily bottom-up and driven by individual stock selection. However, we recognize that a sector-based discussion can be a helpful way to organize a portfolio review of key performance drivers.

FLG-3

From a sector perspective, our underweighted allocation and stock selection in the materials sector helped the Fund’s performance relative to the S&P 500. In particular, our position in precious metals producer Freeport-McMoRan Copper & Gold boosted performance.⁴ Our decision to avoid several poor-performing telecommunication services stocks also aided relative results. Stock selection in the energy sector aided performance, largely due to our holding in independent oil and natural gas company Petrohawk Energy.^{4, 5} Petrohawk shares rose as the company was acquired by BHP Billiton during the year.

Other key contributors to relative Fund returns included health insurer Aetna, credit services company MasterCard and investment bank Goldman Sachs Group.⁴

In contrast, the Fund’s holdings in the consumer discretionary area detracted from performance relative to the S&P 500, particularly our position in hotel operator Marriott International.⁴

The Fund’s holdings in the information technology sector also detracted from relative returns. In particular, the shares of mobile phone manufacturer Research in Motion⁵ and electronic equipment manufacturer Hewlett-Packard both lost value in part due to disappointing results related to declines in their market share.

Thank you for your participation in Franklin Large Cap Growth Securities Fund. We look forward to serving your future investment needs.

4. Sold by period-end.

5. This holding is not an index component.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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 Large Cap Growth

Securities Fund

12/31/11

Company Sector/Industry	% of Total Net Assets
Apple Inc.		3.8%
Information Technology
Wells Fargo & Co.		3.2%
Financials
Google Inc.		2.7%
Information Technology
U.S. Bancorp		2.4%
Financials
JPMorgan Chase & Co.		2.2%
Financials
AT&T Inc.		2.1%
Telecommunication Services
The Boeing Co.		2.1%
Industrials
General Electric Co.		2.1%
Industrials
Anadarko Petroleum Corp.		2.0%
Energy
PepsiCo Inc.		2.0%
Consumer Staples

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

FLG-4

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Large Cap Growth Securities Fund Class 1

FLG-5

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	955.90	$	3.94
Hypothetical (5% return before expenses)	$	1,000	$	1,021.17	$	4.08

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.80%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FLG-6

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Large Cap Growth Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	15.07		$	13.62		$	10.66		$	17.51		$	16.70
Income from investment operationsa:
Net investment incomeb		0.15			0.12			0.12			0.17			0.21
Net realized and unrealized gains (losses)		(0.33	)		1.48			3.04			(5.82	)		0.89
Total from investment operations		(0.18	)		1.60			3.16			(5.65	)		1.10
Less distributions from:
Net investment income		(0.14	)		(0.15	)		(0.20	)		(0.24	)		(0.16	)
Net realized gains		—			—			—			(0.96	)		(0.13	)
Total distributions		(0.14	)		(0.15	)		(0.20	)		(1.20	)		(0.29	)
Net asset value, end of year	$	14.75		$	15.07		$	13.62		$	10.66		$	17.51
Total returnc		(1.22)%			11.85%			30.04%			(34.39)%			6.53%
Ratios to average net assets
Expenses		0.80%			0.79%			0.81%	d		0.77%	d		0.74%	d
Net investment income		0.99%			0.86%			1.03%			1.19%			1.21%
Supplemental data
Net assets, end of year (000’s)	$	48,666		$	58,265		$	58,287		$	51,651		$	96,920
Portfolio turnover rate		56.61%			46.75%			71.95%			66.04%			50.67%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FLG-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Large Cap Growth Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.86		$	13.43		$	10.50		$	17.25		$	16.47
Income from investment operationsa:
Net investment incomeb		0.11			0.08			0.09			0.13			0.17
Net realized and unrealized gains (losses)		(0.33	)		1.46			3.00			(5.73	)		0.87
Total from investment operations		(0.22	)		1.54			3.09			(5.60	)		1.04
Less distributions from:
Net investment income		(0.10	)		(0.11	)		(0.16	)		(0.19	)		(0.13	)
Net realized gains		—			—			—			(0.96	)		(0.13	)
Total distributions		(0.10	)		(0.11	)		(0.16	)		(1.15	)		(0.26	)
Net asset value, end of year	$	14.54		$	14.86		$	13.43		$	10.50		$	17.25
Total returnc		(1.51)%			11.59%			29.73%			(34.53)%			6.23%
Ratios to average net assets
Expenses		1.05%			1.04%			1.06%	d		1.02%	d		0.99%	d
Net investment income		0.74%			0.61%			0.78%			0.94%			0.96%
Supplemental data
Net assets, end of year (000’s)	$	293,226		$	357,405		$	373,821		$	328,597		$	642,351
Portfolio turnover rate		56.61%			46.75%			71.95%			66.04%			50.67%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FLG-8

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Large Cap Growth Securities Fund	Country	Shares		Value
Common Stocks 97.6%
Consumer Discretionary 8.6%
Abercrombie & Fitch Co., A	United States		53,800	$	2,627,592
aAmazon.com Inc.	United States		8,600		1,488,660
aBorgWarner Inc.	United States		76,300		4,863,362
Comcast Corp., A	United States		225,300		5,341,863
aFord Motor Co.	United States		134,900		1,451,524
Kohl’s Corp.	United States		72,900		3,597,615
NIKE Inc., B	United States		19,100		1,840,667
Target Corp.	United States		55,100		2,822,222
The Walt Disney Co.	United States		139,400		5,227,500
					29,261,005
Consumer Staples 8.4%
Altria Group Inc.	United States		57,400		1,701,910
Costco Wholesale Corp.	United States		16,900		1,408,108
CVS Caremark Corp.	United States		114,500		4,669,310
PepsiCo Inc.	United States		104,400		6,926,940
Philip Morris International Inc.	United States		81,400		6,388,272
The Procter & Gamble Co.	United States		66,945		4,465,901
Wal-Mart Stores Inc.	United States		27,000		1,613,520
Walgreen Co.	United States		43,554		1,439,895
					28,613,856
Energy 10.4%
Anadarko Petroleum Corp.	United States		91,050		6,949,846
Chevron Corp.	United States		50,700		5,394,480
ConocoPhillips	United States		64,700		4,714,689
Devon Energy Corp.	United States		56,700		3,515,400
Exxon Mobil Corp.	United States		57,700		4,890,652
Halliburton Co.	United States		114,800		3,961,748
Schlumberger Ltd.	United States		63,970		4,369,791
aSuperior Energy Services Inc.	United States		64,600		1,837,224
					35,633,830
Financials 10.3%
Aflac Inc.	United States		38,900		1,682,814
American Express Co.	United States		26,400		1,245,288
Bank of America Corp.	United States		140,700		782,292
BlackRock Inc.	United States		12,900		2,299,296
Citigroup Inc.	United States		34,990		920,587
Invesco Ltd.	United States		81,300		1,633,317
JPMorgan Chase & Co.	United States		227,145		7,552,571
U.S. Bancorp	United States		298,627		8,077,861
Wells Fargo & Co.	United States		393,700		10,850,372
					35,044,398
Health Care 14.9%
Aetna Inc.	United States		157,000		6,623,830
aAgilent Technologies Inc.	United States		115,300		4,027,429
aExpress Scripts Inc.	United States		148,900		6,654,341
aGilead Sciences Inc.	United States		95,700		3,917,001
aIllumina Inc.	United States		45,800		1,395,984
Johnson & Johnson	United States		90,900		5,961,222
Medtronic Inc.	United States		56,500		2,161,125
Merck & Co. Inc.	United States		149,575		5,638,977

FLG-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Large Cap Growth Securities Fund	Country	Shares		Value
Common Stocks (continued)
Health Care (continued)
Pfizer Inc.	United States		218,700	$	4,732,668
Roche Holding AG, ADR	Switzerland		124,000		5,276,200
Teva Pharmaceutical Industries Ltd., ADR	Israel		51,416		2,075,150
aThoratec Corp.	United States		77,200		2,590,832
					51,054,759
Industrials 11.7%
The Boeing Co.	United States		98,100		7,195,635
Caterpillar Inc.	United States		32,300		2,926,380
Emerson Electric Co.	United States		95,600		4,454,004
Expeditors International of Washington Inc.	United States		94,090		3,853,926
FedEx Corp.	United States		47,100		3,933,321
General Electric Co.	United States		394,100		7,058,331
Precision Castparts Corp.	United States		19,200		3,163,968
Union Pacific Corp.	United States		29,200		3,093,448
United Technologies Corp.	United States		60,900		4,451,181
					40,130,194
Information Technology 24.2%
aApple Inc.	United States		32,200		13,041,000
Broadcom Corp., A	United States		39,600		1,162,656
Cisco Systems Inc.	United States		169,300		3,060,944
Corning Inc.	United States		153,600		1,993,728
aDell Inc.	United States		269,600		3,944,248
aEMC Corp.	United States		237,400		5,113,596
FLIR Systems Inc.	United States		60,900		1,526,763
aGoogle Inc., A	United States		14,300		9,236,370
Hewlett-Packard Co.	United States		87,200		2,246,272
Intel Corp.	United States		98,100		2,378,925
International Business Machines Corp.	United States		35,000		6,435,800
aLam Research Corp.	United States		88,900		3,291,078
MasterCard Inc., A	United States		6,330		2,359,951
Microsoft Corp.	United States		205,300		5,329,588
aNetApp Inc.	United States		78,170		2,835,226
Oracle Corp.	United States		98,500		2,526,525
aPolycom Inc.	United States		129,000		2,102,700
QUALCOMM Inc.	United States		107,990		5,907,053
aResearch In Motion Ltd.	Canada		90,400		1,310,800
Visa Inc., A	United States		25,700		2,609,321
Xerox Corp.	United States		451,400		3,593,144
Xilinx Inc.	United States		24,800		795,088
					82,800,776
Materials 2.6%
Celanese Corp., A	United States		147,800		6,543,106
E. I. du Pont de Nemours and Co.	United States		19,200		878,976
Randgold Resources Ltd., ADR	United Kingdom		15,600		1,592,760
					9,014,842
Telecommunication Services 3.6%
AT&T Inc.	United States		241,562		7,304,835
aSprint Nextel Corp.	United States		354,300		829,062
Vodafone Group PLC, ADR	United Kingdom		154,000		4,316,620
					12,450,517

FLG-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Large Cap Growth Securities Fund	Country	Shares		Value
Common Stocks (continued)
Utilities 2.9%
MDU Resources Group Inc.	United States		39,300	$	843,378
National Grid PLC, ADR	United Kingdom		42,800		2,074,944
PG&E Corp.	United States		65,850		2,714,337
Sempra Energy	United States		29,400		1,617,000
The Southern Co.	United States		57,100		2,643,159
					9,892,818
Total Common Stocks (Cost $251,539,736)					333,896,995
		Principal Amount
Short Term Investments (Cost $9,441,757) 2.8%
Repurchase Agreements 2.8%
bJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $9,441,768)	United States	$	9,441,757		9,441,757
BNP Paribas Securities Corp. (Maturity Value $1,142,454)
Credit Suisse Securities (USA) LLC (Maturity Value $1,370,850)
Deutsche Bank Securities Inc. (Maturity Value $1,444,874)
HSBC Securities (USA) Inc. (Maturity Value $2,284,908)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $1,370,850)
Morgan Stanley & Co. LLC (Maturity Value $456,982)
UBS Securities LLC (Maturity Value $1,370,850)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; cU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $9,635,582)
Total Investments (Cost $260,981,493) 100.4%					343,338,752
Other Assets, less Liabilities (0.4)%					(1,446,570	)
Net Assets 100.0%				$	341,892,182

See Abbreviations on page FLG-20.

^aNon-income producing.

^bSee Note 1(b) regarding joint repurchase agreement.

^cThe security is traded on a discount basis with no stated coupon rate.

The accompanying notes are an integral part of these financial statements.

FLG-11

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Large Cap Growth Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	251,539,736
Cost - Repurchase agreements		9,441,757
Total cost of investments	$	260,981,493
Value - Unaffiliated issuers	$	333,896,995
Value - Repurchase agreements		9,441,757
Total value of investments		343,338,752
Receivables:
Capital shares sold		23,103
Dividends		724,479
Other assets		11
Total assets		344,086,345
Liabilities:
Payables:
Capital shares redeemed		1,665,398
Affiliates		341,015
Reports to shareholders		154,996
Accrued expenses and other liabilities		32,754
Total liabilities		2,194,163
Net assets, at value	$	341,892,182
Net assets consist of:
Paid-in capital	$	348,160,086
Undistributed net investment income		2,936,945
Net unrealized appreciation (depreciation)		82,357,259
Accumulated net realized gain (loss)		(91,562,108	)
Net assets, at value	$	341,892,182
Class 1:
Net assets, at value	$	48,666,054
Shares outstanding		3,299,787
Net asset value and maximum offering price per share	$	14.75
Class 2:
Net assets, at value	$	293,226,128
Shares outstanding		20,167,425
Net asset value and maximum offering price per share	$	14.54

The accompanying notes are an integral part of these financial statements.

FLG-12

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Large Cap Growth Securities Fund
Investment income:
Dividends	$	6,788,083
Interest		9,138
Total investment income		6,797,221
Expenses:
Management fees (Note 3a)		2,859,788
Distribution fees: (Note 3c)
Class 2		818,014
Class 4		3
Unaffiliated transfer agent fees		687
Custodian fees (Note 4)		5,411
Reports to shareholders		124,332
Professional fees		29,647
Trustees’ fees and expenses		1,484
Other		20,455
Total expenses		3,859,821
Net investment income		2,937,400
Realized and unrealized gains (losses):
Net realized gain (loss) from investments		20,697,833
Net change in unrealized appreciation (depreciation) on investments		(28,917,851	)
Net realized and unrealized gain (loss)		(8,220,018	)
Net increase (decrease) in net assets resulting from operations	$	(5,282,618	)

The accompanying notes are an integral part of these financial statements.

FLG-13

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Large Cap Growth Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	2,937,400		$	2,645,428
Net realized gain (loss) from investments		20,697,833			25,795,539
Net change in unrealized appreciation (depreciation) on investments		(28,917,851	)		16,339,203
Net increase (decrease) in net assets resulting from operations		(5,282,618	)		44,780,170
Distributions to shareholders from:
Net investment income:
Class 1		(492,852	)		(595,893	)
Class 2		(2,152,135	)		(2,876,875	)
Class 4		—			(33	)
Total distributions to shareholders		(2,644,987	)		(3,472,801	)
Capital share transactions: (Note 2)
Class 1		(8,419,530	)		(5,756,855	)
Class 2		(57,429,668	)		(51,989,055	)
Class 4		(4,876	)		—
Total capital share transactions		(65,854,074	)		(57,745,910	)
Net increase (decrease) in net assets		(73,781,679	)		(16,438,541	)
Net assets:
Beginning of year		415,673,861			432,112,402
End of year	$	341,892,182		$	415,673,861
Undistributed net investment income included in net assets:
End of year	$	2,936,945		$	2,644,532

The accompanying notes are an integral part of these financial statements.

FLG-14

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Large Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Large Cap Growth Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers 2 classes of shares: Class 1 and Class 2. On March 4, 2011, the Fund liquidated Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

FLG-15

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Large Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

b. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

c. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

FLG-16

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Large Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. 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 expenses during the reporting period. Actual results could differ from those estimates.

f. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011a						2010b
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		99,760		$	1,555,529			68,402		$	948,510
Shares issued in reinvestment of distributions		33,122			492,852			44,470			595,893
Shares redeemed		(698,667	)		(10,467,911	)		(527,249	)		(7,301,258	)
Net increase (decrease)		(565,785	)	$	(8,419,530	)		(414,377	)	$	(5,756,855	)
Class 2 Shares:
Shares sold		983,185		$	14,361,125			1,051,169		$	13,759,246
Shares issued in reinvestment of distributions		146,503			2,152,135			217,451			2,876,875
Shares redeemed		(5,015,686	)		(73,942,928	)		(5,055,225	)		(68,625,176	)
Net increase (decrease)		(3,885,998	)	$	(57,429,668	)		(3,786,605	)	$	(51,989,055	)
Class 4 Shares:
Shares redeemed		(312	)	$	(4,876	)
Net increase (decrease)		(312	)	$	(4,876	)

^aEffective March 4, 2011, Class 4 was liquidated.

^bDuring the year Class 4 did not report any share transactions.

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FLG-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Large Cap Growth Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.750%	Up to and including $500 million
0.625%	Over $500 million, up to and including $1 billion
0.500%	In excess of $1 billion

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2016	$	22,027,788
2017		62,499,598
	$	84,527,386

During the year ended December 31, 2011, the Fund utilized $21,709,827 of capital loss carryforwards.

FLG-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Large Cap Growth Securities Fund

5. INCOME TAXES (continued)

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	2,644,987	$	3,472,801

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	268,016,214
Unrealized appreciation	$	85,125,792
Unrealized depreciation		(9,803,254	)
Net unrealized appreciation (depreciation)	$	75,322,538
Distributable earnings – undistributed ordinary income	$	2,936,948

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $209,323,130 and $268,047,015, respectively.

7. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

8. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

FLG-19

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Large Cap Growth Securities Fund

8. FAIR VALUE MEASUREMENTS (continued)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3			Total
Assets:
Investments in Securities:
Equity Investmentsa	$	333,896,995	$	—	$	—		$	333,896,995
Short Term Investments		—		9,441,757		—	��		9,441,757
Total Investments in Securities	$	333,896,995	$	9,441,757	$	—		$	343,338,752

^aFor detailed categories, see the accompanying Statement of Investments.

9. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

10. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt

FLG-20

Franklin Templeton Variable Insurance Products Trust

Franklin Large Cap Growth Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Large Cap Growth Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FLG-21

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Large Cap Growth Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 100% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

FLG-22

FRANKLIN RISING DIVIDENDS SECURITIES FUND

We are pleased to bring you Franklin Rising Dividends Securities Fund’s annual report for the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+6.29%		+1.52%		+6.05%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®). One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Rising Dividends 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FRD-1

Fund Goal and Main Investments: Franklin Rising Dividends Securities Fund seeks long-term capital appreciation, with preservation of capital as an important consideration. The Fund normally invests at least 80% of its net assets in investments of companies that have paid rising dividends.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund outperformed its benchmark, the S&P 500, which rose 2.11% for the same period.¹ Please note the Fund employs a bottom-up stock selection process, and the managers invest in securities without regard to benchmark comparisons.

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.²

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

2. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. The Fund may have significant investments in particular sectors from time to time, such as financial institutions and health care, and may be at greater risk of adverse developments in a sector than a fund that invests more broadly. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

FRD-2

havens and seemed to ignore that many U.S. companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 gained 2.11% in 2011.¹ The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.¹ Notably, the U.S. was a global market leader in 2011 as the country continued to be a relative haven. During the year, sector performance varied widely. Noncyclical, income-producing sectors such as utilities, consumer staples and health care led the market, while economically sensitive sectors such as materials and industrials lagged. Financials in the S&P 500 experienced the worst sector decline, as U.S. bank stocks generally tracked their European peers. Against this backdrop, growth stocks fared better than their value counterparts: large-capitalization stocks advanced slightly as a group, with modestly negative results for most small- and mid-sized company stocks, as measured by Russell capitalization-based indexes.

Investment Strategy

We are a research-driven, fundamental investment adviser, pursuing a disciplined value-oriented strategy. As bottom-up investors concentrating primarily on individual securities, we seek fundamentally sound companies that we believe meet our screening criteria, which include consistent, substantial dividend increases; reinvested earnings; and strong balance sheets. We attempt to acquire such stocks at attractive prices, often when they are out of favor with other investors. In following these criteria, we do not necessarily focus on companies whose securities pay a high dividend but rather on companies that consistently raise their dividends.

Manager’s Discussion

During the 12 months under review, all sectors represented in the Fund except financials contributed positively to performance.³ Key contributors included global information technology software and services provider International Business Machines (IBM), medical products manufacturer Abbott Laboratories and insurer Erie Indemnity. IBM generates significant revenues from its software and services businesses, thus making the company less vulnerable to economic weakness than many other technology companies, in our view. IBM has 16 consecutive years of dividend increases. Abbott shares rebounded after significantly underperforming in late 2010, and it has increased its dividend for the 39th year in a row. Erie Indemnity, a management company for a

3. The financials sector comprises banks, diversified financials and insurance in the SOI.

FRD-3

property and casualty insurer, increased in value largely due to its strong capital position, which enabled its shares to perform better than most other financials stocks. Erie has 32 years of dividend increases.

The financials sector hindered performance, with major detractors including insurer Old Republic International, supplemental health insurance provider Aflac, and savings bank Hudson City Bancorp.³ Losses in Old Republic’s mortgage guaranty business remained high as the housing market has failed to recover significantly. Supplemental insurance provider Aflac’s shares fell in value after the company disclosed that its decision to more conservatively position its investment portfolio would result in lower 2012 earnings than analysts’ estimates. Hudson City disclosed declining net interest margin would cause it to restructure its balance sheet. During the year, the company completed a restructuring of its balance sheet that reduced higher cost structured borrowings and allowed for increased net interest income.

The Fund initiated 10 positions during the period in what we considered attractively valued securities: specialty chemicals manufacturer Albemarle (17 years of dividend increases); large integrated energy company Chevron (24 years); insurer Chubb (46 years); household products manufacturer and marketer Colgate-Palmolive (48 years); water, hygiene and energy technologies company Ecolab (20 years); integrated energy company Exxon Mobil (29 years); global auto components and building efficiency systems and services provider Johnson Controls (2 years); memorialization products manufacturer Matthews International (17 years); global athletic footwear and apparel maker NIKE (10 years); and water delivery and thermal systems provider Pentair (36 years). We made significant additions to holdings of the largest franchiser of fast food restaurants, McDonald’s, global snacks and beverages manufacturer PepsiCo, and health care equipment and supplies company Stryker, among others. We liquidated our position in Nordson during the Fund’s fiscal year, and reduced our positions in Erie Indemnity, Family Dollar Stores and Roper Industries, among others.

Our 10 largest positions on December 31, 2011, represented 43.7% of the Fund’s total net assets. It is interesting to note how these 10 companies would respond, in aggregate, to the Fund’s screening criteria based on a simple average of statistical measures. On average, these 10 companies have raised their dividends 32 years in a row and by 284% in the past 10 years. Their most recent year-over-year dividend increases averaged 14.0% with a yield of 2.3% on December 31, 2011,

Top 10 Holdings

Franklin Rising Dividends Securities Fund

12/31/11

Company Sector/Industry	% of Total Net Assets
Abbott Laboratories		5.0%
Pharmaceuticals, Biotechnology & Life Sciences
Praxair Inc.		4.9%
Materials
International Business Machines Corp.		4.7%
Software & Services
The Procter & Gamble Co.		4.7%
Household & Personal Products
Wal-Mart Stores Inc.		4.6%
Food & Staples Retailing
Roper Industries Inc.		4.4%
Electrical Equipment
Becton, Dickinson and Co.		4.3%
Health Care Equipment & Services
United Technologies Corp.		4.2%
Aerospace & Defense
Dover Corp.		3.8%
Machinery
Chevron Corp.		3.1%
Energy

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

FRD-4

and a dividend payout ratio of 32%, based on estimates of calendar year 2011 operating earnings. The average price/earnings ratio was 14.4 times calendar year 2011 estimates versus 13.0 for that of the unmanaged S&P 500.

Thank you for your participation in Franklin Rising Dividends Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

FRD-5

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Rising Dividends Securities Fund – Class 1

FRD-6

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	996.00	$	3.22
Hypothetical (5% return before expenses)	$	1,000	$	1,021.98	$	3.26

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.64%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FRD-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Rising Dividends Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.15		$	16.13		$	13.96		$	19.61		$	20.88
Income from investment operationsa:
Net investment incomeb		0.36			0.32			0.14	c		0.35			0.36
Net realized and unrealized gains (losses)		0.83			3.01			2.28			(5.51	)		(0.80	)
Total from investment operations		1.19			3.33			2.42			(5.16	)		(0.44	)
Less distributions from:
Net investment income		(0.33	)		(0.31	)		(0.25	)		(0.36	)		(0.53	)
Net realized gains		—			—			—			(0.13	)		(0.30	)
Total distributions		(0.33	)		(0.31	)		(0.25	)		(0.49	)		(0.83	)
Net asset value, end of year	$	20.01		$	19.15		$	16.13		$	13.96		$	19.61
Total returnd		6.29%			20.94%			17.67%			(26.94)%			(2.41)%
Ratios to average net assets
Expenses		0.63%			0.64%			0.65%	e		0.61%	e		0.59%	e
Net investment income		1.87%			1.88%			0.99%	c		2.05%			1.72%
Supplemental data
Net assets, end of year (000’s)	$	140,297		$	148,544		$	139,816		$	142,862		$	235,946
Portfolio turnover rate		12.76%			8.97%			16.99%			5.39%			3.29%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.15) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been 2.07%. See Note 1(d).

^dTotal 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FRD-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Rising Dividends Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	18.82		$	15.86		$	13.72		$	19.27		$	20.55
Income from investment operationsa:
Net investment incomeb		0.31			0.28			0.10	c		0.31			0.30
Net realized and unrealized gains (losses)		0.81			2.95			2.24			(5.42	)		(0.79	)
Total from investment operations		1.12			3.23			2.34			(5.11	)		(0.49	)
Less distributions from:
Net investment income		(0.29	)		(0.27	)		(0.20	)		(0.31	)		(0.49	)
Net realized gains		—			—			—			(0.13	)		(0.30	)
Total distributions		(0.29	)		(0.27	)		(0.20	)		(0.44	)		(0.79	)
Net asset value, end of year	$	19.65		$	18.82		$	15.86		$	13.72		$	19.27
Total returnd		6.00%			20.64%			17.34%			(27.10)%			(2.69)%
Ratios to average net assets
Expenses		0.88%			0.89%			0.90%	e		0.86%	e		0.84%	e
Net investment income		1.62%			1.63%			0.74%	c		1.80%			1.47%
Supplemental data
Net assets, end of year (000’s)	$	1,523,396		$	1,572,732		$	1,371,351		$	1,286,878		$	2,079,366
Portfolio turnover rate		12.76%			8.97%			16.99%			5.39%			3.29%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.15) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been 1.82%. See Note 1(d).

^dTotal 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FRD-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Rising Dividends Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.04		$	16.09		$	13.92		$	18.51
Income from investment operationsb:
Net investment incomec		0.31			0.32			0.13	d		0.26
Net realized and unrealized gains (losses)		0.80			2.94			2.24			(4.36	)
Total from investment operations		1.11			3.26			2.37			(4.10	)
Less distributions from:
Net investment income		(0.32	)		(0.31	)		(0.20	)		(0.36	)
Net realized gains		—			—			—			(0.13	)
Total distributions		(0.32	)		(0.31	)		(0.20	)		(0.49	)
Net asset value, end of year	$	19.83		$	19.04		$	16.09		$	13.92
Total returne		5.89%			20.62%			17.22%			(22.82)%
Ratios to average net assetsf
Expenses		0.98%			0.99%			1.00%	g		0.96%	g
Net investment income		1.52%			1.53%			0.64%	d		1.70%
Supplemental data
Net assets, end of year (000’s)	$	3,020		$	1,007		$	15		$	4
Portfolio turnover rate		12.76%			8.97%			16.99%			5.39%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dNet investment income per share includes approximately $(0.15) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been 1.72%. See Note 1(d).

^eTotal 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FRD-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Rising Dividends Securities Fund	Shares		Value
Common Stocks 95.0%
Aerospace & Defense 4.3%
General Dynamics Corp.		28,000	$	1,859,480
United Technologies Corp.		951,400		69,537,826
				71,397,306
Automobiles & Components 0.1%
Johnson Controls Inc.		78,400		2,450,784
Banks 0.8%
Hudson City Bancorp Inc.		1,203,300		7,520,625
Peoples Bancorp Inc.		54,096		801,162
TrustCo Bank Corp. NY		147,285		826,269
U.S. Bancorp		146,449		3,961,445
				13,109,501
Commercial & Professional Services 2.0%
ABM Industries Inc.		951,288		19,615,559
Cintas Corp.		384,200		13,374,002
				32,989,561
Consumer Durables & Apparel 2.9%
aKid Brands Inc.		265,947		840,393
Leggett & Platt Inc.		775,800		17,874,432
NIKE Inc., B		277,000		26,694,490
Superior Uniform Group Inc.		237,100		2,947,153
				48,356,468
Consumer Services 2.9%
Hillenbrand Inc.		1,191,300		26,589,816
Matthews International Corp., A		25,000		785,750
McDonald’s Corp.		212,345		21,304,574
				48,680,140
Diversified Financials 0.8%
State Street Corp.		324,500		13,080,595
Electrical Equipment 6.4%
Brady Corp., A		1,034,496		32,659,039
Roper Industries Inc.		843,250		73,253,127
				105,912,166
Energy 4.2%
Chevron Corp.		484,500		51,550,800
Exxon Mobil Corp.		226,500		19,198,140
				70,748,940
Food & Staples Retailing 4.6%
Wal-Mart Stores Inc.		1,279,100		76,439,016
Food, Beverage & Tobacco 4.5%
Archer-Daniels-Midland Co.		293,000		8,379,800
McCormick & Co. Inc.		897,000		45,226,740
PepsiCo Inc.		330,000		21,895,500
				75,502,040
Health Care Equipment & Services 12.3%
Becton, Dickinson and Co.		949,143		70,919,965
Hill-Rom Holdings Inc.		375,103		12,637,220
Medtronic Inc.		482,000		18,436,500

FRD-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Rising Dividends Securities Fund	Shares		Value
Common Stocks (continued)
Health Care Equipment & Services (continued)
Stryker Corp.		620,400	$	30,840,084
Teleflex Inc.		506,753		31,058,891
West Pharmaceutical Services Inc.		1,087,600		41,274,420
				205,167,080
Household & Personal Products 5.1%
Colgate-Palmolive Co.		69,000		6,374,910
The Procter & Gamble Co.		1,171,600		78,157,436
				84,532,346
Industrial Conglomerates 0.3%
Carlisle Cos. Inc.		106,261		4,707,362
Insurance 8.2%
Aflac Inc.		309,200		13,375,992
Arthur J. Gallagher & Co.		753,000		25,180,320
Chubb Corp.		45,000		3,114,900
Erie Indemnity Co., A		613,585		47,957,804
Mercury General Corp.		154,200		7,034,604
Old Republic International Corp.		2,986,594		27,685,726
RLI Corp.		160,679		11,707,072
				136,056,418
Machinery 5.5%
Donaldson Co. Inc.		253,634		17,267,403
Dover Corp.		1,096,700		63,663,435
Pentair Inc.		314,000		10,453,060
				91,383,898
Materials 12.4%
Air Products and Chemicals Inc.		537,500		45,789,625
Albemarle Corp.		380,000		19,573,800
Bemis Co. Inc.		1,041,300		31,322,304
Ecolab Inc.		66,000		3,815,460
Nucor Corp.		635,109		25,131,263
Praxair Inc.		759,260		81,164,894
				206,797,346
Pharmaceuticals, Biotechnology & Life Sciences 10.1%
Abbott Laboratories		1,469,800		82,646,854
Johnson & Johnson		601,000		39,413,580
Pfizer Inc.		2,158,100		46,701,284
				168,761,718
Retailing 2.9%
Family Dollar Stores Inc.		850,335		49,030,316
Semiconductors & Semiconductor Equipment 0.0%†
Cohu Inc.		50,300		570,905
Software & Services 4.7%
International Business Machines Corp.		426,000		78,332,880
Total Common Stocks (Cost $1,128,531,288)				1,584,006,786

FRD-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Rising Dividends Securities Fund	Shares		Value
Short Term Investments (Cost $81,469,938) 4.9%
Money Market Funds 4.9%
a,bInstitutional Fiduciary Trust Money Market Portfolio		81,469,938	$	81,469,938
Total Investments (Cost $1,210,001,226) 99.9%				1,665,476,724
Other Assets, less Liabilities 0.1%				1,235,556
Net Assets 100.0%			$	1,666,712,280

†Rounds to less than 0.1% of net assets.

^aNon-income producing.

^bSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

The accompanying notes are an integral part of these financial statements.

FRD-13

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Rising Dividends Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	1,128,531,288
Cost - Sweep Money Fund (Note 7)		81,469,938
Total cost of investments	$	1,210,001,226
Value - Unaffiliated issuers	$	1,584,006,786
Value - Sweep Money Fund (Note 7)		81,469,938
Total value of investments		1,665,476,724
Receivables:
Investment securities sold		926,168
Capital shares sold		633,200
Dividends		2,537,818
Other assets		46
Total assets		1,669,573,956
Liabilities:
Payables:
Capital shares redeemed		952,946
Affiliates		1,471,756
Reports to shareholders		380,809
Accrued expenses and other liabilities		56,165
Total liabilities		2,861,676
Net assets, at value	$	1,666,712,280
Net assets consist of:
Paid-in capital	$	1,309,337,444
Undistributed net investment income		27,653,099
Net unrealized appreciation (depreciation)		455,475,498
Accumulated net realized gain (loss)		(125,753,761	)
Net assets, at value	$	1,666,712,280

The accompanying notes are an integral part of these financial statements.

FRD-14

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Franklin Rising Dividends Securities Fund
Class 1:
Net assets, at value	$	140,297,102
Shares outstanding		7,012,203
Net asset value and maximum offering price per share	$	20.01
Class 2:
Net assets, at value	$	1,523,395,614
Shares outstanding		77,508,781
Net asset value and maximum offering price per share	$	19.65
Class 4:
Net assets, at value	$	3,019,564
Shares outstanding		152,280
Net asset value and maximum offering price per share	$	19.83

The accompanying notes are an integral part of these financial statements.

FRD-15

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Rising Dividends Securities Fund
Investment income:
Dividends	$	42,142,969
Expenses:
Management fees (Note 3a)		10,183,809
Distribution fees: (Note 3c)
Class 2		3,839,349
Class 4		6,454
Unaffiliated transfer agent fees		1,899
Custodian fees (Note 4)		23,081
Reports to shareholders		335,877
Professional fees		54,110
Trustees’ fees and expenses		6,322
Other		36,176
Total expenses		14,487,077
Net investment income		27,655,892
Realized and unrealized gains (losses):
Net realized gain (loss) from investments		120,463,536
Net change in unrealized appreciation (depreciation) on investments		(50,218,731	)
Net realized and unrealized gain (loss)		70,244,805
Net increase (decrease) in net assets resulting from operations	$	97,900,697

The accompanying notes are an integral part of these financial statements.

FRD-16

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Rising Dividends Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	27,655,892		$	25,813,336
Net realized gain (loss) from investments		120,463,536			67,941,220
Net change in unrealized appreciation (depreciation) on investments		(50,218,731	)		203,294,325
Net increase (decrease) in net assets resulting from operations		97,900,697			297,048,881
Distributions to shareholders from:
Net investment income:
Class 1		(2,458,866	)		(2,516,672	)
Class 2		(23,318,584	)		(22,710,892	)
Class 4		(30,729	)		(5,357	)
Total distributions to shareholders		(25,808,179	)		(25,232,921	)
Capital share transactions: (Note 2)
Class 1		(14,479,695	)		(15,601,529	)
Class 2		(115,088,554	)		(46,034,000	)
Class 4		1,904,859			920,381
Total capital share transactions		(127,663,390	)		(60,715,148	)
Net increase (decrease) in net assets		(55,570,872	)		211,100,812
Net assets:
Beginning of year		1,722,283,152			1,511,182,340
End of year	$	1,666,712,280		$	1,722,283,152
Undistributed net investment income included in net assets:
End of year	$	27,653,099		$	25,805,386

The accompanying notes are an integral part of these financial statements.

FRD-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Rising Dividends Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Rising Dividends Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 60.45% of the Fund’s shares were held through one insurance company. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

b. Securities Lending

The Fund participates in a principal based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in a non-registered money fund managed by the Fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the principal may default on its obligations to the fund. At December 31, 2011, the Fund had no securities on loan.

c. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

FRD-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Rising Dividends Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

c. Income Taxes (continued)

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

Distributions received by the Fund from certain securities may be a return of capital (ROC). Such distributions reduce the cost basis of the securities, and any distributions in excess of the cost basis are recognized as capital gains.

e. Accounting Estimates

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 expenses during the reporting period. Actual results could differ from those estimates.

f. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

FRD-19

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Rising Dividends Securities Fund

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		601,890		$	11,765,470			257,133		$	4,557,190
Shares issued in reinvestment of distributions		126,876			2,458,866			150,879			2,516,672
Shares redeemed		(1,473,505	)		(28,704,031	)		(1,321,083	)		(22,675,391	)
Net increase (decrease)		(744,739	)	$	(14,479,695	)		(913,071	)	$	(15,601,529	)
Class 2 Shares:
Shares sold		5,855,934		$	111,121,703			5,148,488		$	89,372,157
Shares issued in reinvestment of distributions		1,222,789			23,318,584			1,383,124			22,710,892
Shares redeemed		(13,131,700	)		(249,528,841	)		(9,446,580	)		(158,117,049	)
Net increase (decrease)		(6,052,977	)	$	(115,088,554	)		(2,914,968	)	$	(46,034,000	)
Class 4 Shares:
Shares sold		125,061		$	2,400,178			55,672		$	986,798
Shares issued on reinvestment of distributions		1,596			30,729			317			5,273
Shares redeemed		(27,259	)		(526,048	)		(4,068	)		(71,690	)
Net increase (decrease)		99,398		$	1,904,859			51,921		$	920,381

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisory Services, LLC (Advisory Services)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.750%	Up to and including $500 million
0.625%	Over $500 million, up to and including $1 billion
0.500%	In excess of $1 billion

b. Administrative Fees

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

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Rising Dividends Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2016	$	16,233,576
2017		107,931,803
	$	124,165,379

During the year ended December 31, 2011, the Fund utilized $119,865,942 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	25,808,179	$	25,232,921

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Rising Dividends Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	1,211,589,607
Unrealized appreciation	$	507,753,323
Unrealized depreciation		(53,866,206	)
Net unrealized appreciation (depreciation)	$	453,887,117
Distributable earnings – undistributed ordinary income	$	27,653,096

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $206,923,415 and $331,078,386, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

FRD-22

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Rising Dividends Securities Fund

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

At December 31, 2011, all of the Fund’s investments in securities carried at fair value were valued using Level 1 inputs. For detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

FRD-23

Franklin Templeton Variable Insurance Products Trust

Franklin Rising Dividends Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Rising Dividends Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FRD-24

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Rising Dividends Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 100% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

FRD-25

FRANKLIN SMALL CAP VALUE SECURITIES FUND

This annual report for Franklin Small Cap Value Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-3.53%		+1.08%		+7.26%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Russell 2500™ Value Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Small Cap Value 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FSV-1

Fund Goal and Main Investments: Franklin Small Cap Value Securities Fund seeks long-term total return. The Fund normally invests at least 80% of its net assets in investments of small-capitalization companies. For this Fund, small-capitalization companies are those with market capitalization values under $3.5 billion at the time of purchase. The Fund invests generally in equity securities of companies that the manager believes are undervalued and have the potential for capital appreciation.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed its benchmark, the Russell 2500^™ Value Index, which fell 3.36% for the same period.¹ Please note the Fund employs a bottom-up stock selection process, and the managers invest in securities without regard to benchmark comparisons.

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.²

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

2. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Smaller company securities can increase the risk of greater price volatility, particularly over the short term. Smaller or relatively new or unseasoned companies can also be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. The Fund may have significant investments in particular sectors from time to time, such as financial services and energy, and may be at greater risk of adverse developments in a sector than a fund that invests more broadly. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many U.S. companies generated record profits. Despite large swings, U.S. stocks as measured by the Standard & Poor’s^® 500 Index (S&P 500^®) gained 2.11% in 2011.¹ The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.¹ Notably, the U.S. was a global market leader in 2011 as the country continued to be a relative haven. During the year, sector performance varied widely. Noncyclical, income-producing sectors such as utilities, consumer staples and health care led the market, while economically sensitive sectors such as materials and industrials lagged. Financials in the S&P 500 experienced the worst sector decline, as U.S. bank stocks generally tracked their European peers. Against this backdrop, growth stocks fared better than their value counterparts; large-capitalization stocks advanced slightly as a group, with modestly negative results for most small- and mid-sized company stocks, as measured by Russell capitalization-based indexes.

Investment Strategy

We are a research-driven, fundamental investment adviser, pursuing a disciplined, value-oriented strategy for the Fund. As a bottom-up adviser concentrating primarily on individual securities, we focus on the market price of a company’s securities relative to our evaluation of the company’s potential long-term earnings, asset value or cash flow. We seek bargains among the “unloved,” out-of-favor companies that offer, in our opinion, attractive long-term potential. These might include current growth companies that are being ignored by the market, former growth companies that have stumbled recently, dropping sharply in price but that still have significant growth potential, in our opinion, or companies that may be potential turnaround candidates or takeover targets.

Manager’s Discussion

During the 12 months under review, the utilities, consumer staples and health care sectors represented in the Fund contributed to absolute performance.³ Key contributors included electric utility PNM Resources, food products manufacturer Lancaster Colony, and global contract re-

3. The consumer staples sector comprises food and staples retailing; and food, beverage and tobacco in the SOI. The health care sector comprises health care equipment and services; and pharmaceuticals, biotechnology and life sciences in the SOI.

FSV-3

search organization Pharmaceutical Product Development (PPD). In other sectors, some holdings that aided returns included specialty retailers Group 1 Automotive and The Men’s Wearhouse, as well as furniture company La-Z-Boy, plumbing manufacturer Mueller Industries, insurer RLI, offshore energy equipment provider Global Industries, and chemical sealant manufacturer RPM International.

Among sectors hindering performance were energy, information technology, industrials and financials.⁴ Key detractors from these sectors included petroleum shipping company Overseas Shipholding Group, offshore drilling company Rowan Cos., laser equipment producer Rofin-Sinar Technologies, electronics manufacturing services company Benchmark Electronics, kitchen and bath cabinet manufacturer American Woodmark, engineered industrial products provider EnPro Industries, and insurer Old Republic International. In other sectors, auto safety systems company Autoliv, women’s clothing retailer Christopher & Banks, and carbon steel products producer Steel Dynamics were notable detractors.

In addition to purchasing shares of EnPro Industries, the Fund initiated 13 other positions during the period in what we considered attractively valued securities: aviation products provider AAR, fabricator and distributor of steel and copper products Commercial Metals, industrial battery manufacturer EnerSys, video games retailer GameStop, wire manufacturer General Cable, industrial adhesive producer H.B. Fuller, medical equipment manufacturer Hill-Rom Holdings, machinery manufacturer Kaydon, branded apparel manufacturer Maidenform Brands, provider of flexible circuit materials Multi-Fineline Electronix, Puerto Rico-based bank Oriental Financial Group, water delivery and thermal systems provider Pentair, and brand marketing consultant Schawk. We also added to our positions in plastic compound supplier A. Schulman, women’s fashion retailer The Cato Corp. and The Hanover Insurance Group, among others.

During the period the Fund eliminated PPD, which was subject to an all-cash takeover offer from The Carlyle Group and Hellman & Friedman of $33.25 per share, a 29% premium over PPD’s previous day’s closing price. The Fund also exited its position in oilfield services provider Global Industries, which accepted an $8 all-cash offer from Technip. This per-share bid was a 55% increase over Global Industries’

4. The information technology sector comprises semiconductors and semiconductor equipment, and technology hardware and equipment in the SOI. The industrials sector comprises electrical equipment, industrial conglomerates, machinery and transportation in the SOI. The financials sector comprises banks and insurance in the SOI.

Top 10 Holdings

Franklin Small Cap Value Securities Fund 12/31/11

Company Sector/Industry	% of Total Net Assets
Protective Life Corp.		2.0%
Insurance
Group 1 Automotive Inc.		2.0%
Retailing
Bristow Group Inc.		1.9%
Energy
Trinity Industries Inc.		1.8%
Machinery
Thor Industries Inc.		1.8%
Automobiles & Components
Tidewater Inc.		1.7%
Energy
Reliance Steel & Aluminum Co.		1.7%
Materials
Gentex Corp.		1.5%
Automobiles & Components
Oil States International Inc.		1.5%
Energy
Rowan Cos. Inc.		1.5%
Energy

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

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prior day’s closing price. We liquidated seven other positions during the fiscal year: Bassett Furniture Industries, CNH Global, Erie Indemnity, Glatfelter, United States Steel, Warnaco Group and Westlake Chemical. We also reduced our positions in life sciences tools and services company Mettler-Toledo International, machinery company Nordson and insurer Transatlantic Holdings, among others.

Thank you for your participation in Franklin Small Cap Value Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

FSV-5

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Small Cap Value Securities Fund – Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	941.70	$	3.33
Hypothetical (5% return before expenses)	$	1,000	$	1,021.78	$	3.47

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.68%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FSV-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Small Cap Value Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.55		$	13.00		$	10.73		$	17.38		$	19.07
Income from investment operationsa:
Net investment incomeb		0.16			0.14			0.15			0.24			0.22
Net realized and unrealized gains (losses)		(0.74	)		3.54			2.86			(5.44	)		(0.44	)
Total from investment operations		(0.58	)		3.68			3.01			(5.20	)		(0.22	)
Less distributions from:
Net investment income		(0.15	)		(0.13	)		(0.22	)		(0.23	)		(0.17	)
Net realized gains		—			—			(0.52	)		(1.22	)		(1.30	)
Total distributions		(0.15	)		(0.13	)		(0.74	)		(1.45	)		(1.47	)
Net asset value, end of year	$	15.82		$	16.55		$	13.00		$	10.73		$	17.38
Total returnc		(3.53)%			28.49%			29.54%			(32.87)%			(2.14)%
Ratios to average net assets
Expenses		0.66%			0.67%			0.68%	d		0.67%	d		0.64%	d
Net investment income		1.02%			0.98%			1.29%			1.62%			1.13%
Supplemental data
Net assets, end of year (000’s)	$	39,374		$	47,300		$	42,428		$	34,901		$	57,045
Portfolio turnover rate		14.39%			15.92%			6.68%			16.98%			16.27%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSV-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Small Cap Value Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.25		$	12.77		$	10.55		$	17.10		$	18.79
Income from investment operationsa:
Net investment incomeb		0.12			0.10			0.12			0.20			0.17
Net realized and unrealized gains (losses)		(0.73	)		3.48			2.81			(5.35	)		(0.43	)
Total from investment operations		(0.61	)		3.58			2.93			(5.15	)		(0.26	)
Less distributions from:
Net investment income		(0.11	)		(0.10	)		(0.19	)		(0.18	)		(0.13	)
Net realized gains		—			—			(0.52	)		(1.22	)		(1.30	)
Total distributions		(0.11	)		(0.10	)		(0.71	)		(1.40	)		(1.43	)
Net asset value, end of year	$	15.53		$	16.25		$	12.77		$	10.55		$	17.10
Total returnc		(3.76)%			28.22%			29.16%			(33.02)%			(2.38)%
Ratios to average net assets
Expenses		0.91%			0.92%			0.93%	d		0.92%	d		0.89%	d
Net investment income		0.77%			0.73%			1.04%			1.37%			0.88%
Supplemental data
Net assets, end of year (000’s)	$	1,211,168		$	1,362,292		$	1,109,855		$	784,773		$	1,177,367
Portfolio turnover rate		14.39%			15.92%			6.68%			16.98%			16.27%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSV-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Small Cap Value Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.44		$	12.92		$	10.70		$	16.42
Income from investment operationsb:
Net investment incomec		0.11			0.09			0.11			0.15
Net realized and unrealized gains (losses)		(0.75	)		3.53			2.84			(4.42	)
Total from investment operations		(0.64	)		3.62			2.95			(4.27	)
Less distributions from:
Net investment income		(0.09	)		(0.10	)		(0.21	)		(0.23	)
Net realized gains		—			—			(0.52	)		(1.22	)
Total distributions		(0.09	)		(0.10	)		(0.73	)		(1.45	)
Net asset value, end of year	$	15.71		$	16.44		$	12.92		$	10.70
Total returnd		(3.87)%			28.14%			29.04%			(29.14)%
Ratios to average net assetse
Expenses		1.01%			1.02%			1.03%	f		1.02%	f
Net investment income		0.67%			0.63%			0.94%			1.27%
Supplemental data
Net assets, end of year (000’s)	$	34,284		$	39,075		$	28,599		$	14,850
Portfolio turnover rate		14.39%			15.92%			6.68%			16.98%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dTotal return does not include 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.

^eRatios are annualized for periods less than one year.

^fBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSV-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Small Cap Value Securities Fund	Shares		Value
Common Stocks 96.6%
Aerospace & Defense 1.7%
AAR Corp.		599,600	$	11,494,332
aCeradyne Inc.		397,500		10,645,050
				22,139,382
Automobiles & Components 5.4%
Autoliv Inc.		326,800		17,480,532
aDrew Industries Inc.		251,400		6,166,842
Gentex Corp.		662,500		19,603,375
Thor Industries Inc.		820,000		22,492,600
aWinnebago Industries Inc.		423,100		3,122,478
				68,865,827
Banks 2.1%
Chemical Financial Corp.		360,854		7,693,407
Oriental Financial Group Inc.		602,000		7,290,220
Peoples Bancorp Inc.		158,000		2,339,980
TrustCo Bank Corp. NY		1,771,878		9,940,236
				27,263,843
Building Products 5.1%
A.O. Smith Corp.		126,700		5,083,204
American Woodmark Corp.		431,300		5,891,558
Apogee Enterprises Inc.		778,100		9,539,506
aGibraltar Industries Inc.		900,100		12,565,396
Simpson Manufacturing Co. Inc.		433,400		14,588,244
Universal Forest Products Inc.		566,000		17,472,420
				65,140,328
Commercial & Professional Services 2.8%
ABM Industries Inc.		636,100		13,116,382
Insperity Inc.		296,100		7,506,135
Mine Safety Appliances Co.		328,300		10,873,296
Schawk Inc.		401,900		4,505,299
				36,001,112
Construction & Engineering 2.0%
EMCOR Group Inc.		272,700		7,311,087
Granite Construction Inc.		747,000		17,718,840
				25,029,927
Consumer Durables & Apparel 3.6%
Brunswick Corp.		500,000		9,030,000
D.R. Horton Inc.		448,900		5,660,629
Ethan Allen Interiors Inc.		159,000		3,769,890
Hooker Furniture Corp.		510,700		5,857,729
aLa-Z-Boy Inc.		1,089,000		12,959,100
M.D.C. Holdings Inc.		213,800		3,769,294
aM/I Homes Inc.		435,900		4,184,640
aMaidenform Brands Inc.		20,600		376,980
				45,608,262
Consumer Services 2.2%
Hillenbrand Inc.		539,000		12,030,480
Regis Corp.		992,000		16,417,600
				28,448,080

FSV-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Small Cap Value Securities Fund	Shares			Value
Common Stocks (continued)
Electrical Equipment 3.7%
Brady Corp., A		453,000		$	14,301,210
aEnerSys		24,100			625,877
Franklin Electric Co. Inc.		199,232			8,678,546
aGeneral Cable Corp.		103,500			2,588,535
aPowell Industries Inc.		220,500			6,897,240
Roper Industries Inc.		170,000			14,767,900
					47,859,308
Energy 12.3%
Arch Coal Inc.		111,500			1,617,865
aAtwood Oceanics Inc.		405,400			16,130,866
Bristow Group Inc.		503,800			23,875,082
CONSOL Energy Inc.		68,500			2,513,950
Energen Corp.		219,000			10,950,000
aHelix Energy Solutions Group Inc.		819,500			12,948,100
aOil States International Inc.		255,200			19,489,624
bOverseas Shipholding Group Inc.		371,000			4,055,030
Peabody Energy Corp.		103,200			3,416,952
aRowan Cos. Inc.		638,100			19,353,573
Teekay Corp. (Canada)		226,831			6,063,193
Tidewater Inc.		443,700			21,874,410
aUnit Corp.		333,900			15,492,960
					157,781,605
Food & Staples Retailing 0.3%
Casey’s General Stores Inc.		73,000			3,760,230
Food, Beverage & Tobacco 1.1%			��
Lancaster Colony Corp.		201,500			13,972,010
Health Care Equipment & Services 2.7%
Hill-Rom Holdings Inc.		113,300			3,817,077
STERIS Corp.		382,500			11,406,150
Teleflex Inc.		227,900			13,967,991
West Pharmaceutical Services Inc.		157,500			5,977,125
					35,168,343
Industrial Conglomerates 1.2%
Carlisle Cos. Inc.		353,400			15,655,620
Insurance 11.1%
American National Insurance Co.		3,600			262,908
Arthur J. Gallagher & Co.		168,200			5,624,608
Aspen Insurance Holdings Ltd.		550,100			14,577,650
The Hanover Insurance Group Inc.		372,200			13,008,390
HCC Insurance Holdings Inc.		188,200			5,175,500
Montpelier Re Holdings Ltd.		649,000			11,519,750
Old Republic International Corp.		1,401,500			12,991,905
Protective Life Corp.		1,135,000			25,605,600
RLI Corp.		66,200			4,823,332
StanCorp Financial Group Inc.		401,000			14,736,750
Tower Group Inc.		712,400			14,369,108
Transatlantic Holdings Inc.		129,000			7,060,170
Validus Holdings Ltd. (Bermuda)		422,700			13,315,050
					143,070,721

FSV-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Small Cap Value Securities Fund	Shares		Value
Common Stocks (continued)
Machinery 14.5%
aAstec Industries Inc.		330,200	$	10,635,742
Briggs & Stratton Corp.		588,900		9,122,061
CIRCOR International Inc.		122,102		4,311,422
aEnPro Industries Inc.		402,000		13,257,960
Gardner Denver Inc.		238,800		18,401,928
Graco Inc.		214,900		8,787,261
Kaydon Corp.		399,000		12,169,500
Kennametal Inc.		397,300		14,509,396
Lincoln Electric Holdings Inc.		419,000		16,391,280
Mueller Industries Inc.		409,000		15,713,780
Nordson Corp.		209,800		8,639,564
Pentair Inc.		214,800		7,150,692
Timken Co.		90,000		3,483,900
Trinity Industries Inc.		764,400		22,977,864
aWabash National Corp.		1,473,000		11,548,320
Watts Water Technologies Inc., A		257,200		8,798,812
				185,899,482
Materials 7.5%
A. Schulman Inc.		459,000		9,721,620
AptarGroup Inc.		140,000		7,303,800
Cabot Corp.		324,100		10,416,574
Commercial Metals Co.		389,000		5,379,870
H.B. Fuller Co.		202,100		4,670,531
Reliance Steel & Aluminum Co.		436,000		21,228,840
RPM International Inc.		753,600		18,500,880
Sensient Technologies Corp.		195,300		7,401,870
Steel Dynamics Inc.		937,100		12,322,865
				96,946,850
Pharmaceuticals, Biotechnology & Life Sciences 0.3%
aMettler-Toledo International Inc.		23,500		3,471,185
Retailing 9.3%
Brown Shoe Co. Inc.		982,000		8,739,800
The Cato Corp., A		460,000		11,132,000
Christopher & Banks Corp.		1,183,304		2,768,931
Fred’s Inc.		510,000		7,435,800
aGameStop Corp., A		690,000		16,649,700
Group 1 Automotive Inc.		485,900		25,169,620
J.C. Penney Co. Inc.		273,000		9,595,950
The Men’s Wearhouse Inc.		526,317		17,057,934
aPier 1 Imports Inc.		581,000		8,093,330
aSaks Inc.		532,548		5,192,343
aTuesday Morning Corp.		122,800		423,660
aWest Marine Inc.		610,700		7,102,441
				119,361,509
Semiconductors & Semiconductor Equipment 0.7%
Cohu Inc.		826,500		9,380,775
Technology Hardware & Equipment 2.8%
aBenchmark Electronics Inc.		1,271,000		17,120,370
aMulti-Fineline Electronix Inc.		274,100		5,632,755
aRofin-Sinar Technologies Inc.		593,800		13,568,330
				36,321,455

FSV-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Small Cap Value Securities Fund	Shares		Value
Common Stocks (continued)
Trading Companies & Distributors 0.5%
Applied Industrial Technologies Inc.		178,700	$	6,284,879
Transportation 2.2%
aGenesee & Wyoming Inc.		260,300		15,768,974
SkyWest Inc.		990,000		12,464,100
				28,233,074
Utilities 1.5%
NV Energy Inc.		903,500		14,772,225
PNM Resources Inc.		253,100		4,614,013
				19,386,238
Total Common Stocks (Cost $1,029,072,428)				1,241,050,045
	Principal Amount
Corporate Bonds (Cost $1,486,165) 0.1%
Machinery 0.1%
Mueller Industries Inc., 6.00%, 11/01/14	$	1,494,000		1,494,000
Total Investments before Short Term Investments (Cost $1,030,558,593)				1,242,544,045
	Shares
Short Term Investments 3.8%
Money Market Funds (Cost $44,766,735) 3.5%
a,cInstitutional Fiduciary Trust Money Market Portfolio		44,766,735		44,766,735
	Principal Amount
dInvestments from Cash Collateral Received for Loaned Securities 0.3%
eRepurchase Agreements 0.3%
BNP Paribas Securities Corp., 0.04%, 1/03/12 (Maturity Value $991,220) Collateralized by fU.S. Government Agency Discount Notes, 1/31/12 - 4/16/12; U.S. Government Agency Securities, 0.00% - 10.35%, 1/04/12 - 8/06/38; and U.S. Government Agency Strips, zero cpn., 5/15/22 (valued at $1,011,041)	$	991,216		991,216
Deutsche Bank Securities Inc., 0.05%, 1/03/12 (Maturity Value $991,222) Collateralized by fU.S. Government Agency Discount Notes, 1/20/12 - 11/08/12; and U.S. Government Agency Securities, 1.125% - 4.00%, 5/18/12 - 11/14/31 (valued at $1,011,042)		991,216		991,216
HSBC Securities (USA) Inc., 0.02%, 1/03/12 (Maturity Value $900,002) Collateralized by U.S. Government Agency Strips, zero cpn., 10/15/12 - 4/15/30 (valued at $918,012)		900,000		900,000
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.02%, 1/03/12 (Maturity Value $900,002) Collateralized by U.S. Treasury Notes, 1.875% - 4.00%, 2/15/15 - 6/30/15 (valued at $918,001)		900,000		900,000
RBC Capital Markets, LLC, 0.01%, 1/03/12 (Maturity Value $391,110) Collateralized by U.S. Government Agency Strips, zero cpn., 8/15/12 - 2/15/39; U.S. Treasury Bonds, 1.75% - 4.25%, 1/15/25 - 11/15/40; and U.S. Treasury Notes, 0.125% - 1.25%, 4/15/16 - 7/15/21 (valued at $398,932)		391,110		391,110
Total Repurchase Agreement (Cost $4,173,542)				4,173,542
Total Investments (Cost $1,079,498,870) 100.5%				1,291,484,322
Other Assets, less Liabilities (0.5)%				(6,658,111	)
Net Assets 100.0%			$	1,284,826,211

^aNon-income producing.

^bA portion or all of the security is on loan at December 31, 2011. See Note 1(c).

^cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

^dSee Note 1(c) regarding securities on loan.

^eSee Note 1(b) regarding repurchase agreements.

^fThe security is traded on a discount basis with no stated coupon rate.

The accompanying notes are an integral part of these financial statements.

FSV-14

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Small Cap Value Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	1,030,558,593
Cost - Sweep Money Fund (Note 7)		44,766,735
Cost - Repurchase agreements		4,173,542
Total cost of investments	$	1,079,498,870
Value - Unaffiliated issuers	$	1,242,544,045
Value - Sweep Money Fund (Note 7)		44,766,735
Value - Repurchase agreements		4,173,542
Total value of investments (includes securities loaned in the amount of $4,054,658)		1,291,484,322
Receivables:
Investment securities sold		301,567
Capital shares sold		731,127
Dividends and interest		1,174,623
Other assets		38
Total assets		1,293,691,677
Liabilities:
Payables:
Investment securities purchased	��	361,079
Capital shares redeemed		2,733,406
Affiliates		1,200,982
Payable upon return of securities loaned		4,173,542
Accrued expenses and other liabilities		396,457
Total liabilities		8,865,466
Net assets, at value	$	1,284,826,211
Net assets consist of:
Paid-in capital	$	1,081,272,857
Undistributed net investment income		10,429,999
Net unrealized appreciation (depreciation)		211,985,452
Accumulated net realized gain (loss)		(18,862,097	)
Net assets, at value	$	1,284,826,211

The accompanying notes are an integral part of these financial statements.

FSV-15

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Franklin Small Cap Value Securities Fund
Class 1:
Net assets, at value	$	39,374,050
Shares outstanding		2,488,264
Net asset value and maximum offering price per share	$	15.82
Class 2:
Net assets, at value	$	1,211,168,286
Shares outstanding		77,994,232
Net asset value and maximum offering price per share	$	15.53
Class 4:
Net assets, at value	$	34,283,875
Shares outstanding		2,182,099
Net asset value and maximum offering price per share	$	15.71

The accompanying notes are an integral part of these financial statements.

FSV-16

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Small Cap Value Securities Fund
Investment income:
Dividends	$	22,243,531
Interest		92,071
Income from securities loaned		293,121
Total investment income		22,628,723
Expenses:
Management fees (Note 3a)		6,768,569
Administrative fees (Note 3b)		1,577,484
Distribution fees: (Note 3c)
Class 2		3,176,062
Class 4		121,538
Unaffiliated transfer agent fees		6,246
Custodian fees (Note 4)		18,459
Reports to shareholders		447,878
Professional fees		47,916
Trustees’ fees and expenses		5,120
Other		34,613
Total expenses		12,203,885
Net investment income		10,424,838
Realized and unrealized gains (losses):
Net realized gain (loss) from investments		79,690,343
Net change in unrealized appreciation (depreciation) on investments		(139,845,262	)
Net realized and unrealized gain (loss)		(60,154,919	)
Net increase (decrease) in net assets resulting from operations	$	(49,730,081	)

The accompanying notes are an integral part of these financial statements.

FSV-17

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Small Cap Value Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	10,424,838		$	9,370,933
Net realized gain (loss) from investments		79,690,343			(9,121,196	)
Net change in unrealized appreciation (depreciation) on investments		(139,845,262	)		315,120,022
Net increase (decrease) in net assets resulting from operations		(49,730,081	)		315,369,759
Distributions to shareholders from:
Net investment income:
Class 1		(392,860	)		(391,013	)
Class 2		(8,773,166	)		(9,354,014	)
Class 4		(201,936	)		(225,374	)
Total distributions to shareholders		(9,367,962	)		(9,970,401	)
Capital share transactions: (Note 2)
Class 1		(5,885,116	)		(5,400,815	)
Class 2		(95,600,673	)		(34,566,603	)
Class 4		(3,256,590	)		2,352,541
Total capital share transactions		(104,742,379	)		(37,614,877	)
Net increase (decrease) in net assets		(163,840,422	)		267,784,481
Net assets:
Beginning of year		1,448,666,633			1,180,882,152
End of year	$	1,284,826,211		$	1,448,666,633
Undistributed net investment income included in net assets:
End of year	$	10,429,999		$	9,373,123

The accompanying notes are an integral part of these financial statements.

FSV-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Small Cap Value Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Small Cap Value Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers three classes of shares: Class 1, Class 2 and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

b. Repurchase Agreements

The Fund enters 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 Fund, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. All repurchase agreements held by the Fund at year end had been entered into on December 30, 2011.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small Cap Value Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

c. Securities Lending

The Fund participates in a principal based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is invested in repurchase agreements managed by the Fund’s custodian on the Fund’s behalf. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the principal may default on its obligations to the Fund.

d. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. 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 expenses during the reporting period. Actual results could differ from those estimates.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small Cap Value Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		385,043		$	6,445,781			487,990		$	7,004,812
Shares issued in reinvestment of distributions		24,646			392,860			28,110			391,013
Shares redeemed		(778,610	)		(12,723,757	)		(923,527	)		(12,796,640	)
Net increase (decrease)		(368,921	)	$	(5,885,116	)		(407,427	)	$	(5,400,815	)
Class 2 Shares:
Shares sold		12,352,861		$	192,000,345			16,505,195		$	234,092,954
Shares issued in reinvestment of distributions		559,870			8,773,166			684,273			9,354,014
Shares redeemed		(18,752,469	)		(296,374,184	)		(20,285,779	)		(278,013,571	)
Net increase (decrease)		(5,839,738	)	$	(95,600,673	)		(3,096,311	)	$	(34,566,603	)
Class 4 Shares:
Shares sold		385,949		$	6,104,316			706,330		$	9,842,641
Shares issued on reinvestment of distributions		12,732			201,936			16,284			225,374
Shares redeemed		(593,170	)		(9,562,842	)		(558,980	)		(7,715,474	)
Net increase (decrease)		(194,489	)	$	(3,256,590	)		163,634		$	2,352,541

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisory Services, LLC (Advisory Services)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small Cap Value Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.600%	Up to and including $200 million
0.500%	Over $200 million, up to and including $1.3 billion
0.400%	In excess of $1.3 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:

Annualized Fee Rate	Net Assets
0.150%	Up to and including $200 million
0.135%	Over $200 million, up to and including $700 million
0.100%	Over $700 million, up to and including $1.2 billion
0.075%	In excess of $1.2 billion

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, the Fund had capital loss carryforwards of $18,771,926 expiring in 2018. During the year ended December 31, 2011, the Fund utilized $79,676,612 of capital loss carryforwards.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small Cap Value Securities Fund

5. INCOME TAXES (continued)

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	9,367,962	$	9,970,401

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	1,079,574,466
Unrealized appreciation	$	340,204,720
Unrealized depreciation		(128,294,864	)
Net unrealized appreciation (depreciation)	$	211,909,856
Distributable earnings – undistributed ordinary income	$	10,415,425

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $190,022,010 and $271,242,069, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small Cap Value Securities Fund

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities
Equity Investmentsa	$	1,241,050,045	$	—	$	—	$	1,241,050,045
Corporate Bonds		—		1,494,000		—		1,494,000
Short Term Investments		44,766,735		4,173,542		—		48,940,277
Total Investments in Securities	$	1,285,816,780	$	5,667,542	$	—	$	1,291,484,322

^aFor detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

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Franklin Templeton Variable Insurance Products Trust

Franklin Small Cap Value Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Small Cap Value Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Small Cap Value Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 100% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

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FRANKLIN SMALL-MID CAP GROWTH SECURITIES FUND

This annual report for Franklin Small-Mid Cap Growth Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-4.59%		+2.47%		+3.58%

Total Return Index Comparison

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

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®) and the Russell Midcap^® Growth Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Small-Mid Cap

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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goal and Main Investments: Franklin Small-Mid Cap Growth Securities Fund seeks long-term capital growth. The Fund normally invests at least 80% of its net assets in investments of small-capitalization (small cap) and mid-capitalization (midcap) companies. For this Fund, small cap companies are those within the market capitalization range of companies in the Russell 2500^™ Index at the time of purchase, and midcap companies are companies within the market capitalization range of companies in the Russell Midcap^® Index at the time of purchase.¹

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed its narrow benchmark, the Russell Midcap^® Growth Index, which had a total return of -1.65%, and its broad benchmark, the S&P 500, which posted a +2.11% total return, for the same period.²

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. U.S. gross domestic product (GDP) growth advanced each quarter, and the nation’s unemployment rate fell from 9.4% to 8.5%.³

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. The U.S. Federal Reserve Board (Fed) cut the country’s growth forecast partly due to the heightened potential for recession in Europe and cooling GDP trends across much of Asia. Inflation rose for much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt in an effort to support economic growth.

1. Please see Index Descriptions following the Fund Summaries.

2. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

3. Source: Bureau of Labor Statistics.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. Smaller or relatively new or unseasoned companies can also be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. The Fund may have significant investments in particular sectors from time to time, such as technology, which has been among the most volatile sectors in the market and involves special risks. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many U.S. companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 gained 2.11% in 2011.² The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.² Notably, the U.S. was a global market leader in 2011 as the country continued to be a relative haven. During the year, sector performance varied widely. Noncyclical, income-producing sectors such as utilities, consumer staples and health care led the market, while economically sensitive sectors such as materials and industrials lagged. Financials in the S&P 500 experienced the worst sector decline, as U.S. bank stocks generally tracked their European peers. Against this backdrop, growth stocks fared better than their value counterparts; large-capitalization stocks advanced slightly as a group, with modestly negative results for most small- and mid-sized company stocks, as measured by Russell capitalization-based indexes.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteria of growth potential, quality and valuation. In seeking sustainable growth characteristics, we look for companies we believe can produce sustainable earnings and cash flow growth, evaluating the long-term market opportunity and competitive structure of an industry to target leaders and emerging leaders. We define quality companies as those with strong and improving competitive positions in attractive markets. We also believe important attributes of quality are experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

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Manager’s Discussion

During the year under review, stock selection in the health care sector was a major detractor from the Fund’s performance relative to the benchmark Russell Midcap^® Growth Index. Our position in underperforming hospital operator Community Health Systems and underweighted position in outperforming surgical systems designer and manufacturer Intuitive Surgical hurt relative returns.⁴ Key individual detractors included coal producer Alpha Natural Resources⁴ in the energy sector, machinery products and equipment manufacturer Terex^{4, 5} in the industrials sector, and asset management and financial advisory firm Lazard in the financials sector.

Stock selection in the information technology sector was a key contributor to the Fund’s relative performance. Our positions in voice and language solutions provider Nuance Communications and semiconductor company NetLogic Microsystems^{4, 5} boosted relative results. Other individual contributors included oil and gas company SM Energy in the energy sector, beverages company Hansen Natural in the consumer staples sector, and restaurant operator and franchisor Buffalo Wild Wings⁵ in the consumer discretionary sector.

Thank you for your participation in Franklin Small-Mid Cap Growth Securities Fund. We look forward to serving your future investment needs.

4. No longer held by period-end.

5. This holding is not an index component.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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 Small-Mid Cap Growth Securities Fund

12/31/11

Company Sector/Industry	% of Total Net Assets
Nuance Communications Inc.		2.3%
Information Technology
Celanese Corp., A		2.1%
Materials
Rockwell Automation Inc.		2.0%
Industrials
AMETEK Inc.		1.9%
Industrials
Whiting Petroleum Corp.		1.8%
Energy
QEP Resources Inc.		1.7%
Energy
Trimble Navigation Ltd.		1.6%
Information Technology
Gardner Denver Inc.		1.6%
Industrials
SM Energy Co.		1.6%
Energy
BorgWarner Inc.		1.5%
Consumer Discretionary

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

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Small-Mid Cap

Growth Securities Fund

Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	884.40	$	3.85
Hypothetical (5% return before expenses)	$	1,000	$	1,021.12	$	4.13

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.81%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FSC-6

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Small-Mid Cap Growth Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	22.21		$	17.36		$	12.06		$	23.39		$	22.51
Income from investment operationsa:
Net investment income (loss)b		(0.05	)		(0.01	)		(0.10	)c		0.01			(0.02	)
Net realized and unrealized gains (losses)		(0.97	)		4.86			5.40			(8.98	)		2.65
Total from investment operations		(1.02	)		4.85			5.30			(8.97	)		2.63
Less distributions from net realized gains		—			—			—			(2.36	)		(1.75	)
Net asset value, end of year	$	21.19		$	22.21		$	17.36		$	12.06		$	23.39
Total returnd		(4.59)%			27.94%			43.95%			(42.34)%			11.51%
Ratios to average net assets
Expenses		0.79%			0.79%			0.80%	e		0.76%	e		0.74%	e
Net investment income (loss)		(0.21)%			(0.07)%			(0.72)%	c		0.06%			(0.10)%
Supplemental data
Net assets, end of year (000’s)	$	76,384		$	89,826		$	79,670		$	63,531		$	127,602
Portfolio turnover rate		45.00%			46.69%			63.93%			60.12%			66.94%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.06) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been (0.22)%.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSC-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Small-Mid Cap Growth Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	21.54		$	16.87		$	11.75		$	22.91		$	22.13
Income from investment operationsa:
Net investment income (loss)b		(0.10	)		(0.06	)		(0.13	)c		(0.03	)		(0.08	)
Net realized and unrealized gains (losses)		(0.95	)		4.73			5.25			(8.77	)		2.61
Total from investment operations		(1.05	)		4.67			5.12			(8.80	)		2.53
Less distributions from net realized gains		—			—			—			(2.36	)		(1.75	)
Net asset value, end of year	$	20.49		$	21.54		$	16.87		$	11.75		$	22.91
Total returnd		(4.87)%			27.68%			43.57%			(42.49)%			11.24%
Ratios to average net assets
Expenses		1.04%			1.04%			1.05%	e		1.01%	e		0.99%	e
Net investment income (loss)		(0.46)%			(0.32)%			(0.97)%	c		(0.19)%			(0.35)%
Supplemental data
Net assets, end of year (000’s)	$	717,086		$	939,481		$	813,480		$	614,053		$	1,217,177
Portfolio turnover rate		45.00%			46.69%			63.93%			60.12%			66.94%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.06) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been (0.47)%.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSC-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Small-Mid Cap Growth Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	21.98		$	17.24		$	12.02		$	20.60
Income from investment operationsb:
Net investment income (loss)c		(0.12	)		(0.07	)		(0.15	)d		0.02
Net realized and unrealized gains (losses)		(0.96	)		4.81			5.37			(6.24	)
Total from investment operations		(1.08	)		4.74			5.22			(6.22	)
Less distributions from net realized gains		—			—			—			(2.36	)
Net asset value, end of year	$	20.90		$	21.98		$	17.24		$	12.02
Total returne		(4.91)%			27.49%			43.43%			(34.74)%
Ratios to average net assetsf
Expenses		1.14%			1.14%			1.15%	g		1.11%	g
Net investment income (loss)		(0.56)%			(0.42)%			(1.07)%	d		(0.29)%
Supplemental data
Net assets, end of year (000’s)	$	12,664		$	15,413		$	11,029		$	3,538
Portfolio turnover rate		45.00%			46.69%			63.93%			60.12%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dNet investment income per share includes approximately $(0.06) per share as a return of capital adjustment to a previously recorded special dividend received by the Fund. Excluding this non-recurring amount, the ratio of net investment income to average net assets would have been (0.57)%.

^eTotal return does not include 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSC-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Small-Mid Cap Growth Securities Fund	Shares		Value
Common Stocks 98.5%
Consumer Discretionary 20.8%
Abercrombie & Fitch Co., A		125,000	$	6,105,000
a,bBlue Nile Inc.		73,500		3,004,680
aBorgWarner Inc.		192,000		12,238,080
aBuffalo Wild Wings Inc.		139,300		9,404,143
aChipotle Mexican Grill Inc.		23,000		7,768,020
Dick’s Sporting Goods Inc.		259,300		9,562,984
aDiscovery Communications Inc., A		142,700		5,846,419
aDiscovery Communications Inc., C		62,400		2,352,480
aDollar General Corp.		250,000		10,285,000
Guess? Inc.		240,100		7,159,782
aIconix Brand Group Inc.		168,100		2,738,349
International Game Technology		360,200		6,195,440
Jarden Corp.		312,200		9,328,536
Nordstrom Inc.		85,000		4,225,350
aPeet’s Coffee & Tea Inc.		132,000		8,273,760
Ralph Lauren Corp.		55,000		7,594,400
Starwood Hotels & Resorts Worldwide Inc.		96,100		4,609,917
aTenneco Inc.		201,600		6,003,648
Tractor Supply Co.		124,000		8,698,600
aUlta Salon Cosmetics & Fragrance Inc.		75,000		4,869,000
aUnder Armour Inc., A		96,100		6,899,019
aUrban Outfitters Inc.		297,700		8,204,612
Wolverine World Wide Inc.		300,000		10,692,000
Wynn Resorts Ltd.		48,000		5,303,520
				167,362,739
Consumer Staples 4.7%
aBoston Beer Inc., A		70,000		7,599,200
aHansen Natural Corp.		90,000		8,292,600
Mead Johnson Nutrition Co., A.		110,400		7,587,792
aTreeHouse Foods Inc.		129,600		8,473,248
Whole Foods Market Inc.		90,000		6,262,200
				38,215,040
Energy 8.5%
aCameron International Corp.		153,700		7,560,503
aFMC Technologies Inc.		120,000		6,267,600
aOil States International Inc.		72,000		5,498,640
QEP Resources Inc.		475,000		13,917,500
SM Energy Co.		176,500		12,902,150
aSuperior Energy Services Inc.		268,389		7,632,983
aWhiting Petroleum Corp.		310,000		14,473,900
				68,253,276
Financials 3.6%
aAffiliated Managers Group Inc.		96,100		9,220,795
Hancock Holding Co.		156,000		4,987,320
aIntercontinentalExchange Inc.		42,800		5,159,540
Lazard Ltd., A		81,823		2,136,399
aSignature Bank		125,000		7,498,750
				29,002,804
Health Care 12.9%
aAgilent Technologies Inc.		150,000		5,239,500

FSC-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Small-Mid Cap Growth Securities Fund	Shares		Value
Common Stocks (continued)
Health Care (continued)
aAlexion Pharmaceuticals Inc.		60,000	$	4,290,000
aAllscripts Healthcare Solutions Inc.		275,600		5,219,864
aArQule Inc.		383,800		2,164,632
C. R. Bard Inc.		55,000		4,702,500
aCareFusion Corp.		240,000		6,098,400
aCerner Corp.		144,000		8,820,000
aCoventry Health Care Inc.		162,400		4,932,088
aDaVita Inc.		111,700		8,467,977
aDexCom Inc.		175,000		1,629,250
aEdwards Lifesciences Corp.		70,000		4,949,000
aHeartWare International Inc.		36,500		2,518,500
aHologic Inc.		250,000		4,377,500
aHuman Genome Sciences Inc.		216,100		1,596,979
aIllumina Inc.		65,000		1,981,200
aInterMune Inc.		225,000		2,835,000
aMettler-Toledo International Inc.		80,000		11,816,800
aStereotaxis Inc.		631,400		520,021
aThoratec Corp.		72,000		2,416,320
aVarian Medical Systems Inc.		115,000		7,719,950
aWaters Corp.		130,000		9,626,500
aWatson Pharmaceuticals Inc.		37,100		2,238,614
				104,160,595
Industrials 14.8%
aAllegiant Travel Co.		86,500		4,613,910
AMETEK Inc.		360,200		15,164,420
Cummins Inc.		115,300		10,148,706
Expeditors International of Washington Inc.		84,900		3,477,504
Fastenal Co.		192,000		8,373,120
Fluor Corp.		90,300		4,537,575
Gardner Denver Inc.		168,100		12,953,786
aHexcel Corp.		115,000		2,784,150
J.B. Hunt Transport Services Inc.		124,300		5,602,201
Joy Global Inc.		80,000		5,997,600
aKansas City Southern		72,000		4,896,720
Pall Corp.		52,500		3,000,375
Robert Half International Inc.		192,000		5,464,320
Rockwell Automation Inc.		220,000		16,141,400
Roper Industries Inc.		72,000		6,254,640
aSensata Technologies Holding NV		362,900		9,537,012
				118,947,439
Information Technology 26.8%
aAcme Packet Inc.		100,000		3,091,000
aAlliance Data Systems Corp.		59,400		6,168,096
aANSYS Inc.		165,000		9,451,200
aAruba Networks Inc.		240,100		4,446,652
Avago Technologies Ltd. (Singapore)		216,100		6,236,646
aBottomline Technologies Inc.		145,000		3,359,650
aCheck Point Software Technologies Ltd. (Israel)		75,000		3,940,500
aCommVault Systems Inc.		110,000		4,699,200
aF5 Networks Inc.		100,000		10,612,000
FactSet Research Systems Inc.		110,000		9,600,800
aFortinet Inc.		275,000		5,997,750

FSC-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Small-Mid Cap Growth Securities Fund	Shares		Value
Common Stocks (continued)
Information Technology (continued)
aFreescale Semiconductor Holdings I Ltd.		317,047	$	4,010,644
Global Payments Inc.		120,000		5,685,600
a,bHigher One Holdings Inc.		228,634		4,216,011
aHittite Microwave Corp.		165,800		8,187,204
aInformatica Corp.		150,000		5,539,500
aLam Research Corp.		100,800		3,731,616
aNetApp Inc.		140,000		5,077,800
aNuance Communications Inc.		734,800		18,487,568
aNXP Semiconductors NV (Netherlands)		480,300		7,382,211
aPolycom Inc.		400,000		6,520,000
aRed Hat Inc.		264,200		10,908,818
aShoretel Inc.		288,100		1,838,078
aSilicon Laboratories Inc.		222,700		9,669,634
aSMART Technologies Inc., A (Canada)		480,400		1,772,676
aTaleo Corp., A		120,000		4,642,800
aTeradata Corp.		110,000		5,336,100
aTrimble Navigation Ltd.		300,000		13,020,000
aVeriFone Systems Inc.		135,000		4,795,200
aViaSat Inc.		163,300		7,531,396
Western Union Co.		399,018		7,286,069
Xilinx Inc.		264,200		8,470,252
aZynga Inc.		507,300		4,773,693
				216,486,364
Materials 4.7%
Celanese Corp., A		384,200		17,008,534
CF Industries Holdings Inc.		45,000		6,524,100
Ecolab Inc.		105,700		6,110,517
The Scotts Miracle-Gro Co., A		100,000		4,669,000
The Sherwin-Williams Co.		40,000		3,570,800
				37,882,951
Telecommunication Services 1.0%
aSBA Communications Corp.		192,000		8,248,320
Utilities 0.7%
aCalpine Corp.		336,200		5,490,146
Total Common Stocks (Cost $617,390,948)				794,049,674
Short Term Investments 2.8%
Money Market Funds (Cost $17,966,000) 2.2%
a,cInstitutional Fiduciary Trust Money Market Portfolio		17,966,000		17,966,000
dInvestments from Cash Collateral Received for Loaned Securities (Cost $4,309,600) 0.6%
Money Market Funds 0.6%
eBNY Mellon Overnight Government Fund, 0.039%		4,309,600		4,309,600
Total Investments (Cost $639,666,548) 101.3%				816,325,274
Other Assets, less Liabilities (1.3)%				(10,190,926	)
Net Assets 100.0%			$	806,134,348

^aNon-income producing.

^bA portion or all of the security is on loan at December 31, 2011. See Note 1(c).

^cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

^dSee Note 1(c) regarding securities on loan.

^eThe rate shown is the annualized seven-day yield at period end.

The accompanying notes are an integral part of these financial statements.

FSC-12

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

		Franklin Small-Mid Cap Growth Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers		$	621,700,548
Cost - Sweep Money Fund (Note 7)			17,966,000
Total cost of investments	��	$	639,666,548
Value - Unaffiliated issuers		$	798,359,274
Value - Sweep Money Fund (Note 7)			17,966,000
Total value of investments (includes securities loaned in the amount of $4,250,280)			816,325,274
Receivables:
Investment securities sold			192,549
Capital shares sold			150,562
Dividends and interest			237,704
Other assets			104,533
Total assets			817,010,622
Liabilities:
Payables:
Investment securities purchased			2,387,429
Capital shares redeemed			2,947,368
Affiliates			834,906
Payable upon return of securities loaned			4,309,600
Accrued expenses and other liabilities			396,971
Total liabilities			10,876,274
Net assets, at value		$	806,134,348
Net assets consist of:
Paid-in capital		$	573,077,039
Net unrealized appreciation (depreciation)			176,658,726
Accumulated net realized gain (loss)			56,398,583
Net assets, at value		$	806,134,348

The accompanying notes are an integral part of these financial statements.

FSC-13

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Franklin Small-Mid Cap Growth Securities Fund
Class 1:
Net assets, at value	$	76,384,111
Shares outstanding		3,604,080
Net asset value and maximum offering price per share	$	21.19
Class 2:
Net assets, at value	$	717,086,390
Shares outstanding		34,990,521
Net asset value and maximum offering price per share	$	20.49
Class 4:
Net assets, at value	$	12,663,847
Shares outstanding		606,062
Net asset value and maximum offering price per share	$	20.90

The accompanying notes are an integral part of these financial statements.

FSC-14

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Small-Mid Cap Growth Securities Fund
Investment income:
Dividends	$	5,069,403
Income from securities loaned		502,338
Total investment income		5,571,741
Expenses:
Management fees (Note 3a)		4,743,790
Administrative fees (Note 3b)		2,391,708
Distribution fees: (Note 3c)
Class 2		2,137,962
Class 4		55,063
Unaffiliated transfer agent fees		3,579
Custodian fees (Note 4)		18,632
Reports to shareholders		324,675
Professional fees		44,340
Trustees’ fees and expenses		3,726
Other		29,576
Total expenses		9,753,051
Net investment income (loss)		(4,181,310	)
Realized and unrealized gains (losses):
Net realized gain (loss) from investments		95,464,105
Net change in unrealized appreciation (depreciation) on investments		(133,141,452	)
Net realized and unrealized gain (loss)		(37,677,347	)
Net increase (decrease) in net assets resulting from operations	$	(41,858,657	)

The accompanying notes are an integral part of these financial statements.

FSC-15

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Small-Mid Cap Growth Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(4,181,310	)	$	(2,680,101	)
Net realized gain (loss) from investments		95,464,105			110,745,622
Net change in unrealized appreciation (depreciation) on investments		(133,141,452	)		119,428,953
Net increase (decrease) in net assets resulting from operations		(41,858,657	)		227,494,474
Capital share transactions: (Note 2)
Class 1		(9,862,944	)		(10,074,842	)
Class 2		(184,782,471	)		(78,124,046	)
Class 4		(2,082,119	)		1,246,003
Total capital share transactions		(196,727,534	)		(86,952,885	)
Net increase (decrease) in net assets		(238,586,191	)		140,541,589
Net assets (there is no undistributed net investment income at beginning or end of year):
Beginning of year		1,044,720,539			904,178,950
End of year	$	806,134,348		$	1,044,720,539

The accompanying notes are an integral part of these financial statements.

FSC-16

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Small-Mid Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Small-Mid Cap Growth Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds and non-registered money market funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

FSC-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Lending

The Fund participates in an agency based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in a non-registered money fund managed by the fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the fund. The securities lending agent has agreed to indemnify the fund in the event of default by a third party borrower.

d. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date except

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Security Transactions, Investment Income, Expenses and Distributions (continued)

that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. 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 expenses during the reporting period. Actual results could differ from those estimates.

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		213,179		$	4,851,501			293,329		$	5,660,759
Shares redeemed		(652,643	)		(14,714,445	)		(838,792	)		(15,735,601	)
Net increase (decrease)		(439,464	)	$	(9,862,944	)		(545,463	)	$	(10,074,842	)
Class 2 Shares:
Shares sold		3,213,965		$	70,946,756			4,961,508		$	92,319,522
Shares redeemed		(11,848,847	)		(255,729,227	)		(9,551,006	)		(170,443,568	)
Net increase (decrease)		(8,634,882	)	$	(184,782,471	)		(4,589,498	)	$	(78,124,046	)

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

2. SHARES OF BENEFICIAL INTEREST (continued)

	Year Ended December 31,
	2011						2010
	Shares			Amount			Shares			Amount
Class 4 Shares:
Shares sold		311,193		$	7,039,340			320,420		$	6,087,006
Shares redeemed		(406,340	)		(9,121,459	)		(258,807	)		(4,841,003	)
Net increase (decrease)		(95,147	)	$	(2,082,119	)		61,613		$	1,246,003

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.550%	Up to and including $500 million
0.450%	Over $500 million, up to and including $1 billion
0.400%	Over $1 billion, up to and including $1.5 billion
0.350%	Over $1.5 billion, up to and including $6.5 billion
0.325%	Over $6.5 billion, up to and including $11.5 billion
0.300%	Over $11.5 billion, up to and including $16.5 billion
0.290%	Over $16.5 billion, up to and including $19 billion
0.280%	Over $19 billion, up to and including $21.5 billion
0.270%	In excess of $21.5 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.25% per year of the average daily net assets of the Fund.

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years. During the year ended December 31, 2011, the Fund utilized $38,181,161 of capital loss carryforwards.

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments	$	642,000,572
Unrealized appreciation	$	215,091,056
Unrealized depreciation	$	(40,766,354	)
Net unrealized appreciation (depreciation)	$	174,324,702
Distributable earnings-undistributed long term capital gains	$	58,581,083

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $421,291,348 and $589,508,692, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, “Borrowers”), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

8. CREDIT FACILITY (continued)

Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Securitiesa	$	794,049,674	$	—	$	—	$	794,049,674
Short Term Investments		17,966,000		4,309,600		—		22,275,600
Total Investments in Securities	$	812,015,674	$	4,309,600	$	—	$	816,325,274

^aFor detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund

10. NEW ACCOUNTING PRONOUNCEMENTS (continued)

disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

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Franklin Templeton Variable Insurance Products Trust

Franklin Small-Mid Cap Growth Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Small-Mid Growth Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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FRANKLIN STRATEGIC INCOME SECURITIES FUND

This annual report for Franklin Strategic Income Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+2.78%		+6.37%		+7.66%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Barclays Capital (BC) U.S. Aggregate Index and the Lipper Multi-Sector Income Funds Classification Average. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

**Source: Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin Strategic Income 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goals and Main Investments: Franklin Strategic Income Securities Fund seeks a high level of current income, with capital appreciation over the long term as a secondary goal. The Fund normally invests primarily to predominantly in U.S. and foreign debt securities, including those in emerging markets.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed the +7.84% total return of its benchmark, the BC U.S. Aggregate Index.¹ The Fund underperformed the +2.89% total return of its peers, as measured by the Lipper Multi-Sector Income Funds Classification Average.²

Economic and Market Overview

During the 12 months under review, Federal Reserve Board (Fed) policymakers maintained historically low interest rates while adopting a more restrained view of the economy largely because of the European sovereign debt crisis and signs the U.S. economic expansion lacked momentum. To promote a stronger recovery and help maintain inflation levels the Fed believed consistent with its dual mandate to foster maximum employment and price stability, the Fed undertook a second round of quantitative easing consisting of a $600 billion purchase of longer term U.S. Treasuries, which ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth. In September, the Fed announced plans designed to boost the economy by driving down long-term interest rates. The Fed intends to sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. The Fed also anticipated it would keep short-term rates near zero through mid-2013.

The economy grew more slowly than expected, and unemployment remained high. Home foreclosures increased, but federal lawmakers made efforts to strengthen the real estate market by removing some eligibility restrictions and charges associated with refinancing. After showing improvement early in the reporting period, manufacturing activity weakened partly because of global supply-chain disruptions following Japan’s natural disasters. Geopolitical instability in some oil-producing regions drove up oil prices for much of the period.

1. Source: © 2012 Morningstar.

2. Lipper Inc.

One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Because the Fund invests in bonds and other debt obligations, its share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. High yield, lower rated (junk) bonds generally have greater price swings and higher default risks than investment-grade bonds. Bank loans and loan participations involve credit, interest rate and illiquidity risks. Foreign investing, especially in developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Mortgage- and asset-backed securities are subject to prepayment and extension risks. The value of convertible securities may rise and fall with the market value of the underlying stock or, like a debt security, vary with changes in interest rates and the credit quality of the issuer. The Fund may also use certain derivative instruments, which may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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However, investor concerns over weak economic data contributed to a drop in crude oil prices from their 12-month high of $114 per barrel on April 29 to $99 at period-end. Storms and droughts in several states reduced crop yields, pushing up grain prices. As oil and food prices rose, the pace of inflation accelerated during the period. By year-end, various U.S. economic gauges began to show some improvement, leading some economists to express more optimism near year-end about the economy’s prospects.

Outside the U.S., emerging markets led the global recovery while many developed economies had below trend growth rates. Where recoveries were strong, monetary authorities tightened policy, but G-3 (U.S., eurozone and Japan) policymakers sought to maintain historically accommodative monetary policy. Separately, concerns about the solvency of highly indebted eurozone governments resurfaced as policymakers struggled to develop a coordinated plan to address the significant fiscal challenges. As the sovereign debt crisis in Europe played out, investor risk aversion rose and contributed to depreciation of most currencies against those of the largest developed economies. The U.S. dollar, historically seen as a safe-haven asset, appreciated as a result of this trend.

During the 12 months under review, U.S. fixed income markets, as measured by the BC U.S. Aggregate Index, and the global government bond market, as measured by the JPMorgan Global Government Bond Index, posted moderate gains. Overall for the period, however, investors sought the perceived safety of U.S. Treasuries, which performed better than most other fixed income asset classes.

Investment Strategy

We allocate our investments among the various types of debt available based on our assessment of changing economic, global market, industry and issuer conditions. We use a top-down analysis of macroeconomic trends, combined with a bottom-up fundamental analysis of market sectors, industries and issuers, seeking to take advantage of varying sector reactions to economic events. For example, we may evaluate business cycles, yield curves, country risk, and the relative interest rates among currencies, and values between and within markets. In selecting debt securities, we generally conduct our own analysis of the security’s intrinsic value rather than simply relying on the coupon rate or rating. We may also enter into various transactions involving certain currency-, interest rate- or credit-related derivative instruments for hedging purposes, to enhance returns or to obtain exposure to various market sectors.

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Manager’s Discussion

During the 12 months under review, developments surrounding the eurozone debt crisis as well as the U.S. debt ceiling debate and the subsequent sovereign ratings downgrade drove financial markets. Although the markets reached what we believe was their “peak of pessimism” toward the end of the third quarter and experienced a moderate rebound during the fourth quarter, overall risk assets experienced pressure during 2011. For equity markets, the Standard & Poor’s^® 500 Index was relatively flat in 2011, delivering a 2.11% total return.¹ On the other hand, the safe-haven perception of U.S. Treasuries led to lower long-term rates in certain developed markets (the U.S., Germany, Japan and Canada), with the 10-year U.S. Treasury yield falling from 3.30% at the beginning of the year to 1.89% by year-end. Consequently, across global fixed income markets the non-government bond sectors tended to underperform, given their greater sensitivity to this perceived elevation of financial market risk compared to government-issued bonds. Similarly, currencies in many emerging and, to a lesser extent, developed markets weakened relative to the U.S. dollar.

The Fund posted a slightly positive total return in this environment, though lagging the performance of the benchmark BC U.S. Aggregate Index and the Lipper Multi-Sector Income Funds Classification Average. The Fund’s underweighting in longer duration, U.S. interest rate-sensitive fixed income sectors (Treasuries and agency bonds) weighed on performance compared to the BC U.S. Aggregate Index. Compared to the Lipper Average, the Fund’s higher exposure to below-investment-grade sectors and non-dollar denominated holdings constrained returns.

The notable decline in longer-term U.S. Treasury yields drove healthy returns for the more interest-rate sensitive sectors of the U.S. fixed income market, with the longest maturity bonds generally delivering the highest total returns. Given their shorter effective maturities and potential prepayment risk, agency mortgage-backed securities underperformed longer-dated Treasuries but still posted positive total returns for the year. Although we believe the slack in the U.S. economy is likely to keep inflationary pressures subdued, we did not find compelling value in fixed income U.S. government securities at recent yield levels. Consequently, we maintained a relatively low weighting in these sectors while favoring agency mortgages’ higher current yield relative to Treasuries. Given what we perceived as an increase in risk aversion during the period, the commercial mortgage-backed securities (CMBS) sector

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Portfolio Breakdown

Franklin Strategic Income Securities Fund

Based on Total Net Assets

	12/31/11		12/31/10
High Yield Corporate Bonds & Preferred Securities		30.8%		29.6%
International Government & Agency Bonds (non-$US)		25.0%		21.9%
Floating Rate Bank Loans		16.1%		15.7%
Investment Grade Corporate Bonds & Preferred Securities		5.0%		7.1%
Mortgage-Backed Securities		5.0%		6.9%
Municipal Bonds		3.5%		5.8%
International Government & Agency Bonds ($US)		3.1%		3.2%
Commercial Mortgage-Backed Securities		2.4%		3.6%
U.S. Treasury Securities		1.5%		1.3%
Asset-Backed Securities		1.0%		1.9%
Common Stocks		0.5%		0.2%
Convertible Securities		0.2%		0.0%	*
Short-Term Investments & Other Net Assets**		5.9%		2.8%

*Rounds to less than 0.1% of total net assets.

**Includes unrealized gains/losses on forward currency contracts. Does not include short-term foreign government securities.

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

experienced downward pricing pressure but rebounded by year-end. Commercial real estate fundamentals remained weak in our view, although asset valuations supported recoveries for many CMBS securities. The municipal bond sector experienced a healthy bounce-back during the period, as investors realized the municipal bond default rate would fall well below the bearish levels expressed in previous headlines. In addition, the longer duration of many of the Fund’s municipal bond holdings allowed these securities to benefit given the decline in long-term interest rates. The Fund built up its municipal bond position early in 2011, but we began reducing exposure to the sector in the latter part of the period following strong performance.

Corporate credit fundamentals remained supportive in 2011, with companies generally reporting year-over-year earnings gains, albeit with a slowdown in growth rates anticipated for the fourth quarter. Investment-grade, non-financial balance sheets generally remained in solid condition, in our view, with high liquidity levels and relatively low interest burdens, while below-investment-grade default rates remained near cycle lows. With headline news keeping market volatility high in our view, many senior management teams kept fairly defensive

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postures toward spending, supporting our outlook for credit fundamentals. However, eurozone crisis concerns combined with U.S. deficit issues led corporate credit sectors overall to underperform Treasuries. Volatile stock markets along with worry of impaired access to debt capital markets contributed to widening yield spreads across the investment-grade, high yield and floating rate bank loan sectors. The Fund sought to take advantage of this volatility and increased high yield exposure, as valuations materially fell in the late summer despite a still supportive fundamental backdrop. Our exposure to bank loans and high yield corporate bonds included some positions in derivative instruments.

Similarly, the flight to quality across financial markets led many non-dollar currencies, particularly in certain developing markets, to depreciate relative to the U.S. dollar in 2011. This weakness detracted from performance of the Fund’s holdings in foreign currency government bonds and other non-dollar denominated securities. In particular, the Fund’s non-dollar denominated holdings in Poland, Brazil, Mexico and Hungary experienced currency weakness, as did Fund bond holdings in India and other parts of Asia. The Fund’s short position in the Japanese yen also weighed on performance, given the yen’s perceived safe-haven status at times during the period. However, we believe the relatively stronger economic outlook for the countries and currencies of Fund holdings should support longer term performance for those currencies relative to the U.S. dollar, euro and yen. Conversely, we maintained only a modest weighting in U.S. dollar-denominated emerging market sovereign bonds, as we believe valuations remained somewhat rich relative to longer term averages.

Thank you for your participation in Franklin Strategic Income Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Strategic Income Securities Fund – Class 1

FSI-7

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	985.10	$	3.10
Hypothetical (5% return before expenses)	$	1,000	$	1,022.08	$	3.16

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.62%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FSI-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Strategic Income Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	12.99		$	12.28		$	10.58		$	12.78		$	12.73
Income from investment operationsa:
Net investment incomeb		0.69			0.72			0.70			0.69			0.73
Net realized and unrealized gains (losses)		(0.32	)		0.61			1.95			(1.99	)		0.04
Total from investment operations		0.37			1.33			2.65			(1.30	)		0.77
Less distributions from:
Net investment income and net foreign currency gains		(0.81	)		(0.62	)		(0.95	)		(0.87	)		(0.68	)
Net realized gains		—			—			—			(0.03	)		(0.04	)
Total distributions		(0.81	)		(0.62	)		(0.95	)		(0.90	)		(0.72	)
Net asset value, end of year	$	12.55		$	12.99		$	12.28		$	10.58		$	12.78
Total returnc		2.78%			11.21%			26.11%			(11.03)%			6.20%
Ratios to average net assets
Expensesd		0.60%			0.59%			0.58%			0.61%			0.62%
Net investment income		5.36%			5.71%			6.13%			5.83%			5.72%
Supplemental data
Net assets, end of year (000’s)	$	1,043,690		$	1,195,149		$	1,173,313		$	903,358		$	1,086,850
Portfolio turnover rate		55.65%			56.46%			56.19%			47.68%			46.88%
Portfolio turnover rate excluding mortgage dollar rollse		55.65%			56.46%			56.19%			47.68%			46.43%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

^eSee Note 1(f) regarding mortgage dollar rolls.

The accompanying notes are an integral part of these financial statements.

FSI-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Strategic Income Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	12.72		$	12.05		$	10.41		$	12.60		$	12.56
Income from investment operationsa:
Net investment incomeb		0.64			0.68			0.66			0.65			0.69
Net realized and unrealized gains (losses)		(0.30	)		0.59			1.91			(1.96	)		0.05
Total from investment operations		0.34			1.27			2.57			(1.31	)		0.74
Less distributions from:
Net investment income and net foreign currency gains		(0.79	)		(0.60	)		(0.93	)		(0.85	)		(0.66	)
Net realized gains		—			—			—			(0.03	)		(0.04	)
Total distributions		(0.79	)		(0.60	)		(0.93	)		(0.88	)		(0.70	)
Net asset value, end of year	$	12.27		$	12.72		$	12.05		$	10.41		$	12.60
Total returnc		2.57%			10.91%			25.75%			(11.24)%			5.91%
Ratios to average net assets
Expensesd		0.85%			0.84%			0.83%			0.86%			0.87%
Net investment income		5.11%			5.46%			5.88%			5.58%			5.47%
Supplemental data
Net assets, end of year (000’s)	$	123,749		$	101,347		$	68,240		$	33,155		$	24,613
Portfolio turnover rate		55.65%			56.46%			56.19%			47.68%			46.88%
Portfolio turnover rate excluding mortgage dollar rollse		55.65%			56.46%			56.19%			47.68%			46.43%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

^eSee Note 1(f) regarding mortgage dollar rolls.

The accompanying notes are an integral part of these financial statements.

FSI-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Strategic Income Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	12.88		$	12.20		$	10.54		$	12.84
Income from investment operationsb:
Net investment incomec		0.64			0.67			0.66			0.53
Net realized and unrealized gains (losses)		(0.31	)		0.60			1.94			(1.93	)
Total from investment operations		0.33			1.27			2.60			(1.40	)
Less distributions from:
Net investment income and net foreign currency gains		(0.77	)		(0.59	)		(0.94	)		(0.87	)
Net realized gains		—			—			—			(0.03	)
Total distributions		(0.77	)		(0.59	)		(0.94	)		(0.90	)
Net asset value, end of year	$	12.44		$	12.88		$	12.20		$	10.54
Total returnd		2.46%			10.88%			25.52%			(11.69)%
Ratios to average net assetse
Expensesf		0.95%			0.94%			0.93%			0.96%
Net investment income		5.01%			5.36%			5.78%			5.48%
Supplemental data
Net assets, end of year (000’s)	$	188,786		$	188,178		$	162,074		$	59,766
Portfolio turnover rate		55.65%			56.46%			56.19%			47.68%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dTotal return does not include 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.

^eRatios are annualized for periods less than one year.

^fBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

FSI-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Strategic Income Securities Fund	Country	Shares		Value
Common Stocks 0.5%
Consumer Durables & Apparel 0.0%†
a,b,cComfort Co. Inc.	United States		13,427	$	343,060
Consumer Services 0.1%
a,d,eTurtle Bay Resort	United States		1,901,449		1,948,985
Media 0.4%
a,dDex One Corp.	United States		40,000		66,400
aMGM Holdings Inc., A	United States		240,995		5,040,820
					5,107,220
Total Common Stocks (Cost $10,679,525)					7,399,265
Preferred Stocks (Cost $865,000) 0.1%
Diversified Financials 0.1%
GMAC Capital Trust I, 8.125%, pfd.	United States		34,600		669,164
		Principal Amount*
Convertible Bonds 0.2%
Materials 0.2%
fCemex SAB de CV, cvt., sub. note, 144A,
3.25%, 3/15/16	Mexico		2,000,000		1,312,500
3.75%, 3/15/18	Mexico		2,000,000		1,307,500
Total Convertible Bonds (Cost $3,994,611)					2,620,000
Corporate Bonds 36.2%
Automobiles & Components 1.1%
Exide Technologies, senior secured note, 8.625%, 2/01/18	United States		1,200,000		930,000
Ford Motor Credit Co. LLC, senior note,
7.00%, 4/15/15	United States		2,000,000		2,155,000
6.625%, 8/15/17	United States		1,000,000		1,090,098
5.00%, 5/15/18	United States		1,000,000		1,004,822
8.125%, 1/15/20	United States		1,200,000		1,416,553
5.75%, 2/01/21	United States		1,000,000		1,044,263
5.875%, 8/02/21	United States		1,000,000		1,043,735
The Goodyear Tire & Rubber Co., senior note, 8.25%, 8/15/20	United States		3,500,000		3,832,500
fTRW Automotive Inc., senior note, 144A, 7.25%, 3/15/17	United States		2,500,000		2,687,500
					15,204,471
Banks 1.0%
fBanco do Brasil SA, sub. note, 144A, 5.875%, 1/26/22	Brazil		3,000,000		3,024,435
HSBC USA Inc., sub. note, 5.00%, 9/27/20	United States		4,000,000		3,785,268
Regions Bank, sub. note, 7.50%, 5/15/18	United States		1,000,000		997,500
Regions Financial Corp., senior note,
7.75%, 11/10/14	United States		2,500,000		2,537,500
5.75%, 6/15/15	United States		300,000		289,500
UBS AG Stamford, senior note, 5.875%, 12/20/17	United States		2,400,000		2,502,276
					13,136,479
Capital Goods 1.4%
fAbengoa Finance SAU, senior note, 144A, 8.875%, 11/01/17	Spain		4,000,000		3,840,000
The Manitowoc Co. Inc., senior note,
9.50%, 2/15/18	United States		2,500,000		2,675,000
8.50%, 11/01/20	United States		1,500,000		1,588,125

FSI-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Capital Goods (continued)
Meritor Inc., senior note, 10.625%, 3/15/18	United States		3,000,000		$	2,835,000
RBS Global & Rexnord Corp., senior note, 8.50%, 5/01/18	United States		3,500,000			3,727,500
United Rentals North America Inc., senior sub. note, 8.375%, 9/15/20	United States		4,000,000			3,920,000
						18,585,625
Consumer Durables & Apparel 1.0%
Jarden Corp., senior sub. note, 7.50%,
5/01/17	United States		2,500,000			2,662,500
1/15/20	United States		500,000			535,000
KB Home, senior note, 6.25%, 6/15/15	United States		2,400,000			2,220,000
M/I Homes Inc., senior note, 8.625%, 11/15/18	United States		2,500,000			2,225,000
fShea Homes LP/Funding Corp., senior secured note, 144A, 8.625%, 5/15/19	United States		2,000,000			1,875,000
Visant Corp., senior note, 10.00%, 10/01/17	United States		4,000,000			3,680,000
						13,197,500
Consumer Services 2.1%
fCityCenter Holdings/Finance, senior secured note, 144A, 7.625%, 1/15/16	United States		300,000			309,000
CKE Restaurants Inc., senior secured note, 11.375%, 7/15/18	United States		2,000,000			2,190,000
ClubCorp Club Operations Inc., senior note, 10.00%, 12/01/18	United States		2,900,000			2,798,500
f,gFontainebleau Las Vegas, 144A, 11.00%, 6/15/15	United States		2,500,000			1,563
fGala Group Finance Ltd, senior secured bond, 144A, 8.875%, 9/01/18	United Kingdom		2,500,000	GBP		2,834,778
Harrah’s Operating Co. Inc., senior secured note, 11.25%, 6/01/17	United States		5,500,000			5,864,375
MGM Resorts International, senior note, 6.625%, 7/15/15	United States		4,500,000			4,297,500
Pinnacle Entertainment Inc.,
senior note, 8.625%, 8/01/17	United States		1,500,000			1,593,750
senior sub. note, 7.50%, 6/15/15	United States		1,000,000			995,000
Royal Caribbean Cruises Ltd., senior deb., 7.25%, 3/15/18	United States		2,100,000			2,210,250
fShingle Springs Tribal Gaming Authority, senior note, 144A, 9.375%, 6/15/15	United States		2,000,000			1,140,000
Starwood Hotels & Resorts Worldwide Inc., senior note,
6.75%, 5/15/18	United States		2,000,000			2,270,000
7.15%, 12/01/19	United States		500,000			574,375
Universal City Development,
senior note, 8.875%, 11/15/15	United States		1,286,000			1,430,675
senior sub. note, 10.875%, 11/15/16	United States		284,000			345,060
						28,854,826
Diversified Financials 4.2%
Ally Financial Inc., senior note, 7.50%, 9/15/20	United States		2,500,000			2,534,375
Bank of America Corp.,
hpfd., sub. bond, M, 8.125% to 5/15/18, FRN thereafter, Perpetual	United States		5,000,000			4,493,750
senior note, 5.65%, 5/01/18	United States		1,500,000			1,430,619
Capital One Capital VI, pfd., junior sub. bond, 8.875%, 5/15/40	United States		3,000,000			3,124,398
fCIT Group Inc.,
secured bond, 144A, 7.00%, 5/02/17	United States		5,500,000			5,500,000
secured note, 144A, 6.625%, 4/01/18	United States		500,000			520,000
Citigroup Inc., senior note, 6.125%, 11/21/17	United States		1,500,000			1,603,221
senior note, 5.375%, 8/09/20	United States		500,000			514,841
sub. note, 5.00%, 9/15/14	United States		3,000,000			2,971,344
General Electric Capital Corp.,
senior note, A, 8.50%, 4/06/18	United States		64,000,000	MXN		4,405,845
sub. note, 5.30%, 2/11/21	United States		1,800,000			1,926,905

FSI-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*		Value
Corporate Bonds (continued)
Diversified Financials (continued)
GMAC Inc.,
senior note, 6.875%, 8/28/12	United States		2,000,000	$	2,030,000
sub. note, 8.00%, 12/31/18	United States		900,000		888,750
International Lease Finance Corp.,
senior note, 8.25%, 12/15/20	United States		1,400,000		1,417,500
fsenior secured note, 144A, 6.75%, 9/01/16	United States		4,000,000		4,120,000
JPMorgan Chase & Co.,
6.00%, 1/15/18	United States		1,500,000		1,675,228
senior note, 4.25%, 10/15/20	United States		1,000,000		1,008,489
JPMorgan Chase Capital XXII, sub. bond, 6.45%, 2/02/37	United States		3,000,000		3,030,000
fKKR Group Finance Co., senior note, 144A, 6.375%, 9/29/20	United States		3,000,000		3,084,927
Merrill Lynch & Co. Inc., senior note, 6.40%, 8/28/17	United States		2,500,000		2,424,140
Moody’s Corp., senior note, 5.50%, 9/01/20	United States		2,600,000		2,689,716
Morgan Stanley, senior note,
6.00%, 4/28/15	United States		3,000,000		3,007,899
5.50%, 7/24/20	United States		1,000,000		910,434
5.50%, 7/28/21	United States		800,000		740,778
TransUnion LLC/TransUnion FICO, senior note, 11.375%, 6/15/18	United States		1,000,000		1,147,500
					57,200,659
Energy 6.4%
Alpha Natural Resources Inc., senior note,
6.00%, 6/01/19	United States		1,200,000		1,170,000
6.25%, 6/01/21	United States		1,500,000		1,462,500
Antero Resources Finance Corp., senior note,
9.375%, 12/01/17	United States		2,500,000		2,712,500
f144A, 7.25%, 8/01/19	United States		300,000		309,000
fArch Coal Inc., senior note, 144A,
7.00%, 6/15/19	United States		800,000		820,000
7.25%, 6/15/21	United States		2,000,000		2,065,000
fAtlas Pipeline Partners LP/Finance Corp., senior note, 144A, 8.75%, 6/15/18	United States		1,800,000		1,890,000
Berry Petroleum Co., senior note, 6.75%, 11/01/20	United States		2,000,000		2,030,000
Chaparral Energy Inc., senior note,
9.875%, 10/01/20	United States		2,000,000		2,170,000
8.25%, 9/01/21	United States		1,000,000		1,017,500
fCHC Helicopter SA, senior secured note, 144A, 9.25%, 10/15/20	Canada		4,000,000		3,620,000
Chesapeake Energy Corp., senior note,
7.25%, 12/15/18	United States		300,000		333,000
6.625%, 8/15/20	United States		3,500,000		3,771,250
6.125%, 2/15/21	United States		1,500,000		1,548,750
Compagnie Generale de Geophysique-Veritas, senior note,
9.50%, 5/15/16	France		100,000		108,500
7.75%, 5/15/17	France		2,100,000		2,136,750
6.50%, 6/01/21	France		2,000,000		1,950,000
CONSOL Energy Inc., senior note,
8.00%, 4/01/17	United States		1,500,000		1,650,000
8.25%, 4/01/20	United States		800,000		888,000
f144A, 6.375%, 3/01/21	United States		200,000		203,000
Crosstex Energy LP/Crosstex Energy Finance Corp., senior note, 8.875%, 2/15/18	United States		3,500,000		3,841,250
El Paso Corp.,
senior bond, 6.50%, 9/15/20	United States		2,300,000		2,496,953
senior note, 7.00%, 6/15/17	United States		1,000,000		1,100,402

FSI-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Energy (continued)
Energy Transfer Equity LP, senior note, 7.50%, 10/15/20	United States		4,000,000		$	4,390,000
Energy XXI Gulf Coast Inc., senior note, 9.25%, 12/15/17	United States		3,500,000			3,815,000
iEnterprise Products Operating LLC, junior sub. note, FRN, 7.034%, 1/15/68	United States		2,000,000			2,082,544
fExpro Finance Luxembourg, senior secured note, 144A, 8.50%, 12/15/16	United Kingdom		4,000,000			3,540,000
fGaz Capital SA, senior note, 144A, 5.092%, 11/29/15	Russia		3,000,000			3,043,575
fKinder Morgan Finance Co. LLC, senior secured note, 144A, 6.00%, 1/15/18	United States		3,500,000			3,578,750
Linn Energy LLC/Finance Corp., senior note,
8.625%, 4/15/20	United States		3,000,000			3,270,000
7.75%, 2/01/21	United States		1,000,000			1,045,000
Martin Midstream Partners LP, senior note, 8.875%, 4/01/18	United States		1,500,000			1,552,500
Offshore Group Investment Ltd., senior secured note, 11.50%, 8/01/15	United States		2,100,000			2,281,125
Peabody Energy Corp., senior note,
6.50%, 9/15/20	United States		2,500,000			2,637,500
f144A, 6.00%, 11/15/18	United States		700,000			717,500
Petrohawk Energy Corp., senior note,
10.50%, 8/01/14	United States		1,500,000			1,676,250
7.25%, 8/15/18	United States		600,000			678,000
6.25%, 6/01/19	United States		500,000			552,500
fPetroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14	Switzerland		2,100,000			1,144,500
Plains Exploration & Production Co., senior note, 7.625%, 6/01/18	United States		3,200,000			3,408,000
Quicksilver Resources Inc., senior note,
8.25%, 8/01/15	United States		3,000,000			3,120,000
9.125%, 8/15/19	United States		300,000			319,500
SandRidge Energy Inc., senior note,
8.75%, 1/15/20	United States		500,000			518,750
f144A, 8.00%, 6/01/18	United States		3,000,000			3,045,000
fW&T Offshore Inc., senior note, 144A, 8.50%, 6/15/19	United States		1,500,000			1,560,000
						87,270,349
Food & Staples Retailing 0.3%
Rite Aid Corp., senior secured note,
9.75%, 6/12/16	United States		2,000,000			2,200,000
8.00%, 8/15/20	United States		1,500,000			1,665,000
						3,865,000
Food, Beverage & Tobacco 1.6%
fBoparan Holdings Ltd., senior note, 144A, 9.75%, 4/30/18	United Kingdom		2,500,000	EUR		2,629,047
fCampofrio Food Group SA, senior note, 144A, 8.25%, 10/31/16	Spain		3,000,000	EUR		3,846,226
fCEDC Finance Corp. International Inc., senior secured note, 144A, 9.125%, 12/01/16	Poland		1,800,000			1,282,500
Dean Foods Co., senior note, 9.75%, 12/15/18	United States		3,400,000			3,638,000
Del Monte Corp., senior note, 7.625%, 2/15/19	United States		4,000,000			3,860,000
JBS USA LLC/Finance Inc., senior note, 11.625%, 5/01/14	United States		1,500,000			1,704,375
Pinnacle Foods Finance LLC, senior note, 9.25%, 4/01/15	United States		2,500,000			2,578,125
fRefresco Group BV, senior secured sub. bond, 144A, 7.375%, 5/15/18	Netherlands		2,000,000	EUR		2,459,170
						21,997,443
Health Care Equipment & Services 1.5%
Amerigroup Corp., senior note, 7.50%, 11/15/19	United States		2,000,000			2,070,000
Boston Scientific Corp., senior note, 6.00%, 1/15/20	United States		2,500,000			2,794,450
Community Health Systems Inc., senior note, 8.875%, 7/15/15	United States		2,289,000			2,369,115
DaVita Inc., senior note, 6.375%, 11/01/18	United States		1,000,000			1,026,250
Emergency Medical Services Corp., senior note, 8.125%, 6/01/19	United States		2,500,000			2,506,250
fFresenius US Finance II, senior note, 144A, 9.00%, 7/15/15	Germany		700,000			788,375

FSI-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Health Care Equipment & Services (continued)
HCA Inc.,
senior note, 6.50%, 2/15/16	United States		800,000		$	816,000
senior note, 7.50%, 2/15/22	United States		2,000,000			2,050,000
senior secured bond, 7.25%, 9/15/20	United States		300,000			318,000
fHealth Management Associates Inc., senior note, 144A, 7.375%, 1/15/20	United States		500,000			521,250
jUnited Surgical Partners International Inc., senior sub. note, PIK, 9.25%, 5/01/17	United States		3,000,000			3,030,000
Vanguard Health Holding Co. II LLC/Inc., senior note, 8.00%, 2/01/18	United States		2,500,000			2,493,750
Vanguard Health Systems Inc., senior note, zero cpn., 2/01/16	United States		30,000			18,900
						20,802,340
Insurance 0.1%
iMetLife Inc., junior sub. note, FRN, 6.40%, 12/15/66	United States		2,000,000			1,899,546
Materials 3.3%
ArcelorMittal, senior note, 5.50%, 3/01/21	Luxembourg		4,000,000			3,686,540
Atkore International Inc., senior secured note, 9.875%, 1/01/18	United States		1,000,000			962,500
fCemex SAB de CV, senior secured note, 144A, 9.00%, 1/11/18	Mexico		3,000,000			2,412,495
fEuramax International Inc., senior secured note, 144A, 9.50%, 4/01/16	United States		2,500,000			1,962,500
fFMG Resources August 2006 Pty. Ltd., senior note, 144A,
7.00%, 11/01/15	Australia		1,200,000			1,193,250
6.875%, 2/01/18	Australia		3,000,000			2,887,500
Huntsman International LLC, senior sub. note, 8.625%, 3/15/21	United States		2,600,000			2,769,000
fIneos Finance PLC, senior secured note, 144A,
9.00%, 5/15/15	United Kingdom		500,000			510,000
9.25%, 5/15/15	United Kingdom		100,000	EUR		128,136
fIneos Group Holdings Ltd.,
senior note, 144A, 7.875%, 2/15/16	United Kingdom		900,000	EUR		867,828
senior secured note, 144A, 8.50%, 2/15/16	United Kingdom		2,600,000			2,080,000
fKerling PLC, senior secured note, 144A, 10.625%, 1/28/17	United Kingdom		3,000,000	EUR		3,449,316
fKinove German Bondco GmbH, senior secured bond, 144A, 10.00%, 6/15/18	Germany		2,500,000	EUR		2,895,996
fMacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17	United States		3,000,000			3,000,000
gNewPage Corp., senior secured note, 11.375%, 12/31/14	United States		3,500,000			2,408,438
Novelis Inc., senior note,
8.375%, 12/15/17	Canada		1,500,000			1,601,250
8.75%, 12/15/20	Canada		1,600,000			1,724,000
fReynolds Group Issuer Inc./LLC/SA,
senior note, 144A, 9.00%, 5/15/18	United States		4,000,000			3,850,000
senior note, 144A, 9.875%, 8/15/19	United States		100,000			97,500
senior note, 144A, 8.25%, 2/15/21	United States		500,000			445,000
senior secured note, 144A, 7.125%, 4/15/19	United States		1,000,000			1,022,500
fSealed Air Corp., senior note, 144A,
8.125%, 9/15/19	United States		1,000,000			1,100,000
8.375%, 9/15/21	United States		500,000			555,000
Solo Cup Co., senior sub. note, 8.50%, 2/15/14	United States		1,500,000			1,387,500
fXstrata Canada Financial Corp., senior note, 144A, 4.95%, 11/15/21	Canada		2,000,000			2,046,426
						45,042,675
Media 3.3%
fAMC Networks Inc., senior note, 144A, 7.75%, 7/15/21	United States		1,300,000			1,420,250
Cablevision Systems Corp., senior note, 8.625%, 9/15/17	United States		500,000			556,250
CCH II LLC/CCH II Capital Corp., senior note, 13.50%, 11/30/16	United States		1,500,000			1,740,000
CCO Holdings LLC/Capital Corp., senior note,
8.125%, 4/30/20	United States		900,000			990,000
6.50%, 4/30/21	United States		2,500,000			2,543,750

FSI-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Media (continued)
Clear Channel Communications Inc., senior note, 9.00%, 3/01/21	United States		5,500,000		$	4,661,250
CSC Holdings Inc.,
senior deb., 7.625%, 7/15/18	United States		1,500,000			1,657,500
fsenior note, 144A, 6.75%, 11/15/21	United States		2,000,000			2,115,000
DIRECTV Holdings LLC/DIRECTV Financing Co. Inc., senior note, 4.60%, 2/15/21	United States		2,000,000			2,082,592
DISH DBS Corp., senior note,
7.75%, 5/31/15	United States		1,000,000			1,105,000
7.125%, 2/01/16	United States		4,000,000			4,330,000
6.75%, 6/01/21	United States		500,000			541,250
Media General Inc., senior secured note, 11.75%, 2/15/17	United States		2,000,000			1,920,000
fMusketeer GmbH, senior secured note, 144A, 9.50%, 3/15/21	Germany		1,500,000	EUR		1,931,917
jRadio One Inc., senior sub. note, PIK, 15.00%, 5/24/16	United States		2,181,355			1,547,329
fSeat Pagine Gialle SpA, senior secured note, 144A, 10.50%, 1/31/17	Italy		2,000,000	EUR		1,439,909
Time Warner Inc., 7.625%, 4/15/31	United States		2,500,000			3,231,535
fUnivision Communications Inc., senior secured note, 144A,
6.875%, 5/15/19	United States		400,000			388,000
7.875%, 11/01/20	United States		2,500,000			2,550,000
fUPCB Finance II Ltd., senior secured note, 144A, 6.375%, 7/01/20	Cayman Islands		2,000,000	EUR		2,420,341
WMG Acquisition Corp., senior secured note, 9.50%, 6/15/16	United States		2,500,000			2,725,000
fZiggo Bond Co., senior bond, 144A, 8.00%, 5/15/18	Netherlands		2,500,000	EUR		3,268,108
						45,164,981
Pharmaceuticals, Biotechnology & Life Sciences 1.1%
fCapsugel FinanceCo SCA, senior note, 144A, 9.875%, 8/01/19	United States		900,000	EUR		1,186,711
Endo Pharmaceuticals Holdings Inc., senior note, 7.00%, 7/15/19	United States		900,000			963,000
Giant Funding Corp., senior secured note, 8.25%, 2/01/18	Spain		2,100,000			2,215,500
Gilead Sciences Inc., senior note,
4.50%, 4/01/21	United States		2,500,000			2,654,613
4.40%, 12/01/21	United States		1,500,000			1,590,543
finVentiv Health Inc., senior note, 144A, 10.00%, 8/15/18	United States		2,300,000			2,116,000
fMylan Inc., senior note, 144A, 7.875%, 7/15/20	United States		3,500,000			3,880,625
						14,606,992
Real Estate 0.2%
Forest City Enterprises Inc., senior note, 7.625%, 6/01/15	United States		2,300,000			2,271,250
Retailing 1.1%
fAcademy Ltd./Finance Corp., senior note, 144A, 9.25%, 8/01/19	United States		2,000,000			1,985,000
f,iEdcon Pty. Ltd., senior secured note, 144A, FRN, 4.676%, 6/15/14	South Africa		3,000,000	EUR		2,883,053
fMatalan Finance Ltd., senior secured note, 144A, 8.875%, 4/29/16	United Kingdom		2,300,000	GBP		2,398,917
Michaels Stores Inc., senior note, 7.75%, 11/01/18	United States		4,000,000			4,060,000
fPetco Animal Supplies Inc., senior note, 144A, 9.25%, 12/01/18	United States		3,000,000			3,232,500
						14,559,470
Semiconductors & Semiconductor Equipment 0.8%
Advanced Micro Devices Inc., senior note,
8.125%, 12/15/17	United States		1,500,000			1,563,750
7.75%, 8/01/20	United States		2,000,000			2,065,000
Freescale Semiconductor Inc.,
senior note, 8.875%, 12/15/14	United States		660,000			679,800
senior note, 10.125%, 12/15/16	United States		100,000			105,750
senior note, 8.05%, 2/01/20	United States		1,600,000			1,512,000

FSI-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Semiconductors & Semiconductor Equipment (continued)
Freescale Semiconductor Inc., (continued)
senior note, 10.75%, 8/01/20	United States		1,382,000		$	1,447,645
fsenior secured note, 144A, 9.25%, 4/15/18	United States		500,000			536,875
fNXP BV/NXP Funding LLC, senior secured note, 144A, 9.75%, 8/01/18	Netherlands		2,200,000			2,428,250
						10,339,070
Software & Services 0.9%
feAccess Ltd., senior note, 144A,
8.25%, 4/01/18	Japan		1,800,000			1,710,000
8.375%, 4/01/18	Japan		200,000	EUR		224,776
fFirst Data Corp., senior secured bond, 144A, 8.25%, 1/15/21	United States		4,000,000			3,600,000
Sitel LLC/Finance Corp., senior note, 11.50%, 4/01/18	United States		2,500,000			1,856,250
fSterling Merger Inc., senior note, 144A, 11.00%, 10/01/19	United States		700,000			686,000
SunGard Data Systems Inc.,
senior note, 7.625%, 11/15/20	United States		3,000,000			3,097,500
senior sub. note, 10.25%, 8/15/15	United States		800,000			833,000
						12,007,526
Technology Hardware & Equipment 0.5%
CDW LLC/Finance Corp., senior note, 8.50%, 4/01/19	United States		3,500,000			3,543,750
fCommScope Inc., senior note, 144A, 8.25%, 1/15/19	United States		3,000,000			3,015,000
						6,558,750
Telecommunication Services 2.7%
CenturyLink Inc., senior note,
6.00%, 4/01/17	United States		3,000,000			3,045,669
6.45%, 6/15/21	United States		1,000,000			1,003,246
Cricket Communications Inc., senior note, 7.75%, 10/15/20	United States		4,000,000			3,510,000
Crown Castle International Corp., senior bond, 7.125%, 11/01/19	United States		200,000			217,000
fDigicel Group Ltd., senior note, 144A,
8.875%, 1/15/15	Jamaica		2,500,000			2,475,000
8.25%, 9/01/17	Jamaica		300,000			304,500
Frontier Communications Corp., senior note,
8.50%, 4/15/20	United States		3,000,000			3,086,250
8.75%, 4/15/22	United States		1,500,000			1,492,500
fIntegra Telecom Inc., senior secured note, 144A, 10.75%, 4/15/16	United States		2,700,000			2,214,000
Intelsat Jackson Holdings SA, senior note,
11.25%, 6/15/16	Luxembourg		2,000,000			2,106,250
f144A, 7.50%, 4/01/21	Luxembourg		1,500,000			1,520,625
Intelsat Luxembourg SA, senior note, 11.25%, 2/04/17	Luxembourg		700,000			679,000
MetroPCS Wireless Inc., senior note, 7.875%, 9/01/18	United States		2,500,000			2,546,875
Sprint Nextel Corp., senior note,
8.375%, 8/15/17	United States		4,000,000			3,605,000
f144A, 9.00%, 11/15/18	United States		2,000,000			2,105,000
West Corp., senior note, 7.875%, 1/15/19	United States		4,000,000			3,990,000
fWind Acquisition Finance SA, senior secured note, 144A, 11.75%, 7/15/17	Italy		3,500,000			3,117,187
f,jWind Acquisition Holdings Finance SA, senior secured note, 144A, PIK, 12.25%, 7/15/17	Italy		603,365	EUR		538,679
						37,556,781

FSI-18

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Corporate Bonds (continued)
Transportation 0.4%
f,gAmerican Airlines Inc., senior secured note, 144A, 7.50%, 3/15/16	United States		4,000,000		$	2,880,000
fCeva Group PLC, senior secured note, 144A,
11.625%, 10/01/16	United Kingdom		300,000			299,250
8.375%, 12/01/17	United Kingdom		500,000			478,750
11.50%, 4/01/18	United Kingdom		2,000,000			1,847,202
						5,505,202
Utilities 1.2%
fCalpine Corp., senior secured note, 144A,
7.875%, 7/31/20	United States		1,100,000			1,190,750
7.50%, 2/15/21	United States		2,500,000			2,687,500
7.875%, 1/15/23	United States		500,000			540,000
CMS Energy Corp., senior note, 8.75%, 6/15/19	United States		2,000,000			2,378,822
fInfinis PLC, senior note, 144A, 9.125%, 12/15/14	United Kingdom		600,000	GBP		945,929
fIntergen NV, senior secured note, 144A, 9.00%, 6/30/17	Netherlands		3,000,000			3,172,500
Texas Competitive Electric Holdings Co. LLC, senior note, A, 10.25%, 11/01/15	United States		1,000,000			360,000
Texas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings Finance Inc., senior secured note,
f144A, 11.50%, 10/01/20	United States		3,000,000			2,561,250
B, 15.00%, 4/01/21	United States		2,130,000			1,182,150
						15,018,901
Total Corporate Bonds (Cost $494,772,525)						490,645,836
i,kSenior Floating Rate Interests 16.1%
Automobiles & Components 0.1%
Key Safety Systems Inc., Term Loan B, 2.535% - 2.546%, 3/10/14	United States		1,595,723			1,507,958
Capital Goods 1.1%
bColfax Corp., Term Loan B, 5.75%, 1/01/19	United States		1,122,063			1,123,992
Goodman Global Inc., Initial Term Loan, 5.75%, 10/28/16	United States		2,758,572			2,761,582
RBS Global Inc. (Rexnord), Tranche B-1 Term B Loan, 2.813% - 2.938%, 7/22/13	United States		3,827,036			3,779,198
Sensus USA Inc., Second Lien Term Loan, 8.50%, 5/09/18	United States		1,913,988			1,885,278
Terex Corp., U.S. Term Loan, 5.50%, 4/28/17	United States		2,127,443			2,138,968
Tomkins LLC and Tomkins Inc., Term B-1 Loan, 4.25%, 9/29/16	United States		1,771,813			1,769,046
TransDigm Inc., Term Loan B, 4.00%, 2/14/17	United States		1,969,515			1,955,975
						15,414,039
Commercial & Professional Services 1.2%
ARAMARK Corp.,
Extended Synthetic L/C, 3.395%, 7/26/16	United States		186,538			182,264
Synthetic L/C, 2.02%, 1/26/14	United States		91,726			90,006
Term Loan B, 2.454%, 1/26/14	United States		1,138,629			1,117,281
Term Loan B Extended, 3.829%, 7/26/16	United States		2,834,838			2,769,875
Brock Holdings III Inc., Second Lien Term Loan, 10.00%, 3/16/18	United States		2,047,000			1,885,799
EnviroSolutions Real Property Holdings Inc., Second Lien Term Loan, 8.00%, 7/29/14	United States		628,673			619,242
Interactive Data Corp., Term B Loans, 4.50%, 2/11/18	United States		4,471,711			4,434,448
KAR Auction Services Inc. (Adesa), Term Loan, 5.00%, 5/19/17	United States		5,340,985			5,280,899
						16,379,814

FSI-19

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*		Value
i,kSenior Floating Rate Interests (continued)
Consumer Durables & Apparel 0.7%
b,c,jSleep Innovations Inc., Term Loan, PIK, 11.50%, 3/05/15	United States		1,341,906	$	1,341,906
Visant Corp. (Jostens), Term Loan B, 5.25% - 6.25%, 12/22/16	United States		8,249,920		7,754,924
					9,096,830
Consumer Services 1.4%
Ameristar Casinos Inc., B Term Loan, 4.00%, 4/14/18	United States		2,602,935		2,605,103
Burger King Holdings Inc., Tranche B Term Loan, 4.50%, 10/19/16	United States		8,507,975		8,378,586
DineEquity Inc., Term B-1 Loan, 4.25% - 5.25%, 10/19/17	United States		1,895,563		1,872,343
Revel AC Inc., Tranche B Term Loan, 9.00%, 2/17/17	United States		1,206,407		1,106,878
d,jTurtle Bay Holdings LLC,
Term Loan A, PIK, 10.375%, 3/01/13	United States		2,011,261		1,950,923
Term Loan B, PIK, 3.125%, 2/09/15	United States		4,039,244		3,271,788
					19,185,621
Diversified Financials 0.7%
Asurion LLC, Second Lien Term Loan, 9.00%, 5/24/19	United States		2,814,806		2,786,658
MoneyGram Payment Systems Worldwide Inc.,
Term Loan, 4.50%, 11/18/17	United States		1,569,830		1,549,226
Tranche B-1 Loan, 4.50%, 11/18/17	United States		425,633		418,717
MSCI Inc., Term Loan B, 3.75%, 3/09/17	United States		1,315,007		1,325,691
TransUnion LLC/TransUnion FICO, Term Loan, 4.75%, 2/10/18	United States		2,757,359		2,755,636
					8,835,928
Food & Staples Retailing 0.5%
BJ’s Wholesale Club Inc.,
Initial Loan, 7.00%, 9/30/18	United States		3,340,313		3,356,563
Second Lien Term Loan, 10.00%, 3/30/19	United States		3,940,000		3,979,400
					7,335,963
Food, Beverage & Tobacco 0.6%
Del Monte Foods Co., Initial Term Loan, 4.50%, 3/08/18	United States		8,199,817		7,810,326
Health Care Equipment & Services 2.1%
Bausch & Lomb Inc.,
Delayed Draw Term Loan, 3.546%, 4/28/15	United States		1,105,377		1,082,579
Parent Term Loan, 3.546% - 3.829%, 4/28/15	United States		4,529,638		4,436,214
Community Health Systems Inc.,
Delayed Draw Term Loan, 2.546%, 7/25/14	United States		161,022		156,623
Extended Term Loan, 3.796% - 4.023%, 1/25/17	United States		5,350,080		5,187,347
Term Loan, 2.546% - 2.773%, 7/25/14	United States		3,135,021		3,049,369
DaVita Inc., Tranche B Term Loan, 4.50%, 10/20/16	United States		1,983,910		1,984,902
HCA Inc., Tranche B-2 Term Loan, 3.829%, 3/31/17	United States		8,194,043		7,794,583
Kinetic Concepts Inc., Term B-2 Loan, 6.50%, 11/04/16	United States		380,201		380,042
Universal Health Services Inc., New Tranche B Term Loan, 3.75%, 11/15/16	United States		4,396,480		4,394,809
					28,466,468
Materials 2.2%
bAmerican Rock Salt Co. LLC, Initial Loan, 5.50%, 4/25/17	United States		3,647,019		3,610,549
Anchor Glass Container Corp., Second Lien Term Loan, 10.00%, 9/02/16	United States		5,813,900		5,799,365
Ashland Inc., Term B Loan, 3.75%, 8/23/18	United States		2,347,552		2,359,839
Consolidated Container Co. LLC, Second Lien Term Loan, 5.813%, 9/28/14	United States		2,114,283		1,797,141
bNewPage Corp., DIP Term Loan, 8.00%, 3/07/13	United States		4,115,982		4,172,576
Potters Holdings II LP, Second Lien Term Loan, 10.25%, 11/06/17	United States		247,452		246,627

FSI-20

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*		Value
i,kSenior Floating Rate Interests (continued)
Materials (continued)
Reynolds Group Holdings Inc.,
Tranche B Term Loan, 6.50%, 2/09/18	United States		2,869,112	$	2,847,594
bTranche C Term Loan, 6.50%, 8/09/18	United States		4,801,014		4,781,512
Rockwood Specialties Group Inc., Term Loan, 3.50%, 2/10/18	United States		1,550,428		1,557,858
bWalter Energy Inc., B Term Loan, 4.00%, 4/01/18	United States		2,254,511		2,240,654
					29,413,715
Media 2.5%
Cinemark USA Inc., Extended Term Loan, 3.53% - 3.83%, 4/30/16	United States		1,580,795		1,574,696
Clear Channel Communications Inc.,
Tranche A Term Loan, 3.696%, 5/13/14	United States		1,693,252		1,483,712
Tranche B Term Loan, 3.946%, 1/29/16	United States		5,094,789		3,780,048
CSC Holdings Inc. (Cablevision), Incremental Term Loan B-2, 2.044%, 3/29/16	United States		4,262,277		4,187,687
Cumulus Media Holdings Inc., Second Lien Term Loan, 7.50%, 9/16/19	United States		5,450,000		5,295,585
Hubbard Radio LLC, Second Lien Term Loan, 8.75%, 4/29/18	United States		1,192,409		1,186,446
R.H. Donnelley Inc., Term Loan B, 9.00%, 10/24/14	United States		6,392,486		2,314,080
bRegal Cinemas Corp., Term Loan, 3.579%, 8/23/17	United States		2,211,099		2,196,819
bSinclair Television Group Inc, Incremental Term Loan B, 5.25%, 10/29/16	United States		2,484,000		2,483,938
Summit Entertainment LLC, Term Loan, 7.50%, 9/07/16	United States		3,778,254		3,740,472
TWCC Holding Corp., Term Loan, 4.25%, 2/11/17	United States		2,816,889		2,816,303
Univision Communications Inc., Extended First Lien Term Loan, 4.546%, 3/31/17	United States		2,141,315		1,917,147
UPC Financing Partnership, Term Loan T, 3.872%, 12/31/16	Netherlands		1,491,092		1,442,632
					34,419,565
Pharmaceuticals, Biotechnology & Life Sciences 0.4%
Warner Chilcott Co. LLC, Term B-2 Loan, 4.25%, 3/15/18	Puerto Rico		1,316,779		1,302,788
Warner Chilcott Corp., Term B-1 Loan, 4.25%, 3/15/18	United States		2,633,558		2,605,577
WC Luxco S.A.R.L., Term B-3 Loan, 4.25%, 3/15/18	Luxembourg		1,810,571		1,791,334
					5,699,699
Software & Services 1.3%
AVG Technologies NV, Term Loan, 7.50%, 3/15/16	Netherlands		6,763,438		6,357,631
bFidelity National Information Services Inc.,
Add-on Term Loan A-2, 4.50%, 7/18/14	United States		781,500		776,941
Term Loan B, 5.50%, 7/18/16	United States		1,794,153		1,791,928
First Data Corp.,
Term Loan B-1, 3.044%, 9/24/14	United States		3,687,802		3,376,626
Term Loan B-2, 3.044%, 9/24/14	United States		328,445		300,731
Term Loan B-3, 3.044%, 9/24/14	United States		328,445		300,731
SunGard Data Systems Inc., Tranche B U.S. Term Loan, 3.969% - 4.063%, 2/28/16	United States		2,403,719		2,348,133
Vertafore Inc., Second Lien Term Loan, 9.75%, 10/27/17	United States		1,832,000		1,781,620
					17,034,341
Technology Hardware & Equipment 0.1%
bFlextronics International USA Inc.,
A-1-B Delayed Draw Term Loan, 4.50%, 10/01/14	United States		120,839		119,404
A-2 Delayed Draw Term Loan, 4.50%, 10/01/14	United States		424,460		419,420
A-3 Delayed Draw Term Loan, 4.50%, 10/01/14	United States		495,465		489,581
					1,028,405

FSI-21

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
i,kSenior Floating Rate Interests (continued)
Telecommunication Services 0.7%
Intelsat Jackson Holdings SA, Tranche B Term Loan, 5.25%, 4/02/18	Luxembourg		8,342,888		$	8,325,510
SBA Senior Finance II LLC, Term Loan, 3.75%, 6/30/18	United States		1,727,748			1,720,189
						10,045,699
Transportation 0.5%
Evergreen International Aviation Inc., Term Loan, 12.25%, 6/30/15	United States		1,175,125			1,060,550
Hertz Corp.,
Credit Linked Deposit, 3.75%, 3/11/18	United States		1,736,300			1,641,568
Tranche B Term Loan, 3.75%, 3/11/18	United States		3,880,675			3,818,421
YRCW Receivables LLC, Term B Loan, 11.25%, 9/30/14	United States		220,769			208,627
						6,729,166
Total Senior Floating Rate Interests (Cost $224,103,761)						218,403,537
Foreign Government and Agency Securities 24.0%
fArab Republic of Egypt, 144A, 5.75%, 4/29/20	Egypt		3,560,000			3,112,953
The Export-Import Bank of Korea, senior note, 8.125%, 1/21/14	South Korea		2,770,000			3,075,692
i,lGovernment of Argentina, senior bond, FRN, 0.439%, 8/03/12	Argentina		30,000,000			3,648,928
Government of Australia, senior bond, 5.75%, 4/15/12	Australia		20,350,000	AUD		20,924,163
Government of Hungary,
5.50%, 2/12/14	Hungary		1,443,700,000	HUF		5,539,447
5.50%, 2/12/16	Hungary		1,864,700,000	HUF		6,708,992
6.50%, 6/24/19	Hungary		206,000,000	HUF		705,735
7.50%, 11/12/20	Hungary		312,600,000	HUF		1,117,493
senior note, 6.25%, 1/29/20	Hungary		5,507,000			5,067,541
Government of Indonesia,
FR19, 14.25%, 6/15/13	Indonesia		35,480,000,000	IDR		4,426,048
FR20, 14.275%, 12/15/13	Indonesia		23,637,000,000	IDR		3,050,861
FR26, 11.00%, 10/15/14	Indonesia		1,800,000,000	IDR		227,846
FR34, 12.80%, 6/15/21	Indonesia		49,955,000,000	IDR		8,169,701
FR42, 10.25%, 7/15/27	Indonesia		2,000,000,000	IDR		290,047
FR44, 10.00%, 9/15/24	Indonesia		9,300,000,000	IDR		1,326,821
Government of Ireland,
4.00%, 1/15/14	Ireland		2,232,000	EUR		2,703,123
4.60%, 4/18/16	Ireland		466,000	EUR		545,013
5.90%, 10/18/19	Ireland		2,177,000	EUR		2,444,981
4.50%, 4/18/20	Ireland		1,234,000	EUR		1,237,804
5.00%, 10/18/20	Ireland		2,088,000	EUR		2,163,566
senior bond, 4.50%, 10/18/18	Ireland		748,000	EUR		789,757
senior bond, 4.40%, 6/18/19	Ireland		887,000	EUR		919,744
senior bond, 5.40%, 3/13/25	Ireland		1,488,000	EUR		1,524,509
Government of Israel,
4.00%, 3/30/12	Israel		3,315,000	ILS		872,625
5.00%, 3/31/13	Israel		3,170,000	ILS		854,971
3.50%, 9/30/13	Israel		10,405,000	ILS		2,766,163
Government of Malaysia, senior bond,
2.711%, 2/14/12	Malaysia		490,000	MYR		154,527
3.718%, 6/15/12	Malaysia		14,410,000	MYR		4,561,347
2.509%, 8/27/12	Malaysia		19,215,000	MYR		6,045,506
3.702%, 2/25/13	Malaysia		19,133,000	MYR		6,089,907
3.70%, 5/15/13	Malaysia		1,720,000	MYR		548,299
3.21%, 5/31/13	Malaysia		2,570,000	MYR		814,050
3.461%, 7/31/13	Malaysia		12,900,000	MYR		4,103,177

FSI-22

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
Government of Malaysia, senior bond, (continued)
3.814%, 2/15/17	Malaysia		11,400,000	MYR	$	3,671,343
4.24%, 2/07/18	Malaysia		600,000	MYR		197,602
Government of Mexico,
M, 9.00%, 6/20/13	Mexico		514,800	m MXN		3,904,854
M, 7.00%, 6/19/14	Mexico		120,000	m MXN		899,791
M, 8.00%, 12/17/15	Mexico		140,000	m MXN		1,097,290
MI, 9.00%, 12/20/12	Mexico		58,000	m MXN		432,688
MI, 8.00%, 12/19/13	Mexico		1,062,700	m MXN		8,058,493
Government of Poland,
4.75%, 4/25/12	Poland		44,240,000	PLN		12,834,600
5.25%, 4/25/13	Poland		3,170,000	PLN		925,299
5.75%, 4/25/14	Poland		14,470,000	PLN		4,270,862
6.25%, 10/24/15	Poland		9,100,000	PLN		2,739,033
5.75%, 9/23/22	Poland		4,300,000	PLN		1,233,828
senior note, 6.375%, 7/15/19	Poland		4,000,000			4,455,720
Strip, 1/25/13	Poland		1,330,000	PLN		367,615
Strip, 7/25/13	Poland		9,270,000	PLN		2,500,187
fGovernment of Russia, 144A, 7.50%, 3/31/30	Russia		5,211,235			6,061,318
Government of Singapore, senior bond, 2.625%, 4/01/12	Singapore		3,660,000	SGD		2,836,360
Government of Sri Lanka,
A, 6.90%, 8/01/12	Sri Lanka		1,900,000	LKR		16,507
A, 8.50%, 1/15/13	Sri Lanka		50,900,000	LKR		445,388
A, 13.50%, 2/01/13	Sri Lanka		59,500,000	LKR		544,621
A, 7.00%, 3/01/14	Sri Lanka		7,020,000	LKR		58,510
A, 11.25%, 7/15/14	Sri Lanka		176,100,000	LKR		1,599,279
A, 11.75%, 3/15/15	Sri Lanka		1,160,000	LKR		10,728
A, 6.50%, 7/15/15	Sri Lanka		28,980,000	LKR		230,096
A, 11.00%, 8/01/15	Sri Lanka		200,400,000	LKR		1,818,775
A, 6.40%, 8/01/16	Sri Lanka		19,500,000	LKR		149,238
B, 6.60%, 6/01/14	Sri Lanka		7,100,000	LKR		58,264
B, 6.40%, 10/01/16	Sri Lanka		16,000,000	LKR		122,371
Government of Sweden,
5.50%, 10/08/12	Sweden		107,565,000	SEK		16,168,868
1.50%, 8/30/13	Sweden		80,270,000	SEK		11,823,194
Government of the Philippines,
senior bond, 5.75%, 2/21/12	Philippines		19,830,000	PHP		454,226
senior bond, 8.75%, 3/03/13	Philippines		55,690,000	PHP		1,352,150
bsenior note, 6.25%, 1/27/14	Philippines		80,300,000	PHP		1,944,914
b,fGovernment of Ukraine, 144A, 7.75%, 9/23/20	Ukraine		6,000,000			5,220,000
nGovernment of Uruguay, senior note,
Index Linked, 4.375%, 12/15/28	Uruguay		119,300,000	UYU		6,039,937
Government of Venezuela, 10.75%, 9/19/13	Venezuela		2,500,000			2,534,437
fGovernment of Vietnam, 144A, 6.75%, 1/29/20	Vietnam		2,500,000			2,510,937
Korea Treasury Bond,
5.25%, 9/10/12	South Korea		2,850,000,000	KRW		2,489,097
5.25%, 3/10/13	South Korea		346,570,000	KRW		305,257
senior bond, 4.00%, 6/10/12	South Korea		31,013,880,000	KRW		26,822,593
senior bond, 4.25%, 12/10/12	South Korea		3,560,000,000	KRW		3,094,073
senior bond, 5.00%, 3/26/13	South Korea		1,163,000,000	KRW		1,008,831
senior bond, 3.75%, 6/10/13	South Korea		5,340,340,000	KRW		4,629,641
senior bond, 3.00%, 12/10/13	South Korea		14,844,210,000	KRW		12,726,007
New South Wales Treasury Corp.,
6.00%, 5/01/12	Australia		280,000	AUD		288,203

FSI-23

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
New South Wales Treasury Corp., (continued)
5.50%, 8/01/13	Australia		860,000	AUD	$	902,033
senior note, 5.50%, 3/01/17	Australia		3,540,000	AUD		3,845,079
Nota Do Tesouro Nacional,
10.00%, 1/01/12	Brazil		6,910	o BRL		3,708,506
10.00%, 1/01/14	Brazil		2,700	o BRL		1,435,261
10.00%, 1/01/17	Brazil		7,400	o BRL		3,821,346
nIndex Linked, 6.00%, 5/15/15	Brazil		3,890	o BRL		4,507,521
Queensland Treasury Corp.,
6.00%, 8/14/13	Australia		600,000	AUD		634,829
6.00%, 9/14/17	Australia		1,200,000	AUD		1,329,229
senior note, 6.00%, 8/21/13	Australia		2,705,000	AUD		2,846,383
United Kingdom Treasury Bond, 5.00%, 3/07/12	United Kingdom		7,459,000	GBP		11,680,659
United Kingdom Treasury Note, 5.25%, 6/07/12	United Kingdom		7,977,000	GBP		12,650,780
Western Australia Treasury Corp.,
5.50%, 7/17/12	Australia		9,065,000	AUD		9,344,737
8.00%, 6/15/13	Australia		1,000,000	AUD		1,082,778
Total Foreign Government and Agency Securities (Cost $325,983,558)						325,273,503
U.S. Government and Agency Securities 1.5%
U.S. Treasury Bond,
4.50%, 2/15/16	United States		3,000,000			3,469,689
7.875%, 2/15/21	United States		900,000			1,373,203
7.125%, 2/15/23	United States		1,980,000			2,993,821
U.S. Treasury Note,
2.375%, 3/31/16	United States		3,500,000			3,749,102
4.625%, 2/15/17	United States		600,000			712,219
4.75%, 8/15/17	United States		2,900,000			3,493,140
pIndex Linked, 0.125%, 4/15/16	United States		2,359,617			2,462,114
pIndex Linked, 0.625%, 7/15/21	United States		2,511,840			2,688,256
Total U.S. Government and Agency Securities (Cost $18,928,394)						20,941,544
Asset-Backed Securities and Commercial Mortgage-Backed Securities 3.4%
Banks 1.4%
f,iBanc of America Large Loan, 2010-HLTN, 144A, FRN, 2.028%, 11/15/15	United States		4,298,961			3,893,442
Countrywide Asset-Backed Certificates, 2005-11, AF4, 5.21%, 3/25/34	United States		1,275,000			647,559
iGS Mortgage Securities Corp. II, 2006-GG6, A4, FRN, 5.553%, 4/10/38	United States		2,405,000			2,622,748
iHomebanc Mortgage Trust, 2005-4, A1, FRN, 0.564%, 10/25/35	United States		2,090,461			1,429,750
f,iWachovia Bank Commercial Mortgage Trust, 2007-WHL8, A1, 144A, FRN, 0.358%, 6/15/20	United States		5,849,355			5,236,320
Wells Fargo Mortgage Backed Securities Trust, i2004-W, A9, FRN, 2.762%, 11/25/34	United States		2,169,236			2,061,851
2007-3, 3A1, 5.50%, 4/25/37	United States		2,548,623			2,631,935
						18,523,605
Diversified Financials 2.0%
f,iARES CLO Funds, 2007-12A, B, 144A, FRN, 1.506%, 11/25/20	Cayman Islands		1,380,000			1,153,818
f,iArmstrong Loan Funding Ltd., 2008-1A, B, 144A, FRN, 1.429%, 8/01/16	Cayman Islands		3,570,093			3,458,314
f,iCent CDO Ltd., 2007-15A, A2B, 144A, FRN, 0.88%, 3/11/21	Cayman Islands		1,251,000			1,011,115

FSI-24

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*		Value
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued)
Diversified Financials (continued)
Citigroup Commercial Mortgage Trust, i2007-C6, AM, FRN, 5.698%, 6/10/17	United States		1,700,000	$	1,679,343
2008-C7, A4, 6.072%, 12/10/49	United States		8,700,000		9,702,866
iCitigroup/Deutsche Bank Commercial Mortgage Trust, 2005-CD1, AJ, FRN, 5.399%, 7/15/44	United States		2,230,000		2,001,406
f,iColumbus Nova CLO Ltd., 2007-2A, A2, 144A, FRN, 1.403%, 10/15/21	Cayman Islands		860,000		723,329
f,iCommercial Industrial Finance Corp., 2007-3A, A1J, 144A, FRN, 0.82%, 7/26/21	Cayman Islands		960,000		784,267
f,iCredit Suisse Mortgage Capital Certificates, 2006-TF2A, A2, 144A, FRN, 0.448%, 10/15/21	United States		418,006		385,564
f,iGleneagles CLO Ltd., 2005-1A, 144A, FRN, 0.829%, 11/01/17	Cayman Islands		1,000,000		800,005
JPMorgan Chase Commercial Mortgage Securities Corp., 2005-LDP2, AM, 4.78%, 7/15/42	United States		775,000		804,362
f,iMAPS CLO Fund LLC, 2005-1A, B, 144A, FRN, 1.067%, 12/21/17	United States		1,400,000		1,301,587
Residential Asset Securities Corp., 2004-KS1, AI4, 4.213%, 4/25/32	United States		71,205		69,655
f,iWestchester CLO Ltd., 2007-1A, A1A, 144A, FRN, 0.654%, 8/01/22	Cayman Islands		4,596,472		4,058,110
					27,933,741
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $44,943,830)					46,457,346
Mortgage-Backed Securities 5.0%
iFederal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.0%†
FHLMC, 2.473%, 1/01/33	United States		85,520		88,805
Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 1.5%
FHLMC Gold 15 Year, 4.50%, 10/01/18 - 6/01/19	United States		1,118,466		1,188,746
FHLMC Gold 15 Year, 5.00%, 12/01/17 - 9/01/19	United States		1,325,134		1,428,537
FHLMC Gold 15 Year, 5.50%, 7/01/17 - 7/01/19	United States		341,607		370,864
FHLMC Gold 15 Year, 6.00%, 5/01/17	United States		13,741		14,955
FHLMC Gold 15 Year, 6.50%, 5/01/16	United States		4,061		4,346
FHLMC Gold 30 Year, 4.00%, 9/01/40	United States		4,685,747		4,923,081
FHLMC Gold 30 Year, 4.50%, 10/01/40	United States		3,004,432		3,186,378
FHLMC Gold 30 Year, 5.00%, 4/01/34 - 8/01/35	United States		1,429,254		1,538,063
FHLMC Gold 30 Year, 5.50%, 3/01/33 - 6/01/36	United States		3,674,145		4,018,056
FHLMC Gold 30 Year, 6.00%, 4/01/33 - 6/01/37	United States		3,501,123		3,867,764
FHLMC Gold 30 Year, 6.50%, 12/01/23 - 6/01/36	United States		254,746		288,063
FHLMC Gold 30 Year, 7.00%, 9/01/21 - 4/01/30	United States		64,366		74,065
FHLMC Gold 30 Year, 7.50%, 3/01/30 - 7/01/31	United States		1,971		2,135
					20,905,053
iFederal National Mortgage Association (FNMA) Adjustable Rate 0.0%†
FNMA, 2.31%, 12/01/34	United States		291,904		305,590
FNMA, 2.419%, 4/01/20	United States		61,602		62,470
					368,060
Federal National Mortgage Association (FNMA) Fixed Rate 3.2%
FNMA 15 Year, 4.50%, 6/01/19 - 3/01/20	United States		256,748		274,789
FNMA 15 Year, 5.00%, 10/01/17 - 6/01/18	United States		280,638		303,158
FNMA 15 Year, 5.50%, 11/01/13 - 11/01/18	United States		2,853,557		3,095,536
FNMA 15 Year, 6.00%, 4/01/16 - 7/01/16	United States		5,216		5,641
FNMA 15 Year, 7.00%, 5/01/12	United States		52		52
FNMA 30 Year, 4.00%, 1/01/41 - 10/01/41	United States		10,886,095		11,452,083
FNMA 30 Year, 4.50%, 7/01/40 - 12/01/40	United States		8,915,191		9,497,284
FNMA 30 Year, 5.00%, 4/01/34 - 9/01/39	United States		5,638,148		6,115,563

FSI-25

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*		Value
Mortgage-Backed Securities (continued)
Federal National Mortgage Association (FNMA) Fixed Rate (continued)
FNMA 30 Year, 5.50%, 8/01/33 - 9/01/35	United States		2,062,144	$	2,253,325
FNMA 30 Year, 6.00%, 6/01/34 - 5/01/38	United States		7,430,562		8,211,924
FNMA 30 Year, 6.50%, 6/01/28 - 10/01/37	United States		1,455,413		1,640,906
					42,850,261
Government National Mortgage Association (GNMA) Fixed Rate 0.3%
GNMA I SF 30 Year, 5.00%, 11/15/33 - 7/15/34	United States		1,025,283		1,142,179
GNMA I SF 30 Year, 5.50%, 12/15/32 - 6/15/36	United States		1,064,738		1,201,816
GNMA I SF 30 Year, 6.50%, 11/15/31 - 2/15/32	United States		6,693		7,761
GNMA I SF 30 Year, 7.00%, 10/15/28 - 6/15/32	United States		63,249		73,791
GNMA I SF 30 Year, 7.50%, 9/15/30	United States		1,986		2,379
GNMA II SF 30 Year, 5.00%, 9/20/33 - 11/20/33	United States		283,537		315,629
GNMA II SF 30 Year, 6.00%, 11/20/34	United States		315,748		358,630
GNMA II SF 30 Year, 6.50%, 4/20/31 - 2/20/34	United States		118,711		135,877
GNMA II SF 30 Year, 7.50%, 1/20/28 - 4/20/32	United States		31,997		38,222
					3,276,284
Total Mortgage-Backed Securities (Cost $65,024,638)					67,488,463
Municipal Bonds 3.5%
Bay Area Toll Authority Toll Bridge Revenue, Build America Bonds, Series S1, 7.043%, 4/01/50	United States		5,000,000		6,583,700
California State GO,
7.625%, 3/01/40	United States		1,500,000		1,847,025
5.25%, 11/01/40	United States		560,000		588,605
Refunding, 5.00%, 4/01/38	United States		9,700,000		9,902,439
Various Purpose, 6.00%, 4/01/38	United States		2,500,000		2,823,125
Various Purpose, 6.00%, 11/01/39	United States		160,000		181,992
Various Purpose, Refunding, 5.25%, 3/01/38	United States		1,500,000		1,558,170
Various Purpose, Refunding, NATL Insured, 4.50%, 12/01/32	United States		300,000		303,543
Various Purpose, Refunding, Series 1, AGMC Insured, 4.75%, 9/01/31	United States		290,000		295,788
Chicago Waterworks Revenue, second lien, Refunding, 5.25%, 11/01/38	United States		1,895,000		1,982,094
Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, NATL RE, FGIC Insured, zero cpn.,
8/01/25	United States		2,500,000		1,268,800
8/01/26	United States		1,290,000		613,137
8/01/27	United States		1,720,000		763,972
8/01/29	United States		1,720,000		666,328
Illinois State GO,
5.877%, 3/01/19	United States		3,575,000		3,852,670
Build America Bonds, 7.35%, 7/01/35	United States		4,600,000		5,078,952
fNew York City IDA, 144A, 11.00%, 3/01/29	United States		600,000		761,388
Poway USD, GO, Election of 2008, ID No. 2007-1, Series A, zero cpn.,
8/01/27	United States		370,000		163,596
8/01/30	United States		370,000		132,416
8/01/32	United States		460,000		141,882
8/01/33	United States		245,000		70,183
Redondo Beach USD, GO, Build America Bonds, Election of 2008, Direct Payment to District, Series D, 6.461%, 8/01/40	United States		1,510,000		1,609,116
San Francisco City and County GO, Build America Bonds,
5.75%, 6/15/27	United States		1,700,000		1,943,015
5.93%, 6/15/28	United States		1,520,000		1,738,804

FSI-26

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund	Country	Principal Amount*			Value
Municipal Bonds (continued)
San Mateo County Community College District GO, Election of 2001, Series C, NATL Insured, zero cpn.,
9/01/30	United States		895,000		$	352,344
3/01/31	United States		245,000			92,331
Sonoma County Pension Obligation Revenue, Series A, 6.00%, 12/01/29	United States		2,100,000			2,259,999
Total Municipal Bonds (Cost $42,302,833)						47,575,414
Total Investments before Short Term Investments (Cost $1,231,598,675)						1,227,474,072
Short Term Investments 8.1%
Foreign Government and Agency Securities 3.6%
qBank of Negara Monetary Note, 1/17/12 - 5/17/12	Malaysia		23,590,000	MYR		7,413,321
qEgypt Treasury Bill, 2/21/12	Egypt		11,950,000	EGP		1,946,023
qIsrael Treasury Bills, 1/04/12 - 5/02/12	Israel		47,930,000	ILS		12,518,512
qMalaysia Treasury Bills, 1/20/12 - 7/27/12	Malaysia		12,880,000	MYR		4,012,404
qNorway Treasury Bill, 3/21/12	Norway		114,510,000	NOK		19,095,626
qPhilippine Treasury Bills, 1/11/12 - 7/11/12	Philippines		18,380,000	PHP		418,567
qSingapore Treasury Bill, 11/01/12	Singapore		3,750,000	SGD		2,883,849
qSri Lanka Treasury Bills, 1/27/12 - 9/28/12	Sri Lanka		26,470,000	LKR		227,880
Total Foreign Government and Agency Securities (Cost $52,814,034)						48,516,182
Total Investments before Money Market Funds (Cost $1,284,412,709)						1,275,990,254
		Shares
Money Market Funds (Cost $61,664,899) 4.5%
a,rInstitutional Fiduciary Trust Money Market Portfolio	United States		61,664,899			61,664,899
Total Investments (Cost $1,346,077,608) 98.6%						1,337,655,153
Other Assets, less Liabilities 1.4%						18,570,601
Net Assets 100.0%					$	1,356,225,754

See Abbreviations on page 47.

FSI-27

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

†Rounds to less than 0.1% of net assets.

*The principal amount is stated in U.S. dollars unless otherwise indicated.

^aNon-income producing.

^bA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).

^cSecurity has been deemed illiquid because it may not be able to be sold within seven days. At December 31, 2011, the aggregate value of these securities was $1,684,966, representing 0.12% of net assets.

^dAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading these securities for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^eSee Note 1(e) regarding investment in FT Holdings Corporation III.

^fSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $213,891,364, representing 15.77% of net assets.

^gSee Note 8 regarding defaulted securities.

^hPerpetual security with no stated maturity date.

ⁱThe coupon rate shown represents the rate at period end.

^jIncome may be received in additional securities and/or cash.

^kSee Note 1(g) regarding senior floating rate interests.

^lThe principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.

^mPrincipal amount is stated in 100 Mexican Peso Units.

ⁿRedemption price at maturity is adjusted for inflation. See Note 1(j).

^oPrincipal amount is stated in 1,000 Brazilian Real Units.

^pPrincipal amount of security is adjusted for inflation. See Note 1(j).

^qThe security is traded on a discount basis with no stated coupon rate.

^rSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

FSI-28

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund

At December 31, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts

Currency	Counterparty		Type		Quantity		Contract Amount*		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Chilean Peso		DBAB		Buy		2,449,000,000		4,829,994		1/10/12	$	—	$	(123,884	)
Indian Rupee		HSBC		Buy		139,650,000		2,922,159		1/10/12		—		(294,451	)
Indian Rupee		HSBC		Sell		45,250,000		987,991		1/10/12		136,550		—
Japanese Yen		HSBC		Sell		183,560,000		2,246,756		1/10/12		—		(138,631	)
Euro		BZWS		Sell		1,691,484		2,188,781		1/11/12		—		(686	)
Euro		DBAB		Sell		2,187,000		2,834,111		1/11/12		3,247		—
Euro		UBSW		Sell		3,940,000		5,100,035		1/11/12		77		—
Euro		JPHQ		Sell		1,802,953		2,331,669		1/13/12		—		(2,115	)
Japanese Yen		BZWS		Sell		460,675,000		5,577,179		1/13/12		—		(409,633	)
Philippine Peso		JPHQ		Buy		35,843,000		814,151		1/13/12		2,914		—
Philippine Peso		HSBC		Buy		5,750,000		130,732		1/17/12		319		—
Euro		BZWS		Sell		2,912,410		3,881,369		1/19/12		111,325		—
Japanese Yen		DBAB		Sell		271,680,000		3,293,490		1/19/12		—		(237,521	)
Euro		DBAB		Sell		2,000,000		2,716,500		1/26/12		127,426		—
Euro		BZWS		Sell		1,007,118		1,357,595		1/26/12		53,843		—
Euro		DBAB		Sell		1,587,264		2,146,426		1/27/12		91,639		—
Euro		DBAB		Sell		3,014,151		4,103,767		2/02/12		201,605		—
Chilean Peso		DBAB		Buy		725,000,000		1,472,081		2/08/12		—		(84,247	)
Chilean Peso		JPHQ		Buy		482,900,000		976,049		2/08/12		—		(51,655	)
Chilean Peso		BZWS		Buy		486,100,000		981,227		2/08/12		—		(50,708	)
Indian Rupee		HSBC		Buy		186,760,000		3,883,552		2/08/12		—		(390,643	)
Chilean Peso		BZWS		Buy		1,001,200,000		2,020,789		2/09/12		—		(104,413	)
Euro		UBSW		Sell		2,151,000		2,920,563		2/13/12		135,552		—
Euro		DBAB		Sell		1,250,438		1,690,529		2/14/12		71,507		—
Singapore Dollar		DBAB		Buy		1,158,000		905,912		2/24/12		—		(13,237	)
Singapore Dollar		DBAB		Buy		722,000		566,230		2/27/12		—		(9,657	)
Singapore Dollar		DBAB		Buy		723,000		566,295		2/29/12		—		(8,947	)
Euro		UBSW		Sell		2,581,000		3,523,246		3/01/12		180,927		—
Japanese Yen		UBSW		Sell		95,700,000		1,177,209		3/01/12		—		(67,551	)
Japanese Yen		JPHQ		Sell		85,800,000		1,055,610		3/01/12		—		(60,381	)
Japanese Yen		HSBC		Sell		85,800,000		1,056,000		3/01/12		—		(59,991	)
Euro		DBAB		Sell		1,500,000		2,101,800		3/15/12		159,025		—
Singapore Dollar		JPHQ		Buy		1,394,000		1,089,999		3/19/12		—		(15,232	)
Singapore Dollar		HSBC		Buy		1,113,000		872,284		3/19/12		—		(14,167	)
Singapore Dollar		DBAB		Buy		973,400		763,050		3/19/12		—		(12,563	)
Singapore Dollar		DBAB		Buy		1,048,000		817,536		3/21/12		—		(9,521	)
Singapore Dollar		HSBC		Buy		837,000		653,676		3/21/12		—		(8,344	)
Euro		DBAB		Sell		714,000		999,343		4/05/12		74,325		—
British Pound		DBAB		Sell		1,089,000		1,762,547		4/11/12		72,800		—
Indian Rupee		DBAB		Buy		20,841,000		444,845		4/11/12		—		(59,096	)
Indian Rupee		DBAB		Buy		44,691,000		957,391		4/13/12		—		(130,456	)
Chilean Peso		MSCO		Buy		116,230,000		236,120		4/16/12		—		(15,130	)
Indian Rupee		JPHQ		Buy		30,019,000		641,432		4/16/12		—		(86,239	)
Indian Rupee		JPHQ		Buy		29,466,000		625,871		4/18/12		—		(81,076	)
Euro		DBAB		Sell		1,888,220		2,692,035		4/19/12		245,213		—
Indian Rupee		JPHQ		Buy		14,719,000		312,373		4/19/12		—		(40,276	)
Indian Rupee		DBAB		Buy		10,360,000		219,352		4/19/12		—		(27,837	)
Chilean Peso		MSCO		Buy		104,150,000		210,404		4/20/12		—		(12,446	)
Euro		DBAB		Sell		1,001,008		1,416,527		4/23/12		119,301		—

FSI-29

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type			Quantity		Contract Amount*		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Indian Rupee		DBAB		Buy			20,931,000		444,489		4/26/12	$	—	$	(57,980	)
Singapore Dollar		DBAB		Buy			6,168,500		5,000,000		4/26/12		—		(242,123	)
Chilean Peso		JPHQ		Buy			234,301,000		475,159		4/27/12		—		(30,073	)
Indian Rupee		JPHQ		Buy			17,801,000		377,540		4/27/12		—		(48,880	)
Chilean Peso		CITI		Buy			377,668,000		776,296		4/30/12		—		(59,039	)
Indian Rupee		JPHQ		Buy			14,829,000		314,841		4/30/12		—		(41,181	)
Chilean Peso		DBAB		Buy			1,554,000,000		3,233,458		5/04/12		—		(283,090	)
Euro		DBAB		Sell			180,000		264,204		5/04/12		30,897		—
Philippine Peso		JPHQ		Buy			91,360,000		2,135,228		5/04/12		—		(65,286	)
British Pound		DBAB		Sell			913,406		1,489,364		5/10/12		72,520		—
Euro		DBAB		Sell			600,000		844,476		5/10/12		66,711		—
Singapore Dollar		DBAB		Buy			3,707,640		3,000,000		5/10/12		—		(139,740	)
Euro		DBAB		Sell			429,000		605,386		5/11/12		49,275		—
British Pound		DBAB		Sell			2,287,500		3,700,489		5/17/12		152,467		—
Indian Rupee		DBAB		Buy			28,359,000		594,279		6/01/12		—		(73,529	)
Indian Rupee		HSBC		Buy			32,771,000		694,154		6/04/12		—		(92,666	)
Euro		DBAB		Sell			1,053,792		1,505,279		6/06/12		138,679		—
Singapore Dollar		JPHQ		Buy			4,945,200		4,000,000		6/06/12		—		(183,766	)
Euro		DBAB		Sell			2,000,000		2,831,300		6/07/12		237,578		—
Indian Rupee		DBAB		Buy			20,889,000		440,510		6/07/12		—		(57,286	)
Indian Rupee		HSBC		Buy	��		5,576,000		118,412		6/08/12		—		(16,132	)
Euro		DBAB		Sell			937,500		1,350,563		6/11/12		134,677		—
Indian Rupee		DBAB		Buy			5,655,000		120,038		6/11/12		—		(16,357	)
Indian Rupee		HSBC		Buy			14,080,000		298,938		6/13/12		—		(40,871	)
Indian Rupee		DBAB		Buy			14,156,000		299,852		6/18/12		—		(40,591	)
Indian Rupee		DBAB		Buy			12,894,000		272,083		6/20/12		—		(36,008	)
Euro		DBAB		Sell			2,926,890		3,846,449		6/27/12		49,453		—
Euro		UBSW		Sell			4,274,000		5,999,841		6/29/12		455,055		—
Japanese Yen		BOFA		Sell			620,288,000		8,001,909		6/29/12		—		(90,608	)
British Pound		DBAB		Sell			297,656		474,018		7/09/12		12,604		—
Euro		DBAB		Sell			2,065,396		2,924,600		7/09/12		244,591		—
Indian Rupee		JPHQ		Buy			192,280,000		4,121,069		7/16/12		—		(612,407	)
Euro		DBAB		Sell			900,000		1,280,340		7/25/12		112,165		—
Euro		BZWS		Sell			3,140,000		4,450,008		8/01/12		373,831		—
Euro		DBAB		Sell			1,056,111		1,501,209		8/06/12		130,093		—
Euro		CITI		Sell			317,220		445,361		8/08/12		33,508		—
British Pound		DBAB		Sell			169,385		275,589		8/09/12		13,106		—
Euro		CITI		Sell			92,411		130,027		8/09/12		10,046		—
Chilean Peso		JPHQ		Buy			1,141,336,600		2,333,745		8/20/12		—		(185,468	)
Euro		DBAB		Sell			193,056		276,726		8/20/12		26,021		—
Japanese Yen		UBSW		Sell			32,055,000		420,228		8/20/12		1,433		—
Japanese Yen		JPHQ		Sell			15,928,000		208,359		8/20/12		261		—
Japanese Yen		DBAB		Sell			19,550,000		255,887		8/20/12		468		—
Japanese Yen		HSBC		Sell			65,957,000		865,478		8/20/12		3,757		—
Euro		UBSW		Sell			3,500,000		4,984,525		8/22/12		439,196		—
Euro		BZWS		Sell			2,124,000		3,043,692		8/22/12		285,327		—
Japanese Yen		MSCO		Sell			12,500,000		164,184		8/22/12		864		—
Japanese Yen		DBAB		Sell			15,915,000		209,026		8/22/12		1,086		—
Japanese Yen		BZWS		Sell			15,895,000		208,788		8/22/12		1,110		—
Euro		BZWS		Sell			263,159		378,423		8/23/12		36,661		—
Japanese Yen		FBCO		Sell			31,524,000		414,299		8/23/12		2,407		—

FSI-30

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Japanese Yen		CITI		Sell		31,757,000		418,075			8/23/12	$	3,139	$	—
Japanese Yen		DBAB		Sell		15,708,000		207,130			8/23/12		1,890		—
Euro		BZWS		Sell		441,303		633,093			8/24/12		59,966		—
Japanese Yen		JPHQ		Sell		31,689,000		415,403			8/24/12		1,344		—
Euro		BZWS		Sell		3,068,753		4,414,138			8/27/12		428,475		—
Euro		DBAB		Sell		298,304		429,901			8/27/12		42,467		—
Japanese Yen		BZWS		Sell		44,152,000		578,929			8/27/12		1,977		—
Japanese Yen		DBAB		Sell		427,099,000		5,620,315			8/27/12		39,243		—
Japanese Yen		UBSW		Sell		34,903,000		459,054			8/27/12		2,962		—
Japanese Yen		JPHQ		Sell		15,991,000		210,270			8/27/12		1,309		—
Japanese Yen		HSBC		Sell		50,145,000		657,855			8/27/12		2,590		—
United States Dollar		UBSW		Buy		3,000,000		2,085,332	EUR		8/27/12		291,593		—
Euro		DBAB		Sell		1,383,356		1,980,412			8/29/12		183,656		—
Euro		DBAB		Sell		690,000		991,530			8/30/12		95,314		—
Japanese Yen		BZWS		Sell		37,600,000		493,438			8/30/12		2,064		—
Euro		DBAB		Sell		12,470		18,035			8/31/12		1,838		—
Japanese Yen		JPHQ		Sell		15,743,000		206,317			8/31/12		574		—
Euro		BZWS		Sell		271,320		380,960			9/10/12		28,479		—
Euro		BZWS		Sell		266,006		371,876			9/12/12		26,285		—
Euro		BZWS		Sell		759,073		1,038,279			9/14/12		52,065		—
Euro		UBSW		Sell		708,181		970,704			9/17/12		50,557		—
Euro		BZWS		Sell		178,354		247,234			9/19/12		15,488		—
Euro		BZWS		Sell		469,210		638,370			9/24/12		28,639		—
Euro		DBAB		Sell		185,654		249,909			10/04/12		8,605		—
Philippine Peso		DBAB		Buy		21,010,000		482,434			10/04/12		—		(8,916	)
Philippine Peso		HSBC		Buy		16,853,000		382,319			10/04/12		—		(2,490	)
Euro		UBSW		Sell		2,850,000		3,797,696			10/05/12		93,323		—
Philippine Peso		DBAB		Buy		25,119,000		576,785			10/05/12		—		(10,667	)
Philippine Peso		HSBC		Buy		25,126,000		566,398			10/05/12		—		(122	)
Philippine Peso		DBAB		Buy		20,621,000		473,774			10/09/12		—		(9,052	)
Philippine Peso		JPHQ		Buy		6,636,000		152,132			10/09/12		—		(2,581	)
Euro		BZWS		Sell		2,749,000		3,645,641			10/11/12		72,097		—
Philippine Peso		HSBC		Buy		24,786,000		569,911			10/11/12		—		(11,339	)
Philippine Peso		DBAB		Buy		16,501,000		379,072			10/11/12		—		(7,209	)
Philippine Peso		JPHQ		Buy		8,232,000		188,721			10/11/12		—		(3,206	)
Philippine Peso		DBAB		Buy		4,913,000		112,554			10/12/12		—		(1,838	)
Euro		DBAB		Sell		121,043		166,845			10/15/12		9,483		—
Philippine Peso		JPHQ		Buy		18,311,000		420,018			10/15/12		—		(7,386	)
Philippine Peso		HSBC		Buy		8,192,000		187,739			10/15/12		—		(3,135	)
Euro		DBAB		Sell		587,951		811,125			10/18/12		46,710		—
Japanese Yen		DBAB		Sell		382,080,000		5,015,687			10/22/12		14,903		—
Philippine Peso		JPHQ		Buy		237,550,000		5,469,721			10/22/12		—		(117,085	)
Euro		BZWS		Sell		217,715		299,162			10/24/12		16,068		—
Euro		BZWS		Sell		1,659,340		2,302,168			10/25/12		144,488		—
Euro		CITI		Sell		648,569		902,918			10/26/12		59,551		—
Euro		BZWS		Sell		1,993,000		2,759,886			10/26/12		168,286		—
Japanese Yen		JPHQ		Sell		270,990,000		3,577,355			10/26/12		30,128		—
Euro		UBSW		Sell		2,679,000		3,729,168			10/29/12		245,307		—
Euro		DBAB		Sell		1,494,524		2,106,995			10/31/12		163,385		—
Japanese Yen		JPHQ		Sell		360,360,000		4,785,340			10/31/12		67,564		—
Euro		DBAB		Sell		243,767		339,065			11/02/12		22,036		—

FSI-31

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin Strategic Income Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Euro		BZWS		Sell		529,706		730,253		11/05/12	$	41,304	$	—
Euro		BZWS		Sell		473,670		651,367		11/08/12		35,262		—
Euro		BZWS		Sell		227,970		311,031		11/15/12		14,466		—
Euro		UBSW		Sell		1,480,440		2,011,770		11/19/12		85,709		—
Euro		BZWS		Sell		63,419		86,938		11/19/12		4,429		—
Euro		BZWS		Sell		221,993		301,245		11/21/12		12,418		—
Euro		BZWS		Sell		201,376		273,328		11/23/12		11,314		—
Euro		UBSW		Sell		2,020,000		2,731,444		12/03/12		102,642		—
Japanese Yen		BZWS		Sell		257,790,000		3,343,580		12/06/12		—		(35,006	)
Euro		DBAB		Sell		5,466,617		7,331,882		12/10/12		216,653		—
Euro		UBSW		Sell		3,400,000		4,552,566		12/10/12		127,201		—
Japanese Yen		UBSW		Sell		351,760,000		4,586,778		12/12/12		—		(24,206	)
British Pound		DBAB		Sell		600,000		922,440		12/17/12		—		(6,200	)
Euro		DBAB		Sell		486,875		639,705		12/17/12		5,906		—
Euro		CITI		Sell		3,868,000		5,051,879		12/17/12		16,636		—
Euro		DBAB		Sell		262,167		343,177		12/20/12		1,874		—
Euro		UBSW		Sell		2,137,312		2,799,559		12/20/12		17,098		—
Unrealized appreciation (depreciation)												8,120,202		(5,284,253	)
Net unrealized appreciation (depreciation)											$	2,835,949

*In U.S. dollars unless otherwise indicated.

At December 31, 2011, the Fund had the following credit default swap contracts outstanding. See Note 1(d).

Credit Default Swap Contracts

Description	Counter- partya		Notional Amountb		Periodic Payment Rate		Expiration Date		Upfront Premiums Paid (Received)			Unrealized Appreciation		Unrealized Depreciation		Market Value			Ratingc
Contracts to Sell Protectiond
Traded Index
CDX.NA.HY.17		GSCO	$	34,300,000		5.00%		12/20/16	$	(3,118,516	)	$	776,779	$	—	$	(2,341,737	)	Non Investment Grade
Net unrealized appreciation (depreciation)												$	776,779

^aPositions are generally not collateralized if the market value is under $250,000. Collateral requirements may be net of current positions at the individual counterparty for the fund. The table below summarizes the cash and/or securities held as collateral for each applicable counterparty at year end:

Counterparty	Collateral Posted (Received)
GSCO	$	2,520,000

^bIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.

^cBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.

^dThe fund enters contracts to sell protection to create a long credit position. Performance triggers include failure to pay or bankruptcy for traded index swaps.

See Abbreviations on page 47.

The accompanying notes are an integral part of these financial statements.

FSI-32

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Strategic Income Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	1,284,412,709
Cost - Sweep Money Fund (Note 7)		61,664,899
Total cost of investments	$	1,346,077,608
Value - Unaffiliated issuers	$	1,275,990,254
Value - Sweep Money Fund (Note 7)		61,664,899
Total value of investments		1,337,655,153
Cash		847,366
Restricted cash (Note 1h)		3,195,000
Foreign currency, at value (cost $7,031,003)		7,047,028
Receivables:
Investment securities sold		2,652,552
Capital shares sold		900,182
Interest		17,023,682
Due from brokers		4,800,000
Unrealized appreciation on forward exchange contracts		8,120,202
Unrealized appreciation on swap contracts		776,779
Other assets		38
Total assets		1,383,017,982
Liabilities:
Payables:
Investment securities purchased		12,518,170
Capital shares redeemed		883,253
Affiliates		789,323
Due to brokers		3,195,000
Swaps (premiums received $3,279,938)		3,118,516
Unrealized depreciation on forward exchange contracts		5,284,253
Unrealized depreciation on unfunded loan commitments (Note 9)		3,519
Deferred tax		276,888
Accrued expenses and other liabilities		723,306
Total liabilities		26,792,228
Net assets, at value	$	1,356,225,754
Net assets consist of:
Paid-in capital	$	1,276,208,900
Undistributed net investment income		84,105,225
Net unrealized appreciation (depreciation)		(5,363,380	)
Accumulated net realized gain (loss)		1,275,009
Net assets, at value	$	1,356,225,754

The accompanying notes are an integral part of these financial statements.

FSI-33

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Franklin Strategic Income Securities Fund
Class 1:
Net assets, at value	$	1,043,689,988
Shares outstanding		83,136,790
Net asset value and maximum offering price per share	$	12.55
Class 2:
Net assets, at value	$	123,749,477
Shares outstanding		10,086,825
Net asset value and maximum offering price per share	$	12.27
Class 4:
Net assets, at value	$	188,786,289
Shares outstanding		15,177,270
Net asset value and maximum offering price per share	$	12.44

The accompanying notes are an integral part of these financial statements.

FSI-34

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Strategic Income Securities Fund
Investment income:
Dividends	$	62,486
Interest		85,886,794
Total investment income		85,949,280
Expenses:
Management fees (Note 3a)		4,911,675
Administrative fees (Note 3b)		2,884,139
Distribution fees: (Note 3c)
Class 2		291,663
Class 4		677,463
Unaffiliated transfer agent fees		1,640
Custodian fees (Note 4)		336,834
Reports to shareholders		341,770
Professional fees		85,026
Trustees’ fees and expenses		5,488
Other		72,858
Total expenses		9,608,556
Expense reductions (Note 4)		(13	)
Net expenses		9,608,543
Net investment income		76,340,737
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		39,350,684
Foreign currency transactions		(3,783,546	)
Swap contracts		(2,052,379	)
Net realized gain (loss)		33,514,759
Net change in unrealized appreciation (depreciation) on:
Investments		(72,662,023	)
Translation of other assets and liabilities denominated in foreign currencies		1,856,972
Change in deferred taxes on unrealized appreciation		(276,888	)
Net change in unrealized appreciation (depreciation)		(71,081,939	)
Net realized and unrealized gain (loss)		(37,567,180	)
Net increase (decrease) in net assets resulting from operations	$	38,773,557

The accompanying notes are an integral part of these financial statements.

FSI-35

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Strategic Income Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	76,340,737		$	82,801,087
Net realized gain (loss) from investments, foreign currency transactions and swap contracts		33,514,759			57,948,653
Net change in unrealized appreciation (depreciation) on investments, translation of other assets and liabilities denominated in foreign currencies and deferred taxes		(71,081,939	)		13,730,001
Net increase (decrease) in net assets resulting from operations		38,773,557			154,479,741
Distributions to shareholders from and net foreign currency gains:
Net investment income:
Class 1		(69,631,166	)		(57,255,268	)
Class 2		(7,304,903	)		(3,841,288	)
Class 4		(11,235,444	)		(8,302,315	)
Total distributions to shareholders		(88,171,513	)		(69,398,871	)
Capital share transactions: (Note 2)
Class 1		(114,013,494	)		(48,613,654	)
Class 2		27,304,975			28,343,361
Class 4		7,657,719			16,237,324
Total capital share transactions		(79,050,800	)		(4,032,969	)
Net increase (decrease) in net assets		(128,448,756	)		81,047,901
Net assets:
Beginning of year		1,484,674,510			1,403,626,609
End of year	$	1,356,225,754		$	1,484,674,510
Undistributed net investment income included in net assets:
End of year	$	84,105,225		$	83,363,411

The accompanying notes are an integral part of these financial statements.

FSI-36

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Strategic Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Strategic Income Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 91.92% of the Fund’s shares were held through one insurance company. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.

Certain derivative financial instruments (derivatives) trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

FSI-37

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, or a tranche of a credit index. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit

FSI-38

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Derivative Financial Instruments (continued)

default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Payments received or paid to initiate a credit default swap contract are reflected on the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments are amortized over the term of the contract as a realized gain or loss on the Statement of Operations. Pursuant to the terms of the credit default swap contract, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

At December 31, 2011, the Fund holds $2,230,469 in U.S. treasury notes as collateral for derivatives.

See Note 10 regarding other derivative information.

e. FT Holdings Corporation III

The Fund invests in certain securities through its investment in FT Holdings Corporation III, a Delaware Corporation and a wholly-owned subsidiary (Subsidiary) of the Fund. The Subsidiary has the ability to invest in securities consistent with the investment objective of the Fund. At December 31, 2011, all Subsidiary investments as well as any other assets and liabilities are reflected in the Fund’s Statement of Investments and Statement of Assets and Liabilities. All income and expenses of the Subsidiary during the period ended December 31, 2011, have been included in the Fund’s Statement of Operations.

f. Mortgage Dollar Rolls

The Fund enters into mortgage dollar rolls, typically on a TBA basis. Mortgage dollar rolls are agreements between the Fund and a financial institution to simultaneously sell and repurchase mortgage-backed securities at a future date. Gains or losses are realized on the initial sale, and the difference between the repurchase price and the sale price is recorded as an unrealized gain or loss to the fund upon entering into the mortgage dollar roll. In addition, the Fund may invest the cash proceeds that are received from the initial sale. During the period between the sale and repurchase, the Fund is not entitled to principal and interest paid on the mortgage backed securities. The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.

g. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

h. Restricted Cash

At December 31, 2011, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.

FSI-39

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

i. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

j. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Dividend income is recorded on the ex-dividend date. Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as interest income on the Statement of Operations.

k. 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 expenses during the reporting period. Actual results could differ from those estimates.

FSI-40

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

l. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		2,569,621		$	33,265,626			4,513,968		$	56,940,927
Shares issued in reinvestment of distributions		5,474,148			69,631,166			4,747,535			57,255,268
Shares redeemed		(16,887,770	)		(216,910,286	)		(12,820,410	)		(162,809,849	)
Net increase (decrease)		(8,844,001	)	$	(114,013,494	)		(3,558,907	)	$	(48,613,654	)
Class 2 Shares:
Shares sold		3,778,943		$	48,008,160			3,451,058		$	42,785,482
Shares issued in reinvestment of distributions		586,739			7,304,903			324,982			3,841,288
Shares redeemed		(2,243,563	)		(28,008,088	)		(1,474,432	)		(18,283,409	)
Net increase (decrease)		2,122,119		$	27,304,975			2,301,608		$	28,343,361
Class 4 Shares:
Shares sold		2,126,744		$	27,218,734			2,251,182		$	28,170,784
Shares issued on reinvestment of distributions		889,584			11,235,444			693,015			8,302,315
Shares redeemed		(2,444,718	)		(30,796,459	)		(1,626,043	)		(20,235,775	)
Net increase (decrease)		571,610		$	7,657,719			1,318,154		$	16,237,324

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FSI-41

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.425%	Up to and including $500 million
0.325%	Over $500 million, up to and including $1 billion
0.280%	Over $1 billion, up to and including $1.5 billion
0.235%	Over $1.5 billion, up to and including $6.5 billion
0.215%	Over $6.5 billion, up to and including $11.5 billion
0.200%	Over $11.5 billion, up to and including $16.5 billion
0.190%	Over $16.5 billion, up to and including $19 billion
0.180%	Over $19 billion, up to and including $21.5 billion
0.170%	In excess of $21.5 billion

b. Administrative Fees

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

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.25% and 0.35% per year of its average daily net assets of Class 2 and Class 4, respectively.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

During the year ended December 31, 2011, the Fund utilized $19,139,048 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	88,171,513	$	69,467,803

FSI-42

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments	$	1,349,774,143
Unrealized appreciation	$	49,514,420
Unrealized depreciation		(61,633,410	)
Net unrealized appreciation (depreciation)	$	(12,118,990	)
Undistributed ordinary income	$	95,083,077
Undistributed long term capital gains		1,471,874
Distributable earnings	$	96,554,951

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of defaulted securities, foreign currency transactions, paydown losses, payments-in-kind, bond discounts and premiums, swaps, tax straddles, inflation related adjustments on foreign securities and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $731,197,297 and $879,119,073, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT RISK AND DEFAULTED SECURITIES

At December 31, 2011, the Fund had 51.84% of its portfolio invested in high yield securities, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At December 31, 2011, the aggregate value of these securities was $5,290,001, representing 0.39% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments.

9. UNFUNDED LOAN COMMITMENTS

The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Funded portions of credit agreements are presented on the Statement of Investments.

FSI-43

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

9. UNFUNDED LOAN COMMITMENTS (continued)

At December 31, 2011, unfunded commitments were as follows:

Borrower	Unfunded Commitment
EnviroSolutions Real Property Holdings Inc., DIP Revolver	$	703,908

Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and Statement of Operations.

10. OTHER DERIVATIVE INFORMATION

At December 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

	Asset Derivatives			Liability Derivatives
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value Amount		Statement of Assets and Liabilities Location	Fair Value Amount
Foreign exchange contracts	Unrealized appreciation on forward exchange contracts	$	8,120,202	Unrealized depreciation on forward exchange contracts	$	5,284,253
Credit contracts	Unrealized appreciation on swap contracts		776,779

For the year ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year			Change in Unrealized Appreciation (Depreciation) for the Year
Foreign exchange contracts	Net realized gain (loss) from foreign currency transactions / Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies	$	(3,810,538	)	$	2,349,306
Credit contracts	Net realized gain (loss) from swap contracts / Net change in unrealized appreciation (depreciation) on investments		(2,052,379	)		776,779

For the year ended December 31,2011, the average month end market value of derivatives represented 0.86% of average month end net assets. The average month end number of open derivative contracts for the year was 163.

See Note 1(d) regarding derivative financial instruments.

FSI-44

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

11. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

12. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

FSI-45

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

12. FAIR VALUE MEASUREMENTS (continued)

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

		Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities
Equity Investments:a
Consumer Durables & Apparel	$	—	$	—	$	343,060	$	343,060
Media		66,400		5,040,820		—		5,107,220
Other Equity Investmentsb		669,164		1,948,985		—		2,618,149
Convertible Bonds		—		2,620,000		—		2,620,000
Corporate Bonds		—		490,645,836		—		490,645,836
Senior Floating Rate Interests		—		217,061,631		1,341,906		218,403,537
Foreign Government and Agency Securities		—		325,273,503		—		325,273,503
U.S. Government and Agency Securities		—		20,941,544		—		20,941,544
Asset-Backed Securities and Commercial Mortgage-Backed Securities		—		46,457,346		—		46,457,346
Mortgage-Backed Securities		—		67,488,463		—		67,488,463
Municipal Bonds		—		47,575,414		—		47,575,414
Short Term Investments		61,664,899		48,516,182		—		110,181,081
Total Investments in Securities	$	62,400,463	$	1,273,569,724	$	1,684,966	$	1,337,655,153
Forward Exchange Contracts		—		8,120,202		—		8,120,202
Swaps		—		776,779		—		776,779
Liabilities:
Forward Exchange Contracts		—		5,284,253		—		5,284,253
Unfunded Loan Commitments		—		3,519		—		3,519

^aIncludes common and preferred stocks.

^bFor detailed categories, see the accompanying Statement of Investments.

At December 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

	Balance at Beginning of Year		Purchases		Sales			Transfers Into Level 3		Transfers Out of Level 3a			Cost Basis Adjustmentsb		Net Realized Gain (Loss)		Net Unrealized Gain (Loss)			Balance at End of Year		Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets
Investments in Securities:
Equity Investments:c
Consumer Services	$	1,901,449	$	—	$	—		$	—	$	(1,901,449	)	$	—	$	—	$	—		$	—	$	—
Consumer Durables & Apparel		—d		113,482		—			—		—			—		—		229,578			343,060		229,578
Senior Floating Rate Interests		835,411		718,849		(309,097	)		—		—			114,710		59,561		(77,528	)		1,341,906		(3,315	)
Total	$	2,736,860	$	832,331	$	(309,097	)	$	—	$	(1,901,449	)	$	114,710	$	59,561	$	152,050		$	1,684,966	$	226,263

^aThe investment was transferred out of Level 3 as a result of the availability of a quoted price in an active market for identical securities.

^bMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

^cIncludes common and preferred stocks.

^dIncludes securities determined to have no value.

FSI-46

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Strategic Income Securities Fund

13. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

14. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS
Counterparty	Currency	Selected Portfolio
BOFA - Bank of America N.A.	AUD - Australian Dollar	AGMC - Assured Guaranty Municipal Corp.
BZWS - Barclays Bank PLC	BRL - Brazilian Real	CDO - Collateralized Debt Obligation
CITI - Citigroup, Inc.	EGP - Egyptian Pound	CLO - Collateralized Loan Obligation
DBAB - Deutsche Bank AG	EUR - Euro	DIP - Debtor-In-Possession
FBCO - Credit Suisse Group AG	GBP - British Pound	FGIC - Financial Guaranty Insurance Co.
HSBC - HSBC Bank USA, N.A.	HUF - Hungarian Forint	FICO - Financing Corp.
JPHQ - JPMorgan Chase & Co.	IDR - Indonesian Rupiah	FRN - Floating Rate Note
MSCO - Morgan Stanley	ILS - New Israeli Shekel	GO - General Obligation
UBSW - UBS AG	KRW - South Korean Won	ID - Improvement District
	LKR - Sri Lankan Rupee	IDA - Industrial Development Authority/Agency
	MXN - Mexican Peso	L/C - Letter of Credit
	MYR - Malaysian Ringgit	NATL - National Public Financial Guarantee Corp.
	NOK - Norwegian Krone PHP - Philippine Peso	NATL RE - National Public Financial Guarantee Corp. Reinsured
	PLN - Polish Zloty	PIK - Payment-In-Kind
	SEK - Swedish Krona	SBA - Small Business Administration
	SGD - Singapore Dollar	SF - Single Family
	UYU - Uraguayan Peso	USD - Unified/Union School District

FSI-47

Franklin Templeton Variable Insurance Products Trust

Franklin Strategic Income Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Strategic Income Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FSI-48

FRANKLIN TEMPLETON VIP FOUNDING FUNDS ALLOCATION FUND

This annual report for Franklin Templeton VIP Founding Funds Allocation Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares* represents the 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.

Periods ended 12/31/11

	1-Year		3-Year		Inception (7/2/07)
Average Annual Total Return		-1.28%		+12.53%		-3.44%

*The administrator has contractually agreed to waive or assume certain expenses so that common expenses of the Fund (excluding Rule 12b-1 fees and acquired fund fees and expenses) do not exceed 0.10% (other than certain nonroutine expenses) until 4/30/12. If the administrator had not waived fees, the Fund’s total returns would have been lower.

Total Return Index Comparison for a Hypothetical $10,000 Investment (7/2/07–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance* is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®) and MSCI World Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

**Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Franklin Templeton VIP Founding Funds Allocation 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FFA-1

Fund Goals and Main Investments: Franklin Templeton VIP Founding Funds Allocation Fund seeks capital appreciation, with income as a secondary goal. The Fund normally invests equal portions in Class 1 shares of Franklin Income Securities Fund, Mutual Shares Securities Fund and Templeton Growth Securities Fund.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed the S&P 500’s +2.11% total return but performed better than the MSCI World Index’s -5.02% total return for the same period.¹

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. In contrast, growth outside the U.S. began to slow, which some attributed partly to the effects of Japan’s earthquake on the global supply chain and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. European and Asian manufacturing, however, generally weakened throughout 2011 as parts of Europe were in danger of falling back into recession.

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. Inflation rose across much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Federal Reserve Board (Fed) sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth. Outside the U.S., European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. The European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks agreed to lower dollar funding costs for

1. Source: © 2012 Morningstar. Please see Index descriptions following the Fund summaries.

Fund Risks: All investments involve risks. Because the Fund invests in underlying funds that may engage in a variety of investment strategies involving certain risks, this Fund may be subject to those same risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Because the underlying funds invest in bonds and other debt obligations, the Fund’s share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction from interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. High yield, lower rated (junk) bonds generally have greater price swings and higher default risks than investment-grade bonds. Foreign investing, especially in developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. Underlying funds may use certain derivative instruments which may be volatile and illiquid, may give rise to leverage and may involve a small investment relative to the risk assumed. These and other risks are described more fully in the Fund’s and underlying funds’ prospectuses.

FFA-2

Europe’s distressed commercial banks. Chinese policymakers lowered commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms.

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 gained 2.11% in 2011.¹ The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.¹ In contrast, developed and emerging world stocks as measured by the MSCI All Country World Index fell 6.86%. Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Investment Strategy

The Fund invests its assets in an equally weighted combination of Class 1 shares of Franklin Income Securities Fund, Mutual Shares Securities Fund and Templeton Growth Securities Fund. These underlying funds, in turn, invest in a variety of U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund’s allocations seeking to maintain equal weightings of approximately 33 ¹/3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages.

Manager’s Discussion

The Fund’s performance can be attributed largely to its allocation among the underlying funds and their investments in domestic and foreign equities, fixed income securities, and short-term investments and other net assets.

During the fiscal year under review, Franklin Income Securities Fund — Class 1 outperformed the S&P 500, while Mutual Shares Securities Fund — Class 1 underperformed the S&P 500. Templeton Growth Securities Fund — Class 1 underperformed the MSCI World Index.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s SOI.

FFA-3

Thank you for your participation in Franklin Templeton VIP Founding Funds Allocation Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

FFA-4

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin Templeton VIP Founding Funds Allocation Fund – Class 1

FFA-5

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Expenses Paid During Period* 7/1/11–12/31/11		Expenses Paid During Period** 7/1/11–12/31/11
Actual	$	1,000	$	926.00	$	0.49	$	3.64
Hypothetical (5% return before expenses)	$	1,000	$	1,024.70	$	0.51	$	3.82

*Expenses are calculated using the most recent six-month annualized expense ratio excluding expenses of the underlying funds, net of expense waivers, for the Fund’s Class 1 shares (0.10%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

**Expenses are calculated using the most recent six-month annualized expense ratio including expenses of the underlying funds, net of expense waivers, for the Fund’s Class 1 shares (0.75%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

FFA-6

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin Templeton VIP Founding Funds Allocation Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	7.73		$	7.15		$	5.61		$	9.33		$	10.00
Income from investment operationsb:
Net investment income (loss)c,d		0.25			0.24			0.26			0.28			(0.19	)
Net realized and unrealized gains (losses)		(0.35	)		0.52			1.46			(3.64	)		(0.48	)
Total from investment operations		(0.10	)		0.76			1.72			(3.36	)		(0.67	)
Less distributions from:
Net investment income		—	e		(0.18	)		(0.18	)		(0.19	)		—
Net realized gains		—			—	e		—			(0.17	)		—
Total distributions		—	e		(0.18	)		(0.18	)		(0.36	)		—
Net asset value, end of year	$	7.63		$	7.73		$	7.15		$	5.61		$	9.33
Total returnf		(1.28)%			10.64%			30.47%			(35.75)%			(6.70)%
Ratios to average net assetsg
Expenses before waiver and payments by affiliatesh		0.11%			0.11%			0.12%			0.13%			0.41%
Expenses net of waiver and payments by affiliatesh		0.10%			0.10%			0.10%			0.13%			0.41%
Net investment income (loss)d		3.44%			3.04%			4.16%			3.81%			(0.41)%
Supplemental data
Net assets, end of year (000’s)	$	470		$	437		$	629		$	339		$	466
Portfolio turnover rate		58.42%			17.81%			4.23%			22.09%			0.04%

^aFor the period July 2, 2007 (commencement of operations) to December 31, 2007.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests.

^eAmount rounds to less than $0.01 per share.

^fTotal return does not include 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.

^gRatios are annualized for periods less than one year.

^hDoes not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.65% for the year ended December 31, 2011.

The accompanying notes are an integral part of these financial statements.

FFA-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	7.71		$	7.14		$	5.61		$	9.31		$	10.00
Income from investment operationsb:
Net investment income (loss)c,d		0.23			0.21			0.26			0.27			(0.03	)
Net realized and unrealized gains (losses)		(0.35	)		0.52			1.44			(3.63	)		(0.66	)
Total from investment operations		(0.12	)		0.73			1.70			(3.36	)		(0.69	)
Less distributions from:
Net investment income		—	e		(0.16	)		(0.17	)		(0.17	)		—
Net realized gains		—			—	e		—			(0.17	)		—
Total distributions		—	e		(0.16	)		(0.17	)		(0.34	)		—
Net asset value, end of year	$	7.59		$	7.71		$	7.14		$	5.61		$	9.31
Total returnf		(1.54)%			10.25%			30.25%			(35.87)%			(6.90)%
Ratios to average net assetsg
Expenses before waiver and payments by affiliatesh		0.36%			0.36%			0.37%			0.38%			0.66%
Expenses net of waiver and payments by affiliatesh		0.35%			0.35%			0.35%			0.38%			0.66%
Net investment income (loss)d		3.19%			2.79%			3.91%			3.56%			(0.66)%
Supplemental data
Net assets, end of year (000’s)	$	448,101		$	488,057		$	474,176		$	338,320		$	131,710
Portfolio turnover rate		58.42%			17.81%			4.23%			22.09%			0.04%

^aFor the period July 2, 2007 (commencement of operations) to December 31, 2007.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests.

^eAmount rounds to less than $0.01 per share.

^fTotal return does not include 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.

^gRatios are annualized for periods less than one year.

^hDoes not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.65% for the year ended December 31, 2011.

The accompanying notes are an integral part of these financial statements.

FFA-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	7.71		$	7.14		$	5.62		$	8.65
Income from investment operationsb:
Net investment incomec,d		0.24			0.19			0.23			0.19
Net realized and unrealized gains (losses)		(0.37	)		0.54			1.46			(2.87	)
Total from investment operations		(0.13	)		0.73			1.69			(2.68	)
Less distributions from:
Net investment income		—	e		(0.16	)		(0.17	)		(0.18	)
Net realized gains		—			—	e		—			(0.17	)
Total distributions		—	e		(0.16	)		(0.17	)		(0.35	)
Net asset value, end of year	$	7.58		$	7.71		$	7.14		$	5.62
Total returnf		(1.67)%			10.24%			30.06%			(30.81)%
Ratios to average net assetsg
Expenses before waiver and payments by affiliatesh		0.46%			0.46%			0.47%			0.48%
Expenses net of waiver and payments by affiliatesh		0.45%			0.45%			0.45%			0.48%
Net investment incomed		3.09%			2.69%			3.81%			3.46%
Supplemental data
Net assets, end of year (000’s)	$	2,860,928		$	3,036,272		$	1,424,479		$	263,001
Portfolio turnover rate		58.42%			17.81%			4.23%			22.09%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests.

^eAmount rounds to less than $0.01 per share.

^fTotal return does not include 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.

^gRatios are annualized for periods less than one year.

^hDoes not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.65% for the year ended December 31, 2011.

The accompanying notes are an integral part of these financial statements.

FFA-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin Templeton VIP Founding Funds Allocation Fund	Shares	Value
Investments in Underlying Fundsa
Domestic Equity 31.6%
Mutual Shares Securities Fund, Class 1	67,201,395	$	1,046,325,725
Domestic Hybrid 31.6%
Franklin Income Securities Fund, Class 1	71,098,618		1,043,727,706
Foreign Equity 31.8%
Templeton Growth Securities Fund, Class 1	102,526,012		1,052,942,139
Total Investments in Underlying Funds (Cost $2,851,807,737) 95.0%			3,142,995,570
Other Assets, less Liabilities 5.0%			166,503,342
Net Assets 100.0%		$	3,309,498,912

^aSee Note 7 regarding investments in Underlying Funds.

The accompanying notes are an integral part of these financial statements.

FFA-10

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin Templeton VIP Founding Funds Allocation Fund
Assets:
Investments in Underlying Funds: (Note 7)
Cost	$	2,851,807,737
Value	$	3,142,995,570
Cash		160,842,931
Receivables:
Investment securities sold		187,563
Capital shares sold		8,130,543
Other assets		91
Total assets		3,312,156,698
Liabilities:
Payables:
Capital shares redeemed		474,905
Affiliates		1,986,530
Reports to shareholders		143,902
Accrued expenses and other liabilities		52,449
Total liabilities		2,657,786
Net assets, at value	$	3,309,498,912
Net assets consist of:
Paid-in capital	$	3,267,118,803
Undistributed net investment income		115,004,672
Net unrealized appreciation (depreciation)		291,187,833
Accumulated net realized gain (loss)		(363,812,396	)
Net assets, at value	$	3,309,498,912
Class 1:
Net assets, at value	$	470,202
Shares outstanding		61,636
Net asset value and maximum offering price per share	$	7.63
Class 2:
Net assets, at value	$	448,100,747
Shares outstanding		59,021,545
Net asset value and maximum offering price per share	$	7.59
Class 4:
Net assets, at value	$	2,860,927,963
Shares outstanding		377,511,860
Net asset value and maximum offering price per share	$	7.58

The accompanying notes are an integral part of these financial statements.

FFA-11

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin Templeton VIP Founding Funds Allocation Fund
Investment income:
Dividends from Underlying Funds (Note 7)	$	131,232,167
Expenses:
Administrative fees (Note 3a)		3,708,840
Distribution fees: (Note 3b)
Class 2		1,195,566
Class 4		11,300,550
Unaffiliated transfer agent fees		3,684
Custodian fees (Note 4)		3,306
Reports to shareholders		333,870
Professional fees		67,810
Trustees’ fees and expenses		13,842
Other		51,629
Total expenses		16,679,097
Expenses waived/paid by affiliates (Note 3d)		(474,139	)
Net expenses		16,204,958
Net investment income		115,027,209
Realized and unrealized gains (losses):
Net realized gain (loss) from sale of investments in Underlying Funds (Note 7)		(183,417,581	)
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds		(140,904,024	)
Net realized and unrealized gain (loss)		(324,321,605	)
Net increase (decrease) in net assets resulting from operations	$	(209,294,396	)

The accompanying notes are an integral part of these financial statements.

FFA-12

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin Templeton VIP Founding Funds Allocation Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	115,027,209		$	69,934,841
Net realized gain (loss) from Underlying Funds		(183,417,581	)		(102,829,602	)
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds		(140,904,024	)		305,671,809
Net increase (decrease) in net assets resulting from operations		(209,294,396	)		272,777,048
Distributions to shareholders from:
Net investment income:
Class 1		(68	)		(19,195	)
Class 2		(73,496	)		(9,975,426	)
Class 4		(555,926	)		(59,699,243	)
Net realized gains:
Class 1		—			(64	)
Class 2		—			(37,379	)
Class 4		—			(225,645	)
Total distributions to shareholders		(629,490	)		(69,956,952	)
Capital share transactions: (Note 2)
Class 1		45,474			(249,343	)
Class 2		(32,955,021	)		(22,011,518	)
Class 4		27,566,498			1,444,922,739
Total capital share transactions		(5,343,049	)		1,422,661,878
Net increase (decrease) in net assets		(215,266,935	)		1,625,481,974
Net assets:
Beginning of year		3,524,765,847			1,899,283,873
End of year	$	3,309,498,912		$	3,524,765,847
Undistributed net investment income included in net assets:
End of year	$	115,004,672		$	606,953

The accompanying notes are an integral part of these financial statements.

FFA-13

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin Templeton VIP Founding Funds Allocation Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin Templeton VIP Founding Funds Allocation Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund invests primarily in other funds of the Trust (Underlying Funds). Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 72.66% of the Fund’s shares were held through one insurance company. The Fund offers three classes of shares: Class 1, Class 2 and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day.

b. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

c. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

The Fund indirectly bears its proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Fund may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Fund will vary.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

FFA-14

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. 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 expenses during the reporting period. Actual results could differ from those estimates.

e. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		12,893		$	104,448			28,887		$	212,938
Shares issued in reinvestment of distributions		9			68			2,512			19,259
Shares redeemed		(7,764	)		(59,042	)		(62,828	)		(481,540	)
Net increase (decrease)		5,138		$	45,474			(31,429	)	$	(249,343	)
Class 2 Shares:
Shares sold		6,091,791		$	47,334,953			5,965,854		$	43,444,607
Shares issued in reinvestment of distributions		9,187			73,496			1,309,697			10,012,805
Shares redeemed		(10,341,627	)		(80,363,470	)		(10,412,128	)		(75,468,930	)
Net increase (decrease)		(4,240,649	)	$	(32,955,021	)		(3,136,577	)	$	(22,011,518	)
Class 4 Shares:
Shares sold		298,702,307		$	2,283,542,888			260,520,140		$	1,895,056,899
Shares issued on reinvestment of distributions		69,578			555,926			7,836,782			59,924,888
Shares redeemed		(315,059,008	)		(2,256,532,316	)		(73,968,871	)		(510,059,048	)
Net increase (decrease)		(16,287,123	)	$	27,566,498			194,388,051		$	1,444,922,739

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of certain of the Underlying Funds and of the following subsidiaries:

Subsidiary	Affiliation
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

FFA-15

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.10% per year of the average daily net assets of the Fund for administrative services including monitoring and rebalancing the percentage of each Fund’s investment in the Underlying Funds.

b. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

c. Transfer Agent Fees

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

d. Waiver and Expense Reimbursements

FT Services has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the fund so that the common expenses (i.e. a combination of administrative fees and other expenses, but excluding distribution fees, and acquired fund fees and expenses) for each class of the Fund do not exceed 0.10% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2012.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as short-term or long-term. During the year ended December 31, 2011, the Fund had capital loss carryforwards not subject to expiration of $114,009,192.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011			2010
Distributions paid from:
Ordinary income	$	629,490		$	69,719,533
Long term capital gain		—			237,419
	$	629,490	��	$	69,956,952

FFA-16

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	3,101,610,943
Unrealized appreciation	$	72,444,980
Unrealized depreciation		(31,060,353	)
Net unrealized appreciation (depreciation)	$	41,384,627
Distributable earnings – undistributed ordinary income	$	115,004,672

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2011, aggregated $2,142,232,167 and $2,170,193,792, respectively.

7. INVESTMENTS IN UNDERLYING FUNDS

The Fund invests primarily in the Underlying Funds which are managed by affiliates of the Fund’s administrative manager, FT Services. The Fund does not invest in the Underlying Funds for the purpose of exercising a controlling influence over the management or policies. Investments in Underlying Funds for the year ended December 31, 2011, were as follows:

Underlying Funds	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Investment Income		Realized Capital Gain (Loss)			% of Underlying Fund Shares Outstanding Held at End of Year
Franklin Income Securities Fund, Class 1		77,056,138		50,750,679		56,708,199		71,098,618	$	1,043,727,706	$	80,509,469	$	(52,538,930	)		13.38%
Mutual Shares Securities Fund, Class 1		72,027,638		43,726,090		48,552,333		67,201,395		1,046,325,725		29,521,165		(57,031,675	)		19.75%
Templeton Growth Securities Fund, Class 1		104,073,430		65,742,515		67,289,933		102,526,012		1,052,942,139		21,201,533		(73,846,976	)		41.58%
Total									$	3,142,995,570	$	131,232,167	$	(183,417,581	)

8. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

FFA-17

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin Templeton VIP Founding Funds Allocation Fund

8. CREDIT FACILITY (continued)

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

At December 31, 2011, all of the Fund’s investments in Underlying Funds carried at fair value were valued using Level 1 inputs. For detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

FFA-18

Franklin Templeton Variable Insurance Products Trust

Franklin Templeton VIP Founding Funds Allocation Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Templeton VIP Founding Funds Allocation Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

FFA-19

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Franklin Templeton VIP Founding Funds Allocation Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 100% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

FFA-20

FRANKLIN U.S. GOVERNMENT FUND

This annual report for Franklin U.S. Government Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		+5.96%		+5.91%		+5.25%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Barclays Capital (BC) U.S. Government: Intermediate Index, the Lipper VIP General U.S. Government Funds Classification Average and the Consumer Price Index (CPI). One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

**Source: Lipper Inc. Please see Index Descriptions following the Fund Summaries.

Franklin U.S. Government 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

FUS-1

Fund Goal and Main Investments: Franklin U.S. Government Fund seeks income. The Fund normally invests at least 80% of its net assets in U.S. government securities.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund’s benchmark, the BC U.S. Government: Intermediate Index, delivered a +6.08% return.¹ The Fund underperformed the Lipper VIP General U.S. Government Funds Classification Average, which posted a +10.05% total return.² Funds in the Lipper average may allocate as much as 35% of their fund’s investments in asset types other than U.S. government and agency mortgage-backed securities.

Economic and Market Overview

During the 12 months under review, Federal Reserve Board (Fed) policymakers maintained historically low interest rates while adopting a more restrained view of the economy largely because of the European sovereign debt crisis and signs the U.S. economic expansion lacked momentum. To promote a stronger recovery and help maintain inflation levels the Fed believed consistent with its dual mandate to foster maximum employment and price stability, the Fed undertook a second round of quantitative easing consisting of a $600 billion purchase of longer term U.S. Treasuries, which ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth. In September, the Fed announced plans designed to boost the economy by driving down long-term interest rates. The Fed intends to sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. The Fed also anticipated it would keep short-term rates near zero through mid-2013.

The economy grew more slowly than expected, and unemployment remained high. Home foreclosures increased, but federal lawmakers made efforts to strengthen the real estate market by removing some eligibility restrictions and charges associated with refinancing. After showing improvement early in the reporting period, manufacturing activity weakened partly because of global supply-chain disruptions following Japan’s natural disasters. Geopolitical instability in some oil-producing regions drove up oil prices for much of the period.

1. Source: © 2012 Morningstar.

2. Source: Lipper, Inc.

One cannot invest directly in an index, and index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Interest rate movements and mortgage prepayment rates may impact the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the Fund’s portfolio adjust to a rise in interest rates, the Fund’s share price may decline. U.S. government securities owned by the Fund, but not shares of the Fund, may be guaranteed by the U.S. government, its agencies or instrumentalities as to the timely payment of principal and interest. The Fund’s yield and share price are not guaranteed and will fluctuate with market conditions. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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However, investor concerns over weak economic data contributed to a drop in crude oil prices from their 12-month high of $114 per barrel on April 29 to $99 at period-end. Storms and droughts in several states reduced crop yields, pushing up grain prices. As oil and food prices rose, the pace of inflation accelerated during the period. Various U.S. economic gauges began to show some improvement, leading some economists to become more optimistic near year-end about the economy’s prospects.

Generally favorable economic improvements and positive corporate earnings reports somewhat eased investor concerns. During the 12 months under review, fixed income markets, as measured by the BC U.S. Aggregate Index, and U.S. stocks, as measured by the Standard & Poor’s^® 500 Index, posted gains.¹ Heightened volatility, however, roiled global financial markets amid U.S. lawmakers’ protracted debate and eventual compromise on the debt limit, independent credit rating agency Standard & Poor’s downgrade of the long-term U.S. credit rating to AA+ from AAA, and fears of sovereign debt crisis contagion in Europe. In November, the unemployment rate fell to its lowest level in more than two years, which helped consumer confidence climb to its highest level in more than eight years. Overall for the period, however, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower.

Investment Strategy

Using our straightforward investment approach, we seek to produce current income with a high degree of credit safety from a conservatively managed portfolio of U.S. government securities. Analyzing securities using proprietary and nonproprietary research, we seek to identify attractive investment opportunities.

Manager’s Discussion

During the year under review, the Fed initiated a program (dubbed Operation Twist by commentators) intended to further reduce longer term borrowing costs and spur refinancing and economic activity. As a part of Operation Twist, the Fed will reinvest mortgage principal and agency debenture payments into mortgage-backed securities (MBS). This program will keep the Fed’s MBS portfolio from declining, and some analysts believe it could support the MBS sector.

The overall MBS market delivered positive total returns but could not keep pace with the rally and strong performance of U.S. Treasuries. With the market priced at a premium and mortgage rates near historical

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lows, prepayment risk remained heightened. Actual prepayment levels, however, have been constrained due to the associated cost of refinancing, loss of home equity, tighter underwriting standards and declining home prices.

Over the period, Ginnie Mae (GNMA) MBS underperformed comparable high credit-quality U.S. Treasuries, but outperformed their conventional Fannie Mae (FNMA) and Freddie Mac MBS counterparts. Within the GNMA sector, on an excess return basis, higher coupon 5.5% and 6.0% GNMAs were the best performers, while their lower coupon 4.0% and 4.5% counterparts lagged.

Franklin U.S. Government Fund’s investment process and strategy did not change, and the investment team continued to look for strong cash flow fundamentals and valuations to uncover opportunities across the agency mortgage and agency debenture universe. The Fund emphasized agency pass-throughs, primarily GNMA MBS, which remain the only MBS backed by the full faith and credit of the U.S. government, and invested in other agency securities for diversification.³ We remained weighted toward the GNMA sector and added to lower coupon 4.0% and 4.5% GNMA II (comprising multiple-issuer pools) securities. We decreased the Fund’s allocation to 5.0% through 6.0% coupon GNMA I (comprising single-issuer pools) and II securities, and purchased lower coupon (4.0% through 5.0%) FNMA MBS.

Thank you for your participation in Franklin U.S. Government Fund. We look forward to serving your future investment needs.

3. Securities owned by the Fund, but not shares of the Fund, are guaranteed by the U.S. government, its agencies or instrumentalities as to timely payment of principal and interest. The Fund’s yield and share price are not guaranteed and will vary with market conditions.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Franklin U.S. Government Fund – Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	1,033.30	$	2.61
Hypothetical (5% return before expenses)	$	1,000	$	1,015.48	$	2.60

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.51%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Franklin U.S. Government Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	13.34		$	13.08		$	13.19		$	12.89		$	12.69
Income from investment operationsa:
Net investment incomeb		0.42			0.46			0.51			0.58			0.61
Net realized and unrealized gains (losses)		0.36			0.26			(0.08	)		0.39			0.22
Total from investment operations		0.78			0.72			0.43			0.97			0.83
Less distributions from net investment income		(0.45	)		(0.46	)		(0.54	)		(0.67	)		(0.63	)
Net asset value, end of year	$	13.67		$	13.34		$	13.08		$	13.19		$	12.89
Total returnc		5.96%			5.56%			3.34%			7.91%			6.85%
Ratios to average net assets
Expenses		0.51%			0.52%			0.53%			0.53%	d		0.53%	d
Net investment income		3.07%			3.47%			3.91%			4.54%			4.83%
Supplemental data
Net assets, end of year (000’s)	$	136,628		$	157,551		$	162,524		$	173,018		$	167,700
Portfolio turnover rate		37.89%			51.04%			27.51%			17.06%			27.50%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Franklin U.S. Government Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	13.11		$	12.87		$	12.99		$	12.71		$	12.52
Income from investment operationsa:
Net investment incomeb		0.37			0.42			0.47			0.54			0.57
Net realized and unrealized gains (losses)		0.36			0.25			(0.08	)		0.38			0.22
Total from investment operations		0.73			0.67			0.39			0.92			0.79
Less distributions from net investment income		(0.42	)		(0.43	)		(0.51	)		(0.64	)		(0.60	)
Net asset value, end of year	$	13.42		$	13.11		$	12.87		$	12.99		$	12.71
Total returnc		5.68%			5.28%			3.09%			7.59%			6.61%
Ratios to average net assets
Expenses		0.76%			0.77%			0.78%			0.78%	d		0.78%	d
Net investment income		2.82%			3.22%			3.66%			4.29%			4.58%
Supplemental data
Net assets, end of year (000’s)	$	894,699		$	703,997		$	557,809		$	450,603		$	379,386
Portfolio turnover rate		37.89%			51.04%			27.51%			17.06%			27.50%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal 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.

^dBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Franklin U.S. Government Fund	Principal Amount		Value
Mortgage-Backed Securities 73.4%
aFederal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.0%†
FHLMC, 2.277%, 6/01/22	$	160,507	$	166,783
FHLMC, 2.445%, 2/01/19		108,115		113,658
				280,441
Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 9.4%
FHLMC Gold 15 Year, 4.50%, 3/01/25 - 4/01/25		13,870,818		14,753,094
FHLMC Gold 30 Year, 4.00%, 9/01/40		5,185,880		5,448,546
FHLMC Gold 30 Year, 4.00%, 2/01/41		10,967,714		11,523,231
FHLMC Gold 30 Year, 4.50%, 5/01/40 - 7/01/41		18,258,246		19,362,622
FHLMC Gold 30 Year, 5.00%, 9/01/33 - 4/01/40		23,964,122		25,782,976
FHLMC Gold 30 Year, 5.50%, 7/01/33 - 5/01/38		9,695,177		10,551,430
FHLMC Gold 30 Year, 6.00%, 1/01/24 - 8/01/35		4,552,104		5,069,924
FHLMC Gold 30 Year, 6.50%, 12/01/23 - 5/01/35		1,737,306		1,973,742
FHLMC Gold 30 Year, 7.00%, 4/01/24 - 10/01/32		730,350		841,247
FHLMC Gold 30 Year, 7.50%, 12/01/22 - 5/01/24		29,907		31,485
FHLMC Gold 30 Year, 8.00%, 7/01/21 - 5/01/22		21,547		23,782
FHLMC Gold 30 Year, 8.50%, 10/01/21 - 7/01/31		1,002,900		1,221,410
FHLMC PC 30 Year, 8.00%, 1/01/17 - 5/01/17		5,649		5,710
FHLMC PC 30 Year, 8.50%, 9/01/20		1,103		1,277
				96,590,476
aFederal National Mortgage Association (FNMA) Adjustable Rate 0.1%
FNMA, 2.21%, 1/01/18		746,671		783,942
FNMA, 2.308%, 2/01/19		114,160		120,560
FNMA, 2.471%, 9/01/18		249,648		264,580
FNMA, 4.421%, 7/01/19		104,440		105,244
FNMA, 4.505%, 3/01/20		93,742		99,911
				1,374,237
Federal National Mortgage Association (FNMA) Fixed Rate 19.3%
FNMA 15 Year, 5.50%, 6/01/16 - 11/01/17		582,343		628,652
FNMA 15 Year, 5.50%, 1/01/25		9,910,636		10,762,685
FNMA 15 Year, 6.00%, 8/01/17 - 9/01/17		555,797		601,828
FNMA 30 Year, 4.00%, 6/01/41		15,122,955		15,910,204
FNMA 30 Year, 4.00%, 8/01/41		10,414,756		10,956,912
FNMA 30 Year, 4.00%, 3/01/39 - 9/01/41		44,547,826		46,856,834
FNMA 30 Year, 4.50%, 12/01/40		18,917,586		20,152,760
FNMA 30 Year, 4.50%, 8/01/40 - 6/01/41		15,431,159		16,438,695
FNMA 30 Year, 5.00%, 3/01/34 - 7/01/41		32,755,525		35,436,385
FNMA 30 Year, 5.50%, 12/01/32 - 8/01/35		7,794,517		8,523,988
FNMA 30 Year, 6.00%, 1/01/24 - 8/01/38		21,658,929		23,900,157
FNMA 30 Year, 6.50%, 1/01/24 - 9/01/36		3,717,857		4,191,324
FNMA 30 Year, 7.50%, 4/01/23 - 8/01/25		79,700		88,732
FNMA 30 Year, 8.00%, 7/01/16 - 2/01/25		172,418		185,138
FNMA 30 Year, 8.50%, 10/01/19 - 6/01/21		2,060		2,368
FNMA 30 Year, 9.00%, 10/01/26		366,086		447,747
FNMA GL 30 Year, 8.00%, 8/01/19 - 6/01/20		48,564		49,629
FNMA PL 30 Year, 5.50%, 4/01/34		3,522,310		3,855,403
				198,989,441
Government National Mortgage Association (GNMA) Fixed Rate 44.6%
GNMA I SF 30 Year, 4.00%, 9/15/41		5,079,216		5,458,411
GNMA I SF 30 Year, 4.50%, 7/15/40		12,007,883		13,102,476
GNMA I SF 30 Year, 4.50%, 1/15/39 - 4/15/41		74,542,851		81,509,828

FUS-9

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin U.S. Government Fund	Principal Amount		Value
Mortgage-Backed Securities (continued)
Government National Mortgage Association (GNMA) Fixed Rate (continued)
GNMA I SF 30 Year, 5.00%, 2/15/40	$	13,947,745	$	15,532,557
GNMA I SF 30 Year, 5.00%, 6/15/30 - 9/15/40		76,438,907		85,048,815
GNMA I SF 30 Year, 5.50%, 11/15/28 - 10/15/39		31,804,306		35,889,442
GNMA I SF 30 Year, 6.00%, 11/15/23 - 11/15/38		16,994,234		19,309,878
GNMA I SF 30 Year, 6.50%, 5/15/23 - 9/15/38		5,735,637		6,610,201
GNMA I SF 30 Year, 7.00%, 3/15/22 - 1/15/32		1,625,190		1,885,111
GNMA I SF 30 Year, 7.50%, 2/15/17 - 8/15/33		1,516,567		1,755,727
GNMA I SF 30 Year, 8.00%, 2/15/17 - 5/15/24		448,011		488,418
GNMA I SF 30 Year, 8.25%, 4/15/25		18,935		19,138
GNMA I SF 30 Year, 8.50%, 6/15/22 - 12/15/24		154,192		170,726
GNMA I SF 30 Year, 9.00%, 6/15/16 - 5/15/20		50,457		52,289
GNMA I SF 30 Year, 9.50%, 7/15/16 - 6/15/21		170,252		181,808
GNMA I SF 30 Year, 10.00%, 10/15/17 - 8/15/21		94,863		102,229
GNMA II SF 30 Year, 4.00%, 11/20/40		10,373,218		11,118,468
GNMA II SF 30 Year, 4.00%, 12/20/40 - 7/20/41		8,021,222		8,597,496
GNMA II SF 30 Year, 4.00%, 11/20/41		14,054,364		15,059,690
GNMA II SF 30 Year, 4.50%, 10/20/39 - 3/20/41		23,213,372		25,385,583
GNMA II SF 30 Year, 4.50%, 4/20/41		13,415,002		14,663,853
GNMA II SF 30 Year, 4.50%, 5/20/41		12,376,913		13,529,125
GNMA II SF 30 Year, 4.50%, 6/20/41		18,300,885		20,004,581
GNMA II SF 30 Year, 4.50%, 7/20/41		12,544,415		13,712,220
GNMA II SF 30 Year, 5.00%, 9/20/33 - 6/20/40		19,276,692		21,410,821
GNMA II SF 30 Year, 5.50%, 2/20/36		9,204,943		10,383,463
GNMA II SF 30 Year, 5.50%, 5/20/34 - 6/20/38		16,571,194		18,691,673
GNMA II SF 30 Year, 6.00%, 11/20/23 - 7/20/39		15,834,429		17,965,673
GNMA II SF 30 Year, 6.50%, 12/20/27 - 4/20/34		1,462,613		1,673,048
GNMA II SF 30 Year, 7.00%, 5/20/32		26,035		30,414
GNMA II SF 30 Year, 7.50%, 5/20/17 - 5/20/33		300,481		346,061
GNMA II SF 30 Year, 8.00%, 7/20/16 - 8/20/26		32,736		35,698
GNMA II SF 30 Year, 9.50%, 4/20/25		3,001		3,052
				459,727,973
Total Mortgage-Backed Securities (Cost $717,909,032)				756,962,568
U.S. Government and Agency Securities 22.6%
FFCB, 1.50%, 11/16/15		10,000,000		10,223,440
FHLB,
0.875%, 8/22/12		20,000,000		20,084,160
3.625%, 5/29/13		4,500,000		4,708,980
3.625%, 10/18/13		15,000,000		15,862,890
4.75%, 12/16/16		17,000,000		20,005,515
5.125%, 8/14/13		11,000,000		11,852,478
5.25%, 6/05/17		9,000,000		10,803,078
FICO, 15, Strip, 3/07/16		15,000,000		14,372,940
FNMA,
1.25%, 6/22/12		15,500,000		15,583,638
1.75%, 5/07/13		7,900,000		8,051,593
senior note, 5.375%, 6/12/17		17,800,000		21,542,806
HUD, 96-A,
7.63%, 8/01/14		355,000		357,031
7.66%, 8/01/15		457,582		460,220

FUS-10

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Franklin U.S. Government Fund	Principal Amount		Value
U.S. Government and Agency Securities (continued)
SBA,
aFRN, 2.85%, 6/25/19	$	333,159	$	343,940
aFRN, 3.125%, 3/25/18		484,862		497,952
PC, 1995-20L, 1, 6.45%, 12/01/15		254,215		272,779
PC, 1996-20L, 1, 6.70%, 12/01/16		327,711		355,953
PC, 1997-20G, 1, 6.85%, 7/01/17		411,179		448,065
PC, 1998-20I, 1, 6.00%, 9/01/18		1,175,142		1,277,489
TVA,
5.88%, 4/01/36		5,000,000		6,830,935
zero cpn. to 4/15/12, 8.25% thereafter, 4/15/42		6,000,000		6,298,980
U.S. Treasury Note,
0.875%, 11/30/16		2,500,000		2,508,400
1.75%, 10/31/18		3,000,000		3,088,125
2.375%, 9/30/14		17,000,000		17,941,647
2.375%, 8/31/14 - 10/31/14		15,000,000		15,826,409
2.50%, 4/30/15		6,950,000		7,419,667
3.125%, 8/31/13		7,000,000		7,335,510
4.75%, 5/15/14		8,000,000		8,838,752
Total U.S. Government and Agency Securities (Cost $217,565,275)				233,193,372
Total Investments before Short Term Investments (Cost $935,474,307)				990,155,940
Short Term Investments (Cost $37,099,097) 3.6%
Repurchase Agreements 3.6%
bJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $37,099,142)		37,099,097		37,099,097
BNP Paribas Securities Corp. (Maturity Value $4,488,996)
Credit Suisse Securities (USA) LLC (Maturity Value $5,386,424)
Deutsche Bank Securities Inc. (Maturity Value $5,677,283)
HSBC Securities (USA) Inc. (Maturity Value $8,977,993)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $5,386,424)
Morgan Stanley & Co. LLC (Maturity Value $1,795,598)
UBS Securities LLC (Maturity Value $5,386,424)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; cU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $37,860,688)
Total Investments (Cost $972,573,404) 99.6%				1,027,255,037
Other Assets, less Liabilities 0.4%				4,071,767
Net Assets 100.0%			$	1,031,326,804

See Abbreviations on page FUS-20.

†Rounds to less than 0.1% of net assets.

^aThe coupon rate shown represents the rate at period end.

^bSee Note 1(b) regarding joint repurchase agreement.

^cThe security is traded on a discount basis with no stated coupon rate.

The accompanying notes are an integral part of these financial statements.

FUS-11

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Franklin U.S. Government Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	935,474,307
Cost - Repurchase agreements		37,099,097
Total cost of investments	$	972,573,404
Value - Unaffiliated issuers	$	990,155,940
Value - Repurchase agreements		37,099,097
Total value of investments		1,027,255,037
Receivables:
Investment securities sold		13,525
Capital shares sold		1,981,004
Interest		3,758,943
Other assets		21
Total assets		1,033,008,530
Liabilities:
Payables:
Capital shares redeemed		753,745
Affiliates		769,128
Reports to shareholders		115,545
Accrued expenses and other liabilities		43,308
Total liabilities		1,681,726
Net assets, at value	$	1,031,326,804
Net assets consist of:
Paid-in capital	$	958,775,656
Undistributed net investment income		29,334,459
Net unrealized appreciation (depreciation)		54,681,633
Accumulated net realized gain (loss)		(11,464,944	)
Net assets, at value	$	1,031,326,804
Class 1:
Net assets, at value	$	136,627,815
Shares outstanding		9,997,615
Net asset value and maximum offering price per share	$	13.67
Class 2:
Net assets, at value	$	894,698,989
Shares outstanding		66,672,659
Net asset value and maximum offering price per share	$	13.42

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Franklin U.S. Government Fund
Investment income:
Interest	$	33,076,985
Expenses:
Management fees (Note 3a)		4,408,079
Distribution fees: (Note 3c)
Class 2		1,939,651
Class 4		3
Unaffiliated transfer agent fees		1,674
Custodian fees (Note 4)		13,358
Reports to shareholders		176,504
Professional fees		42,650
Trustees’ fees and expenses		3,322
Other		38,177
Total expenses		6,623,418
Net investment income		26,453,567
Realized and unrealized gains (losses):
Net realized gain (loss) from investments		4,945,621
Net change in unrealized appreciation (depreciation) on investments		19,413,703
Net realized and unrealized gain (loss)		24,359,324
Net increase (decrease) in net assets resulting from operations	$	50,812,891

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Franklin U.S. Government Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	26,453,567		$	26,503,056
Net realized gain (loss) from investments		4,945,621			545,240
Net change in unrealized appreciation (depreciation) on investments		19,413,703			13,639,024
Net increase (decrease) in net assets resulting from operations		50,812,891			40,687,320
Distributions to shareholders from net investment income:
Net investment income:
Class 1		(4,966,923	)		(5,536,228	)
Class 2		(24,186,254	)		(21,255,018	)
Class 4		—			(156	)
Total distributions to shareholders		(29,153,177	)		(26,791,402	)
Capital share transactions: (Note 2)
Class 1		(24,494,530	)		(8,339,790	)
Class 2		172,613,515			135,659,032
Class 4		(5,048	)		—
Total capital share transactions		148,113,937			127,319,242
Net increase (decrease) in net assets		169,773,651			141,215,160
Net assets:
Beginning of year		861,553,153			720,337,993
End of year	$	1,031,326,804		$	861,553,153
Undistributed net investment income included in net assets:
End of year	$	29,334,459		$	28,069,944

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Franklin U.S. Government Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Franklin U.S. Government Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers two classes of shares: Class 1 and Class 2. On March 4, 2011, the Fund liquidated Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Repurchase agreements are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

b. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin U.S. Government Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

c. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

e. 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 expenses during the reporting period. Actual results could differ from those estimates.

f. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin U.S. Government Fund

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011a						2010b
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		756,773		$	10,178,368			792,069		$	10,574,203
Shares issued in reinvestment of distributions		374,862			4,966,923			422,290			5,536,228
Shares redeemed		(2,941,594	)		(39,639,821	)		(1,831,372	)		(24,450,221	)
Net increase (decrease)		(1,809,959	)	$	(24,494,530	)		(617,013	)	$	(8,339,790	)
Class 2 Shares:
Shares sold		22,722,855		$	301,179,226			19,436,114		$	255,318,751
Shares issued in reinvestment of distributions		1,856,198			24,186,254			1,647,676			21,255,018
Shares redeemed		(11,586,947	)		(152,751,965	)		(10,741,522	)		(140,914,737	)
Net increase (decrease)		12,992,106		$	172,613,515			10,342,268		$	135,659,032
Class 4 Shares:
Shares redeemed		(379	)	$	(5,048	)
Net increase (decrease)		(379	)	$	(5,048	)

^aEffective March 4, 2011, Class 4 was liquidated.

^bDuring the year Class 4 did not report any share transactions.

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.625%	Up to and including $100 million
0.500%	Over $100 million, up to and including $250 million
0.450%	Over $250 million, up to and including $7.5 billion
0.440%	Over $7.5 billion, up to and including $10 billion
0.430%	Over $10 billion, up to and including $12.5 billion
0.420%	Over $12.5 billion, up to and including $15 billion
0.400%	In excess of $15 billion

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin U.S. Government Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2012	$	3,331,578
2013		2,102,640
2014		1,618,397
2015		2,329,071
2016		841,479
2017		401,851
2018		426,637
Capital loss carryforwards not subject to expiration		373,160
	$	11,424,813

On December 1, 2011, the Fund had expired pre-enactment capital loss carryforwards of $4,558,723, which were reclassified to paid-in capital.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin U.S. Government Fund

5. INCOME TAXES (continued)

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	29,153,177	$	26,791,402

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	973,957,671
Unrealized appreciation	$	53,542,264
Unrealized depreciation		(244,898	)
Net unrealized appreciation (depreciation)	$	53,297,366
Distributable earnings – undistributed ordinary income	$	30,678,595

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of paydown losses and bond discounts and premiums.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $466,223,868 and $340,718,866, respectively.

7. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

8. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Franklin U.S. Government Fund

8. FAIR VALUE MEASUREMENTS (continued)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

At December 31, 2011, all of the Fund’s investments in securities carried at fair value were valued using Level 2 inputs. For detailed categories, see the accompanying Statement of Investments.

9. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

10. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

FFCB - Federal Farm Credit Bank

FHLB - Federal Home Loan Bank

FICO - Financing Corp.

FRN - Floating Rate Note

GL - Government Loan

HUD - Housing and Urban Development

PC - Participation Certificate

PL - Project Loan

SBA - Small Business Administration

SF - Single Family

TVA - Tennessee Valley Authority

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Franklin Templeton Variable Insurance Products Trust

Franklin U.S. Government Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin U.S. Government Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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MUTUAL GLOBAL DISCOVERY SECURITIES FUND

This annual report for Mutual Global Discovery Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-2.73%		+1.66%		+8.05%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s^® 500 Index (S&P 500^®) and the MSCI World Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Mutual Global Discovery 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

MGD-1

Fund Goal and Main Investments: Mutual Global Discovery Securities Fund seeks capital appreciation. The Fund normally invests primarily in U.S. and foreign equity securities that the manager believes are undervalued.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund performed better than the -5.02% total return of the MSCI World Index, but underperformed the S&P 500, which posted a +2.11% total return for the same period.¹

Economic and Market Overview

Global stocks declined in 2011 as deepening sovereign debt, political paralysis and economic growth concerns led to escalating investor anxiety and severe market volatility. Stocks entered the year supported by positive momentum in corporate earnings and renewed economic stimulus measures in the developed world. However, a number of events interrupted the market’s rise early in 2011, including a severe natural disaster and nuclear crisis in Japan and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Global markets recovered quickly from these setbacks but soon faced more significant turmoil as Europe’s sovereign debt crisis worsened in the summer. Portugal, Greece and Ireland received bailouts and had their credit ratings slashed to junk grade, while rising bond yields in the larger economies of Italy and Spain, and eventually in the critical core economies of Germany and France, threatened the survival of the European Monetary Union. The U.S.’s sovereign debt issues and political dysfunction, accompanied by the downgrade of its AAA credit rating to AA+, further pressured investor sentiment during the summer months. Additionally, the precarious state of the global banking system as well as emerging signs of a renewed global economic slowdown and possible hard landing in China weighed on the markets.

Despite these global challenges, corporate profits remained remarkably resilient, some signs of U.S. economic improvement emerged toward year-end, and European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. Greek and Italian prime ministers were replaced with technocrats tasked with arresting a debt spiral, the European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign investing, especially in developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Investments in companies involved in mergers, liquidations, reorganizations and distressed bankruptcy, which may include defaulted debt, involve higher credit and other risks. Smaller and midsize company securities involve special risks, such as relatively small revenues, limited product lines and small market share. The Fund’s investment in certain hedging and derivative instruments may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

MGD-2

agreed to lower dollar funding costs for Europe’s distressed commercial banks. Meanwhile, the Federal Reserve Board increased purchases of long-dated bonds to reduce key borrowing costs and hinted at “additional policy accommodation.” Chinese policymakers lowered commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms. Commodities initially rallied due to the coordinated monetary stimulus, but most ultimately declined as global economic prospects weakened. Gold and oil, however, made annual gains. In currency markets, the euro declined with escalating weakness at year-end, while the dollar ultimately rose after a late surge. Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Investment Strategy

At Mutual Series, we are committed to our distinctive value approach to investing. Our major investment strategy is investing in undervalued stocks. When selecting undervalued equities, we are attracted to fundamentally strong companies with healthy balance sheets, high-quality assets, substantial free cash flow and shareholder-oriented management teams and whose stocks are trading at discounts to our assessment of the companies’ intrinsic or business value. We also look for asset rich companies whose shares may be trading at depressed levels due to concerns over short-term earnings disappointments, litigation, management strategy or other perceived negatives. While the vast majority of our undervalued equity investments are made in publicly traded companies globally, we may invest occasionally in privately held companies as well.

We complement this more traditional investment strategy with two others. One is distressed investing, which is complex and can take many forms. The most common distressed investment the Fund undertakes is the purchase of financially troubled or bankrupt companies’ debt at a substantial discount to face value. After the financially distressed company is reorganized, often in bankruptcy court, the old debt is typically replaced with new securities issued by the financially stronger company.

The other piece of our investment strategy is participating in arbitrage situations, another highly specialized field. When companies announce proposed mergers or takeovers, commonly referred to as “deals,” the

MGD-3

target company may trade at a discount to the bid it ultimately accepts. One form of arbitrage involves purchasing the target company’s stock when it is trading below the value we believe it would receive in a deal. In keeping with our commitment to a relatively conservative investment approach, we typically focus our arbitrage efforts on announced deals, and eschew rumored deals or other situations we consider relatively risky.

In addition, it is our practice to hedge the Fund’s currency exposure when we deem it advantageous for our shareholders.

Manager’s Discussion

Despite the weak performance of global stock markets in 2011, several Fund investments increased in value. Three particularly strong performers were U.K.-based tobacco companies British American Tobacco (BAT) and Imperial Tobacco Group, and U.S. managed health care provider UnitedHealth Group.

BAT shares were a key contributor to Fund performance as the company announced operating results that repeatedly exceeded market expectations through the third quarter of 2011. Management also announced it had completed a five-year goal to realize £800 million in cost savings two years ahead of schedule, and it laid out a new goal to continue growing operating margins for the next six to seven years by increasing prices and cutting costs. In 2011, BAT and other tobacco stocks also benefited from the defensive nature of their business models, which include pricing power, reasonably predictable operating profits and high dividend payout ratios. BAT has been a long-term Fund holding, and we continue to believe the shares are an attractive investment in a market fraught with uncertainty.

During the year, Imperial Tobacco reported sufficient progress in deleveraging its balance sheet, and announced a dividend increase and share buyback program. In light of Imperial’s year-end 2011 stock valuation, we believed the share buyback was an attractive way for the company to return cash to shareholders while simultaneously enhancing earnings growth. In addition, the company announced it intends to increase the dividend payout ratio and narrow the gap with its closest competitors. In our analysis, what we consider the stock’s attractive valuation and the potential for future dividend growth to exceed the pace of its peers could enable Imperial management to generate meaningful total shareholder returns in the medium term.

Top 10 Sectors/Industries

Mutual Global Discovery Securities Fund 12/31/11

	% of Total Net Assets
Tobacco		10.8%
Pharmaceuticals		6.9%
Oil, Gas & Consumable Fuels		6.3%
Insurance		5.0%
Commercial Banks		4.3%
Food & Staples Retailing		3.6%
Media		3.5%
Beverages		3.0%
Industrial Conglomerates		3.0%
Software		2.9%

MGD-4

UnitedHealth’s shares rose during the year as its earnings beat management’s initial guidance in part due to lower-than-expected utilization of medical services by its members in addition to strong membership growth. The company increased its dividend in 2011, while its board of directors re-authorized the company’s share repurchase plan. At a UnitedHealth investor day convening in late November, management reaffirmed its 13% to 15% long-term earnings growth rate goal, which it seeks to achieve via high, single-digit topline growth and productivity enhancements.

Given the highly volatile year for global stock markets in general, several holdings had a negative effect on the Fund. These included large U.S. financial institutions Bank of America and Morgan Stanley, and German industrial conglomerate ThyssenKrupp.

Bank of America shares declined in 2011 as investors reacted to the company’s potential exposure to large mortgage-related losses. There was also a growing concern that related losses might force the company into a dilutive, capital-raising scenario. Bank of America also faced a very difficult general operating environment in 2011. Low interest rates, weak lending, the impact of new consumer rules on fees, and a drop-off in capital markets activity all pressured earnings and the stock price. Like many other financial stocks, Bank of America was also impacted by contagion fears from Europe, changes in capital requirements and uncertainty over the impact of new regulations such as Dodd-Frank. Although we still believed this holding held value, we exited our position in Bank of America and reallocated the capital proceeds to companies where we thought better risk-reward characteristics existed.

Morgan Stanley’s stock price decline was driven largely by negative sentiment toward global investment banks, given economic and regulatory uncertainty, particularly in the U.S. and Europe. Additional fears surfaced during the second half of 2011 that Morgan Stanley held excessive sovereign exposure to certain highly leveraged European countries in its accounts, although this turned out to be false. Morgan Stanley also faced operating challenges in its two main business segments, wealth management and institutional securities, due to client risk aversion and weak capital markets activity levels. At year-end, we continued to view Morgan Stanley as an attractive investment given its low stock valuation and strong earnings potential, according to our analysis. We also think the company has made great strides over the past few years in terms of strengthening its balance sheet while improving funding and capital positions.

Top 10 Holdings

Mutual Global Discovery Securities Fund 12/31/11

Company Sector/Industry, Country	% of Total Net Assets
Imperial Tobacco Group PLC		2.8%
Tobacco, U.K.
British American Tobacco PLC		2.7%
Tobacco, U.K.
CVS Caremark Corp.		2.5%
Food & Staples Retailing, U.S.
Lorillard Inc.		2.3%
Tobacco, U.S.
Merck & Co Inc.		2.2%
Pharmaceuticals, U.S.
Vodafone Group PLC		2.2%
Wireless Telecommunication Services, U.K.
Pernod Ricard SA		2.1%
Beverages, France
ACE Ltd.		2.0%
Insurance, U.S.
Pfizer Inc.		2.0%
Pharmaceuticals, U.S.
Kraft Foods Inc., A		2.0%
Food Products, U.S.

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

MGD-5

ThyssenKrupp is an industrial conglomerate that has two lines of business — materials and technology. The materials segment includes one of the world’s largest non-integrated steel producers, while the technology division is diverse and includes segments that manufacture elevators, produce components for the automotive industry and build large scale industrial plants, military ships and submarines. Thyssen-Krupp is a restructuring story with new management working to deliver on past investments and improve productivity. Its stock price moved lower in the second half of 2011 due to concerns the global economic recovery was stalling and as leaders struggled to contain the European sovereign debt crisis. German industrial companies, including ThyssenKrupp, suffered as they are generally perceived to be most exposed to a weakening Europe. The stock also moved lower because of company delays in ramping up a significant steel project in the Americas. Despite the recent pullback, we continue to believe the company is in the early stages of transformation and that the company’s ongoing restructuring efforts could be a positive catalyst in streamlining its businesses.

During the year, the Fund held currency forwards to somewhat hedge the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a negligible impact on the Fund’s performance during the period.

Thank you for your participation in Mutual Global Discovery Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

MGD-6

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Mutual Global Discovery Securities Fund – Class 1

MGD-7

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	922.10	$	4.75
Hypothetical (5% return before expenses)	$	1,000	$	1,020.27	$	4.99

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.98%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

MGD-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Mutual Global Discovery Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	21.16		$	19.14		$	16.12		$	24.08		$	22.05
Income from investment operationsa:
Net investment incomeb		0.52			0.38			0.19	c		0.37			0.47
Net realized and unrealized gains (losses)		(1.09	)		1.94			3.57			(6.95	)		2.22
Total from investment operations		(0.57	)		2.32			3.76			(6.58	)		2.69
Less distributions from:
Net investment income		(0.50	)		(0.30	)		(0.26	)		(0.52	)		(0.38	)
Net realized gains		(0.43	)		—			(0.48	)		(0.86	)		(0.28	)
Total distributions		(0.93	)		(0.30	)		(0.74	)		(1.38	)		(0.66	)
Net asset value, end of year	$	19.66		$	21.16		$	19.14		$	16.12		$	24.08
Total returnd		(2.73)%			12.24%			23.63%			(28.29)%			12.17%
Ratios to average net assets
Expensese,f		0.97%			1.00%			1.06%			0.98%			0.97%
Expenses incurred in connection with securities sold short		—%	g		0.02%			0.09%			0.01%			—%	g
Net investment income		2.34%			1.93%			1.07%	c		1.82%			1.96%
Supplemental data
Net assets, end of year (000’s)	$	974		$	84,213		$	86,755		$	81,320		$	142,751
Portfolio turnover rate		26.17%	h		49.31%			43.35%			22.76%			28.20%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this adjustment, the ratio of net investment income to average net assets would have been 1.26%.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

^fIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

^gRounds to less than 0.01%.

^hExcludes the value of portfolio securities delivered as a result of a redemption in-kind. See Note 14.

The accompanying notes are an integral part of these financial statements.

MGD-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Mutual Global Discovery Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.80		$	18.81		$	15.85		$	23.69		$	21.73
Income from investment operationsa:
Net investment incomeb		0.43			0.33			0.14	c		0.32			0.40
Net realized and unrealized gains (losses)		(1.04	)		1.91			3.50			(6.84	)		2.18
Total from investment operations		(0.61	)		2.24			3.64			(6.52	)		2.58
Less distributions from:
Net investment income		(0.46	)		(0.25	)		(0.20	)		(0.46	)		(0.34	)
Net realized gains		(0.43	)		—			(0.48	)		(0.86	)		(0.28	)
Total distributions		(0.89	)		(0.25	)		(0.68	)		(1.32	)		(0.62	)
Net asset value, end of year	$	19.30		$	20.80		$	18.81		$	15.85		$	23.69
Total returnd		(2.96)%			11.96%			23.31%			(28.45)%			11.85%
Ratios to average net assets
Expensese,f		1.22%			1.25%			1.31%			1.23%			1.22%
Expenses incurred in connection with securities sold short		—%	g		0.02%			0.09%			0.01%			—%	g
Net investment income		2.09%			1.68%			0.82%	c		1.57%			1.71%
Supplemental data
Net assets, end of year (000’s)	$	712,161		$	1,351,223		$	1,309,852		$	1,113,720		$	1,867,484
Portfolio turnover rate		26.17%	h		49.31%			43.35%			22.76%			28.20%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this adjustment, the ratio of net investment income to average net assets would have been 1.01%.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

^fIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

^gRounds to less than 0.01%.

^hExcludes the value of portfolio securities delivered as a result of a redemption in-kind. See Note 14.

The accompanying notes are an integral part of these financial statements.

MGD-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Mutual Global Discovery Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	21.02		$	19.02		$	16.07		$	22.50
Income from investment operationsb:
Net investment incomec		0.40			0.31			0.11	d		0.09
Net realized and unrealized gains (losses)		(1.05	)		1.94			3.56			(5.14	)
Total from investment operations		(0.65	)		2.25			3.67			(5.05	)
Less distributions from:
Net investment income		(0.44	)		(0.25	)		(0.24	)		(0.52	)
Net realized gains		(0.43	)		—			(0.48	)		(0.86	)
Total distributions		(0.87	)		(0.25	)		(0.72	)		(1.38	)
Net asset value, end of year	$	19.50		$	21.02		$	19.02		$	16.07
Total returne		(3.08)%			11.87%			23.19%			(23.48)%
Ratios to average net assetsf
Expensesg,h		1.32%			1.35%			1.41%			1.33%
Expenses incurred in connection with securities sold short		—%	i		0.02%			0.09%			0.01%
Net investment income		1.99%			1.58%			0.72%	d		1.47%
Supplemental data
Net assets, end of year (000’s)	$	66,695		$	70,613		$	59,178		$	23,981
Portfolio turnover rate		26.17%	j		49.31%			43.35%			22.76%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this adjustment, the ratio of net investment income to average net assets would have been 0.91%.

^eTotal return does not include 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

^hIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

ⁱRounds to less than 0.01%.

^jExcludes the value of portfolio securities delivered as a result of a redemption in-kind. See Note 14.

The accompanying notes are an integral part of these financial statements.

MGD-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Mutual Global Discovery Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests 85.9%
Aerospace & Defense 0.9%
aRaytheon Co.	United States		142,446	$	6,891,537
Auto Components 0.7%
b,c,dCollins & Aikman Products Co., Contingent Distribution	United States		218,708		728
bContinental AG	Germany		61,983		3,842,678
b,eInternational Automotive Components Group Brazil LLC	Brazil		424,073		344,190
e,fInternational Automotive Components Group North America, LLC	United States		3,000,220		1,271,794
					5,459,390
Automobiles 0.8%
Daimler AG	Germany		84,148		3,677,766
bGeneral Motors Co.	United States		136,940		2,775,774
					6,453,540
Beverages 3.0%
Coca-Cola Enterprises Inc.	United Kingdom		107,220		2,764,132
Dr. Pepper Snapple Group Inc.	United States		120,110		4,741,943
Pernod Ricard SA	France		172,800		16,027,120
					23,533,195
Biotechnology 1.1%
Amgen Inc.	United States		127,884		8,211,432
Capital Markets 1.7%
Morgan Stanley	United States		450,600		6,817,578
bUBS AG	Switzerland		551,086		6,565,931
					13,383,509
Chemicals 1.1%
Linde AG	Germany		55,814		8,303,995
Commercial Banks 4.3%
b,e,gThe Bankshares Inc.	United States		800,000		2,859,392
bCIT Group Inc.	United States		81,872		2,854,877
b,eElephant Capital Holdings Ltd.	Japan		1,903		—
HSBC Holdings PLC	United Kingdom		187,440		1,429,794
KB Financial Group Inc.	South Korea		101,400		3,175,174
b,eNCB Warrant Holdings Ltd., A	Japan		9,306		—
PNC Financial Services Group Inc.	United States		157,001		9,054,248
Wells Fargo & Co.	United States		503,540		13,877,562
					33,251,047
Commercial Services & Supplies 0.3%
Edenred	France		82,673		2,035,210
Communications Equipment 0.9%
Cisco Systems Inc.	United States		399,250		7,218,440
Construction & Engineering 0.6%
Vinci SA	France		99,255		4,337,004
Construction Materials 0.5%
CRH PLC	Ireland		211,723		4,209,148
Consumer Finance 0.0%†
bComdisco Holding Co. Inc.	United States		44		260
Containers & Packaging 0.7%
Rexam PLC	United Kingdom		1,039,817		5,688,367

MGD-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Diversified Financial Services 2.5%
Citigroup Inc.	United States		167,204	$	4,399,137
bDeutsche Boerse AG	Germany		155,457		8,150,936
b,hNorth American Financial Holdings Inc., A, 144A	United States		78,494		1,177,410
b,hNorth American Financial Holdings Inc., B, 144A, non-voting	United States		269,922		4,048,830
NYSE Euronext	United States		77,522		2,023,324
					19,799,637
Diversified Telecommunication Services 0.9%
bAboveNet Inc.	United States		24,161		1,570,707
Cable & Wireless Communication PLC	United Kingdom		2,250,099		1,331,232
b,c,dGlobal Crossing Holdings Ltd., Contingent Distribution	United States		2,236,777		—
b,c,dMarconi Corp., Contingent Distribution	United Kingdom		1,739,100		32,340
Vivendi SA	France		177,539		3,888,025
					6,822,304
Electric Utilities 2.6%
b,eAET&D Holdings No. 1 Pty. Ltd.	Australia		1,361,600		—
E.ON AG	Germany		367,602		7,864,764
Exelon Corp.	United States		288,450		12,510,076
					20,374,840
Electrical Equipment 0.3%
Alstom SA	France		82,608		2,505,125
Energy Equipment & Services 0.9%
Ensco PLC, ADR	United States		95,904		4,499,815
bPetroleum Geo-Services ASA	Norway		7,349		80,425
Transocean Ltd.	United States		73,643		2,827,155
					7,407,395
Food & Staples Retailing 3.6%
CVS Caremark Corp.	United States		480,292		19,586,308
Koninklijke Ahold NV	Netherlands		647,986		8,726,551
					28,312,859
Food Products 2.0%
Farmer Brothers Co.	United States		37,760		288,487
Kraft Foods Inc., A	United States		411,076		15,357,799
					15,646,286
Health Care Equipment & Supplies 1.8%
bBoston Scientific Corp.	United States		777,474		4,151,711
Medtronic Inc.	United States		257,934		9,865,976
					14,017,687
Health Care Providers & Services 2.5%
bMedco Health Solutions Inc.	United States		134,507		7,518,941
Rhoen-Klinikum AG	Germany		381,880		7,275,614
UnitedHealth Group Inc.	United States		91,060		4,614,921
					19,409,476
Hotels, Restaurants & Leisure 1.4%
Accor SA	France		174,646		4,427,078
Ladbrokes PLC	United Kingdom		3,059,589		6,185,127
					10,612,205

MGD-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Independent Power Producers & Energy Traders 0.8%
bNRG Energy Inc.	United States		364,067	$	6,596,894
Industrial Conglomerates 3.0%
Jardine Matheson Holdings Ltd.	Hong Kong		189,097		8,897,013
Jardine Strategic Holdings Ltd.	Hong Kong		526,698		14,573,734
					23,470,747
Insurance 5.0%
ACE Ltd.	United States		223,660		15,683,039
bAlleghany Corp.	United States		2,730		778,842
American International Group Inc.	United States		278,620		6,463,984
E-L Financial Corp. Ltd.	Canada		5,378		1,794,161
b,eImagine Group Holdings Ltd.	Bermuda		120,290		1,505,983
MetLife Inc.	United States		78,866		2,459,042
b,eOlympus Re Holdings Ltd.	United States		2,140		—
PartnerRe Ltd.	Bermuda		94,940		6,096,097
Zurich Financial Services AG	Switzerland		17,558		3,976,208
					38,757,356
IT Services 0.0%†
Glodyne Technoserve Ltd.	India		1,746		7,865
Machinery 1.7%
Schindler Holding AG, PC	Switzerland		79,195		9,233,157
Stanley Black & Decker Inc.	United States		58,667		3,965,889
					13,199,046
Marine 1.3%
A.P. Moller – Maersk AS, B	Denmark		1,565		10,333,594
Media 3.5%
Daekyo Co. Ltd.	South Korea		5,820		31,328
Eutelsat Communications	France		238,364		9,301,713
News Corp., A	United States		213,888		3,815,762
News Corp., B	United States		10,538		191,580
Time Warner Cable Inc.	United States		66,570		4,231,855
Viacom Inc., B	United States		219,200		9,953,872
					27,526,110
Metals & Mining 0.7%
ThyssenKrupp AG	Germany		233,491		5,364,786
Multi-Utilities 1.5%
GDF Suez	France		368,134		10,063,170
Hera SpA	Italy		1,169,832		1,670,067
					11,733,237
Multiline Retail 0.4%
Kohl’s Corp.	United States		62,320		3,075,492
Office Electronics 1.3%
Xerox Corp.	United States		1,261,817		10,044,063
Oil, Gas & Consumable Fuels 6.3%
Apache Corp.	United States		88,500		8,016,330
BP PLC	United Kingdom		799,477		5,714,086
Marathon Oil Corp.	United States		198,761		5,817,734
Marathon Petroleum Corp.	United States		100,535		3,346,810

MGD-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Oil, Gas & Consumable Fuels (continued)
Murphy Oil Corp.	United States		93,480	$	5,210,575
Royal Dutch Shell PLC, A	United Kingdom		413,620		15,070,057
The Williams Cos. Inc.	United States		178,970		5,909,589
					49,085,181
Pharmaceuticals 6.9%
Eli Lilly & Co.	United States		226,320		9,405,859
Merck & Co. Inc.	United States		455,858		17,185,847
Novartis AG, ADR	Switzerland		126,364		7,224,230
Pfizer Inc.	United States		723,271		15,651,584
Teva Pharmaceutical Industries Ltd., ADR	Israel		115,150		4,647,454
					54,114,974
Real Estate Investment Trusts (REITs) 1.6%
The Link REIT	Hong Kong		3,457,876		12,733,404
Real Estate Management & Development 0.9%
dCanary Wharf Group PLC	United Kingdom		487,324		1,789,048
Great Eagle Holdings Ltd.	Hong Kong		1,012,524		1,986,824
Swire Pacific Ltd., B	Hong Kong		1,224,472		2,878,848
					6,654,720
Software 2.9%
Microsoft Corp.	United States		506,298		13,143,496
Nintendo Co. Ltd.	Japan		29,900		4,117,976
bSymantec Corp.	United States		330,339		5,169,805
					22,431,277
Tobacco 10.8%
Altria Group Inc.	United States		309,171		9,166,920
British American Tobacco PLC	United Kingdom		435,916		20,708,690
Imperial Tobacco Group PLC	United Kingdom		566,874		21,457,712
a,iLorillard Inc.	United States		160,378		18,283,092
Philip Morris International Inc.	United States		122,891		9,644,486
Reynolds American Inc.	United States		115,475		4,782,974
					84,043,874
Wireless Telecommunication Services 2.2%
Vodafone Group PLC	United Kingdom		6,057,446		16,836,918
Total Common Stocks and Other Equity Interests (Cost $600,731,036)					669,893,426
Preferred Stocks 0.8%
Automobiles 0.5%
Volkswagen AG, pfd.	Germany		23,398		3,487,085
Diversified Financial Services 0.3%
b,eHightower Holding LLC, pfd., A, Series 2	United States		1,114,214		2,333,811
Total Preferred Stocks (Cost $4,767,787)					5,820,896

MGD-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund	Country	Principal Amount*		Value
Corporate Bonds, Notes and Senior Floating Rate Interests 4.7%
Clear Channel Communications Inc.,
j,kDelayed Draw 2 Term Loan, 3.946%, 1/29/16	United States		1,509,000	$	1,094,968
lsenior note, PIK, 11.00%, 8/01/16	United States		2,001,000		1,270,635
j,kTranche B Term Loan, 3.946%, 1/29/16	United States		8,869,000		6,580,302
j,kTranche C Term Loan, 3.946%, 1/29/16	United States		1,802,075		1,308,757
Realogy Corp.,
j,kExtended First Lien Term Loan, 4.691%, 10/10/16	United States		10,563,406		9,478,766
j,kExtended Synthetic Letter of Credit, 4.545%, 10/10/16	United States		720,146		646,202
hsenior secured note, 144A, 7.875%, 2/15/19	United States		411,000		359,625
Rite Aid Corp., senior note,
8.625%, 3/01/15	United States		1,177,000		1,141,690
9.375%, 12/15/15	United States		1,886,000		1,829,420
j,kTexas Competitive Electric Holdings Co. LLC, Extended Term Loan, 4.776%, 10/10/17	United States		12,912,264		8,220,812
hTexas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings Finance Inc., senior secured note, 144A, 11.50%, 10/01/20	United States		5,895,000		5,032,856
Total Corporate Bonds, Notes and Senior Floating Rate Interests (Cost $42,233,538)					36,964,033
Corporate Notes and Senior Floating Rate Interests in Reorganization 0.9%
e,mBroadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12	United States		722		—
mNewPage Corp., senior secured note, 11.375%, 12/31/14	United States		4,854,000		3,616,230
j,k,mTribune Co., 6/04/14,
Incremental Term Loan, 7.25%	United States		761,000		433,295
nInitial Tranche B Term Loan, 5.25%	United States		4,769,000		2,799,136
Total Corporate Notes and Senior Floating Rate Interests in Reorganization (Cost $8,491,633)					6,848,661
		Shares
Companies in Liquidation 0.0%†
bAdelphia Recovery Trust	United States		5,379,562		5,379
b,cAdelphia Recovery Trust, Arahova Contingent Value Vehicle, Contingent Distribution	United States		386,774		15,858
b,c,dCentury Communications Corp., Contingent Distribution	United States		1,074,000		—
b,eFIM Coinvestor Holdings I, LLC	United States		2,077,368		—
Total Companies in Liquidation (Cost $497,457)					21,237
Total Investments before Short Term Investments (Cost $656,721,451)					719,548,253
		Principal Amount*
Short Term Investments 3.1%
U.S. Government and Agency Securities 3.1%
oFHLB, 1/03/12	United States		500,000		500,000
a,oU.S. Treasury Bills, 3/22/12 - 6/28/12	United States		24,000,000		23,995,798
Total U.S. Government and Agency Securities (Cost $24,495,299)					24,495,798
Total Investments (Cost $681,216,750) 95.4%					744,044,051
Options Written (0.0)%†					(70,560	)
Securities Sold Short (0.6)%					(4,868,663	)
Other Assets, less Liabilities 5.2%					40,724,443
Net Assets 100.0%				$	779,829,271

MGD-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund	Country	Number of Contracts		Value
pOptions Written (Premiums received $62,276) (0.0)%†
Calls – Exchange-Traded
Tobacco (0.0)%†
Lorillard Inc., February Strike Price $115, Expires 2/18/12	United States		160	$	(70,560	)
		Shares
qSecurities Sold Short (Proceeds $5,581,075) (0.6)%
Health Care Providers & Services (0.6)%
Express Scripts Inc.	United States		108,943		(4,868,663)

*The principal amount is stated in U.S. dollars unless otherwise indicated.

†Rounds to less than 0.1% of net assets.

^aSecurity or a portion of the security has been pledged as collateral for securities sold short, open futures and written options contracts. At December 31, 2011, the aggregate value of these securities and/or cash pledged as collateral was $11,543,217, representing 1.48% of net assets.

^bNon-income producing.

^cContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company. Shares represent total underlying principal of debt securities.

^dSecurity has been deemed illiquid because it may not be able to be sold within seven days. At December 31, 2011, the aggregate value of these securities was $1,822,116, representing 0.23% of net assets.

^eSee Note 9 regarding restricted securities.

^fAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading this security for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^gSee Note 12 regarding holdings of 5% voting securities.

^hSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $10,618,721, representing 1.36% of net assets.

ⁱA portion or all of the security is held in connection with written option contracts open at year end.

^jThe coupon rate shown represents the rate at period end.

^kSee Note 1(g) regarding senior floating rate interests.

^lIncome may be received in additional securities and/or cash.

^mSee Note 7 regarding credit risk and defaulted securities.

ⁿA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).

^oThe security is traded on a discount basis with no stated coupon rate.

^pSee Note 1(d) regarding written options.

^qSee Note 1(e) regarding securities sold short.

MGD-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund

At December 31, 2011, the Fund had the following futures contracts outstanding. See Note 1(d).

Futures Contracts

Description	Type		Number of Contracts		Notional Value		Expiration Date		Unrealized Appreciation		Unrealized Depreciation
EUR/USD		Short		166	$	26,908,600		3/19/12	$	201,464	$	—
GBP/USD		Short		95		9,203,125		3/19/12		—		(197	)
Unrealized appreciation (depreciation)										201,464		(197	)
Net unrealized appreciation (depreciation)									$	201,267

At December 31, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts

Currency	Counterparty		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
British Pound		BZWS		Buy		70,046	$	109,408		1/17/12	$	—	$	(627	)
British Pound		BZWS		Buy		117,130		181,492		1/17/12		408		—
British Pound		HAND		Buy		117,130		181,550		1/17/12		351		—
British Pound		BZWS		Sell		5,393,465		8,473,284		1/17/12		97,310		—
British Pound		HSBC		Sell		5,023,225		7,884,068		1/17/12		83,071		—
British Pound		BOFA		Sell		171,206		275,867		1/17/12		9,985		—
British Pound		DBAB		Sell		435,663		700,990		1/17/12		24,411		—
Euro		BOFA		Buy		2,712,011		3,529,388		1/18/12		—		(18,780	)
Euro		SSBT		Buy		293,735		393,429		1/18/12		—		(13,198	)
Euro		BZWS		Buy		1,064,349		1,386,292		1/18/12		—		(8,528	)
Euro		BOFA		Sell		6,372,851		8,848,696		1/18/12		599,251		—
Euro		SSBT		Sell		4,881,997		6,771,330		1/18/12		451,746		—
Euro		HSBC		Sell		344,540		488,401		1/18/12		42,405		—
Euro		BZWS		Sell		344,540		487,827		1/18/12		41,831		—
Euro		DBAB		Sell		179,754		254,981		1/18/12		22,295		—
Japanese Yen		HSBC		Sell		6,500,000		83,925		1/20/12		—		(556	)
Japanese Yen		BOFA		Buy		10,250,205		133,358		1/20/12		—		(134	)
Japanese Yen		DBAB		Buy		4,320,500		55,467		1/20/12		687		—
Japanese Yen		BOFA		Buy		4,574,750		58,809		1/20/12		650		—
Japanese Yen		DBAB		Sell		151,157,205		1,972,289		1/20/12		7,676		—
Canadian Dollar		BOFA		Buy		152,663		146,631		1/31/12		3,050		—
Canadian Dollar		DBAB		Buy		212,100		206,951		1/31/12		1,006		—
Canadian Dollar		BOFA		Sell		2,001,423		2,007,173		1/31/12		44,846		—
Swiss Franc		SSBT		Buy		3,700,000		5,000,541		2/10/12		—		(1,054,229	)
Swiss Franc		DBAB		Buy		9,249,366		10,573,451		2/10/12		—		(708,348	)
Swiss Franc		BOFA		Buy		7,946,913		8,884,833		2/10/12		—		(408,888	)
Swiss Franc		BZWS		Buy		3,118,657		3,602,119		2/10/12		—		(275,852	)
Swiss Franc		HAND		Buy		1,655,715		1,869,386		2/10/12		—		(103,449	)
Swiss Franc		BZWS		Sell		18,992,776		24,788,850		2/10/12		4,531,713		—
Swiss Franc		DBAB		Sell		19,056,405		24,824,309		2/10/12		4,499,307		—
Swiss Franc		HSBC		Sell		464,576		511,146		2/10/12		15,643		—
Swiss Franc		BOFA		Sell		529,129		568,442		2/10/12		4,089		—
British Pound		HSBC		Sell		3,023,880		4,671,895		2/21/12		—		(22,570	)
British Pound		BOFA		Sell		7,634,280		12,039,260		2/21/12		187,316		—
British Pound		DBAB		Sell		591,532		926,169		2/21/12		7,838		—
British Pound		SSBT		Sell		158,314		248,418		2/21/12		2,642		—
British Pound		HSBC		Sell		158,314		248,477		2/21/12		2,700		—
British Pound		BZWS		Sell		158,314		248,290		2/21/12		2,514		—
Australian Dollar		BZWS		Sell		37,079		35,784		2/23/12		—		(1,908	)

MGD-18

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Global Discovery Securities Fund
Currency	Counterparty		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Australian Dollar		DBAB		Sell		14,921	$	14,401		2/23/12	$	—	$	(767	)
Australian Dollar		SSBT		Buy		52,000		52,182		2/23/12		678		—
Euro		BZWS		Buy		1,534,695		2,077,483		2/29/12		—		(90,121	)
Euro		BZWS		Sell		15,548,317		22,395,153		2/29/12		2,260,777		—
Euro		DBAB		Sell		7,151,741		9,726,878		2/29/12		465,693		—
Euro		BZWS		Buy		2,133,445		2,890,130		3/15/12		—		(126,927	)
Euro		DBAB		Buy		83,370		115,628		3/15/12		—		(7,649	)
Euro		BZWS		Sell		10,582,715		14,444,556		3/15/12		737,999		—
Euro		BOFA		Sell		10,277,067		14,042,877		3/15/12		732,190		—
Euro		DBAB		Sell		201,599		264,774		3/15/12		3,666		—
British Pound		BZWS		Sell		5,929,177		9,154,650		3/19/12		—		(47,618	)
British Pound		BOFA		Sell		6,155,233		9,700,647		3/19/12		147,534		—
British Pound		BOFA		Sell		3,084,472		4,754,114		4/16/12		—		(31,648	)
British Pound		DBAB		Sell		113,122		175,319		4/16/12		—		(198	)
Euro		BZWS		Sell		10,937,179		14,634,472		4/16/12		462,373		—
Euro		HSBC		Sell		1,306,390		1,763,071		4/16/12		70,287		—
Euro		SSBT		Sell		224,184		302,234		4/16/12		11,742		—
Euro		DBAB		Sell		2,697,542		3,622,975		4/16/12		127,574		—
Euro		BOFA		Sell		2,264,233		3,044,735		4/16/12		110,803		—
Euro		HAND		Sell		1,362,079		1,833,636		4/16/12		68,691		—
Unrealized appreciation (depreciation)												15,884,748		(2,921,995	)
Net unrealized appreciation (depreciation)											$	12,962,753

See Abbreviations on page MGD-36.

The accompanying notes are an integral part of these financial statements.

MGD-19

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Mutual Global Discovery Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	673,216,750
Cost - Non-controlled affiliated issuers (Note 12)		8,000,000
Total cost of investments	$	681,216,750
Value - Unaffiliated issuers	$	741,184,659
Value - Non-controlled affiliated issuers (Note 12)		2,859,392
Total value of investments		744,044,051
Cash		13,291,120
Restricted cash (Note 1h)		11,937,000
Foreign currency, at value (cost $8,880,109)		8,882,560
Receivables:
Investment securities sold		1,149,387
Capital shares sold		347,599
Dividends and interest		4,165,049
Due from brokers		4,572,351
Unrealized appreciation on forward exchange contracts		15,884,748
Other assets		76
Total assets		804,273,941
Liabilities:
Payables:
Investment securities purchased		2,704,356
Capital shares redeemed		380,689
Affiliates		959,291
Variation margin		113,638
Options written, at value (premiums received $62,276)		70,560
Securities sold short, at value (proceeds $5,581,075)		4,868,663
Due to brokers		11,937,000
Unrealized depreciation on forward exchange contracts		2,921,995
Accrued expenses and other liabilities		488,478
Total liabilities		24,444,670
Net assets, at value	$	779,829,271
Net assets consist of:
Paid-in capital	$	663,662,452
Undistributed net investment income		19,317,601
Net unrealized appreciation (depreciation)		76,725,734
Accumulated net realized gain (loss)		20,123,484
Net assets, at value	$	779,829,271

The accompanying notes are an integral part of these financial statements.

MGD-20

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Mutual Global Discovery Securities Fund
Class 1:
Net assets, at value	$	974,043
Shares outstanding		49,547
Net asset value and maximum offering price per share	$	19.66
Class 2:
Net assets, at value	$	712,160,599
Shares outstanding		36,904,143
Net asset value and maximum offering price per share	$	19.30
Class 4:
Net assets, at value	$	66,694,629
Shares outstanding		3,420,045
Net asset value and maximum offering price per share	$	19.50

The accompanying notes are an integral part of these financial statements.

MGD-21

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Mutual Global Discovery Securities Fund
Investment income:
Dividends	$	37,293,078
Interest		3,811,562
Income from securities loaned		919,252
Total investment income		42,023,892
Expenses:
Management fees (Note 3a)		10,166,989
Administrative fees (Note 3b)		1,498,074
Distribution fees: (Note 3c)
Class 2		2,850,055
Class 4		247,578
Unaffiliated transfer agent fees		2,139
Custodian fees (Note 4)		128,088
Reports to shareholders		305,630
Professional fees		145,121
Trustees’ fees and expenses		5,435
Dividends on securities sold short		2,392
Other		53,450
Total expenses		15,404,951
Expense reductions (Note 4)		(10	)
Net expenses		15,404,941
Net investment income		26,618,951
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (net of foreign taxes of $723,702) (includes gains from a redemption in-kind of $45,310,078) (Note 14)		100,159,280
Written options		51,143
Foreign currency transactions		(34,356,927	)
Futures contracts		2,793,153
Securities sold short		(27,184	)
Net realized gain (loss)		68,619,465
Net change in unrealized appreciation (depreciation) on:
Investments		(170,885,232	)
Translation of other assets and liabilities denominated in foreign currencies		18,223,705
Change in deferred taxes on unrealized appreciation		734,375
Net change in unrealized appreciation (depreciation)		(151,927,152	)
Net realized and unrealized gain (loss)		(83,307,687	)
Net increase (decrease) in net assets resulting from operations	$	(56,688,736	)

The accompanying notes are an integral part of these financial statements.

MGD-22

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Mutual Global Discovery Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	26,618,951		$	24,486,967
Net realized gain (loss) from investments, written options, foreign currency transactions, futures contracts and securities sold short		68,619,465			99,792,243
Net change in unrealized appreciation (depreciation) on investments, translation of other assets and liabilities denominated in foreign currencies and deferred taxes		(151,927,152	)		38,245,944
Net increase (decrease) in net assets resulting from operations		(56,688,736	)		162,525,154
Distributions to shareholders from:
Net investment income:
Class 1		(1,808,753	)		(1,245,461	)
Class 2		(27,559,671	)		(16,267,624	)
Class 4		(1,533,102	)		(816,963	)
Net realized gains:
Class 1		(1,558,774	)		—
Class 2		(25,603,997	)		—
Class 4		(1,468,422	)		—
Total distributions to shareholders		(59,532,719	)		(18,330,048	)
Capital share transactions: (Note 2)
Class 1		(75,411,767	)		(10,957,474	)
Class 2		(536,023,097	)		(87,938,794	)
Class 4		1,436,142			4,965,152
Total capital share transactions		(609,998,722	)		(93,931,116	)
Net increase (decrease) in net assets		(726,220,177	)		50,263,990
Net assets:
Beginning of year		1,506,049,448			1,455,785,458
End of year	$	779,829,271		$	1,506,049,448
Undistributed net investment income included in net assets:
End of year	$	19,317,601		$	22,625,559

The accompanying notes are an integral part of these financial statements.

MGD-23

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Mutual Global Discovery Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Mutual Global Discovery Securities (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. At December 31, 2011, 86.59% of the Fund’s shares were held through one insurance company. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.

Certain derivatives trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

MGD-24

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

MGD-25

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Derivative Financial Instruments (continued)

The Fund entered into futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for a specified price on a future date. Required initial margin deposits of cash or securities are pledged by the Fund. Subsequent payments, known as variation margin, are made or received by the Fund, depending on fluctuations in the value of the underlying security. Such variation margin is accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized.

The Fund entered into forward exchange contracts primarily to manage exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund purchased or wrote option contracts primarily to manage and/or gain exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. Options purchased are recorded as an asset while options written are recorded as a liability. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium and the cost to close the position is recorded as a realized gain or loss. Pursuant to the terms of the written option contract, cash or securities may be required to be deposited as collateral.

At December 31, 2011, the Fund holds $1,941,996 in United Kingdom treasury bills and U.S. treasury bills, notes, and bonds as collateral for derivatives.

See Notes 6 and 11 regarding investment transactions and other derivative information, respectively.

e. Securities Sold Short

The Fund is engaged in selling securities short, which obligates the fund to replace a borrowed security with the same security at current market value. The fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the fund sold the security short, while losses are potentially unlimited in size.

The fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale and the fund must maintain a deposit with the broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends or interest due on securities sold short. Such dividends or interest and any security borrowing fees are recorded as an expense to the fund.

f. Securities Lending

The Fund participates in an agency based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in a non-registered money fund managed by the fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its

MGD-26

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

f. Securities Lending (continued)

obligations to the fund. The securities lending agent has agreed to indemnify the fund in the event of default by a third party borrower. At December 31, 2011, the Fund had no securities on loan.

g. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

h. Restricted Cash

At December 31, 2011, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and liabilities.

i. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

j. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles

MGD-27

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

j. Security Transactions, Investment Income, Expenses and Distributions (continued)

generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

k. 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 expenses during the reporting period. Actual results could differ from those estimates.

l. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		140,069		$	3,084,356			105,161		$	2,092,188
Shares issued in reinvestment of distributions		168,285			3,367,527			63,093			1,245,461
Shares redeemed in-kind (Note 14)		(3,394,333	)		(67,951,585	)		—			—
Shares redeemed		(843,405	)		(13,912,065	)		(722,443	)		(14,295,123	)
Net increase (decrease)		(3,929,384	)	$	(75,411,767	)		(554,189	)	$	(10,957,474	)
Class 2 Shares:
Shares sold		1,990,050		$	40,633,273			3,059,169		$	60,514,460
Shares issued in reinvestment of distributions		2,709,831			53,163,668			837,674			16,267,624
Shares redeemed in-kind (Note 14)		(21,446,416	)		(398,285,682	)		—			—
Shares redeemed		(11,321,410	)		(231,534,356	)		(8,564,469	)		(164,720,878	)
Net increase (decrease)		(28,067,945	)	$	(536,023,097	)		(4,667,626	)	$	(87,938,794	)

MGD-28

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

2. SHARES OF BENEFICIAL INTEREST (continued)

	Year Ended December 31,
	2011						2010
Class 4 Shares:	Shares			Amount			Shares			Amount
Shares sold		410,892		$	8,602,556			535,481		$	10,579,920
Shares issued on reinvestment of distributions		151,460			3,001,524			41,618			816,963
Shares redeemed		(502,145	)		(10,167,938	)		(327,974	)		(6,431,731	)
Net increase (decrease)		60,207		$	1,436,142			249,125		$	4,965,152

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Mutual Advisers, LLC (Franklin Mutual)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.800%	Up to and including $4 billion
0.770%	Over $4 billion, up to and including $7 billion
0.750%	Over $7 billion, up to and including $10 billion
0.730%	In excess of $10 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:

Annualized Fee Rate	Net Assets
0.150%	Up to and including $200 million
0.135%	Over $200 million, up to and including $700 million
0.100%	Over $700 million, up to and including $1.2 billion
0.075%	In excess of $1.2 billion

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

MGD-29

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from:
Ordinary income	$	30,901,526	$	18,330,048
Long term capital gain		28,631,193		—
	$	59,532,719	$	18,330,048

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments	$	682,489,839
Unrealized appreciation	$	141,173,241
Unrealized depreciation		(79,619,029	)
Net unrealized appreciation (depreciation)	$	61,554,212
Undistributed ordinary income	$	25,828,618
Undistributed long term capital gains		32,219,466
Distributable earnings	$	58,048,084

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, passive foreign investment company shares, foreign capital gain tax, bond discounts and premium, corporate actions, and gains realized on a redemption in-kind.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2011, aggregated $315,401,241 and $459,657,075, respectively. Sales of investments excludes redemption in-kind of $415,032,658.

MGD-30

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

6. INVESTMENT TRANSACTIONS (continued)

Transactions in options written during the year ended December 31, 2011, were as follows:

	Number of Contracts			Premiums Received
Options outstanding at December 31, 2010		—		$	—
Options written		274			123,230
Options expired		—			—
Options exercised		—			—
Options closed		(114	)		(60,954	)
Options outstanding at December 31, 2011		160		$	62,276

See Notes 1(d) and 11 regarding derivative financial instruments and other derivative information, respectively.

7. CREDIT RISK AND DEFAULTED SECURITIES

The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and are about to be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest. At December 31, 2011, the aggregate value of distressed company securities for which interest recognition has been discontinued was $6,848,661, representing 0.88% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. RESTRICTED SECURITIES

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.

MGD-31

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

9. RESTRICTED SECURITIES (continued)

At December 31, 2011, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

Principal Amount/ Shares		Issuer	Acquisition Dates	Cost		Value
	1,361,600	AET&D Holdings No. 1 Pty. Ltd.	10/13/10	$	—	$	—
	800,000	The Bankshares Inc.	3/22/07		8,000,000		2,859,392
	722	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12	7/01/10		722		—
	1,903	Elephant Capital Holdings Ltd.	8/23/04 - 3/10/08		294,226		—
	2,077,368	FIM Coinvestor Holdings I, LLC	11/20/06 - 6/02/09		—		—
	1,114,214	Hightower Holding LLC, pfd., A, Series 2	6/10/10 - 3/31/11		2,785,536		2,333,811
	120,290	Imagine Group Holdings Ltd.	8/31/04		1,231,950		1,505,983
	424,073	International Automotive Components Group Brazil LLC	4/13/06 - 12/26/08		281,629		344,190
	3,000,220	International Automotive Components Group North America, LLC	1/12/06 - 10/10/07		3,599,443		1,271,794
	9,306	NCB Warrant Holdings Ltd., A	12/16/05 - 3/10/08		87,597		—
	2,140	Olympus Re Holdings Ltd.	12/19/01		201,741		—
		Total Restricted Securities (1.07% of Net Assets)				$	8,315,170

10. UNFUNDED CAPITAL COMMITMENTS

The Fund enters into certain capital commitments and may be obligated to perform on such agreements at a future date. The Fund monitors these commitments and assesses the probability of required performance. For any agreements whose probability of performance is determined to be greater than remote, the Fund assesses the fair value of the commitment. In instances where the probability of performance is greater than remote and the performance under the commitment would result in an unrealized loss, the Fund recognizes such losses on the Statement of Assets and Liabilities and the Statement of Operations.

At December 31, 2011, the Fund had aggregate unfunded capital commitments of $2,644,464, for which no depreciation has been recognized.

11. OTHER DERIVATIVE INFORMATION

At December 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

	Asset Derivatives			Liability Derivatives
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value Amount		Statement of Assets and Liabilities Location	Fair Value Amount
Foreign exchange contracts	Unrealized appreciation on forward exchange contracts/Net assets consist of-net unrealized appreciation (depreciation)	$	16,086,212a	Unrealized depreciation on forward exchange contracts/Net assets consist of-net unrealized appreciation (depreciation)	$	2,922,192	a
Equity contracts				Options written, at value		70,560

^aIncludes cumulative appreciation (depreciation) of futures contracts as reported in the Statement of Investments. Only current day’s variation margin is separately reported within the Statement of Assets and Liabilities.

MGD-32

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

11. OTHER DERIVATIVE INFORMATION (continued)

For the year ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year			Change in Unrealized Appreciation (Depreciation) for the Year
Foreign exchange contracts	Net realized gain (loss) from foreign currency transactions and future contracts/Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies	$	(30,390,312	)	$	18,301,853
Equity contracts	Net realized gain (loss) from written options/Net change in unrealized appreciation (depreciation) on investments		51,143			(8,284	)

For the year ended December 31, 2011, the average month end market value of derivatives represented 1.23% of average month end net assets. The average month end number of open derivative contracts for the year was 94.

See Note 1(d) and 6 regarding derivative financial instruments and investment transactions, respectively.

12. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Fund for the year ended December 31, 2011, were as shown below.

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Investment Income		Realized Capital Gain (Loss)
Non-Controlled Affiliates
The Bankshares Inc. (0.37% of Net Assets)		800,000		—		—		800,000	$	2,859,392	$	—	$	—

13. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

MGD-33

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

14. REDEMPTION IN-KIND

During the year ended December 31, 2011, the Fund realized $45,310,078 of net gains resulting from a redemption in-kind in which a shareholder redeemed fund shares for securities held by the Fund rather than for cash. Because such gains are not taxable to the Fund and are not netted with capital gains that are distributed to remaining shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.

15. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3			Total
Assets:
Investments in Securities:
Equity Investments:a
Auto Components	$	3,842,678	$	—	$	1,616,712		$	5,459,390
Commercial Banks		30,391,655		—		2,859,392	b		33,251,047
Consumer Finance		—		260		—			260
Diversified Financial Services		14,573,397		5,226,240		2,333,811			22,133,448
Diversified Telecommunication Services		6,789,964		—		32,340	b		6,822,304
Insurance		37,251,373		—		1,505,983	b		38,757,356
Real Estate Management & Development		4,865,672		—		1,789,048			6,654,720
Other Equity Investmentsc		562,635,797		—		—	b		562,635,797
Corporate Bonds, Notes and Senior Floating Rate Interests		—		36,964,033		—			36,964,033
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		6,848,661		—	b		6,848,661
Companies in Liquidation		—		21,237		—	b		21,237
Short Term Investments		23,995,798		500,000		—			24,495,798
Total Investments in Securities	$	684,346,334	$	49,560,431	$	10,137,286		$	744,044,051
Forward Exchange Contracts		—		15,884,748		—			15,884,748
Futures Contracts		201,464		—		—			201,464
Liabilities:
Options Written		70,560		—		—			70,560
Securities Sold Short		4,868,663		—		—			4,868,663
Forward Exchange Contracts		—		2,921,995		—			2,921,995
Futures Contracts		197		—		—			197

MGD-34

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

15. FAIR VALUE MEASUREMENTS (continued)

^aIncludes common and preferred stocks as well as other equity investments.

^bIncludes securities determined to have no value.

^cFor detailed categories, see the accompanying Statement of Investments.

At December 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

	Balance at Beginning of Year			Purchases		Sales			Transfers Into Level 3		Transfers Out of Level 3a			Cost Basis Adjustmentsb			Net Realized Gain (Loss)			Net Unrealized Gain (Loss)			Balance at End of Year			Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets
Investments in Securities:
Equity Investments:c
Airlines	$	—	d	$	—	$	—		$	—	$	—		$	(5,961	)	$	(259,679	)	$	265,640		$	—		$	—
Auto Components		4,555,503	d		—		(5,976	)		—		—			(94,887	)		(5,248	)		(2,832,680	)		1,616,712			(2,938,319	)
Commercial Banks		2,905,224	d		—		—			—		—			—			—			(45,832	)		2,859,392	d		(45,832	)
Computers & Peripherals		—	d		—		—			—		—			(3,661	)		(2,182	)		5,843			—			—
Consumer Finance		4,924,234			—		(4,924,234	)		—		—			—			(1,136,557	)		1,136,557			—			—
Diversified Financial Services		1,158,855			1,392,768		—			—		—			—			—			(217,812	)		2,333,811			(217,812	)
Diversified Telecommunication Services		—	d		—		—			—		—			(49	)		49			32,340			32,340	d		32,340
Electric Utilities		6,878,803	d		—		(6,475,783	)		—		—			—			—			(403,020	)		—	d		—
Insurance		2,143,167			—		(686,854	)		—		—			(743	)		153,078			(102,665	)		1,505,983	d		11,189
IT Services		19,161			—		—			—		(17,139	)		—			—			(2,022	)		—			—
Real Estate Management & Development		2,112,892			—		—			—		—			—			—			(323,844	)		1,789,048			(323,844	)
Corporate Bonds, Notes and Senior Floating Rate Interests		4,249,735			—		(4,249,735	)		—		—			—			(901,265	)		901,265			—			—
Corporate Notes and Senior Floating Rate Interests in Reorganization		1,443			—		(722	)		—		—			—			—			(721	)		—	d		(721	)
Companies in Liquidation		—	d		—		—			—		—			(4,203	)		4,203			—			—	d		—
Total	$	28,949,017		$	1,392,768	$	(16,343,304	)	$	—	$	(17,139	)	$	(109,504	)	$	(2,147,601	)	$	(1,586,951	)	$	10,137,286		$	(3,482,999	)

^aThe investment was transferred out of Level 3 as a result of the availability of a quoted market price in an active market for identical securities.

^bMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

^cIncludes common and preferred stocks as well as other equity investments.

^dIncludes securities determined to have no value.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Global Discovery Securities Fund

16. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

17. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS
Counterparty	Currency	Selected Portfolio
BOFA - Bank of America Corp.	EUR - Euro	ADR - American Depository Receipt
BZWS - Barclays Bank PLC	GBP - British Pound	FHLB - Federal Home Loan Bank
DBAB - Deutsche Bank AG	USD - United States Dollar	PC - Participation Certificate
HAND - Svenska Handelsbanken		PIK - Payment-In-Kind
HSBC - HSBC Bank USA, N.A.
SSBT - State Street Bank and Trust Co.

MGD-36

Franklin Templeton Variable Insurance Products Trust

Mutual Global Discovery Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Mutual Global Discovery Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Mutual Global Discovery Securities Fund

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $28,631,193 as a long term capital gain dividend for the fiscal year ended December 31, 2011.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 40.55% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

MGD-38

MUTUAL SHARES SECURITIES FUND

This annual report for Mutual Shares Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-0.79%		-1.78%		+4.18%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income and distributions. The Fund’s performance is compared to the performance of the Standard & Poor’s 500^® Index (S&P 500^®). One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Mutual Shares 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

MS-1

Fund Goals and Main Investments: Mutual Shares Securities Fund seeks capital appreciation, with income as a secondary goal. The Fund normally invests primarily in U.S. and foreign equity securities that the manager believes are undervalued.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed its benchmark, the S&P 500, which delivered a +2.11% total return for the period under review.¹

Economic and Market Overview

The U.S. economy improved steadily but modestly in 2011 despite geopolitical, employment and housing pressures. In contrast, growth outside the U.S. began to slow, which some attributed partly to the effects of Japan’s earthquake on the global supply chain and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Although manufacturing growth slowed in the second half of the year as high commodity prices reduced purchasing power and demand ebbed, the trend began to reverse near year-end. The U.S. manufacturing sector helped power the domestic economy and led global manufacturing output heading into 2012. European and Asian manufacturing, however, generally weakened throughout 2011 as parts of Europe were in danger of falling back into recession.

The U.S. financial system and household balance sheets continued to improve, but the country still faced persistently high unemployment, a prolonged housing market slump and massive national debt. Inflation rose across much of the world but stayed relatively contained in the U.S., even slowing toward year-end amid declining energy and food prices. The Federal Reserve Board (Fed) sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth. Outside the U.S., European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. The European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks agreed to lower dollar funding costs for Europe’s distressed commercial banks. Chinese policymakers lowered

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in companies involved in mergers, liquidations, reorganizations and distressed bankruptcy, which may include defaulted debt, involve higher credit and other risks. Foreign investing involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. Smaller and midsize company securities involve special risks, such as relatively small revenues, limited product lines and small market share. The Fund’s investment in certain hedging and derivative instruments may involve a small investment relative to the risk assumed. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

MS-2

commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms.

Although U.S. stock markets rallied in the spring, worrisome global events and slowing global growth dampened investor sentiment and market volatility surged. Risk-averse investors sought perceived safe havens and seemed to ignore that many companies generated record profits. Despite large swings, U.S. stocks as measured by the S&P 500 gained 2.11% in 2011.¹ The Dow Jones Industrial Average rose 8.38%, reflecting investors’ general preference for large, established U.S. companies.¹ In contrast, developed and emerging world stocks as measured by the MSCI All Country World Index fell 6.86%.¹ Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Investment Strategy

At Mutual Series, we are committed to our distinctive value approach to investing. Our major investment strategy is investing in undervalued stocks. When selecting undervalued equities, we are attracted to fundamentally strong companies with healthy balance sheets, high-quality assets, substantial free cash flow and shareholder-oriented management teams and whose stocks are trading at discounts to our assessment of the companies’ intrinsic or business value. We also look for asset rich companies whose shares may be trading at depressed levels due to concerns over short-term earnings disappointments, litigation, management strategy or other perceived negatives. While the vast majority of our undervalued equity investments are made in publicly traded companies globally, we may invest occasionally in privately held companies as well.

We complement this more traditional investment strategy with two others. One is distressed investing, which is complex and can take many forms. The most common distressed investment the Fund undertakes is the purchase of financially troubled or bankrupt companies’ debt at a substantial discount to face value. After the financially distressed company is reorganized, often in bankruptcy court, the old debt is typically replaced with new securities issued by the financially stronger company.

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The other piece of our investment strategy is participating in arbitrage situations, another highly specialized field. When companies announce proposed mergers or takeovers, commonly referred to as “deals,” the target company may trade at a discount to the bid it ultimately accepts. One form of arbitrage involves purchasing the target company’s stock when it is trading below the value we believe it would receive in a deal. In keeping with our commitment to a relatively conservative investment approach, we typically focus our arbitrage efforts on announced deals, and eschew rumored deals or other situations we consider relatively risky.

In addition, it is our practice to hedge the Fund’s currency exposure when we deem it advantageous for our shareholders.

Manager’s Discussion

Despite the weak performance of global stock markets in 2011, several Fund investments increased in value. Three particularly strong performers were managed care company UnitedHealth Group, U.K.-based cigarette manufacturer British American Tobacco (BAT), and White Mountains Insurance Group.

UnitedHealth’s shares rose during the year as its earnings beat management’s initial guidance in part due to lower-than-expected utilization of medical services by its members in addition to strong membership growth. The company increased its dividend in 2011, while its board of directors re-authorized the company’s share repurchase plan. At a UnitedHealth investor day convening in late November, management reaffirmed its 13% to 15% long-term earnings growth rate goal, which it seeks to achieve via high, single-digit topline growth and productivity enhancements.

BAT shares were another key contributor to Fund performance as the company announced operating results that repeatedly exceeded market expectations through the third quarter of 2011. Management also announced it had completed a five-year goal to realize £800 million in cost savings two years ahead of schedule, and it laid out a new goal to continue growing operating margins for the next six to seven years by increasing prices and cutting costs. In 2011, BAT and other tobacco stocks also benefited from the defensive nature of their business models, which include pricing power, reasonably predictable operating profits and high dividend payout ratios. BAT has been a long-term Fund holding, and we continue to believe the shares are an attractive investment in a market fraught with uncertainty.

Top 10 Sectors/Industries

Mutual Shares Securities Fund

Based on Equity Securities 12/31/11

	% of Total Net Assets
Tobacco		9.1%
Oil, Gas & Consumable Fuels		8.1%
Pharmaceuticals		7.3%
Media		5.0%
Insurance		5.0%
Food & Staples Retailing		4.8%
Beverages		3.8%
Software		3.2%
Food Products		3.1%
Health Care Providers & Services		3.0%

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We had long thought that the market had underappreciated the value of long-time Fund holding White Mountains, and in particular its Esurance and Answer Financial subsidiaries. In 2011, White Mountains sold those businesses to Allstate at a significant premium to book value, driving White Mountains, share price higher. At period-end, we believed the stock was still trading at a significant discount to its tangible book value, of which almost two-thirds is excess capital that White Mountains could use to generate shareholder value in 2012.

During a highly volatile year for global stock markets in general, several holdings hurt Fund performance, including Community Health Systems, which operates more than 130 hospitals mostly in rural areas or small cities in 30 U.S. states, Bank of America, and computer and printer manufacturer Hewlett-Packard.

Community Health Systems was involved in a lawsuit filed by Tenet Healthcare alleging that Community Health Systems had engaged in inappropriate patient-admissions practices and made false statements in their proxy documents related to a purchase offer for Tenet. The lawsuit and ensuing investigation caused a significant drop in Community Health’s share price. Furthermore, uncertainty over future reimbursement rates for hospitals from government programs have weighed on the hospital industry. In particular, a Congressional budgetary “supercommittee” appointed to reach a grand deficit reduction plan for the heavily indebted U.S. government failed amid ongoing partisan bickering in Washington, DC. The lack of a comprehensive budget deal could trigger automatic spending cuts in 2013 to many federally funded programs, including Medicare. Because Medicare is a significant source of payments for hospitals, the fear surrounding potential payment cuts continued to depress hospital valuations. However, we believed the risk in reimbursement cuts was more than adequately priced in at year-end 2011, and that Community Health shares represented a good value at those levels.

Bank of America shares declined in 2011 as investors reacted to the company’s potential exposure to large mortgage-related losses. There was also a growing concern that related losses might force the company into a dilutive, capital-raising scenario. Bank of America also faced a very difficult general operating environment in 2011. Low interest rates, weak lending, the impact of new consumer rules on fees, and a drop-off in capital markets activity all pressured earnings and the stock price. Like many other financial stocks, Bank of America was also impacted by contagion fears from Europe, changes in capital requirements

Top 10 Holdings

Mutual Shares Securities Fund 12/31/11

Company Sector/Industry, Country	% of Total Net Assets
CVS Caremark Corp.		2.9%
Food & Staples Retailing, U.S.
British American Tobacco PLC, ord. & ADR		2.8%
Tobacco, U.K.
Merck & Co. Inc.		2.7%
Pharmaceuticals, U.S.
Pfizer Inc.		2.3%
Pharmaceuticals, U.S.
Imperial Tobacco Group PLC		2.3%
Tobacco, U.K.
Microsoft Corp.		2.2%
Software, U.S.
Kraft Foods Inc., A		2.1%
Food Products, U.S.
Vodafone Group PLC		1.9%
Wireless Telecommunication Services, U.K.
Royal Dutch Shell PLC, A		1.8%
Oil, Gas & Consumable Fuels, U.K.
Marathon Oil Corp.		1.8%
Oil, Gas & Consumable Fuels, U.S.

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

MS-5

and uncertainty over the impact of new regulations such as Dodd-Frank. Although we still believed this holding held value, we exited our position in Bank of America and reallocated the capital proceeds to companies where we thought better risk-reward characteristics existed.

The Fund originally initiated a Hewlett-Packard position after the well-publicized departure of CEO Mark Hurd caused shares to drop to valuations near the bottom end of historical ranges based on earnings and cash flow. The company’s dominant franchise in printing, number-one market share in personal computers and servers, large base of recurring revenues, and history of strong cash flow generation are all positive characteristics for Hewlett-Packard. However, a number of operational and strategic missteps, including a large, dilutive acquisition of a U.K. software firm, weighed on the shares and caused us to revise downward our estimates of intrinsic value and downside protection. Therefore, we decided to sell the Fund’s position.

During the year, the Fund held currency forwards to somewhat hedge the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a negligible impact on the Fund’s performance during the period.

Thank you for your participation in Mutual Shares Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

MS-6

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Mutual Shares Securities Fund – Class 1

MS-7

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	936.90	$	3.56
Hypothetical (5% return before expenses)	$	1,000	$	1,021.53	$	3.72

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.73%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Mutual Shares Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.14		$	14.75		$	11.92		$	20.42		$	20.67
Income from investment operationsa:
Net investment incomeb		0.38	c		0.40	d		0.23	e		0.34			0.54
Net realized and unrealized gains (losses)		(0.53	)		1.27			2.89			(7.54	)		0.31
Total from investment operations		(0.15	)		1.67			3.12			(7.20	)		0.85
Less distributions from:
Net investment income		(0.42	)		(0.28	)		(0.29	)		(0.57	)		(0.35	)
Net realized gains		—			—			—			(0.73	)		(0.75	)
Total distributions		(0.42	)		(0.28	)		(0.29	)		(1.30	)		(1.10	)
Net asset value, end of year	$	15.57		$	16.14		$	14.75		$	11.92		$	20.42
Total returnf		(0.79)%			11.47%			26.35%			(36.93)%			3.72%
Ratios to average net assets
Expensesg,h		0.73%			0.74%			0.78%			0.73%			0.72%
Expenses incurred in connection with securities sold short		—%	i		0.02%			0.06%			—%	i		—%	i
Net investment income		2.28%	c		2.66%	d		1.85%	e		2.16%			2.58%
Supplemental data
Net assets, end of year (000’s)	$	1,170,781		$	1,301,520		$	767,553		$	319,703		$	272,509
Portfolio turnover rate		41.02%			32.05%			49.33%			44.11%			41.73%	j

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $0.02 per share related to interest income received that had previously been deemed uncollectible. Excluding this amount, the ratio of net investment income to average net assets would have been 2.14%.

^dNet investment income per share includes approximately $0.11 per share received in the form of a special dividend paid in connection with a corporate real estate investment trust (REIT) conversion. Excluding this non-recurring amount, the ratio of the net investment income to average net assets would have been 1.93%.

^eNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this adjustment, the ratio of net investment income to average net assets would have been 2.08%.

^fTotal return does not include 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.

^gBenefit of expense reduction rounds to less than 0.01%.

^hIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

ⁱRounds to less than 0.01%.

^jExcludes the value of portfolio securities delivered as a result of redemption in-kind.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Mutual Shares Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	15.95		$	14.58		$	11.78		$	20.19		$	20.46
Income from investment operationsa:
Net investment incomeb		0.32	c		0.36	d		0.20	e		0.32			0.48
Net realized and unrealized gains (losses)		(0.51	)		1.25			2.85			(7.49	)		0.31
Total from investment operations		(0.19	)		1.61			3.05			(7.17	)		0.79
Less distributions from:
Net investment income		(0.38	)		(0.24	)		(0.25	)		(0.51	)		(0.31	)
Net realized gains		—			—			—			(0.73	)		(0.75	)
Total distributions		(0.38	)		(0.24	)		(0.25	)		(1.24	)		(1.06	)
Net asset value, end of year	$	15.38		$	15.95		$	14.58		$	11.78		$	20.19
Total returnf		(1.04)%			11.19%			26.05%			(37.11)%			3.48%
Ratios to average net assets
Expensesg,h		0.98%			0.99%			1.03%			0.98%			0.97%
Expenses incurred in connection with securities sold short		—%	i		0.02%			0.06%			—%i			—%	i
Net investment income		2.03%	c		2.41%	d		1.60%	e		1.91%			2.33%
Supplemental data
Net assets, end of year (000’s)	$	3,913,220		$	4,188,821		$	3,953,435		$	3,303,761		$	5,925,551
Portfolio turnover rate		41.02%			32.05%			49.33%			44.11%			41.73%j

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cNet investment income per share includes approximately $0.02 per share related to interest income received that had previously been deemed uncollectible. Excluding this amount, the ratio of net investment income to average net assets would have been 1.89%.

^dNet investment income per share includes approximately $0.11 per share received in the form of a special dividend paid in connection with a corporate real estate investment trust (REIT) conversion. Excluding this non-recurring amount, the ratio of the net investment income to average net assets would have been 1.68%.

^eNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this

adjustment, the ratio of net investment income to average net assets would have been 1.83%.

^fTotal return does not include 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.

^gBenefit of expense reduction rounds to less than 0.01%.

^hIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

ⁱRounds to less than 0.01%.

^jExcludes the value of portfolio securities delivered as a result of redemption in-kind.

The accompanying notes are an integral part of these financial statements.

MS-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Mutual Shares Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.03		$	14.66		$	11.88		$	18.91
Income from investment operationsb:
Net investment incomec		0.30	d		0.35	e		0.19	f		0.17
Net realized and unrealized gains (losses)		(0.51	)		1.26			2.87			(5.90	)
Total from investment operations		(0.21	)		1.61			3.06	��		(5.73	)
Less distributions from:
Net investment income		(0.37	)		(0.24	)		(0.28	)		(0.57	)
Net realized gains		—			—			—			(0.73	)
Total distributions		(0.37	)		(0.24	)		(0.28	)		(1.30	)
Net asset value, end of year	$	15.45		$	16.03		$	14.66		$	11.88
Total returng		(1.12)%			11.06%			25.94%			(32.12)%
Ratios to average net assetsh
Expensesi,j		1.08%			1.09%			1.13%			1.08%
Expenses incurred in connection with securities sold short		—%	k		0.02%			0.06%			—%	k
Net investment income		1.93%	d		2.31%	e		1.50%	f		1.81%
Supplemental data
Net assets, end of year (000’s)	$	162,049		$	167,274		$	141,446		$	57,266
Portfolio turnover rate		41.02%			32.05%			49.33%			44.11%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dNet investment income per share includes approximately $0.02 per share related to interest income received that had previously been deemed uncollectible. Excluding this amount, the ratio of net investment income to average net assets would have been 1.79%.

^eNet investment income per share includes approximately $0.11 per share received in the form of a special dividend paid in connection with a corporate real estate investment trust (REIT) conversion. Excluding this non-recurring amount, the ratio of the net investment income to average net assets would have been 1.58%.

^fNet investment income per share includes approximately $(0.03) per share related to an adjustment for uncollectible interest. Excluding the effect of this

adjustment, the ratio of net investment income to average net assets would have been 1.73%.

^gTotal return does not include 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.

^hRatios are annualized for periods less than one year.

ⁱBenefit of expense reduction rounds to less than 0.01%.

^jIncludes dividend expense on securities sold short and borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

^kRounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

MS-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Mutual Shares Securities Fund	Country		Shares		Value
Common Stocks and Other Equity Interests 86.9%
Aerospace & Defense 2.3%
aGenCorp Inc.		United States		494,180	$	2,629,038
Goodrich Corp.		United States		215,480		26,654,876
aHuntington Ingalls Industries Inc.		United States		852,088		26,653,313
Raytheon Co.		United States		1,393,541		67,419,513
						123,356,740
Air Freight & Logistics 0.3%
PostNL NV		Netherlands		1,297,371		4,130,801
TNT Express NV		Netherlands		1,232,905		9,213,854
						13,344,655
Auto Components 0.1%
a,b,cCollins & Aikman Products Co., Contingent Distribution		United States		929,505		3,095
a,dInternational Automotive Components Group Brazil LLC		Brazil		1,730,515		1,404,538
d,eInternational Automotive Components Group North America, LLC		United States		11,387,027		4,826,961
						6,234,594
Automobiles 0.7%
Daimler AG		Germany		56,802		2,482,584
aGeneral Motors Co.		United States		1,614,500		32,725,915
						35,208,499
Beverages 3.8%
Coca-Cola Enterprises Inc.		United Kingdom		1,187,600		30,616,328
Dr. Pepper Snapple Group Inc.		United States		1,226,621		48,426,997
PepsiCo Inc.		United States		604,368		40,099,817
Pernod Ricard SA		France		845,913		78,458,040
						197,601,182
Biotechnology 1.5%
Amgen Inc.		United States		1,262,613		81,072,381
Building Products 0.7%
aOwens Corning Inc.		United States		1,372,085		39,406,281
Capital Markets 1.3%
Morgan Stanley		United States		2,688,648		40,679,244
aUBS AG		Switzerland		2,356,378		28,075,138
						68,754,382
Chemicals 1.0%
a,b,cDow Corning Corp., Contingent Distribution		United States		100,000		25,000
Linde AG		Germany		344,530		51,259,099
						51,284,099
Commercial Banks 2.9%
aCIT Group Inc.		United States		517,223		18,035,566
a,dElephant Capital Holdings Ltd.		Japan		11,728		—
a,dFirst Southern Bancorp Inc.		United States		140,952		1,370,054
aGuaranty Bancorp		United States		1,288,316		1,893,825
KB Financial Group Inc.		South Korea		410,501		12,854,161
a,dNCB Warrant Holdings Ltd., A		Japan		57,295		—
PNC Financial Services Group Inc.		United States		1,432,099		82,589,149
aState Bank Financial Corp.		United States		433,000		6,542,630
Wells Fargo & Co.		United States		1,143,870		31,525,057
						154,810,442

MS-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund	Country	Shares			Value
Common Stocks and Other Equity Interests (continued)
Communications Equipment 1.7%
Cisco Systems Inc.	United States		3,456,570		$	62,494,786
aMotorola Mobility Holdings Inc.	United States		661,410			25,662,708
						88,157,494
Consumer Finance 0.2%
a,dAlly Financial Inc.	United States		1,376			7,157,592
a,dCerberus CG Investor I LLC	United States		16,365,800			1,718,409
a,dCerberus CG Investor II LLC	United States		16,365,662			1,718,395
a,dCerberus CG Investor III LLC	United States		8,183,451			859,262
aComdisco Holding Co. Inc.	United States		180			1,062
						11,454,720
Diversified Financial Services 1.6%
a,fBond Street Holdings LLC, A, 144A	United States		493,723			9,504,168
Citigroup Inc.	United States		881,210			23,184,635
aDeutsche Boerse AG	Germany		492,140			25,803,930
NYSE Euronext	United States		888,040			23,177,844
						81,670,577
Diversified Telecommunication Services 0.4%
aAboveNet Inc.	United States		131,103			8,523,006
Cable & Wireless Communication PLC	United Kingdom		20,212,409			11,958,326
a,b,cGlobal Crossing Holdings Ltd., Contingent Distribution	United States		9,005,048			—
a,b,cMarconi Corp., Contingent Distribution	United Kingdom		9,945,700	��		184,900
						20,666,232
Electric Utilities 2.2%
a,dAET&D Holdings No. 1 Pty. Ltd.	Australia		4,709,226			—
E.ON AG	Germany		2,040,643			43,659,106
Entergy Corp.	United States		319,190			23,316,830
Exelon Corp.	United States		1,171,239			50,796,635
						117,772,571
Electronic Equipment, Instruments & Components 0.8%
TE Connectivity Ltd.	United States		1,304,472			40,190,782
Energy Equipment & Services 1.2%
Ensco PLC, ADR	United States		448,574			21,047,092
aExterran Holding Inc.	United States		613,890			5,586,399
Transocean Ltd.	United States		1,017,107			39,046,738
						65,680,229
Food & Staples Retailing 4.8%
CVS Caremark Corp.	United States		3,738,143			152,441,472
The Kroger Co.	United States		2,667,378			64,603,895
Wal-Mart Stores Inc.	United States		627,442			37,495,934
						254,541,301
Food Products 3.1%
General Mills Inc.	United States		1,243,890			50,265,595
Kraft Foods Inc., A	United States		2,996,329			111,942,851
						162,208,446
Health Care Equipment & Supplies 2.0%
aBoston Scientific Corp.	United States		5,499,880			29,369,359
Medtronic Inc.	United States		1,934,392			73,990,494
						103,359,853

MS-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Health Care Providers & Services 3.7%
aCommunity Health Systems Inc.	United States		1,277,022	$	22,284,034
aCoventry Health Care Inc.	United States		684,730		20,795,250
aMedco Health Solutions Inc.	United States		938,011		52,434,815
aTenet Healthcare Corp.	United States		6,379,987		32,729,333
UnitedHealth Group Inc.	United States		1,270,074		64,367,350
					192,610,782
Hotels, Restaurants & Leisure 0.0%
a,d,gGLCP Harrah’s Investment LP	United States		5,565,600		—
Household Durables 0.3%
D.R. Horton Inc.	United States		1,427,161		17,996,500
Independent Power Producers & Energy Traders 0.7%
aNRG Energy Inc.	United States		1,941,240		35,175,269
Industrial Conglomerates 0.1%
Orkla ASA	Norway		573,160		4,279,066
Insurance 5.0%
ACE Ltd.	United States		982,915		68,922,000
aAlleghany Corp.	United States		24,779		7,069,201
American International Group Inc.	United States		1,967,760		45,652,032
aCNO Financial Group Inc.	United States		964,957		6,088,879
MetLife Inc.	United States		996,593		31,073,770
Old Republic International Corp.	United States		823,197		7,631,036
a,dOlympus Re Holdings Ltd.	United States		16,280		—
White Mountains Insurance Group Ltd.	United States		140,935		63,908,385
Zurich Financial Services AG	Switzerland		137,066		31,040,150
					261,385,453
Internet Software & Services 0.9%
a,hGoogle Inc., A	United States		70,590		45,594,081
IT Services 0.0%†
Glodyne Technoserve Ltd.	India		8,705		39,211
Leisure Equipment & Products 0.6%
Mattel Inc.	United States		1,059,204		29,403,503
Machinery 1.1%
aFederal Signal Corp.	United States		930,921		3,863,322
aOshkosh Corp.	United States		1,098,890		23,494,268
Stanley Black & Decker Inc.	United States		475,544		32,146,775
					59,504,365
Marine 1.0%
A.P. Moller – Maersk AS, B	Denmark		7,799		51,496,296
Media 5.0%
British Sky Broadcasting Group PLC	United Kingdom		3,977,185		45,281,531
News Corp., A	United States		4,119,651		73,494,574
News Corp., B	United States		393,003		7,144,795
Time Warner Cable Inc.	United States		1,052,303		66,894,902
Viacom Inc., B	United States		1,561,830		70,922,700
					263,738,502

MS-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Metals & Mining 0.7%
ThyssenKrupp AG	Germany		1,543,348	$	35,460,602
Multi-Utilities 0.6%
GDF Suez	France		1,065,032		29,113,306
Multiline Retail 0.5%
Kohl’s Corp.	United States		540,960		26,696,376
Office Electronics 1.5%
Xerox Corp.	United States		9,776,214		77,818,663
Oil, Gas & Consumable Fuels 8.1%
Apache Corp.	United States		616,550		55,847,099
BP PLC	United Kingdom		4,439,900		31,733,206
El Paso Corp.	United States		1,293,429		34,366,409
Marathon Oil Corp.	United States		3,143,898		92,021,894
Marathon Petroleum Corp.	United States		948,739		31,583,521
Murphy Oil Corp.	United States		665,920		37,118,381
Royal Dutch Shell PLC, A	United Kingdom		2,595,384		94,561,636
The Williams Cos. Inc.	United States		1,394,324		46,040,578
					423,272,724
Paper & Forest Products 2.5%
Domtar Corp.	United States		251,569		20,115,457
International Paper Co.	United States		2,328,654		68,928,159
MeadWestvaco Corp.	United States		1,464,799		43,870,730
					132,914,346
Pharmaceuticals 7.3%
Eli Lilly & Co.	United States		1,519,278		63,141,194
aHospira Inc.	United States		804,948		24,446,271
Merck & Co. Inc.	United States		3,779,978		142,505,170
Pfizer Inc.	United States		5,550,274		120,107,929
Teva Pharmaceutical Industries Ltd., ADR	Israel		769,899		31,073,124
					381,273,688
Real Estate Investment Trusts (REITs) 0.3%
Alexander’s Inc.	United States		49,326		18,252,100
Real Estate Management & Development 0.2%
cCanary Wharf Group PLC	United Kingdom		1,535,898		5,638,540
aForestar Group Inc.	United States		320,853		4,854,506
					10,493,046
Software 3.2%
Microsoft Corp.	United States		4,444,983		115,391,759
Nintendo Co. Ltd.	Japan		123,923		17,067,288
aSymantec Corp.	United States		2,229,001		34,883,865
					167,342,912
Tobacco 9.1%
Altria Group Inc.	United States		2,888,624		85,647,702
British American Tobacco PLC	United Kingdom		3,122,320		148,329,398
British American Tobacco PLC, ADR	United Kingdom		4,218		400,204
Imperial Tobacco Group PLC	United Kingdom		3,122,880		118,209,441
Lorillard Inc.	United States		428,964		48,901,896
Philip Morris International Inc.	United States		593,230		46,556,690

MS-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
Tobacco (continued)
Reynolds American Inc.	United States		690,951	$	28,619,190
					476,664,521
Wireless Telecommunication Services 1.9%
Vodafone Group PLC	United Kingdom		35,967,880		99,974,187
Total Common Stocks and Other Equity Interests (Cost $4,287,345,075)					4,557,274,959
Convertible Preferred Stocks (Cost $241,000) 0.0%†
Commercial Banks 0.0%†
a,dFirst Southern Bancorp Inc., cvt. pfd., C	United States		241		887,690
		Principal Amount*
Corporate Bonds, Notes and Senior Floating Rate Interests 4.2%
i,jCapmark Financial Group Inc., senior secured note, B, 9.00%, 9/30/17	United States		5,598,000		5,695,965
Clear Channel Communications Inc.,
i,jDelayed Draw 2 Term Loan, 3.946%, 1/29/16	United States		5,945,000		4,313,841
senior note, 9.00%, 3/01/21	United States		2,981,000		2,526,398
ksenior note, PIK, 11.00%, 8/01/16	United States		12,556,000		7,973,060
i,jTranche B Term Loan, 3.946%, 1/29/16	United States		35,406,000		26,269,269
i,jTranche C Term Loan, 3.946%, 1/29/16	United States		6,902,668		5,013,062
i,jiStar Financial Inc.,
Tranche A1 Term Loan, 5.00%, 6/28/13	United States		2,588,847		2,575,440
Tranche A2 Term Loan, 7.00%, 6/30/14	United States		1,926,000		1,873,035
NRG Energy Inc., senior note, 7.375%, 1/15/17	United States		9,010,000		9,370,400
Realogy Corp.,
i,jExtended First Lien Term Loan, 4.691%, 10/10/16	United States		38,503,226		34,549,753
i,jExtended Revolver, 7.278%, 4/10/16	United States		2,156,694		1,711,336
i,jExtended Synthetic Letter of Credit, 4.545%, 10/10/16	United States		2,932,330		2,631,242
Second Lien Term Loan, 13.50%, 10/15/17	United States		5,314,000		5,333,927
senior note, 11.50%, 4/15/17	United States		3,654,000		2,868,390
fsenior secured note, 144A, 7.875%, 2/15/19	United States		4,388,000		3,839,500
Rite Aid Corp., senior note,
8.625%, 3/01/15	United States		6,445,000		6,251,650
9.375%, 12/15/15	United States		8,300,000		8,051,000
i,jTexas Competitive Electric Holdings Co. LLC, Extended Term Loan, 4.776%, 10/10/17	United States		90,618,405		57,693,748
fTexas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings Finance Inc., senior secured note, 144A, 11.50%, 10/01/20	United States		39,308,000		33,559,205
Total Corporate Bonds, Notes and Senior Floating Rate Interests (Cost $249,191,681)					222,100,221
Corporate Notes and Senior Floating Rate Interests in Reorganization 0.3%
d,lBroadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12	United States		2,128		—
i,j,lTribune Co.,
Incremental Term Loan, 7.25%, 6/04/14	United States		3,098,000		1,763,924
mInitial Tranche B Term Loan, 5.25%, 6/04/14	United States		19,651,000		11,534,036
Total Corporate Notes and Senior Floating Rate Interests in Reorganization (Cost $15,189,619)					13,297,960

MS-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund	Country	Shares			Value
Companies in Liquidation 0.0%†
aAdelphia Recovery Trust	United States		29,283,354		$	29,283
a,bAdelphia Recovery Trust, Arahova Contingent Value Vehicle, Contingent Distribution	United States		1,955,453			80,174
a,d,e,gCB FIM Coinvestors LLC	United States		6,400,507			—
a,b,cCentury Communications Corp., Contingent Distribution	United States		5,487,000			—
a,dFIM Coinvestor Holdings I, LLC	United States		8,006,950			—
a,b,cTropicana Litigation Trust, Contingent Distribution	United States		18,305,000			—
		Principal Amount*
c,lPeregrine Investments Holdings Ltd., 1/15/98	Hong Kong		5,000,000	JPY		—
c,lPIV Investment Finance (Cayman) Ltd., 12/01/00	Hong Kong		12,200,000			—
Total Companies in Liquidation (Cost $2,791,061)						109,457
Total Investments before Short Term Investments (Cost $4,554,758,436)						4,793,670,287
Short Term Investments 7.0%
Convertible Notes (Cost $6,601,983) 0.1%
iiStar Financial Inc., cvt., senior note, FRN, 0.872%, 10/01/12	United States		7,096,000			6,386,400
U.S. Government and Agency Securities 6.9%
nFHLB, 1/03/12	United States		1,300,000			1,300,000
n,oU.S. Treasury Bills, 1/05/12 - 7/26/12	United States		360,000,000			359,960,457
Total U.S. Government and Agency Securities (Cost $361,253,915)						361,260,457
Total Investments (Cost $4,922,614,334) 98.4%						5,161,317,144
Options Written (0.0)%†						(344,040	)
Securities Sold Short (0.7)%						(33,955,149	)
Other Assets, less Liabilities 2.3%						119,032,283
Net Assets 100.0%					$	5,246,050,238
		Number of Contracts
pOptions Written (Premiums received $247,051) (0.0)%†
Calls – Exchange-Traded
Internet Software & Services (0.0)%†
Google Inc., A, February Strike Price $645, Expires 2/18/12	United States		122			(344,040	)
		Shares
qSecurities Sold Short (Proceeds $36,014,854) (0.7)%
Health Care Providers & Services (0.7)%
Express Scripts Inc.	United States		759,793			(33,955,149	)

MS-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund

†Rounds to less than 0.1% of net assets.

*The principle amount is stated in U.S. dollars unless otherwise indicated.

^aNon-income producing.

^bContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company. Shares represent total underlying principal of debt securities.

^cSecurity has been deemed illiquid because it may not be able to be sold within seven days. At December 31, 2011, the aggregate value of these securities was $5,851,535, representing 0.11% of net assets.

^dSee Note 9 regarding restricted securities.

^eAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading these securities for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^fSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $46,902,873, representing 0.89% of net assets.

^gSee Note 13 regarding holdings of 5% voting securities.

^hA portion or all of the security is held in connection with written option contracts open at year end.

ⁱThe coupon rate shown represents the rate at period end.

^jSee Note 1(g) regarding senior floating rate interests.

^kIncome may be received in additional securities and/or cash.

^lSee Note 7 regarding credit risk and defaulted securities.

^mA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).

ⁿThe security is traded on a discount basis with no stated coupon rate.

^oSecurity or a portion of the security has been pledged as collateral for securities sold short, open futures and written options contracts. At December 31, 2011, the value of these securities and/or cash pledged as collateral was $59,483,235, representing 1.13% of net assets.

^pSee Note 1(d) regarding written options.

^qSee Note 1(e) regarding securities sold short.

MS-18

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund

At December 31, 2011, the Fund had the following futures contracts outstanding. See Note 1(d).

Futures Contracts

Description	Type		Number of Contracts		Notional Value		Expiration Date		Unrealized Appreciation		Unrealized Depreciation
EUR/USD		Short		273	$	44,253,300		3/19/12	$	331,495	$	—
GBP/USD		Short		270		26,156,250		3/19/12		—		(1,226	)
Unrealized appreciation (depreciation)										331,495		(1,226	)
Net unrealized appreciation (depreciation)									$	330,269

At December 31, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts

Currency	Counterparty		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
British Pound		DBAB		Sell		4,572,968	$	7,278,122		1/17/12	$	176,367	$	—
British Pound		BZWS		Sell		32,069,312		50,496,624		1/17/12		693,433		—
British Pound		HSBC		Sell		23,769,808		37,274,317		1/17/12		360,141		—
British Pound		BOFA		Sell		2,638,666		4,255,441		1/17/12		157,630		—
Euro		BOFA		Buy		5,303,484		6,894,081		1/18/12		—		(28,896	)
Euro		DBAB		Buy		3,800,000		4,945,350		1/18/12		—		(26,376	)
Euro		SSBT		Buy		1,138,136		1,488,386		1/18/12		—		(15,107	)
Euro		BZWS		Buy		2,303,484		2,990,314		1/18/12		—		(8,530	)
Euro		SSBT		Buy		4,001,200		5,170,191		1/18/12		9,230		—
Euro		BOFA		Sell		20,807,231		28,934,685		1/18/12		2,000,413		—
Euro		SSBT		Sell		16,545,183		22,942,526		1/18/12		1,525,333		—
Euro		HSBC		Sell		799,395		1,133,304		1/18/12		98,514		—
Euro		BZWS		Sell		799,395		1,131,861		1/18/12		97,071		—
Euro		DBAB		Sell		482,498		684,423		1/18/12		59,846		—
Japanese Yen		HSBC		Sell		26,900,000		347,321		1/20/12		—		(2,303	)
Japanese Yen		BOFA		Buy		42,659,861		555,015		1/20/12		—		(558	)
Japanese Yen		DBAB		Buy		17,906,800		229,891		1/20/12		2,847		—
Japanese Yen		BOFA		Buy		18,960,293		243,737		1/20/12		2,693		—
Japanese Yen		DBAB		Sell		626,700,251		8,177,142		1/20/12		31,824		—
Swiss Franc		DBAB		Buy		17,907,635		21,232,004		2/10/12		—		(2,132,247	)
Swiss Franc		BZWS		Buy		11,789,692		13,464,506		2/10/12		—		(889,966	)
Swiss Franc		BOFA		Buy		11,873,649		13,088,985		2/10/12		—		(424,900	)
Swiss Franc		SSBT		Buy		3,155,907		3,691,483		2/10/12		—		(325,485	)
Swiss Franc		HAND		Buy		290,688		328,201		2/10/12		—		(18,162	)
Swiss Franc		BZWS		Sell		32,638,454		42,466,805		2/10/12		7,655,588		—
Swiss Franc		DBAB		Sell		32,410,462		42,274,466		2/10/12		7,706,418		—
Swiss Franc		HSBC		Sell		139,747		153,755		2/10/12		4,706		—
Swiss Franc		BOFA		Sell		1,017,372		1,093,667		2/10/12		8,567		—
British Pound		HSBC		Sell		19,327,242		29,860,589		2/21/12		—		(144,255	)
British Pound		BOFA		Sell		33,489,979		52,813,696		2/21/12		821,716		—
British Pound		SSBT		Sell		1,055,391		1,656,066		2/21/12		17,610		—
British Pound		HSBC		Sell		1,055,391		1,656,457		2/21/12		18,001		—
British Pound		DBAB		Sell		2,787,676		4,375,536		2/21/12		47,770		—
British Pound		BZWS		Sell		1,055,391		1,655,214		2/21/12		16,758		—
Australian Dollar		BZWS		Sell		1,178,532		1,137,378		2/23/12		—		(60,642	)
Australian Dollar		DBAB		Sell		474,268		457,716		2/23/12		—		(24,394	)
Australian Dollar		BZWS		Buy		21,192,314		21,192,314		2/23/12		350,421		—
Australian Dollar		BOFA		Sell		19,539,514		19,988,922		2/23/12		126,317		—

MS-19

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Mutual Shares Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Euro		BZWS		Sell		30,070,447	$	43,602,149		2/29/12	$	4,662,264	$	—
Euro		DBAB		Sell		17,655,717		24,015,306		2/29/12		1,151,942		—
Euro		BZWS		Sell		21,015,749		28,641,645		3/15/12		1,422,394		—
Euro		BOFA		Sell		12,406,502		16,964,404		3/15/12		895,708		—
Euro		DBAB		Sell		259,199		340,424		3/15/12		4,714		—
British Pound		BZWS		Sell		37,896,554		58,512,279		3/19/12		—		(304,353	)
British Pound		BOFA		Sell		27,001,710		42,554,695		3/19/12		647,200		—
British Pound		BOFA		Sell		20,145,336		31,053,586		4/16/12		—		(203,238	)
British Pound		DBAB		Sell		1,153,846		1,788,254		4/16/12		—		(2,014	)
Euro		SSBT		Sell		640,248		863,150		4/16/12		33,535		—
Euro		DBAB		Sell		6,218,379		8,352,381		4/16/12		294,775		—
Euro		BZWS		Sell		45,362,750		60,668,205		4/16/12		1,888,388		—
Euro		HSBC		Sell		3,726,926		5,029,766		4/16/12		200,517		—
Euro		BOFA		Sell		5,688,919		7,652,768		4/16/12		281,221		—
Euro		HAND		Sell		3,605,814		4,855,349		4/16/12		183,035		—
Norwegian Krone		HAND		Sell		23,019,240		3,826,973		6/19/12		—		(36	)
Norwegian Krone		HAND		Sell		1,330,000		221,648		6/19/12		533		—
Unrealized appreciation (depreciation)												33,655,440		(4,611,462	)
Net unrealized appreciation (depreciation)											$	29,043,978

See Abbreviations on page MS-37.

The accompanying notes are an integral part of these financial statements.

MS-20

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Mutual Shares Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	4,917,046,401
Cost - Non-controlled affiliated issuers (Note 13)		5,567,933
Total cost of investments	$	4,922,614,334
Value	$	5,161,317,144
Cash		39,926,695
Restricted cash (Note 1h)		19,315,000
Foreign currency, at value (cost $37,370,122)		37,340,479
Receivables:
Investment securities sold		9,323,149
Capital shares sold		811,067
Dividends and interest		17,864,551
Due from brokers		31,810,243
Unrealized appreciation on forward exchange contracts		33,655,440
Other assets		199,550
Total assets		5,351,563,318
Liabilities:
Payables:
Investment securities purchased		37,129,551
Capital shares redeemed		2,602,821
Affiliates		4,709,197
Variation margin		270,788
Options written, at value (premiums received $247,051)		344,040
Securities sold short, at value (proceeds $36,014,854)		33,955,149
Due to brokers		19,315,000
Unrealized depreciation on forward exchange contracts		4,611,462
Unrealized depreciation on unfunded loan commitments (Note 10)		1,101,620
Accrued expenses and other liabilities		1,473,452
Total liabilities		105,513,080
Net assets, at value	$	5,246,050,238
Net assets consist of:
Paid-in capital	$	5,468,187,630
Undistributed net investment income		98,882,928
Net unrealized appreciation (depreciation)		268,880,748
Accumulated net realized gain (loss)		(589,901,068	)
Net assets, at value	$	5,246,050,238

The accompanying notes are an integral part of these financial statements.

MS-21

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Mutual Shares Securities Fund
Class 1:
Net assets, at value	$	1,170,780,709
Shares outstanding		75,203,571
Net asset value and maximum offering price per share	$	15.57
Class 2:
Net assets, at value	$	3,913,220,074
Shares outstanding		254,506,962
Net asset value and maximum offering price per share	$	15.38
Class 4:
Net assets, at value	$	162,049,455
Shares outstanding		10,490,127
Net asset value and maximum offering price per share	$	15.45

The accompanying notes are an integral part of these financial statements.

MS-22

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Mutual Shares Securities Fund
Investment income:
Dividends	$	140,979,904
Interest		25,518,337
Income from securities loaned		2,157,159
Total investment income		168,655,400
Expenses:
Management fees (Note 3a)		33,402,927
Administrative fees (Note 3b)		4,773,508
Distribution fees: (Note 3c)
Class 2		10,206,801
Class 4		577,474
Unaffiliated transfer agent fees		5,330
Custodian fees (Note 4)		314,209
Reports to shareholders		1,035,376
Professional fees		1,251,197
Trustees’ fees and expenses		21,161
Dividends on securities sold short		9,928
Other		138,096
Total expenses		51,736,007
Expense reductions (Note 4)		(22	)
Net expenses		51,735,985
Net investment income		116,919,415
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(15,793,927	)
Written options		137,832
Foreign currency transactions		(67,783,800	)
Futures contracts		4,822,033
Securities sold short		9,420,387
Net realized gain (loss)		(69,197,475	)
Net change in unrealized appreciation (depreciation) on:
Investments		(192,340,088	)
Translation of other assets and liabilities denominated in foreign currencies		40,496,303
Net change in unrealized appreciation (depreciation)		(151,843,785	)
Net realized and unrealized gain (loss)		(221,041,260	)
Net increase (decrease) in net assets resulting from operations	$	(104,121,845	)

The accompanying notes are an integral part of these financial statements.

MS-23

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Mutual Shares Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	116,919,415		$	125,525,670
Net realized gain (loss) from investments, written options, foreign currency transactions, futures contracts and securities sold short		(69,197,475	)		126,268,882
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(151,843,785	)		300,848,655
Net increase (decrease) in net assets resulting from operations		(104,121,845	)		552,643,207
Distributions to shareholders from:
Net investment income:
Class 1		(32,920,483	)		(18,628,775	)
Class 2		(95,354,646	)		(62,378,105	)
Class 4		(3,732,632	)		(2,455,400	)
Total distributions to shareholders		(132,007,761	)		(83,462,280	)
Capital share transactions: (Note 2)
Class 1		(34,519,147	)		440,450,926
Class 2		(141,255,692	)		(125,986,124	)
Class 4		339,468			11,534,796
Total capital share transactions		(175,435,371	)		325,999,598
Net increase (decrease) in net assets		(411,564,977	)		795,180,525
Net assets:
Beginning of year		5,657,615,215			4,862,434,690
End of year	$	5,246,050,238		$	5,657,615,215
Undistributed net investment income included in net assets:
End of year	$	98,882,928		$	115,196,471

The accompanying notes are an integral part of these financial statements.

MS-24

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Mutual Shares Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Mutual Shares Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.

Certain derivatives trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

MS-25

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

MS-26

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Derivative Financial Instruments (continued)

The Fund entered into futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for a specified price on a future date. Required initial margin deposits of cash or securities are pledged by the Fund. Subsequent payments, known as variation margin, are made or received by the Fund, depending on fluctuations in the value of the underlying security. Such variation margin is accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized.

The Fund entered into forward exchange contracts primarily to manage exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund purchased or wrote option contracts primarily to manage exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. Options purchased are recorded as an asset while options written are recorded as a liability. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium and the cost to close the position is recorded as a realized gain or loss. Pursuant to the terms of the written option contract, cash or securities may be required to be deposited as collateral.

At December 31, 2011, the Fund holds $9,992,205 in United Kingdom treasury bonds and U.S. treasury bills, bonds, and notes as collateral for derivatives.

See Notes 6 and 12 regarding investment transactions and other derivative information, respectively.

e. Securities Sold Short

The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current market value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.

The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale and the Fund must maintain a deposit with the broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends or interest due on securities sold short. Such dividends or interest and any security borrowing fees are recorded as an expense to the Fund.

f. Securities Lending

The Fund participates in an agency based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business

MS-27

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

f. Securities Lending (continued)

day. The collateral is invested in a non-registered money fund managed by the Fund’s custodian on the Fund’s behalf. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2011, the Fund had no securities on loan.

g. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

h. Restricted Cash

At December 31, 2011, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.

i. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

j. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to

MS-28

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

j. Security Transactions, Investment Income, Expenses and Distributions (continued)

shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

k. 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 expenses during the reporting period. Actual results could differ from those estimates.

l. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		42,708,405		$	674,448,160			37,999,296		$	576,826,047
Shares issued in reinvestment of distributions		2,247,132			32,920,483			1,260,404			18,628,775
Shares redeemed		(50,368,429	)		(741,887,790	)		(10,669,332	)		(155,003,896	)
Net increase (decrease)		(5,412,892	)	$	(34,519,147	)		28,590,368		$	440,450,926
Class 2 Shares:
Shares sold		25,072,748		$	394,507,314			24,723,011		$	370,497,941
Shares issued in reinvestment of distributions		6,585,266			95,354,646			4,269,549			62,378,105
Shares redeemed		(39,735,152	)		(631,117,652	)		(37,538,246	)		(558,862,170	)
Net increase (decrease)		(8,077,138	)	$	(141,255,692	)		(8,545,686	)	$	(125,986,124	)

MS-29

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

2. SHARES OF BENEFICIAL INTEREST (continued)

	Year Ended December 31,
	2011						2010
	Shares			Amount			Shares			Amount
Class 4 Shares:
Shares sold		534,093		$	8,261,151			1,277,647		$	19,039,058
Shares issued on reinvestment of distributions		256,538			3,732,632			167,148			2,455,400
Shares redeemed		(736,961	)		(11,654,315	)		(654,528	)		(9,959,662	)
Net increase (decrease)		53,670		$	339,468			790,267		$	11,534,796

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Mutual Advisers, LLC (Franklin Mutual)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.600%	Up to and including $5 billion
0.570%	Over $5 billion, up to and including $10 billion
0.550%	Over $10 billion, up to and including $15 billion
0.530%	Over $15 billion, up to and including $20 billion
0.510%	In excess of $20 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:

Annualized Fee Rate	Net Assets
0.150%	Up to and including $200 million
0.135%	Over $200 million, up to and including $700 million
0.100%	Over $700 million, up to and including $1.2 billion
0.075%	In excess of $1.2 billion

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

MS-30

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Transfer Agent Fees

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

e. Other Affiliated Transactions

At December 31, 2011, Franklin Templeton Variable Insurance Products Trust – Franklin Templeton VIP Founding Funds Allocation Fund owned 19.75% of the Fund’s outstanding shares.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, the Fund had capital loss carryforwards of $508,530,121 expiring in 2017 and capital loss carryforwards of $11,314,074 not subject to expiration.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	132,007,761	$	83,462,280

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	4,986,368,955
Unrealized appreciation	$	762,945,651
Unrealized depreciation		(587,997,462	)
Net unrealized appreciation (depreciation)	$	174,948,189
Distributable earnings – undistributed ordinary income	$	121,954,971

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, corporate actions, and wash sales.

MS-31

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2011, aggregated $2,121,842,543 and $2,191,502,295, respectively.

Transactions in options written during the year ended December 31, 2011, were as follows:

	Number of Contracts			Premiums Received
Options outstanding at December 31, 2010		—		$	—
Options written		1,649			384,883
Options expired		(1,527	)		(137,832	)
Options exercised		—			—
Options closed		—			—
Options outstanding at December 31, 2011		122		$	247,051

See Notes 1(d) and 12 regarding derivative financial instruments and other derivative information, respectively.

7. CREDIT RISK AND DEFAULTED SECURITIES

The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and are about to be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.

At December 31, 2011, the aggregate value of distressed company securities for which interest recognition has been discontinued was $13,297,960, representing 0.25% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. RESTRICTED SECURITIES

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.

MS-32

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

9. RESTRICTED SECURITIES (continued)

At December 31, 2011, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

Principal Amount/ Shares		Issuer	Acquisition Dates		Cost		Value
	4,709,226	AET&D Holdings No. 1 Pty. Ltd.		10/13/10	$	—	$	—
	1,376	Ally Financial Inc.		11/20/06 - 6/02/09		6,501,522		7,157,592
	2,128	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		7/01/10		2,128		—
	6,400,507	CB FIM Coinvestors LLC		1/15/09 - 6/02/09		—		—
	16,365,800	Cerberus CG Investor I LLC		7/26/07 - 4/28/10		7,639,123		1,718,409
	16,365,662	Cerberus CG Investor II LLC		7/26/07 - 4/28/10		7,639,035		1,718,395
	8,183,451	Cerberus CG Investor III LLC		7/26/07 - 4/28/10		3,819,912		859,262
	11,728	Elephant Capital Holdings Ltd.		8/29/03 - 3/10/08		1,813,542		—
	8,006,950	FIM Coinvestor Holdings I, LLC		11/20/06 - 6/02/09		—		—
	140,952	First Southern Bancorp Inc.		1/27/10 - 7/07/10		2,974,087		1,370,054
	241	First Southern Bancorp Inc., cvt. pfd., C		1/27/10 - 7/07/10		241,000		887,690
	5,565,600	GLCP Harrah’s Investment LP		1/15/08		5,567,933		—
	1,730,515	International Automotive Components Group Brazil LLC		4/13/06 - 12/26/08		1,149,241		1,404,538
	11,387,027	International Automotive Components Group North America, LLC		1/12/06 - 10/10/07		13,926,539		4,826,961
	57,295	NCB Warrant Holdings Ltd., A		12/16/05 - 3/10/08		539,528		—
	16,280	Olympus Re Holdings Ltd.		12/19/01		1,534,738		—
		Total Restricted Securities (0.38% of Net Assets)					$	19,942,901

10. UNFUNDED LOAN COMMITMENTS

The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Funded portions of credit agreements are presented on the Statement of Investments.

At December 31, 2011, unfunded commitments were as follows:

Borrower	Unfunded Commitment
Realogy Corp., Extended Revolver, 7.278%, 4/10/16	$	5,876,669

Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and the Statement of Operations.

11. UNFUNDED CAPITAL COMMITMENTS

The Fund enters into certain capital commitments and may be obligated to perform on such agreements at a future date. The Fund monitors these commitments and assesses the probability of required performance. For any agreements whose probability of performance is determined to be greater than remote, the Fund assesses the fair value of the commitment. In instances where the probability of performance is greater than remote and the performance under the commitment would result in an unrealized loss, the Fund recognizes such losses on the Statement of Assets and Liabilities and the Statement of Operations.

At December 31, 2011, the Fund had aggregate unfunded capital commitments of $329,837, for which no depreciation has been recognized.

MS-33

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

12. OTHER DERIVATIVE INFORMATION

At December 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

	Asset Derivatives				Liability Derivatives
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value Amount			Statement of Assets and Liabilities Location	Fair Value Amount
Foreign exchange contracts	Unrealized appreciation on forward exchange contracts / Net assets consist of – net unrealized appreciation (depreciation)	$	33,986,935	a	Unrealized depreciation on forward exchange contracts / Net assets consist of – net unrealized appreciation (depreciation)	$	4,612,688	a
Equity contracts					Options written, at value		344,040

^aIncludes cumulative appreciation (depreciation) of futures contracts as reported in the Statement of Investments. Only current day’s variation margin is separately reported within the Statement of Assets and Liabilities.

For the year ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year			Change in Unrealized Appreciation (Depreciation) for the Year
Foreign exchange contracts	Net realized gain (loss) from foreign currency transactions and futures contracts / Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies	$	(59,713,370	)	$	41,037,402
Equity contracts	Net realized gain (loss) from written options / Net change in unrealized appreciation (depreciation) on investments		137,832			(96,989	)

For the year ended December 31, 2011, the average month end market value of derivatives represented 0.56% of average month end net assets. The average month end number of open derivative contracts for the year was 119.

See Notes 1(d) and 6 regarding derivative financial instruments and investment transactions, respectively.

13. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Fund for the year ended December 31, 2011, were as shown below.

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Investment Income		Realized Capital Gain (Loss)
Non-Controlled Affiliates
CB FIM Coinvestors LLC		6,400,507		—		—		6,400,507	$	—	$	—	$	—
GLCP Harrah’s Investment LP		5,565,600		—		—		5,565,600		—		—		—
Total Affiliated Securities (0.00% of Net Assets)									$	—	$	—	$	—

MS-34

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

14. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

15. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3			Total
Assets:
Investments in Securities:
Equity Investments:a
Auto Components	$	—	$	—	$	6,234,594		$	6,234,594
Chemicals		51,259,099		—		25,000			51,284,099
Commercial Banks		153,440,388		—		2,257,744	b		155,698,132
Consumer Finance		—		1,062		11,453,658			11,454,720
Diversified Financial Services		72,166,409		9,504,168		—			81,670,577
Diversified Telecommunication Services		20,481,332		—		184,900	b		20,666,232
Real Estate Management & Development		4,854,506		—		5,638,540			10,493,046
Other Equity Investmentsc		4,220,661,249		—		—	b		4,220,661,249
Corporate Bonds, Notes and Senior Floating Rate Interests		—		222,100,221		—			222,100,221
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		13,297,960		—	b		13,297,960
Companies in Liquidation		—		109,457		—	b		109,457
Short Term Investments		359,960,457		7,686,400		—			367,646,857
Total Investments in Securities	$	4,882,823,440	$	252,699,268	$	25,794,436		$	5,161,317,144

MS-35

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

15. FAIR VALUE MEASUREMENTS (continued)

	Level 1		Level 2		Level 3		Total
Forward Exchange Contracts	$	—	$	33,655,440	$	—	$	33,655,440
Futures Contracts		331,495		—		—		331,495
Liabilities:
Options Written		344,040		—		—		344,040
Securities Sold Short		33,955,149		—		—		33,955,149
Forward Exchange Contracts		—		4,611,462		—		4,611,462
Futures Contracts		1,226		—		—		1,226
Unfunded Loan Commitments		—		1,101,620		—		1,101,620

^aIncludes common and convertible preferred stocks as well as other equity investments.

^bIncludes securities determined to have no value.

^cFor detailed categories, see the accompanying Statement of Investments.

At December 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

	Balance at Beginning of Year			Purchases		Sales			Transfers Into Level 3		Transfers Out of Level 3a			Cost Basis Adjustmentsb			Net Realized Gain (Loss)			Net Unrealized Gain (Loss)			Balance at End of Year			Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets
Investments in Securities:
Equity Investments:c
Airlines	$	—	d	$	—	$	—		$	—	$	—		$	(20,190	)	$	(879,733	)	$	899,923		$	—		$	—
Auto Components		17,504,881	d		—		(21,358	)		—		—			(370,936	)		(13,191	)		(10,864,802	)		6,234,594			(11,268,597	)
Chemicals		25,000			—		—			—		—			—			—			—			25,000			—
Commercial Banks		2,688,630	d		—		—			—		—			—			—			(430,886	)		2,257,744	d		(430,886	)
Computers & Peripherals		—	d		—		—			—		—			(18,251	)		(10,867	)		29,118			—			—
Consumer Finance		28,388,621			—		—			—		—			(3,814,368	)		—			(13,120,595	)		11,453,658			(13,120,595	)
Diversified Telecommunication Services		—	d		—		—			—		—			(194	)		194			184,900			184,900	d		184,900
Electric Utilities		23,791,010	d		—		(22,079,951	)		—		—			—			—			(1,711,059	)		—	d		—
Hotels Restaurants & Leisure		2,369,832			—		—			—		—			—			—			(2,369,832	)		—	d		(2,369,832	)
Insurance		6,186			—		—			—		—			(5,652	)		—			(534	)		—	d		(534	)
IT Services		95,515			—		—			—		(51,270	)		—			—			(44,245	)		—			—
Real Estate Management & Development		6,659,198			—		—			—		—			—			—			(1,020,658	)		5,638,540			(1,020,658	)
Corporate Bonds, Notes, and Senior Floating Rate Interests		15,981,825			—		(19,388,999	)		—		—			—			—			3,407,175			—			—

MS-36

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Mutual Shares Securities Fund

15. FAIR VALUE MEASUREMENTS (continued)

	Balance at Beginning of Year			Purchases		Sales			Transfers Into Level 3		Transfers Out of Level 3a			Cost Basis Adjustmentsb			Net Realized Gain (Loss)			Net Unrealized Gain (Loss)			Balance at End of Year			Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Corporate Notes and Senior Floating Rate Interests in Reorganization	$	4,255		$	—	$	(2,128	)	$	—	$	—		$	—		$	—		$	(2,128	)	$	—	d	$	(2,128	)
Companies in Liquidation		—	d		—		—			—		—			(21,250	)		21,250			—			—	d		—
Total	$	97,514,953		$	—	$	(41,492,436	)	$	—	$	(51,270	)	$	(4,250,841	)	$	(882,347	)	$	(25,043,623	)	$	25,794,436		$	(28,028,330	)

^aThe investment was transferred out of Level 3 as a result of the availability of a quoted price in an active market for identical securities.

^bMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

^cIncludes common and convertible preferred stocks as well as other equity investments.

^dIncludes securities determined to have no value.

16. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

17. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS
Counterparty	Currency	Selected Portfolio
BOFA - Bank of America Corp.	EUR - Euro	ADR - American Depository Receipt
BZWS - Barclays Bank PLC	GBP - British Pound	FHLB - Federal Home Loan Bank
DBAB - Deutsche Bank AG	JPY - Japanese Yen	FRN - Floating Rate Note
HAND - Svenska Handelsbanken	USD - United States Dollar	PIK - Payment-In-Kind
HSBC - HSBC Bank USA, N.A.
SSBT - State Street Bank and Trust Co.

MS-37

Franklin Templeton Variable Insurance Products Trust

Mutual Shares Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Mutual Shares Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

MS-38

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Mutual Shares Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 55.50% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

MS-39

TEMPLETON DEVELOPING MARKETS SECURITIES FUND

This annual report for Templeton Developing Markets Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-15.67%		+1.04%		+12.74%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of MSCI Emerging Markets (EM) Index and the Standard & Poor’s^®/International Finance Corporation Investable (S&P^®/IFCI) Composite Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Templeton Developing Markets 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goal and Main Investments: Franklin Templeton Developing Markets Securities Fund seeks long-term capital appreciation. The Fund normally invests at least 80% of its net assets in emerging market investments.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. In comparison, the MSCI EM Index had a -18.17% total return, and the S&P/IFCI Composite Index had a -19.03% total return for the same period.¹ Please note that index performance numbers are for reference and we do not attempt to track an index but rather undertake investments on the basis of fundamental research.

Economic and Market Overview

The fundamental and financial strength of emerging markets was evident in 2011, as emerging market countries continued to report generally strong economic data, albeit a moderation from 2010. This strength, however, was not reflected in emerging market equity prices as the eurozone sovereign debt crisis and U.S. fiscal concerns led many investors to hold cash, shying away from many investments in developed and emerging markets.

Global stock prices were largely range bound in the first half of 2011. Markets, however, declined in August, largely due to S&P’s downgrade of the U.S. long-term sovereign credit rating to AA+ from AAA, and then again in September, as the prolonged eurozone sovereign debt crisis and lack of a comprehensive solution created significant confusion and volatility in global financial markets.

In October, however, global equity prices rallied, and emerging markets as measured by the MSCI EM Index recorded a double-digit return for the month. Investors welcomed strong corporate earnings reports, the release of positive U.S. economic data, and the European Union’s plans to recapitalize its banks and leverage the European Financial Stability Facility. This rally proved short-lived, and global equity markets corrected again in the final two months of 2011, largely due to the slow progress by European leaders to resolve the eurozone debt crisis.

Heightened volatility and increased uncertainty also gave investors reasons to lock in profits from 2009 and 2010, when many emerging

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investing in emerging or developing markets is subject to all the risks of foreign investing generally as well as additional, heightened risks, including currency fluctuations, economic instability, market volatility, political and social instability, the relatively smaller size and lesser liquidity of these markets, and less government supervision and regulation of business and industry practices. The Fund may have significant investments in one or more countries or in particular sectors or industries from time to time, and may carry greater risk of adverse developments in a country, sector or industry than a fund that invests more broadly. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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markets returned more than 100% in U.S. dollar (USD) terms, as measured by the components of the MSCI EM Index.¹ Against this backdrop, emerging markets, as represented by the MSCI EM Index, declined -18.17% in USD terms in 2011.¹

Within emerging markets, Southeast Asian stocks were among the better performers in 2011. Strong domestic demand, rising disposable incomes and relatively low unemployment made the region’s economies more resilient to global uncertainties. Relatively more export-dependent markets such as China and Taiwan, however, underperformed their regional peers. India was among the worst emerging market performers for the year due to high inflation and interest rates, a weak rupee and global economic uncertainties. Generally weaker emerging market currencies and a global commodity price correction adversely impacted Latin American markets.

Eastern European markets were among the poorest performers, largely due to their proximity to their western counterparts and a weaker euro rather than a significant deterioration in the region’s economies. South Africa significantly outperformed most of its emerging market counterparts in local currency terms but ended the period with double-digit declines in USD terms due to a weaker rand.

Investment Strategy

We employ a fundamental research, value-oriented, long-term investment approach. We focus on the market price of a company’s securities relative to our evaluation of its long-term earnings, asset value and cash flow potential. We also consider a company’s profit and loss outlook, balance sheet strength, cash flow trends and asset value in relation to the current price. Our analysis considers the company’s corporate governance behavior as well as its position in its sector, the economic framework and political environment. We invest in securities without regard to benchmark comparisons.

Manager’s Discussion

During the 12 months under review, major detractors from the Fund’s absolute performance were Brazil-based Vale, the world’s largest iron ore producer and second-largest nickel producer; Norilsk Nickel (Mining and Metallurgical Co. Norilsk Nickel), a Russia-based major producer of nickel, palladium, and other base and precious metals; and Tata Consultancy Services, one of India’s largest information technology consulting and services firms, with outsourcing services primarily in the

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Americas, Europe and India. Weak commodity metal prices and higher raw material costs weighed on Vale’s share price. However, at year-end we believed Vale could benefit from the long-term uptrend in commodity demand due to emerging market industrialization. Vale’s strong cash flow and attractive valuations, in our view, underscored our belief in its long-term potential. Investor concerns that Norilsk Nickel could become embroiled in Russian domestic politics after a major shareholder’s December announcement of his intention to run in the presidential election added to the adverse effects of metal price weakness on the company’s shares. In our long-term view, Norilsk Nickel’s strong global market share in base metal and platinum group metal production, huge reserves and low-cost nickel production put the company in a strong position. Tata’s share price performed poorly in U.S. dollar terms due to weakness in the Indian rupee, which reached a record low against the dollar in December. Based on our analysis, we believed Tata remained well positioned to benefit from the global outsourcing trend of services to Indian consulting companies.

Major contributors to absolute performance during the reporting period were Astra International, Indonesia’s leading car and motorcycle company; Brazil-based AmBev (Companhia de Bebidas das Americas), one of the world’s largest beer and soft drink producers; and Souza Cruz, Brazil’s major cigarette company. Astra is a leader in the Indonesian car and motorcycle markets, which have been enjoying strong secular growth trends. The company continued to benefit from Indonesia’s robust economic growth, higher incomes and affordable credit. The strong market positions of AmBev and Souza Cruz have allowed their businesses to achieve superior returns and build market share as consumers become wealthier and more discerning. In our view, the companies’ strong operations, low debt levels, good dividend yield and strong brands made them attractive investments.

It is important to recognize the effect of currency movements on the Fund’s performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the 12 months ended December 31, 2011, the U.S. dollar rose in value relative to most

Top 10 Holdings

Templeton Developing Markets

Securities Fund

12/31/11

Company Sector/Industry, Country	% of Total Net Assets
AmBev (Companhia de Bebidas das Americas)		6.7%
Beverages, Brazil
PT Astra International Tbk		6.3%
Automobiles, Indonesia
Vale SA, ADR, pfd., A		5.0%
Metals & Mining, Brazil
Tata Consultancy Services Ltd.		4.6%
IT Services, India
Souza Cruz SA		3.9%
Tobacco, Brazil
LUKOIL Holdings, ADR		3.5%
Oil, Gas & Consumable Fuels, Russia
President Chain Store Corp.		3.3%
Food & Staples Retailing, Taiwan
Itau Unibanco Holding SA, ADR		3.3%
Commercial Banks, Brazil
Gazprom, ADR		3.0%
Oil, Gas & Consumable Fuels, Russia
PT Bank Central Asia Tbk		2.9%
Commercial Banks, Indonesia

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

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currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s investment predominantly in securities with non-U.S. currency exposure.

During the 12-month reporting period, we initiated positions in Australia, Malaysia and Qatar as we continued to search for what we considered to be attractive investment opportunities. We added construction, casinos and gaming, Internet software and services, specialty store and apparel retail companies. Key purchases included new positions in Australia-based BHP Billiton, a major diversified natural resources company with significant sales in emerging markets; Singapore-based SembCorp Marine, a premier global marine and offshore engineering group; and Anhui Conch Cement, one of China’s largest cement producers.

Conversely, we reduced the Fund’s investments in India, Brazil, Russia and China via Hong Kong-listed China H shares to focus on stocks we considered more attractively valued within our investment universe and raise funds for redemptions.² We reduced the Fund’s holdings largely in diversified banks, oil and gas, diversified metals and mining, and automobile companies. Additionally, we sold our holdings in select companies that reached their target prices during the reporting period. Key sales included reductions of our positions in Brazilian financial conglomerate Itau Unibanco Holding and Chinese automobile manufacturer Guangzhou Automobile Group, as well as elimination of our holding in Brazilian cosmetics company Natura Cosmeticos.

Thank you for your participation in Templeton Developing Markets Securities Fund. We look forward to serving your future investment needs.

2. “China-H” denotes shares of China-incorporated, Hong Kong Stock Exchange-listed companies with most businesses in China.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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 Countries

Templeton Developing Markets

Securities Fund

12/31/11

	% of Total Net Assets
Brazil		20.7%
Russia		14.8%
Indonesia		11.1%
China		8.8%
India		8.8%
Thailand		5.7%
Hong Kong		3.9%
Chile		3.3%
Taiwan		3.3%
Singapore		2.3%

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Templeton Developing Markets Securities Fund Class 1

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Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	833.30	$	6.33
Hypothetical (5% return before expenses)	$	1,000	$	1,018.30	$	6.97

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (1.37%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Templeton Developing Markets Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.40		$	9.86		$	6.11		$	16.16		$	13.92
Income from investment operationsa:
Net investment incomeb		0.17			0.09			0.12			0.16			0.32
Net realized and unrealized gains (losses)		(1.94	)		1.63			4.02			(7.40	)		3.51
Total from investment operations		(1.77	)		1.72			4.14			(7.24	)		3.83
Less distributions from:
Net investment income		(0.13	)		(0.18	)		(0.36	)		(0.37	)		(0.38	)
Net realized gains		—			—			(0.03	)		(2.44	)		(1.21	)
Total distributions		(0.13	)		(0.18	)		(0.39	)		(2.81	)		(1.59	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	9.50		$	11.40		$	9.86		$	6.11		$	16.16
Total returnd		(15.67)%			17.83%			73.32%			(52.62)%			29.09%
Ratios to average net assets
Expenses		1.40%			1.49%	e		1.45%	e		1.52%	e		1.48%	e
Net investment income		1.57%			0.87%			1.64%			1.52%			2.07%
Supplemental data
Net assets, end of year (000’s)	$	232,544		$	347,242		$	325,927		$	234,213		$	753,843
Portfolio turnover rate		14.90%			24.41%			56.58%	f		75.11%	f		98.32%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

^fExcludes the value of portfolio securities delivered as a result of redemptions in-kind.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Developing Markets Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.30		$	9.78		$	6.04		$	15.99		$	13.79
Income from investment operationsa:
Net investment incomeb		0.14			0.06			0.11			0.15			0.27
Net realized and unrealized gains (losses)		(1.92	)		1.62			3.98			(7.33	)		3.49
Total from investment operations		(1.78	)		1.68			4.09			(7.18	)		3.76
Less distributions from:
Net investment income		(0.10	)		(0.16	)		(0.32	)		(0.33	)		(0.35	)
Net realized gains		—			—			(0.03	)		(2.44	)		(1.21	)
Total distributions		(0.10	)		(0.16	)		(0.35	)		(2.77	)		(1.56	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	9.42		$	11.30		$	9.78		$	6.04		$	15.99
Total returnd		(15.86)%			17.58%			72.59%			(52.70)%			28.78%
Ratios to average net assets
Expenses		1.65%			1.74%	e		1.70%	e		1.77%	e		1.73%	e
Net investment income		1.32%			0.62%			1.39%			1.27%			1.82%
Supplemental data
Net assets, end of year (000’s)	$	295,223		$	392,546		$	435,947		$	264,186		$	1,090,549
Portfolio turnover rate		14.90%			24.41%			56.58%	f		75.11%	f		98.32%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

^fExcludes the value of portfolio securities delivered as a result of redemptions in-kind.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Developing Markets Securities Fund

	Year Ended December 31,
Class 3	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.23		$	9.73		$	6.02		$	15.96		$	13.78
Income from investment operationsa:
Net investment incomeb		0.14			0.06			0.10			0.11			0.24
Net realized and unrealized gains (losses)		(1.91	)		1.60			3.97			(7.27	)		3.52
Total from investment operations		(1.77	)		1.66			4.07			(7.16	)		3.76
Less distributions from:
Net investment income		(0.10	)		(0.16	)		(0.33	)		(0.34	)		(0.37	)
Net realized gains		—			—			(0.03	)		(2.44	)		(1.21	)
Total distributions		(0.10	)		(0.16	)		(0.36	)		(2.78	)		(1.58	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	9.36		$	11.23		$	9.73		$	6.02		$	15.96
Total returnd		(15.86)%			17.51%			72.63%			(52.67)%			28.70%
Ratios to average net assets
Expenses		1.65%			1.74%	e		1.70%	e		1.77%	e		1.73%	e
Net investment income		1.32%			0.62%			1.39%			1.27%			1.82%
Supplemental data
Net assets, end of year (000’s)	$	44,702		$	66,484		$	66,718		$	32,953		$	100,961
Portfolio turnover rate		14.90%			24.41%			56.58%	f		75.11%	f		98.32%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

^fExcludes the value of portfolio securities delivered as a result of redemptions in-kind.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Developing Markets Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.30		$	9.80		$	6.09		$	14.88
Income from investment operationsb:
Net investment income (loss)c		0.13			0.05			0.09			(0.33	)
Net realized and unrealized gains (losses)		(1.91	)		1.61			4.00			(5.65	)
Total from investment operations		(1.78	)		1.66			4.09			(5.98	)
Less distributions from:
Net investment income		(0.10	)		(0.16	)		(0.35	)		(0.37	)
Net realized gains		—			—			(0.03	)		(2.44	)
Total distributions		(0.10	)		(0.16	)		(0.38	)		(2.81	)
Redemption feesd		—			—			—			—
Net asset value, end of year	$	9.42		$	11.30		$	9.80		$	6.09
Total returne		(15.88)%			17.41%			72.45%			(48.66)%
Ratios to average net assetsf
Expenses		1.75%			1.84%	g		1.80%	g		1.87%	g
Net investment income		1.22%			0.52%			1.29%			1.17%
Supplemental data
Net assets, end of year (000’s)	$	24,380		$	37,198		$	26,362		$	7,208
Portfolio turnover rate		14.90%			24.41%			56.58%	h		75.11%	h

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dAmount rounds to less than $0.01 per share.

^eTotal return does not include 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

^hExcludes the value of portfolio securities delivered as a result of redemptions in-kind.

The accompanying notes are an integral part of these financial statements.

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Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Templeton Developing Markets Securities Fund	Industry	Shares		Value
Common Stocks 85.4%
Australia 1.5%
BHP Billiton Ltd.	Metals & Mining		250,162	$	8,809,050
Brazil 13.9%
Companhia de Bebidas das Americas (AmBev)	Beverages		1,362,350		39,922,880
Itau Unibanco Holding SA, ADR	Commercial Banks		1,053,474		19,552,477
Souza Cruz SA	Tobacco		1,888,597		23,222,283
					82,697,640
Chile 2.2%
Antofagasta PLC	Metals & Mining		704,479		13,322,274
China 8.8%
Anhui Conch Cement Co. Ltd., H	Construction Materials		1,725,000		5,119,518
CNOOC Ltd.	Oil, Gas & Consumable Fuels		7,181,000		12,593,055
aGreat Wall Motor Co. Ltd., H	Automobiles		2,460,677		3,592,830
Guangzhou Automobile Group Co. Ltd., H	Automobiles		916,396		764,588
PetroChina Co. Ltd., H	Oil, Gas & Consumable Fuels		13,880,000		17,317,385
Tencent Holdings Ltd.	Internet Software & Services		137,000		2,751,783
aUni-President China Holdings Ltd.	Food Products		927,675		555,415
Yantai Changyu Pioneer Wine Co. Ltd., B	Beverages		532,700		5,830,029
Yanzhou Coal Mining Co. Ltd., H	Oil, Gas & Consumable Fuels		1,948,000		4,158,556
					52,683,159
Hong Kong 3.9%
Dairy Farm International Holdings Ltd.	Food & Staples Retailing		1,014,733		9,467,459
Giordano International Ltd.	Specialty Retail		474,000		342,992
I.T Ltd.	Specialty Retail		3,540,000		1,950,815
Luk Fook Holdings (International) Ltd.	Specialty Retail		999,000		3,485,811
SJM Holdings Ltd.	Hotels, Restaurants & Leisure		1,885,000		3,058,095
VTech Holdings Ltd.	Communications Equipment		506,300		5,078,254
					23,383,426
India 8.8%
Grasim Industries Ltd.	Construction Materials		31,224		1,477,449
Infosys Ltd.	IT Services		169,190		8,824,273
National Aluminium Co. Ltd.	Metals & Mining		1,578,595		1,508,174
Oil & Natural Gas Corp. Ltd.	Oil, Gas & Consumable Fuels		1,826,624		8,853,174
Tata Chemicals Ltd.	Chemicals		701,855		4,121,900
Tata Consultancy Services Ltd.	IT Services		1,258,688		27,570,526
					52,355,496
Indonesia 11.1%
PT Astra International Tbk	Automobiles		4,610,000		37,622,277
PT Bank Central Asia Tbk	Commercial Banks		19,763,532		17,436,808
PT Bank Rakyat Indonesia (Persero) Tbk	Commercial Banks		15,197,500		11,313,276
					66,372,361
Malaysia 0.1%
Genting Bhd.	Hotels, Restaurants & Leisure		179,000		621,136
Mexico 1.5%
America Movil SAB de CV, L, ADR	Wireless Telecommunication Services		246,434		5,569,409
Kimberly Clark de Mexico SAB de CV, A	Household Products		650,871		3,540,105
					9,109,514

TD-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Developing Markets Securities Fund	Industry	Shares		Value
Common Stocks (continued)
Nigeria 0.2%
Nigerian Breweries PLC	Beverages		1,629,905	$	948,117
Pakistan 0.0%†
MCB Bank Ltd.	Commercial Banks		126,042		187,913
Qatar 0.1%
Industries Qatar	Industrial Conglomerates		20,901		763,397
Russia 14.8%
Gazprom, ADR	Oil, Gas & Consumable Fuels		1,193,200		12,744,569
Gazprom, ADR (London Stock Exchange)	Oil, Gas & Consumable Fuels		470,200		5,014,683
bLUKOIL Holdings, ADR	Oil, Gas & Consumable Fuels		75,208		4,001,066
bLUKOIL Holdings, ADR (London Stock Exchange)	Oil, Gas & Consumable Fuels		317,168		16,786,117
Mining and Metallurgical Co. Norilsk Nickel, ADR	Metals & Mining		636,443		9,756,671
Sberbank RF	Commercial Banks		6,061,420		14,842,988
TNK-BP	Oil, Gas & Consumable Fuels		5,340,274		13,760,276
cUralkali OJSC, GDR, Reg S	Chemicals		311,996		11,227,176
					88,133,546
Singapore 2.3%
Keppel Corp. Ltd.	Industrial Conglomerates		1,006,557		7,216,853
SembCorp Marine Ltd.	Machinery		2,165,000		6,375,993
					13,592,846
South Africa 2.3%
Exxaro Resources Ltd.	Metals & Mining		94,600		1,965,787
Remgro Ltd.	Diversified Financial Services		504,061		7,395,663
Tiger Brands Ltd.	Food Products		130,520		4,050,226
					13,411,676
South Korea 0.9%
SK Innovation Co. Ltd.	Oil, Gas & Consumable Fuels		43,125		5,282,510
Taiwan 3.3%
President Chain Store Corp.	Food & Staples Retailing		3,628,075		19,766,629
Thailand 5.7%
Kasikornbank PCL, fgn.	Commercial Banks		3,116,500		12,292,230
PTT Exploration and Production PCL, fgn.	Oil, Gas & Consumable Fuels		2,021,223		10,789,675
PTT PCL, fgn.	Oil, Gas & Consumable Fuels		938,100		9,450,841
Supalai PCL, fgn.	Real Estate Management & Development		3,888,100		1,761,439
					34,294,185
Turkey 1.5%
Tupras-Turkiye Petrol Rafinerileri AS	Oil, Gas & Consumable Fuels		423,426		8,985,167
United Arab Emirates 1.1%
Emaar Properties PJSC	Real Estate Management & Development		8,942,377		6,256,730
United Kingdom 1.4%
Anglo American PLC	Metals & Mining		230,149		8,426,299
Total Common Stocks (Cost $346,162,340)					509,403,071

TD-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Developing Markets Securities Fund	Industry	Shares		Value
Preferred Stocks 7.9%
Brazil 6.8%
Banco Bradesco SA, ADR, pfd.	Commercial Banks		418,531	$	6,981,097
Itausa - Investimentos Itau SA, pfd.	Commercial Banks		642,096		3,887,314
Vale SA, ADR, pfd., A	Metals & Mining		1,440,625		29,676,875
					40,545,286
Chile 1.1%
Embotelladora Andina SA, pfd., A	Beverages		1,918,947		6,833,593
Total Preferred Stocks (Cost $23,121,348)					47,378,879
Total Investments before Short Term Investments (Cost $369,283,688)					556,781,950
Short Term Investments 7.1%
Money Market Funds (Cost $40,518,516) 6.8%
United States 6.8%
d,eInstitutional Fiduciary Trust Money Market Portfolio			40,518,516		40,518,516
fInvestments from Cash Collateral Received for Loaned Securities (Cost $2,122,374) 0.3%
Money Market Funds 0.3%
United States 0.3%
gBNY Mellon Overnight Government Fund, 0.039%			2,122,374		2,122,374
Total Investments (Cost $411,924,578) 100.4%					599,422,840
Other Assets, less Liabilities (0.4)%					(2,573,365	)
Net Assets 100.0%				$	596,849,475

See Abbreviations on page TD-26.

†Rounds to less than 0.1% of net assets.

^aA portion or all of the security is on loan at December 31, 2011. See Note 1(c).

^bAt December 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading these securities for a limited or extended period of time due to ownership limits and/or potential possession of material non-public information.

^cSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the value of this security was $11,227,176, representing 1.88% of net assets.

^dNon-income producing.

^eSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

^fSee Note 1(c) regarding securities on loan.

^gThe rate shown is the annualized seven-day yield at period end.

The accompanying notes are an integral part of these financial statements.

TD-14

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Templeton Developing Markets Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	371,406,062
Cost - Sweep Money Fund (Note 7)		40,518,516
Total cost of investments	$	411,924,578
Value - Unaffiliated issuers	$	558,904,324
Value - Sweep Money Fund (Note 7)		40,518,516
Total value of investments (includes securities loaned in the amount of $1,993,705)		599,422,840
Foreign currency, at value and cost		27,953
Receivables:
Investment securities sold		298,006
Capital shares sold		1,044,669
Dividends		567,788
Foreign tax		51,726
Other assets		23
Total assets		601,413,005
Liabilities:
Payables:
Investment securities purchased		238,923
Capital shares redeemed		969,695
Affiliates		794,283
Reports to shareholders		297,351
Payable upon return of securities loaned		2,122,374
Accrued expenses and other liabilities		140,904
Total liabilities		4,563,530
Net assets, at value	$	596,849,475
Net assets consist of:
Paid-in capital	$	538,777,200
Undistributed net investment income		2,273,752
Net unrealized appreciation (depreciation)		187,475,625
Accumulated net realized gain (loss)		(131,677,102	)
Net assets, at value	$	596,849,475

The accompanying notes are an integral part of these financial statements.

TD-15

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Templeton Developing Markets Securities Fund
Class 1:
Net assets, at value	$	232,543,859
Shares outstanding		24,477,057
Net asset value and maximum offering price per share	$	9.50
Class 2:
Net assets, at value	$	295,223,498
Shares outstanding		31,333,936
Net asset value and maximum offering price per share	$	9.42
Class 3:
Net assets, at value	$	44,702,020
Shares outstanding		4,773,813
Net asset value and maximum offering price per sharea	$	9.36
Class 4:
Net assets, at value	$	24,380,098
Shares outstanding		2,588,782
Net asset value and maximum offering price per share	$	9.42

^aRedemption price is equal to net asset value less redemption fees retained by the Fund.

The accompanying notes are an integral part of these financial statements.

TD-16

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Templeton Developing Markets Securities Fund
Investment income:
Dividends (net of foreign taxes of $2,230,499)	$	21,338,029
Interest		22,148
Income from securities loaned		88,114
Total investment income		21,448,291
Expenses:
Management fees (Note 3a)		8,287,243
Administrative fees (Note 3b)		985,804
Distribution fees: (Note 3c)
Class 2		855,545
Class 3		140,593
Class 4		112,586
Unaffiliated transfer agent fees		2,549
Custodian fees (Note 4)		481,218
Reports to shareholders		260,457
Professional fees		74,918
Trustees’ fees and expenses		2,872
Other		27,374
Total expenses		11,231,159
Net investment income		10,217,132
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		41,497,378
Foreign currency transactions		(405,209	)
Net realized gain (loss)		41,092,169
Net change in unrealized appreciation (depreciation) on:
Investments		(168,785,410	)
Translation of other assets and liabilities denominated in foreign currencies		(3,998	)
Change in deferred taxes on unrealized appreciation		53,321
Net change in unrealized appreciation (depreciation)		(168,736,087	)
Net realized and unrealized gain (loss)		(127,643,918	)
Net increase (decrease) in net assets resulting from operations	$	(117,426,786	)

The accompanying notes are an integral part of these financial statements.

TD-17

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Templeton Developing Markets Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	10,217,132		$	5,592,076
Net realized gain (loss) from investments and foreign currency transactions		41,092,169			49,761,078
Net change in unrealized appreciation (depreciation) on investments, translation of other assets and liabilities denominated in foreign currencies and deferred taxes		(168,736,087	)		68,457,067
Net increase (decrease) in net assets resulting from operations		(117,426,786	)		123,810,221
Distributions to shareholders from:
Net investment income:
Class 1		(3,575,470	)		(5,483,924	)
Class 2		(3,331,863	)		(5,656,521	)
Class 3		(556,039	)		(947,886	)
Class 4		(314,405	)		(471,295	)
Total distributions to shareholders		(7,777,777	)		(12,559,626	)
Capital share transactions: (Note 2)
Class 1		(64,505,854	)		(22,233,537	)
Class 2		(37,899,841	)		(97,764,544	)
Class 3		(11,807,405	)		(9,001,736	)
Class 4		(7,237,721	)		6,238,252
Total capital share transactions		(121,450,821	)		(122,761,565	)
Redemption fees		34,912			26,367
Net increase (decrease) in net assets		(246,620,472	)		(11,484,603	)
Net assets:
Beginning of year		843,469,947			854,954,550
End of year	$	596,849,475		$	843,469,947
Undistributed net investment income included in net assets:
End of year	$	2,273,752		$	163,727

The accompanying notes are an integral part of these financial statements.

TD-18

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Templeton Developing Markets Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Templeton Developing Markets Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers four classes of shares: Class 1, Class 2, Class 3, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds and non-registered money market funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

TD-19

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Lending

The Fund participates in an agency based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in a non-registered money fund by the fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the fund. The securities lending agent has agreed to indemnify the fund in the event of default by a third party borrower.

d. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

TD-20

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. 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 expenses during the reporting period. Actual results could differ from those estimates.

g. Redemption Fees

Redemptions and exchanges of interests in an insurance company subaccount that invests in Class 3 shares of the Fund will be subject to a 1.0% short term trading fee if the interest in the subaccount has been held for less than 60 days. Such fees are retained by the Fund and accounted for as an addition to paid-in capital, allocated to each class of shares based upon the relative proportion of net assets of each class.

h. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

TD-21

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		2,813,987		$	30,009,154			4,235,745		$	44,045,245
Shares issued in reinvestment of distributions		324,453			3,575,470			603,956			5,483,924
Shares redeemed		(9,124,103	)		(98,090,478	)		(7,418,014	)		(71,762,706	)
Net increase (decrease)		(5,985,663	)	$	(64,505,854	)		(2,578,313	)	$	(22,233,537	)
Class 2 Shares:
Shares sold		6,746,331		$	70,699,788			9,770,557		$	97,538,996
Shares issued in reinvestment of distributions		304,558			3,331,863			627,805			5,656,521
Shares redeemed		(10,448,699	)		(111,931,492	)		(20,231,375	)		(200,960,061	)
Net increase (decrease)		(3,397,810	)	$	(37,899,841	)		(9,833,013	)	$	(97,764,544	)
Class 3 Shares:
Shares sold		848,211		$	9,362,399			1,343,547		$	13,467,640
Shares issued in reinvestment of distributions		51,154			556,039			105,791			947,886
Shares redeemed		(2,043,372	)		(21,725,843	)		(2,390,224	)		(23,417,262	)
Net increase (decrease)		(1,144,007	)	$	(11,807,405	)		(940,886	)	$	(9,001,736	)
Class 4 Shares:
Shares sold		464,313		$	5,040,717			1,189,893		$	11,893,157
Shares issued on reinvestment of distributions		28,739			314,405			52,250			471,295
Shares redeemed		(1,194,944	)		(12,592,843	)		(641,932	)		(6,126,200	)
Net increase (decrease)		(701,892	)	$	(7,237,721	)		600,211		$	6,238,252

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Templeton Asset Management Ltd. (TAML)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

TD-22

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

Effective May 1, 2011, the Fund pays an investment management fee to TAML based on the average daily net assets of the Fund as follows:

Annualized Fee Rate	Net Assets
1.100%	Up to and including $1 billion
1.050%	Over $1 billion, up to and including $5 billion
1.000%	Over $5 billion, up to and including $10 billion
0.950%	Over $10 billion, up to and including $15 billion
0.900%	Over $15 billion, up to and including $20 billion
0.850%	In excess of $20 billion

Prior to May 1, 2011, the Fund paid an investment management fee to TAML based on the average daily net assets of the Fund as follows:

Annualized Fee Rate	Net Assets
1.250%	Up to and including $500 million
1.200%	Over $500 million, up to and including $3 billion
1.150%	Over $3 billion, up to and including $4 billion
1.100%	Over $4 billion, up to and including $15 billion
1.050%	Over $15 billion, up to and including $20 billion
1.000%	In excess of $20 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:

Fee Rate	Net Assets
0.150%	Up to and including $200 million
0.135%	Over $200 million, up to and including $700 million
0.100%	Over $700 million, up to and including $1.2 billion
0.075%	In excess of $1.2 billion

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2, Class 3, and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.25%, 0.35%, and 0.35% per year of its average daily net assets of Class 2, Class 3, and Class 4, respectively. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 3.

d. Transfer Agent Fees

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

TD-23

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, the Fund had capital loss carryforwards of $125,392,863 expiring in 2017. During the year ended December 31, 2011, the Fund utilized $41,015,504 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	7,777,777	$	12,559,626

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	424,579,565
Unrealized appreciation	$	194,161,792
Unrealized depreciation	$	(19,318,517	)
Net unrealized appreciation (depreciation)	$	174,843,275
Distributable earnings - undistributed ordinary income	$	8,644,499

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, passive foreign investment company shares, corporate actions, foreign capital gains tax, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $107,148,613 and $255,595,141, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

10. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Equity Investmentsa,b	$	556,781,950	$	—	$	—	$	556,781,950
Short Term Investments		40,518,516		2,122,374		—		42,640,890
Total Investments in Securities	$	597,300,466	$	2,122,374	$	—	$	599,422,840

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common and preferred stocks.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Developing Markets Securities Fund

11. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

12. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt

GDR - Global Depositary Receipt

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Franklin Templeton Variable Insurance Products Trust

Templeton Developing Markets Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Templeton Developing Markets Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Templeton Developing Markets Securities Fund

At December 31, 2011, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. The Fund elects to treat foreign taxes paid as allowed under Section 853 of the Internal Revenue Code. This election will allow shareholders of record as of the 2012 distribution date, to treat their proportionate share of foreign taxes paid by the Funds as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

TD-28

TEMPLETON FOREIGN SECURITIES FUND

This annual report for Templeton Foreign Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-10.44%		-1.55%		+4.80%

Total Return Index Comparison

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

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the MSCI Europe, Australasia, Far East (EAFE) Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Templeton Foreign

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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

TF-1

Fund Goal and Main Investments: Templeton Foreign Securities Fund seeks long-term capital growth. The Fund normally invests at least 80% of its net assets in investments of issuers located outside the U.S., including those in emerging markets.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund performed better than its benchmark, the MSCI EAFE Index, which had a -11.73% total return for the same period.¹ Please note, index performance information is provided for reference and we do not attempt to track the index but rather undertake investments on the basis of fundamental research.

Economic and Market Overview

Global stocks declined in 2011 as deepening sovereign debt, political paralysis and economic growth concerns led to escalating investor anxiety and severe market volatility. Stocks entered the year supported by positive momentum in corporate earnings and renewed economic stimulus measures in the developed world. However, a number of events interrupted the market’s rise early in 2011, including a severe natural disaster and nuclear crisis in Japan and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Global markets recovered quickly from these setbacks but soon faced more significant turmoil as Europe’s sovereign debt crisis worsened in the summer. Portugal, Greece and Ireland received bailouts and had their credit ratings slashed to junk grade, while rising bond yields in the larger economies of Italy and Spain, and eventually in the critical core economies of Germany and France, threatened the survival of the European Monetary Union. The U.S.’s sovereign debt issues and political dysfunction, accompanied by the downgrade of its AAA credit rating to AA+, further pressured investor sentiment during the summer months. Additionally, the precarious state of the global banking system as well as emerging signs of a renewed global economic slowdown and possible hard landing in China weighed on the markets.

Despite these global challenges, corporate profits remained remarkably resilient, some signs of U.S. economic improvement emerged toward year-end, and European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. Greek and Italian

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign investing, especially in emerging or developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund may have significant investments in one or more countries or in particular sectors, such as technology and financial services, from time to time, and may carry greater risk of adverse developments in a country or sector than a fund that invests more broadly. Smaller and midsize company securities can increase the risk of greater price fluctuations, particularly over the short term. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

TF-2

prime ministers were replaced with technocrats tasked with arresting a debt spiral, the European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks agreed to lower dollar funding costs for Europe’s distressed commercial banks. Meanwhile, the Federal Reserve Board increased purchases of long-dated bonds to reduce key borrowing costs and hinted at “additional policy accommodation.” Chinese policymakers lowered commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms. Commodities initially rallied due to the coordinated monetary stimulus, but most ultimately declined as global economic prospects weakened. Gold and oil, however, made annual gains. In currency markets, the euro declined with escalating weakness at year-end, while the dollar ultimately rose after a late surge. Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Investment Strategy

Our investment philosophy is bottom up, value oriented and long term. In choosing investments, we generally focus on the market price of a company’s securities relative to our evaluation of the company’s potential long-term earnings, asset value and cash flow. Among factors we consider are a company’s historical value measures, including price/earnings ratio, profit margins and liquidation value. We do in-depth research to construct a bargain list from which we buy.

Manager’s Discussion

During the year under review, our underweighting in the consumer staples sector was a key detractor from the Fund’s performance relative to the MSCI EAFE Index.² Stock selection in the financials sector, which was negatively affected by the European sovereign debt and banking crisis, also weighed on relative results.³ Notable detractors included commercial banks KB Financial Group (South Korea)⁴ and UniCredit (Italy), as well as financial services companies Credit Suisse Group (Switzerland), ING Groep (Netherlands) and Nomura Holdings (Japan). Stock selection in the energy sector also weighed on relative results, particularly oil and gas companies Talisman Energy (Canada)⁴

2. The consumer staples sector comprises food and staples retailing in the SOI.

3. The financials sector comprises capital markets, commercial banks, diversified financial services, insurance, and real estate management and development in the SOI.

4. Not an index component.

TF-3

and Reliance Industries⁴ (India).⁵ Other detractors included video game hardware and software manufacturer Nintendo (Japan) in the information technology (IT) sector and specialist recruitment company Hays⁴ (U.K.) in the industrials sector.⁶

Our stock selection and overweighting in the traditionally defensive health care sector was a major contributor to the Fund’s relative performance.⁷ Within the sector, our positions in pharmaceutical manufacturers Sanofi (France), Roche Holding (Switzerland), Merck KGaA (Germany) and GlaxoSmithKline (U.K.) boosted relative returns. Underweighting and stock selection in the economically sensitive materials sector, which suffered from a global commodity price correction, aided relative results.⁸ Overweighting in the telecommunication services sector helped relative returns, and major contributors included mobile telecommunication services provider Vodafone Group (U.K.) and diversified telecommunications companies Telenor (Norway) and Singapore Telecommunications.⁹ Stock selection in the IT sector enhanced relative returns, particularly two companies that benefited from global demand for smartphones and tablet PCs: semiconductor, telecommunication and digital media products manufacturer Samsung Electronics (South Korea) and integrated circuit and semiconductor devices company Taiwan Semiconductor Manufacturing.⁴ Another key contributor was oil and gas company Statoil (Norway) in the energy sector.

It is important to recognize the effect of currency movements on the Fund’s absolute performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the 12 months ended December 31, 2011, the U.S. dollar rose in value relative to most

5. The energy sector comprises energy equipment and services and oil, gas and consumable fuels in the SOI

6. The IT sector comprises communications equipment; computers and peripherals; electronic equipment, instruments and components; semiconductors and semiconductor equipment; and software in the SOI. The industrials sector comprises aerospace and defense, airlines, automobiles, commercial services and supplies, industrial conglomerates, professional services, and trading companies and distributors in the SOI.

7. The health care sector comprises life sciences tools and services and pharmaceuticals in the SOI.

8. The materials sector comprises chemicals, construction materials, containers and packaging, and metals and mining in the SOI.

9. The telecommunication services sector comprises diversified telecommunication services and wireless telecommunication services in the SOI.

Top 10 Holdings

Templeton Foreign Securities Fund 12/31/11

Company Sector/Industry, Country	% of Total Net Assets
Sanofi		3.5%
Pharmaceuticals, France
Samsung Electronics Co. Ltd.		3.4%
Semiconductors & Semiconductor Equipment, South Korea
Roche Holding AG		3.3%
Pharmaceuticals, Switzerland
Vodafone Group PLC, ADR		2.7%
Wireless Telecommunication Services, U.K.
GlaxoSmithKline PLC		2.7%
Pharmaceuticals, U.K.
Statoil ASA		2.7%
Oil, Gas & Consumable Fuels, Norway
Tesco PLC		2.5%
Food & Staples Retailing, U.K.
Telenor ASA		2.2%
Diversified Telecommunication Services, Norway
Taiwan Semiconductor Manufacturing Co. Ltd.		2.2%
Semiconductors & Semiconductor Equipment, Taiwan
Total SA, B		2.1%
Oil, Gas & Consumable Fuels, France

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

TF-4

currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s investment predominantly in securities with non-U.S. currency exposure.

From a geographic perspective, the Fund’s holdings in North America hindered relative results mainly due to the poor performance of our investments in Canada.⁴ Our positions in Brazil⁴ and Australia also weighed on relative performance. In contrast, our stock selection in Europe boosted the Fund’s relative performance, as a number of our investments in France, Germany, Norway and the U.K. outperformed. Our overweighting and stock selection in Asia were also beneficial, particularly our positions in China,⁴ Taiwan,⁴ and Hong Kong.

Thank you for your participation in Templeton Foreign Securities Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

TF-5

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Templeton Foreign

Securities Fund – Class 1

TF-6

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	843.60	$	3.72
Hypothetical (5% return before expenses)	$	1,000	$	1,021.17	$	4.08

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.80%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

TF-7

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Templeton Foreign Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.54		$	13.68		$	10.95		$	20.57		$	19.00
Income from investment operationsa:
Net investment incomeb		0.42			0.28			0.25			0.45			0.45
Net realized and unrealized gains (losses)		(1.90	)		0.86			3.39			(8.01	)		2.46
Total from investment operations		(1.48	)		1.14			3.64			(7.56	)		2.91
Less distributions from:
Net investment income		(0.28	)		(0.28	)		(0.43	)		(0.45	)		(0.44	)
Net realized gains		—			—			(0.48	)		(1.61	)		(0.90	)
Total distributions		(0.28	)		(0.28	)		(0.91	)		(2.06	)		(1.34	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	12.78		$	14.54		$	13.68		$	10.95		$	20.57
Total returnd		(10.44)%			8.67%			37.34%			(40.23)%			15.79%
Ratios to average net assets
Expensese		0.79%			0.78%			0.78%			0.77%			0.75%
Net investment income		2.92%			2.10%			2.28%			2.82%			2.22%
Supplemental data
Net assets, end of year (000’s)	$	254,292		$	321,282		$	318,173		$	262,725		$	531,377
Portfolio turnover rate		21.09%			19.16%			22.50%			18.27%			26.74%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TF-8

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Foreign Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.29		$	13.45		$	10.76		$	20.25		$	18.73
Income from investment operationsa:
Net investment incomeb		0.37			0.25			0.22			0.40			0.38
Net realized and unrealized gains (losses)		(1.86	)		0.84			3.34			(7.89	)		2.44
Total from investment operations		(1.49	)		1.09			3.56			(7.49	)		2.82
Less distributions from:
Net investment income		(0.24	)		(0.25	)		(0.39	)		(0.39	)		(0.40	)
Net realized gains		—			—			(0.48	)		(1.61	)		(0.90	)
Total distributions		(0.24	)		(0.25	)		(0.87	)		(2.00	)		(1.30	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	12.56		$	14.29		$	13.45		$	10.76		$	20.25
Total returnd		(10.63)%			8.41%			37.04%			(40.38)%			15.46%
Ratios to average net assets
Expensese		1.04%			1.03%			1.03%			1.02%			1.00%
Net investment income		2.67%			1.85%			2.03%			2.57%			1.97%
Supplemental data
Net assets, end of year (000’s)	$	1,679,412		$	2,090,757		$	2,010,268		$	1,702,038		$	3,255,154
Portfolio turnover rate		21.09%			19.16%			22.50%			18.27%			26.74%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TF-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Foreign Securities Fund

	Year Ended December 31,
Class 3	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.24		$	13.37		$	10.70		$	20.18		$	18.68
Income from investment operationsa:
Net investment incomeb		0.37			0.25			0.25			0.39			0.37
Net realized and unrealized gains (losses)		(1.86	)		0.84			3.30			(7.84	)		2.45
Total from investment operations		(1.49	)		1.09			3.55			(7.45	)		2.82
Less distributions from:
Net investment income		(0.24	)		(0.22	)		(0.40	)		(0.42	)		(0.42	)
Net realized gains		—			—			(0.48	)		(1.61	)		(0.90	)
Total distributions		(0.24	)		(0.22	)		(0.88	)		(2.03	)		(1.32	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	12.51		$	14.24		$	13.37		$	10.70		$	20.18
Total returnd		(10.68)%			8.41%			37.20%			(40.39)%			15.45%
Ratios to average net assets
Expensese		1.04%			1.03%			1.03%			1.02%			1.00%
Net investment income		2.67%			1.85%			2.03%			2.57%			1.97%
Supplemental data
Net assets, end of year (000’s)	$	88,380		$	108,766		$	115,364		$	271,061		$	313,505
Portfolio turnover rate		21.09%			19.16%			22.50%			18.27%			26.74%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TF-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Foreign Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	14.43		$	13.59		$	10.91		$	18.90
Income from investment operationsb:
Net investment incomec		0.36			0.17			0.21			0.15
Net realized and unrealized gains (losses)		(1.88	)		0.92			3.37			(6.08	)
Total from investment operations		(1.52	)		1.09			3.58			(5.93	)
Less distributions from:
Net investment income		(0.25	)		(0.25	)		(0.42	)		(0.45	)
Net realized gains		—			—			(0.48	)		(1.61	)
Total distributions		(0.25	)		(0.25	)		(0.90	)		(2.06	)
Redemption feesd		—			—			—			—
Net asset value, end of year	$	12.66		$	14.43		$	13.59		$	10.91
Total returne		(10.74)%			8.38%			36.84%			(35.15)%
Ratios to average net assetsf
Expensesg		1.14%			1.13%			1.13%			1.12%
Net investment income		2.57%			1.75%			1.93%			2.47%
Supplemental data
Net assets, end of year (000’s)	$	353,346		$	305,505		$	48,501		$	14,287
Portfolio turnover rate		21.09%			19.16%			22.50%			18.27%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dAmount rounds to less than $0.01 per share.

^eTotal return does not include 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TF-11

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Templeton Foreign Securities Fund	Country	Shares/ Units		Value
Common Stocks and Other Equity Interests 93.8%
Aerospace & Defense 0.8%
BAE Systems PLC	United Kingdom		4,453,130	$	19,699,114
Airlines 0.4%
Deutsche Lufthansa AG	Germany		871,940		10,326,250
Automobiles 1.6%
aMazda Motor Corp.	Japan		5,453,000		9,635,652
Toyota Motor Corp., ADR	Japan		440,460		29,127,620
					38,763,272
Capital Markets 4.6%
Credit Suisse Group AG	Switzerland		1,969,870		46,331,359
KKR & Co., LP	United States		1,155,000		14,818,650
Nomura Holdings Inc.	Japan		5,636,100		17,062,448
aUBS AG	Switzerland		2,504,440		29,839,228
					108,051,685
Chemicals 0.9%
Akzo Nobel NV	Netherlands		454,250		21,965,281
Commercial Banks 6.5%
BNP Paribas SA	France		786,460		30,893,726
DBS Group Holdings Ltd.	Singapore		2,993,520		26,586,501
HSBC Holdings PLC	United Kingdom		3,065,200		23,285,196
KB Financial Group Inc., ADR	South Korea		1,220,681		38,256,143
UniCredit SpA	Italy		2,788,463		23,170,463
United Overseas Bank Ltd.	Singapore		985,000		11,595,829
					153,787,858
Commercial Services & Supplies 0.9%
G4S PLC	United Kingdom		5,045,810		21,258,958
Communications Equipment 0.7%
Telefonaktiebolaget LM Ericsson, B, ADR	Sweden		1,675,840		16,976,259
Computers & Peripherals 1.8%
Compal Electronics Inc.	Taiwan		28,536,431		28,456,339
Lite-On Technology Corp.	Taiwan		11,802,124		13,288,837
					41,745,176
Construction Materials 0.6%
CRH PLC	Ireland		659,820		13,117,517
Containers & Packaging 0.7%
Rexam PLC	United Kingdom		3,021,290		16,528,106
Diversified Financial Services 1.8%
aING Groep NV	Netherlands		5,880,644		42,318,926
Diversified Telecommunication Services 10.0%
China Telecom Corp. Ltd., H	China		69,378,357		39,483,473
France Telecom SA	France		2,164,143		33,990,745
Singapore Telecommunications Ltd.	Singapore		16,934,000		40,340,806
Telefonica SA, ADR	Spain		1,813,382		31,172,037
Telekom Austria AG	Austria		1,711,400		20,462,771
Telenor ASA	Norway		3,226,804		52,928,941
Vivendi SA	France		898,479		19,676,291
					238,055,064

TF-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Foreign Securities Fund	Country	Shares/ Units		Value
Common Stocks and Other Equity Interests (continued)
Electric Utilities 0.8%
E.ON AG	Germany		917,590	$	19,631,635
Electronic Equipment, Instruments & Components 1.2%
aFlextronics International Ltd.	Singapore		4,961,670		28,083,052
Energy Equipment & Services 0.7%
Aker Solutions ASA	Norway		1,617,940		17,029,808
Food & Staples Retailing 2.5%
Tesco PLC	United Kingdom		9,326,670		58,457,252
Industrial Conglomerates 3.3%
Hutchison Whampoa Ltd.	Hong Kong		2,500,239		21,021,503
Koninklijke Philips Electronics NV	Netherlands		1,473,320		31,044,627
Siemens AG	Germany		285,414		27,275,117
					79,341,247
Insurance 10.4%
ACE Ltd.	United States		377,449		26,466,724
AIA Group Ltd.	Hong Kong		11,111,000		34,692,369
Aviva PLC	United Kingdom		9,269,960		43,267,686
AXA SA	France		2,547,968		33,126,752
Muenchener Rueckversicherungs-Gesellschaft AG	Germany		249,150		30,504,186
NKSJ Holdings Inc.	Japan		1,054,500		20,688,560
PartnerRe Ltd.	Bermuda		196,480		12,615,981
aSwiss Re Ltd.	Switzerland		917,340		46,798,173
					248,160,431
Life Sciences Tools & Services 0.4%
Lonza Group AG	Switzerland		175,440		10,376,640
Media 1.0%
Reed Elsevier NV	Netherlands		2,017,693		23,521,781
Metals & Mining 0.9%
POSCO	South Korea		66,052		21,651,723
Multi-Utilities 0.8%
GDF Suez	France		697,431		19,064,706
Multiline Retail 0.5%
Marks & Spencer Group PLC	United Kingdom		2,350,320		11,333,394
Oil, Gas & Consumable Fuels 10.7%
BP PLC	United Kingdom		4,406,715		31,496,024
Gazprom, ADR	Russia		2,623,000		28,016,263
Reliance Industries Ltd.	India		998,145		13,045,641
Royal Dutch Shell PLC, A	United Kingdom		16,803		618,030
Royal Dutch Shell PLC, B	United Kingdom		1,292,973		49,278,912
Statoil ASA	Norway		2,455,740		63,029,284
Talisman Energy Inc.	Canada		1,506,600		19,188,214
bTotal SA, B	France		979,926		50,098,570
					254,770,938
Pharmaceuticals 12.1%
GlaxoSmithKline PLC	United Kingdom		2,772,585		63,359,637
Merck KGaA	Germany		405,300		40,448,774
Novartis AG	Switzerland		360,330		20,621,006
Roche Holding AG	Switzerland		468,100		79,417,616

TF-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Foreign Securities Fund	Country	Shares/ Units		Value
Common Stocks and Other Equity Interests (continued)
Pharmaceuticals (continued)
Sanofi	France		1,127,925	$	82,847,812
					286,694,845
Professional Services 1.1%
Hays PLC	United Kingdom		11,353,070		11,343,170
Randstad Holding NV	Netherlands		477,910		14,140,257
					25,483,427
Real Estate Management & Development 0.0%†
Cheung Kong (Holdings) Ltd.	Hong Kong		922		10,987
Semiconductors & Semiconductor Equipment 6.5%
Infineon Technologies AG	Germany		1,103,225		8,281,844
Samsung Electronics Co. Ltd.	South Korea		89,088		81,306,969
Siliconware Precision Industries Co.	Taiwan		14,515,000		12,988,493
Taiwan Semiconductor Manufacturing Co. Ltd.	Taiwan		20,849,526		52,184,054
					154,761,360
Software 2.9%
Nintendo Co. Ltd.	Japan		166,400		22,917,430
SAP AG, ADR	Germany		370,760		19,631,742
Trend Micro Inc.	Japan		868,100		25,953,331
					68,502,503
Specialty Retail 1.5%
Kingfisher PLC	United Kingdom		9,366,486		36,465,799
Trading Companies & Distributors 0.9%
Itochu Corp.	Japan		2,102,500		21,362,373
Wireless Telecommunication Services 4.3%
China Mobile Ltd.	China		2,340,000		22,867,922
Mobile TeleSystems, ADR	Russia		914,865		13,430,218
Vodafone Group PLC, ADR	United Kingdom		2,323,300		65,122,099
					101,420,239
Total Common Stocks and Other Equity Interests (Cost $2,388,902,314)					2,228,717,606
Preferred Stocks 1.6%
Metals & Mining 1.1%
Vale SA, ADR, pfd., A	Brazil		1,210,222		24,930,573
Oil, Gas & Consumable Fuels 0.5%
Petroleo Brasileiro SA, ADR, pfd.	Brazil		517,880		12,165,001
Total Preferred Stocks (Cost $13,315,242)					37,095,574
Total Investments before Short Term Investments (Cost $2,402,217,556)					2,265,813,180

TF-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Foreign Securities Fund	Country	Shares/ Units		Value
Short Term Investments 4.5%
Money Market Funds (Cost $106,174,453) 4.5%
a,cInstitutional Fiduciary Trust Money Market Portfolio	United States		106,174,453	$	106,174,453
dInvestments from Cash Collateral Received for Loaned Securities (Cost $138,503) 0.0%†
Money Market Funds 0.0%†
eBNY Mellon Overnight Government Fund, 0.039%	United States		138,503		138,503
Total Investments (Cost $2,508,530,512) 99.9%					2,372,126,136
Other Assets, less Liabilities 0.1%					3,303,938
Net Assets 100.0%				$	2,375,430,074

See Abbreviations on page TF-26.

†Rounds to less than 0.1% of net assets.

^aNon-income producing.

^bA portion or all of the security is on loan at December 31, 2011. See Note 1(c).

^cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

^dSee Note 1(c) regarding securities on loan.

^eThe rate shown is the annualized seven-day yield at period end.

The accompanying notes are an integral part of these financial statements.

TF-15

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statements of Assets and Liabilities

December 31, 2011

	Templeton Foreign Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	2,402,356,059
Cost - Sweep Money Fund (Note 7)		106,174,453
Total cost of investments	$	2,508,530,512
Value - Unaffiliated issuers	$	2,265,951,683
Value - Sweep Money Fund (Note 7)		106,174,453
Total value of investments (includes securities loaned in the amount $131,856)		2,372,126,136
Cash		172,980
Receivables:
Capital shares sold		1,547,647
Dividends and interest		6,865,931
Other assets		75
Total assets		2,380,712,769
Liabilities:
Payables:
Capital shares redeemed		1,877,410
Affiliates		2,452,002
Reports to shareholders		640,351
Payable upon return of securities loaned		138,503
Accrued expenses and other liabilities		174,429
Total liabilities		5,282,695
Net assets, at value	$	2,375,430,074
Net assets consist of:
Paid-in capital	$	2,569,122,780
Undistributed net investment income		72,574,104
Net unrealized appreciation (depreciation)		(136,417,326	)
Accumulated net realized gain (loss)		(129,849,484	)
Net assets, at value	$	2,375,430,074

The accompanying notes are an integral part of these financial statements.

TF-16

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Assets and Liabilities (continued)

December 31, 2011

	Templeton Foreign Securities Fund
Class 1:
Net assets, at value	$	254,292,005
Shares outstanding		19,894,351
Net asset value and maximum offering price per share	$	12.78
Class 2:
Net assets, at value	$	1,679,411,889
Shares outstanding		133,750,747
Net asset value and maximum offering price per share	$	12.56
Class 3:
Net assets, at value	$	88,380,234
Shares outstanding		7,064,247
Net asset value and maximum offering price per sharea	$	12.51
Class 4:
Net assets, at value	$	353,345,946
Shares outstanding		27,919,791
Net asset value and maximum offering price per share	$	12.66

^aRedemption price is equal to net asset value less any redemption fees retained by the fund.

The accompanying notes are an integral part of these financial statements.

TF-17

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Templeton Foreign Securities Fund
Investment income:
Dividends (net of foreign taxes of $10,047,845)	$	95,839,331
Income from securities loaned		3,918,257
Total investment income		99,757,588
Expenses:
Management fees (Note 3a)		17,160,771
Administrative fees (Note 3b)		2,592,887
Distribution fees: (Note 3c)
Class 2		4,871,796
Class 3		255,374
Class 4		1,189,998
Unaffiliated transfer agent fees		7,664
Custodian fees (Note 4)		571,227
Reports to shareholders		674,731
Professional fees		131,433
Trustees’ fees and expenses		9,695
Other		52,264
Total expenses		27,517,840
Expense reductions (Note 4)		(18	)
Net expenses		27,517,822
Net investment income		72,239,766
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		136,320,840
Foreign currency transactions		677,995
		��
Net realized gain (loss)		136,998,835
Net change in unrealized appreciation (depreciation) on:
Investments		(482,109,964	)
Translation of other assets and liabilities denominated in foreign currencies		(202,130	)
Net change in unrealized appreciation (depreciation)		(482,312,094	)
Net realized and unrealized gain (loss)		(345,313,259	)
Net increase (decrease) in net assets resulting from operations	$	(273,073,493	)

The accompanying notes are an integral part of these financial statements.

TF-18

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Templeton Foreign Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	72,239,766		$	47,212,887
Net realized gain (loss) from investments and foreign currency transactions		136,998,835			35,915,484
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(482,312,094	)		171,263,300
Net increase (decrease) in net assets resulting from operations		(273,073,493	)		254,391,671
Distributions to shareholders from:
Net investment income:
Class 1		(5,782,491	)		(6,186,591	)
Class 2		(33,309,204	)		(35,909,578	)
Class 3		(1,749,311	)		(1,738,264	)
Class 4		(5,966,192	)		(1,159,055	)
Total distributions to shareholders		(46,807,198	)		(44,993,488	)
Capital share transactions: (Note 2)
Class 1		(31,404,883	)		(16,391,025	)
Class 2		(183,781,604	)		(56,686,127	)
Class 3		(8,583,165	)		(13,133,254	)
Class 4		92,765,363			210,807,534
Total capital share transactions		(131,004,289	)		124,597,128
Redemption fees		4,895			9,228
Net increase (decrease) in net assets		(450,880,085	)		334,004,539
Net assets:
Beginning of year		2,826,310,159			2,492,305,620
End of year	$	2,375,430,074		$	2,826,310,159
Undistributed net investment income included in net assets:
End of year	$	72,574,104		$	46,209,487

The accompanying notes are an integral part of these financial statements.

TF-19

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Templeton Foreign Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Templeton Foreign Securities (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers four classes of shares: Class 1, Class 2, Class 3, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds and non-registered money market funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency

TF-20

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

b. Foreign Currency Translation (continued)

exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Securities Lending

The Fund participates in an agency based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is invested in a money market fund managed by the Fund’s custodian on the fund’s behalf. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.

d. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

TF-21

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis . Estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. 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 expenses during the reporting period. Actual results could differ from those estimates.

g. Redemption Fees

Redemptions and exchanges of interests in an insurance company subaccount that invests in Class 3 shares of the Fund will be subject to a 1.0% short term trading fee if the interest in the subaccount has been held for less than 60 days. Such fees are retained by the Fund and accounted for as an addition to paid-in capital, allocated to each class of shares based upon the relative proportion of net assets of each class.

h. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		596,966		$	8,620,768			1,834,739		$	24,009,210
Shares issued in reinvestment of distributions		392,832			5,782,491			500,533			6,186,591
Shares redeemed		(3,184,900	)		(45,808,142	)		(3,507,687	)		(46,586,826	)
Net increase (decrease)		(2,195,102	)	$	(31,404,883	)		(1,172,415	)	$	(16,391,025	)
Class 2 Shares:
Shares sold		14,900,290		$	201,768,630			24,359,823		$	304,453,001
Shares issued in reinvestment of distributions		2,300,359			33,309,204			2,950,664			35,909,578
Shares redeemed		(29,726,460	)		(418,859,438	)		(30,526,296	)		(397,048,706	)
Net increase (decrease)		(12,525,811	)	$	(183,781,604	)		(3,215,809	)	$	(56,686,127	)
Class 3 Shares:
Shares sold		712,054		$	9,594,087			488,049		$	6,145,010
Shares issued in reinvestment of distributions		121,227			1,749,311			143,421			1,738,264
Shares redeemed		(1,406,375	)		(19,926,563	)		(1,625,745	)		(21,016,528	)
Net increase (decrease)		(573,094	)	$	(8,583,165	)		(994,275	)	$	(13,133,254	)
Class 4 Shares:
Shares sold		10,343,049		$	143,108,311			19,836,996		$	240,414,850
Shares issued on reinvestment of distributions		408,643			5,966,192			94,309			1,159,055
Shares redeemed		(4,003,106	)		(56,309,140	)		(2,328,115	)		(30,766,371	)
Net increase (decrease)		6,748,586		$	92,765,363			17,603,190		$	210,807,534

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Templeton Investment Counsel, LLC (TIC)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.750%	Up to and including $200 million
0.675%	Over $200 million, up to and including $1.3 billion
0.600%	Over $1.3 billion, up to and including $10 billion
0.580%	Over $10 billion, up to and including $15 billion
0.560%	Over $15 billion, up to and including $20 billion
0.540%	In excess of $20 billion

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

b. Administrative Fees

The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:

Annualized Fee Rate	Net Assets
0.150%	Up to and including $200 million
0.135%	Over $200 million, up to and including $700 million
0.100%	Over $700 million, up to and including $1.2 billion
0.075%	In excess of $1.2 billion

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2, Class 3, and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.25%, 0.35%, and 0.35% per year of its average daily net assets of Class 2, Class 3, and Class 4, respectively. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 3.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, the Fund had capital loss carryforwards of $128,971,444 expiring in 2017. During the year ended December 31, 2011, the Fund utilized $136,320,840 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	46,807,198	$	44,993,488

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	2,509,847,444
Unrealized appreciation	$	303,823,609
Unrealized depreciation		(441,544,917	)
Net unrealized appreciation (depreciation)	$	(137,721,308	)
Distributable earnings – undistributed ordinary income	$	73,012,989

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of pass-through entity income.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $555,333,584 and $693,180,056, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

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Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Foreign Securities Fund

10. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities
Equity Investmentsa,b	$	2,265,813,180	$	—	$	—	$	2,265,813,180
Short Term Investments		106,174,453		138,503		—		106,312,956
Total Investments in Securities	$	2,371,987,633	$	138,503	$	—	$	2,372,126,136

^aIncludes common and preferred stock as well as other equity investments.

^bFor detailed categories, see the accompanying Statement of Investments.

11. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

12. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt

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Franklin Templeton Variable Insurance Products Trust

Templeton Foreign Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Templeton Foreign Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

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Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Templeton Foreign Securities Fund

At December 31, 2011, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. The Fund elects to treat foreign taxes paid as allowed under Section 853 of the Internal Revenue Code. This election will allow shareholders of record as of the 2012 distribution date, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

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TEMPLETON GLOBAL BOND SECURITIES FUND

This annual report for Templeton Global Bond Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-0.61%		+9.95%		+11.71%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the J.P. Morgan (JPM) Global Government Bond Index (GGBI), the Citigroup World Government Bond Index (WGBI) and the Consumer Price Index (CPI). One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Templeton Global Bond 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

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Fund Goal and Main Investments: Templeton Global Bond Securities Fund seeks high current income, consistent with preservation of capital, with capital appreciation as a secondary consideration. The Fund normally invests at least 80% of its net assets in bonds, which include debt securities of any maturity, such as bonds, notes, bills and debentures.

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed its benchmarks, the JPM GGBI, which posted a +7.22% total return in U.S. dollar terms, and the Citigroup WGBI, which produced a +6.35% total return for the same period.¹

Economic and Market Overview

Early in the year under review, emerging markets continued to lead the global recovery as several emerging economies returned to or exceeded their respective pre-crisis activity levels. Where recoveries were strong, monetary authorities tightened policy as output gaps closed and early indicators of inflationary pressure became more pronounced. In much of the developed world, however, economic growth was below trend and significant slack remained. Although some developed economies, such as those of Australia and some Scandinavian nations, enjoyed relatively strong recoveries, growth in the G-3 (U.S., eurozone and Japan) was slow by the standards of previous recoveries. Therefore, G-3 policymakers sought to maintain historically accommodative monetary policy.

This divergence in economic conditions and the subsequent policy responses supported a further increase of capital flows to emerging markets. Although increased foreign investment supported recovery in these economies, it also prompted fears of potential asset price bubbles, economic overheating and currency overvaluation. Overall, these conditions supported risk assets, as equity markets performed well and bond yields generally rose for much of the period.

Toward the latter half of the year, softer economic reports in most advanced and some emerging economies raised concerns that the global recovery might be faltering. Markets seemed to price in an end to the current recovery phase rather than a mid-business-cycle slowdown. However, neither the traditional signs of U.S. overcapacity nor evidence

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Because the Fund invests in bonds and other debt obligations, its share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. High yield, lower rated (junk) bonds generally have greater price swings and higher default risks than investment-grade bonds. Foreign investing, especially in emerging or developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund’s investment in certain hedging and derivative instruments may involve a small investment relative to the risk assumed. As a nondiversified fund, the Fund may be more sensitive to economic, business, political or other changes affecting similar issuers or securities, which may result in greater fluctuation in the value of the Fund’s shares. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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of housing or other asset bubbles were present. Despite strong fundamentals, corporations remained restrained in hiring and capacity-building and a tendency toward leaner staffing stymied recovery in the labor market. We were not surprised by this soft patch in the recovery, given the degree of leverage that had developed in the system in the years leading up to the global financial crisis. There was some moderation in the trajectories of emerging economies, but we believe this allowed growth to ease to more sustainable levels and reduced the potential for overheating.

Economic performance in Asia excluding Japan was stronger than in other regions, even as economic activity in the region showed signs of moderating toward the end of the Fund’s fiscal year.

In the third quarter of 2011, real gross domestic product (GDP) grew 9.1% in China, 5.8% in Malaysia and 3.5% in South Korea from the same period a year ago.² Asian policymakers generally tightened monetary policy as measures of economic slack decreased. China reined in liquidity seeking to prevent the formation of asset bubbles and to encourage a more sustainable economic growth rate. Elsewhere in the region, policymakers hiked interest rates 225 basis points (bps; 100 bps equal one percentage point) in India, 75 bps in South Korea, 50 bps in the Philippines and 25 bps in Malaysia. In contrast, third-quarter year-over-year GDP growth was 1.5% in the U.S., 1.3% in the eurozone and -0.7% in Japan, leading U.S. and Japanese policymakers to maintain historically low interest rates.³

Against this economic backdrop, markets absorbed several shocks throughout the review period. Populist uprisings in Tunisia, Egypt and Libya led to the fall of those countries’ long-time rulers and helped inspire a wave of regional unrest. An earthquake and subsequent tsunami struck serious blows to Japan’s economy and led to global supply-chain disruptions. Global economic activity began to normalize as Japan began reconstruction and firms attempted to recover. These events contributed to significant short-term market volatility. Particularly, oil prices rose during the period as Libyan exports declined and investors became skittish due to fears about the potential effects of regional instability.

2. Sources: National Bureau of Statistics (China), Department of Statistics (Malaysia), Bank of Korea (South Korea).

3. Sources: Bureau of Economic Analysis (U.S.), Eurostat (eurozone), Economic and Social Research Institute (Japan).

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Separately, concerns about the solvency of highly indebted eurozone governments resurfaced as policymakers struggled to develop a coordinated plan to address the significant fiscal challenges in Ireland, Portugal, Greece, Spain and Italy. The persistent eurozone sovereign debt crisis contributed to periods of elevated risk aversion, during which yields declined, equity markets sold off and perceived safe-haven assets rallied. These alternated with periods of heightened risk appetite, during which yields increased and investors again favored risk assets. Meanwhile, an extended and confrontational debate in Congress regarding an increase to the U.S. debt ceiling led Standard & Poor’s to downgrade its rating of long-term U.S. sovereign debt. The downgrade elevated investor risk aversion, and this sentiment became particularly strong in September as the eurozone crisis spread to Italy. Toward the end of the year, the European Central Bank (ECB) announced two long-term refinancing operations (LTRO), a broadening of the collateral pool, and a decrease in reserve requirements. The impact of these operations was a 20% increase in the ECB balance sheet over the fourth quarter. In the first of the two LTROs alone, the ECB injected nearly 500 billion euros into the banking sector overnight with the aim of easing pressure on the credit markets and mitigating the risk of financial contagion.

Investment Strategy

We invest selectively in bonds around the world based upon our assessment of changing market, political and economic conditions. While seeking opportunities, we monitor various factors including changes in interest rates, currency exchange rates and credit risks. We seek to manage the Fund’s exposure to various currencies and may utilize currency forward contracts.

Manager’s Discussion

The Fund’s total return was influenced by various factors, including interest rate developments, currency movements and exposure to sovereign debt markets. During the period under review, interest rate strategies and sovereign credit exposures contributed to absolute results, while currency positions detracted.

Interest Rate Strategy

During the Fund’s fiscal year, we shortened the portfolio’s duration as many policymakers around the world, including in the eurozone, hiked interest rates in attempts to prevent potential inflationary effects and as concerns grew surrounding the sustainability of historically

What is a currency forward contract?

A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date.

What is duration?

Duration is a measure of a bond’s price sensitivity to interest rate changes. In general, a portfolio of securities with a lower duration can be expected to be less sensitive to interest rate changes than a portfolio with a higher duration.

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accommodative monetary and fiscal policies in the U.S. By period-end, we generally held shorter duration positioning in Latin America, given our outlook for some countries to tighten interest rates in the region. With U.S. and Japanese interest rates at historically low levels, the Federal Reserve (Fed) and Bank of Japan supplying significant liquidity to the financial sector, and rising fiscal deficits in both countries, we saw limited value in American and Japanese government bonds. Our exposure to these countries detracted from relative performance as yields did not increase significantly during the review period. The Fund maintained little duration exposure in emerging markets, except in a select few countries where rates were already quite high. The decline of long-term bond yields in Latin America and Asia excluding Japan, and the correspondingly high returns generated by our holdings in these regions, contributed to relative performance.

Currency Strategy

The Fund’s diversified currency exposure overall detracted from relative performance. As part of the Fund’s investment strategy, the Fund utilized currency forward contracts to hedge or gain exposure to various currencies during the review period. The U.S. dollar was broadly unchanged during the year even as most foreign economies grew at faster rates and attracted more substantial foreign investment than the U.S. economy. For the year, the U.S. dollar rose 0.18% against its major trading partners.⁴ The dollar was particularly weak early in the period as the market priced in Fed Chairman Bernanke’s announcement of a second round of quantitative easing shortly before 2011 began.

However, as the sovereign debt crisis in Europe played out, risk aversion increased among investors, contributing to a depreciation of most currencies against those of the largest developed economies. The U.S. dollar, historically seen as a safe-haven asset, appreciated as a result of this trend. The Fund’s currency exposures to Latin America detracted from absolute performance. During the fiscal year, the Mexican peso depreciated 11.62% against the U.S. dollar, underperforming the Brazilian real and Chilean peso, which were down 11.00% and 9.91% against the U.S. dollar, respectively.⁵

The Fund’s exposure to Asian currencies also detracted from performance during the period. The Japanese yen gained 5.41%⁵ against the U.S. dollar during the period as yields on 10-year U.S. government

4. Source: Federal Reserve H10 Report.

5. Source: IDC/Exshare.

Currency Breakdown

Templeton Global Bond Securities Fund

12/31/11

	% of Total Net Assets
Americas		58.3%
U.S. Dollar		42.6%
Mexican Peso		6.7%
Chilean Peso		5.3%
Brazilian Real		3.5%
Peruvian Nuevo Sol		0.2%
Asia Pacific		41.8%
South Korean Won		14.7%
Malaysian Ringgit		10.8%
Australian Dollar		10.4%
Singapore Dollar		7.7%
Indonesian Rupiah		6.7%
Philippine Peso		4.6%
Indian Rupee		3.6%
Sri Lankan Rupee		1.6%
Japanese Yen*		-18.3%
Middle East & Africa		4.0%
New Israeli Shekel		3.8%
Egyptian Pound		0.2%
Europe*		-4.1%
Swedish Krona		11.1%
Polish Zloty		8.5%
Norwegian Krone		6.1%
British Pound		4.1%
Hungarian Forint		1.3%
Euro*		-35.2%

*Holding is a negative percentage because of the Fund’s holdings of currency forward contracts.

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

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bonds fell 141 bps. Our net negative yen exposure, through the use of currency forwards, hindered relative performance. While the Australian dollar appreciated 0.01% against the U.S. dollar, supported by high Chinese demand for Australian exports as well as domestic strength, currencies elsewhere in Asia excluding Japan declined against the U.S. dollar.⁵ Central Banks in South Korea and the Philippines tightened monetary policy as capital flowed into these economies, but the South Korean won and Philippine peso finished the period down 1.48% and 0.10% for the year, respectively, against the dollar.⁵ The Indian rupee, Indonesian rupiah and Malaysian ringgit depreciated 15.80%, 0.63% and 2.73%, respectively, against the U.S. dollar.⁵

The euro strengthened against the dollar as building inflationary pressures and the strength of large, regional economies such as Germany’s led the ECB to hike policy rates in the early part of 2011, although the rate hikes were subsequently reversed toward year-end. The euro depreciated 3.24% against the U.S. dollar for the year, and the Fund’s net negative position, through the use of currency forwards, added to relative performance.⁵ However, this effect was partially offset by the Fund’s exposure to some other European currencies that depreciated against the U.S. dollar. For example, the Polish zloty, Swedish krona and Norwegian krone depreciated 13.96%, 1.93% and 2.60%, respectively, against the U.S. dollar.⁵

Global Sovereign Debt Strategy

The Fund purchased investment grade and sub-investment grade hard currency-denominated sovereign debt that typically compensates for greater credit risk by offering higher yields relative to U.S. Treasury and European benchmark bonds. Although risk aversion during the year led spreads to widen between high yielding sovereign credits and the underlying “risk-free assets,” such as U.S. Treasuries and German bunds, declining yields on U.S. Treasuries and the correspondingly high returns from these positions led sovereign credit exposures to benefit the Fund’s relative performance overall. As financial markets began reflecting the underlying strength of emerging economies, governments of some countries traditionally considered emerging markets could borrow more cheaply than some eurozone members and, in several cases, U.S. states. U.S. dollar-denominated emerging market debt posted a total return of +8.46% during the period, as measured by the JPM Emerging Markets Bond Index (EMBI) Global.¹ Sovereign

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interest rate credit spreads rose 137 bps during the period.⁶ Regionally, Latin American sovereign debt posted a +13.43% total return, Asian debt a +9.04% total return, and central and eastern European debt a +2.19% total return, as measured by subindexes of the JPM EMBI Global.⁶

Thank you for your participation in the Templeton Global Bond Securities Fund. We look forward to serving your future investment needs.

6. Source: J.P. Morgan.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

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Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Templeton Global Bond Securities Fund – Class 1

TGB-8

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	942.80	$	2.74
Hypothetical (5% return before expenses)	$	1,000	$	1,022.38	$	2.85

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.56%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

TGB-9

SUPPLEMENT DATED JANUARY 3, 2012

TOTHE PROSPECTUS

DATED MAY 1, 2011

TEMPLETON GLOBAL BOND SECURITIES FUND

(Franklin Templeton Variable Insurance Products Trust)

I.  The “FUND SUMMARY – Principal Investment Strategies” and the “FUND DETAILS – Principal Investment Policies and Practices” sections are revised by adding the following:

For purposes of pursuing its investment goals, the Fund regularly uses various currency related transactions involving derivative instruments, principally currency and cross currency forwards, but may also use currency and currency index futures contracts. The Fund maintains significant positions in currency related derivative instruments as a hedging technique or to implement a currency investment strategy, which could expose a large amount of the Fund’s assets to obligations under the instruments. The use of these derivative transactions may allow the Fund to obtain net long or net negative (short) exposure to selected currencies.

II.  The “FUND SUMMARY – Principal Risks” and the “FUND DETAILS – Principal Risks” sections are revised by adding the following:

Currency Management Strategies Currency management strategies may substantially change the Fund’s exposure to currency exchange rates and could result in losses to the Fund if currencies do not perform as the investment manager expects. In addition, currency management strategies, to the extent that they reduce the Fund’s exposure to currency risks, may also reduce the Fund’s ability to benefit from favorable changes in currency exchange rates. Using currency management strategies for purposes other than hedging further increases the Fund’s exposure to foreign investment losses. Currency markets generally are not as regulated as securities markets. In addition, currency rates may fluctuate significantly over short periods of time, and can reduce returns.

III.  The “FUND SUMMARY – Principal Risks” and the “FUND DETAILS – Principal Risks” sections are revised by replacing the disclosure under the heading “Derivative Instruments” with the following:

Derivative Instruments The performance of derivative instruments (including currency related derivatives) depends largely on the performance of an underlying currency, security or index and such instruments often have risks similar to their underlying instrument, in addition to other risks. Derivatives involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses (as well as enable gains) on an amount that exceeds the Fund’s initial investment. Other risks include illiquidity in the Fund, mispricing or improper valuation, and imperfect correlation between the value of the derivative and the underlying instrument so that the Fund may not realize the intended benefits. When used for hedging, the change in value of the derivative may also not correlate specifically with the currency, security or other risk being hedged. With over-the-counter derivatives, there is the risk that the other party to the transaction will fail to perform.

Please keep this supplement for future reference.

TGB-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Templeton Global Bond Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.94		$	17.72		$	17.42		$	17.00		$	15.73
Income from investment operationsa:
Net investment incomeb		0.87			1.00			0.99			0.80			0.77
Net realized and unrealized gains (losses)		(0.92	)		1.58			2.01			0.27			0.97
Total from investment operations		(0.05	)		2.58			3.00			1.07			1.74
Less distributions from:
Net investment income and net foreign currency gains		(1.15	)		(0.31	)		(2.70	)		(0.65	)		(0.47	)
Net realized gains		(0.13	)		(0.05	)		—			—			—
Total distributions		(1.28	)		(0.36	)		(2.70	)		(0.65	)		(0.47	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	18.61		$	19.94		$	17.72		$	17.42		$	17.00
Total returnd		(0.61)%			14.71%			18.98%			6.46%			11.27%
Ratios to average net assets
Expensese		0.56%			0.55%			0.54%			0.58%			0.64%
Net investment income		4.40%			5.27%			5.73%			4.66%			4.70%
Supplemental data
Net assets, end of year (000’s)	$	269,819		$	272,232		$	195,662		$	220,588		$	137,700
Portfolio turnover rate		34.18%			8.77%			20.84%			28.46%			47.33%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TGB-11

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Global Bond Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.49		$	17.34		$	17.10		$	16.72		$	15.50
Income from investment operationsa:
Net investment incomeb		0.79			0.93			0.93			0.74			0.72
Net realized and unrealized gains (losses)		(0.89	)		1.54			1.98			0.27			0.96
Total from investment operations		(0.10	)		2.47			2.91			1.01			1.68
Less distributions from:
Net investment income and net foreign currency gains		(1.11	)		(0.27	)		(2.67	)		(0.63	)		(0.46	)
Net realized gains		(0.13	)		(0.05	)		—			—			—
Total distributions		(1.24	)		(0.32	)		(2.67	)		(0.63	)		(0.46	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	18.15		$	19.49		$	17.34		$	17.10		$	16.72
Total returnd		(0.87)%			14.45%			18.68%			6.21%			11.00%
Ratios to average net assets
Expensese		0.81%			0.80%			0.79%			0.83%			0.89%
Net investment income		4.15%			5.02%			5.48%			4.41%			4.45%
Supplemental data
Net assets, end of year (000’s)	$	1,812,814		$	1,490,794		$	1,262,783		$	793,773		$	480,649
Portfolio turnover rate		34.18%			8.77%			20.84%			28.46%			47.33%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TGB-12

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Global Bond Securities Fund

	Year Ended December 31,
Class 3	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.48		$	17.33		$	17.08		$	16.70		$	15.49
Income from investment operationsa:
Net investment incomeb		0.80			0.93			0.93			0.74			0.72
Net realized and unrealized gains (losses)		(0.90	)		1.54			1.98			0.27			0.95
Total from investment operations		(0.10	)		2.47			2.91			1.01			1.67
Less distributions from:
Net investment income and net foreign currency gains		(1.10	)		(0.27	)		(2.66	)		(0.63	)		(0.46	)
Net realized gains		(0.13	)		(0.05	)		—			—			—
Total distributions		(1.23	)		(0.32	)		(2.66	)		(0.63	)		(0.46	)
Redemption feesc		—			—			—			—			—
Net asset value, end of year	$	18.15		$	19.48		$	17.33		$	17.08		$	16.70
Total returnd		(0.83)%			14.38%			18.69%			6.21%			11.03%
Ratios to average net assets
Expensese		0.81%			0.80%			0.79%			0.83%			0.89%
Net investment income		4.15%			5.02%			5.48%			4.41%			4.45%
Supplemental data
Net assets, end of year (000’s)	$	185,811		$	183,380		$	143,264		$	128,155		$	91,162
Portfolio turnover rate		34.18%			8.77%			20.84%			28.46%			47.33%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cAmount rounds to less than $0.01 per share.

^dTotal return does not include 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.

^eBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TGB-13

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Global Bond Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	19.78		$	17.61		$	17.37		$	18.00
Income from investment operationsb:
Net investment incomec		0.79			0.93			0.93			0.66
Net realized and unrealized gains (losses)		(0.91	)		1.56			2.00			(0.64	)
Total from investment operations		(0.12	)		2.49			2.93			0.02
Less distributions from:
Net investment income and net foreign currency gains		(1.09	)		(0.27	)		(2.69	)		(0.65	)
Net realized gains		(0.13	)		(0.05	)		—			—
Total distributions		(1.22	)		(0.32	)		(2.69	)		(0.65	)
Redemption feesd		—			—			—			—
Net asset value, end of year	$	18.44		$	19.78		$	17.61		$	17.37
Total returne		(0.96)%			14.28%			18.58%			0.26%
Ratios to average net assetsf
Expensesg		0.91%			0.90%			0.89%			0.93%
Net investment income		4.05%			4.92%			5.38%			4.31%
Supplemental data
Net assets, end of year (000’s)	$	151,695		$	150,891		$	108,910		$	43,069
Portfolio turnover rate		34.18%			8.77%			20.84%			28.46%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dAmount rounds to less than $0.01 per share.

^eTotal return does not include 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.

^fRatios are annualized for periods less than one year.

^gBenefit of expense reduction rounds to less than 0.01%.

The accompanying notes are an integral part of these financial statements.

TGB-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Templeton Global Bond Securities Fund	Principal Amount*			Value
Foreign Government and Agency Securities 76.2%
Argentina 0.5%
a,bGovernment of Argentina, senior bond, FRN, 0.439%, 8/03/12		107,485,000		$	13,073,503
Australia 7.9%
Government of Australia, senior bond, 5.75%, 4/15/12		43,700,000	AUD		44,932,969
New South Wales Treasury Corp.,
6.00%, 5/01/12		10,590,000	AUD		10,900,253
6.00%, 5/01/12 (London Exchange)		13,180,000	AUD		13,565,376
5.50%, 8/01/13		3,710,000	AUD		3,891,330
senior note, 5.50%, 3/01/17		32,225,000	AUD		35,002,163
Queensland Treasury Corp.,
6.00%, 8/14/13		24,450,000	AUD		25,869,263
6.00%, 9/14/17		13,160,000	AUD		14,577,214
senior note, 6.00%, 8/21/13		8,888,000	AUD		9,352,552
Western Australia Treasury Corp.,
5.50%, 7/17/12		26,480,000	AUD		27,297,146
8.00%, 6/15/13		4,350,000	AUD		4,710,083
					190,098,349
Brazil 3.5%
Nota Do Tesouro Nacional,
10.00%, 1/01/12		38,245	c BRL		20,525,589
10.00%, 1/01/14		7,100	c BRL		3,774,205
10.00%, 1/01/17		22,490	c BRL		11,613,794
dIndex Linked, 6.00%, 5/15/15		29,822	c BRL		34,556,113
dIndex Linked, 6.00%, 5/15/45		10,825	c BRL		13,087,225
					83,556,926
Hungary 2.8%
Government of Hungary,
5.50%, 2/12/14		608,600,000	HUF		2,335,185
5.50%, 2/12/16		436,800,000	HUF		1,571,560
6.50%, 6/24/19		389,700,000	HUF		1,335,072
7.50%, 11/12/20		28,000,000	HUF		100,095
A, 8.00%, 2/12/15		280,000,000	HUF		1,113,076
A, 6.75%, 11/24/17		1,443,600,000	HUF		5,183,575
A, 7.00%, 6/24/22		249,200,000	HUF		842,228
B, 6.75%, 2/24/17		394,700,000	HUF		1,437,819
D, 6.75%, 2/12/13		310,800,000	HUF		1,256,350
D, 6.75%, 8/22/14		1,760,900,000	HUF		6,851,660
E, 7.50%, 10/24/13		248,600,000	HUF		1,004,047
senior note, 3.50%, 7/18/16		1,055,000	EUR		1,097,988
senior note, 4.375%, 7/04/17		5,380,000	EUR		5,588,076
senior note, 5.75%, 6/11/18		13,795,000	EUR		14,944,436
senior note, 6.25%, 1/29/20		6,420,000			5,907,684
senior note, 3.875%, 2/24/20		3,120,000	EUR		2,935,480
senior note, 6.375%, 3/29/21		14,820,000			13,566,969
					67,071,300
Indonesia 7.9%
Government of Indonesia,
FR20, 14.275%, 12/15/13		14,267,000,000	IDR		1,841,462
FR31, 11.00%, 11/15/20		167,351,000,000	IDR		24,745,054
FR34, 12.80%, 6/15/21		207,810,000,000	IDR		33,985,497

TGB-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
Indonesia (continued)
Government of Indonesia (continued)
FR35, 12.90%, 6/15/22		66,582,000,000	IDR	$	10,978,739
FR36, 11.50%, 9/15/19		30,075,000,000	IDR		4,440,023
FR37, 12.00%, 9/15/26		8,230,000,000	IDR		1,350,065
FR39, 11.75%, 8/15/23		5,491,000,000	IDR		860,569
FR40, 11.00%, 9/15/25		61,856,000,000	IDR		9,495,261
FR42, 10.25%, 7/15/27		88,574,000,000	IDR		12,845,303
FR43, 10.25%, 7/15/22		68,340,000,000	IDR		9,814,546
FR44, 10.00%, 9/15/24		4,454,000,000	IDR		635,447
FR46, 9.50%, 7/15/23		226,780,000,000	IDR		31,004,137
FR47, 10.00%, 2/15/28		61,737,000,000	IDR		8,764,339
FR48, 9.00%, 9/15/18		16,920,000,000	IDR		2,188,086
FR49, 9.00%, 9/15/13		35,030,000,000	IDR		4,116,754
esenior bond, 144A, 8.50%, 10/12/35		7,259,000			10,525,550
esenior bond, 144A, 6.625%, 2/17/37		1,930,000			2,355,208
esenior bond, 144A, 7.75%, 1/17/38		8,650,000			11,745,835
esenior note, 144A, 11.625%, 3/04/19		6,410,000			9,484,332
					191,176,207
Iraq 0.3%
Government of Iraq,
e144A, 5.80%, 1/15/28		5,055,000			4,160,113
fReg S, 5.80%, 1/15/28		3,440,000			2,831,017
					6,991,130
Ireland 3.7%
Government of Ireland,
4.00%, 1/15/14		14,291,000	EUR		17,307,495
4.60%, 4/18/16		9,213,000	EUR		10,775,114
5.90%, 10/18/19		10,562,000	EUR		11,862,145
4.50%, 4/18/20		6,289,000	EUR		6,308,386
5.00%, 10/18/20		9,329,000	EUR		9,666,623
senior bond, 4.50%, 10/18/18		7,339,000	EUR		7,748,701
senior bond, 4.40%, 6/18/19		12,246,000	EUR		12,698,067
senior bond, 5.40%, 3/13/25		12,847,000	EUR		13,162,208
					89,528,739
Israel 1.7%
Government of Israel,
5.00%, 3/31/13		53,945,000	ILS		14,549,343
3.50%, 9/30/13		101,009,000	ILS		26,853,183
					41,402,526
Lithuania 1.5%
eGovernment of Lithuania, 144A,
6.75%, 1/15/15		19,480,000			20,478,350
7.375%, 2/11/20		12,690,000			13,797,139
6.125%, 3/09/21		3,240,000			3,251,421
					37,526,910
Malaysia 2.5%
Government of Malaysia, senior bond,
2.711%, 2/14/12		720,000	MYR		227,060
3.718%, 6/15/12		51,643,000	MYR		16,347,095

TGB-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
Malaysia (continued)
Government of Malaysia, senior bond (continued)
2.509%, 8/27/12		26,335,000	MYR	$	8,285,631
3.702%, 2/25/13		27,704,000	MYR		8,818,000
3.70%, 5/15/13		210,000	MYR		66,943
3.21%, 5/31/13		2,950,000	MYR		934,415
3.461%, 7/31/13		13,390,000	MYR		4,259,034
3.814%, 2/15/17		18,885,000	MYR		6,081,869
4.24%, 2/07/18		44,360,000	MYR		14,609,413
					59,629,460
Mexico 5.9%
Government of Mexico,
M, 9.00%, 6/20/13		2,982,300	g MXN		22,621,301
M, 8.00%, 12/17/15		726,000	g MXN		5,690,235
M, 7.25%, 12/15/16		250,000	g MXN		1,921,127
M, 7.75%, 12/14/17		4,473,000	g MXN		35,204,832
MI, 9.00%, 12/20/12		265,000	g MXN		1,976,937
MI, 8.00%, 12/19/13		9,939,900	g MXN		75,374,625
					142,789,057
Norway 0.4%
Government of Norway, 6.50%, 5/15/13		49,400,000	NOK		8,842,713
Peru 0.2%
Government of Peru, 7.84%, 8/12/20		11,090,000	PEN		4,700,285
Philippines 0.3%
Government of the Philippines, senior bond,
5.75%, 2/21/12		134,520,000	PHP		3,081,319
5.25%, 1/07/13		61,770,000	PHP		1,449,265
8.75%, 3/03/13		162,650,000	PHP		3,949,133
R3-7, 5.25%, 9/24/12		2,090,000	PHP		48,688
					8,528,405
Poland 7.9%
Government of Poland,
4.75%, 4/25/12		58,025,000	PLN		16,833,808
5.25%, 4/25/13		22,950,000	PLN		6,698,932
5.00%, 10/24/13		16,810,000	PLN		4,891,610
5.75%, 4/25/14		92,590,000	PLN		27,328,205
6.25%, 10/24/15		44,730,000	PLN		13,463,399
5.75%, 9/23/22		48,750,000	PLN		13,988,163
senior note, 6.375%, 7/15/19		27,200,000			30,298,896
Strip, 1/25/12		7,670,000	PLN		2,217,365
Strip, 7/25/12		11,905,000	PLN		3,366,039
Strip, 10/25/12		90,245,000	PLN		25,218,515
Strip, 1/25/13		99,335,000	PLN		27,456,390
Strip, 7/25/13		76,175,000	PLN		20,544,953
					192,306,275
Qatar 0.6%
eGovernment of Qatar, senior note, 144A, 6.55%, 4/09/19		11,830,000			14,018,964
Russia 2.8%
eGovernment of Russia, 144A, 7.50%, 3/31/30		59,148,895			68,797,559

TGB-17

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
Singapore 1.3%
Government of Singapore, senior bond,
2.50%, 10/01/12		6,340,000	SGD	$	4,965,988
1.625%, 4/01/13		34,700,000	SGD		27,182,692
					32,148,680
South Africa 1.6%
Government of South Africa,
5.25%, 5/16/13		3,590,000	EUR		4,780,304
4.50%, 4/05/16		1,874,000	EUR		2,500,910
6.875%, 5/27/19		21,215,000			25,535,591
senior note, 6.50%, 6/02/14		805,000			885,500
senior note, 5.875%, 5/30/22		3,485,000			4,020,434
					37,722,739
South Korea 11.0%
The Export-Import Bank of Korea, senior note, 4.625%, 2/20/17		230,000	EUR		309,939
KDICB Redemption Fund Bond, senior bond,
07-1, 5.57%, 9/14/12		6,600,000,000	KRW		5,771,111
08-1, 5.28%, 2/15/13		880,000,000	KRW		773,165
Korea Treasury Bond,
5.25%, 9/10/12		28,539,000,000	KRW		24,925,032
5.25%, 3/10/13		6,483,790,000	KRW		5,710,879
5.00%, 9/10/16		2,806,000,000	KRW		2,573,856
senior bond, 4.00%, 6/10/12		134,277,650,000	KRW		116,131,059
senior bond, 4.25%, 12/10/12		23,404,000,000	KRW		20,340,922
senior bond, 3.75%, 6/10/13		57,125,360,000	KRW		49,523,049
senior bond, 3.00%, 12/10/13		47,514,850,000	KRW		40,734,690
					266,793,702
Sri Lanka 1.5%
Government of Sri Lanka,
A, 6.90%, 8/01/12		14,600,000	LKR		126,843
A, 8.50%, 1/15/13		694,400,000	LKR		6,076,183
A, 13.50%, 2/01/13		674,300,000	LKR		6,172,065
A, 7.00%, 3/01/14		43,380,000	LKR		361,560
A, 11.25%, 7/15/14		773,000,000	LKR		7,020,116
A, 11.75%, 3/15/15		8,520,000	LKR		78,798
A, 6.50%, 7/15/15		218,480,000	LKR		1,734,691
A, 11.00%, 8/01/15		1,349,700,000	LKR		12,249,505
A, 6.40%, 8/01/16		109,200,000	LKR		835,735
B, 6.60%, 6/01/14		56,800,000	LKR		466,109
B, 6.40%, 10/01/16		119,100,000	LKR		910,901
					36,032,506
hSupranational 1.1%
Corporacion Andina De Fomento, 8.125%, 6/04/19		5,260,000			6,471,168
European Investment Bank, senior note, 4.50%, 5/15/13		33,700,000	NOK		5,785,522
Inter-American Development Bank, senior note, 7.50%, 12/05/24		200,000,000	MXN		13,415,695
					25,672,385
Sweden 4.3%
Government of Sweden,
5.50%, 10/08/12		509,640,000	SEK		76,607,652
1.50%, 8/30/13		166,040,000	SEK		24,456,498

TGB-18

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund	Principal Amount*			Value
Foreign Government and Agency Securities (continued)
Sweden (continued)
Kommuninvest I Sverige AB, senior note, 1.75%, 10/08/12		24,400,000	SEK	$	3,524,671
					104,588,821
Ukraine 0.7%
eFinancing of Infrastructure Projects State Enterprise, 144A, 7.40%, 4/20/18		840,000			690,375
eGovernment of Ukraine,
144A, 7.65%, 6/11/13		760,000			734,350
144A, 6.25%, 6/17/16		1,210,000			1,065,556
144A, 7.75%, 9/23/20		480,000			417,600
senior note, 144A, 4.95%, 10/13/15		290,000	EUR		310,118
senior note, 144A, 7.95%, 2/23/21		16,530,000			14,587,725
					17,805,724
United Arab Emirates 0.6%
eEmirate of Abu Dhabi, 144A, 6.75%, 4/08/19		11,840,000			14,533,600
United Kingdom 2.6%
United Kingdom Treasury Bond, 5.00%, 3/07/12		17,642,000	GBP		27,627,053
United Kingdom Treasury Note, 5.25%, 6/07/12		22,260,000	GBP		35,302,289
					62,929,342
Venezuela 0.6%
Government of Venezuela, 10.75%, 9/19/13		13,570,000			13,756,927
Vietnam 0.5%
eGovernment of Vietnam, 144A, 6.75%, 1/29/20		13,110,000			13,167,356
Total Foreign Government and Agency Securities (Cost $1,794,910,963)					1,845,190,090
Municipal Bonds 1.1%
United States 1.1%
Alabama State University Revenue, General Tuition and Fee, Assured Guaranty, 5.00%, 9/01/29		175,000			190,892
Bexar County Revenue, Venue Project, Refunding, Series A, BHAC Insured, 5.25%, 8/15/47		1,450,000			1,585,125
California State GO,
7.625%, 3/01/40		1,320,000			1,625,382
Refunding, 5.125%, 4/01/33		3,800,000			3,967,580
Refunding, 5.00%, 4/01/38		1,370,000			1,398,592
Various Purpose, 6.00%, 4/01/38		10,740,000			12,128,145
Illinois Municipal Electricity Agency Power Supply Revenue, Series A, BHAC Insured, 5.00%, 2/01/35		2,155,000			2,227,990
Philadelphia GO, Refunding, Series A, Assured Guaranty, 5.00%, 8/01/24		500,000			536,085
Tarrant County Cultural Education Facilities Finance Corp. Revenue, Christus Health, Refunding, Series A, Assured Guaranty, 6.25%, 7/01/28		1,500,000			1,715,790
Total Municipal Bonds (Cost $22,747,056)					25,375,581
Total Investments before Short Term Investments (Cost $1,817,658,019)				$	1,870,565,671
Short Term Investments 15.8%
Foreign Government and Agency Securities 8.1%
Egypt 0.2%
iEgypt Treasury Bill, 2/21/12		26,475,000	EGP		4,311,376
Hungary 0.1%
iHungary Treasury Bill, 8/22/12		502,600,000	HUF		1,964,800

TGB-19

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund	Principal Amount*			Value
Short Term Investments (continued)
Foreign Government and Agency Securities (continued)
Israel 1.8%
Government of Israel, 4.00%, 3/30/12		26,865,000	ILS	$	7,071,820
iIsrael Treasury Bills, 1/04/12 - 5/02/12		140,940,000	ILS		36,839,081
					43,910,901
Malaysia 2.3%
iBank of Negara Monetary Note, 1/03/12 - 6/14/12		170,890,000	MYR		53,638,717
iMalaysia Treasury Bills, 1/20/12 - 7/27/12		7,680,000	MYR		2,401,595
					56,040,312
Norway 1.7%
iNorway Treasury Bill, 3/21/12		240,230,000	NOK		40,060,627
Philippines 0.1%
iPhilippine Treasury Bills, 1/11/12 - 8/22/12		116,440,000	PHP		2,646,732
Singapore 1.8%
Government of Singapore, senior bond,
2.625%, 4/01/12		37,720,000	SGD		29,231,561
3.50%, 7/01/12		2,120,000	SGD		1,660,031
iSingapore Treasury Bills, 5/02/12 - 11/01/12		17,140,000	SGD		13,186,884
					44,078,476
Sri Lanka 0.1%
iSri Lanka Treasury Bills, 1/27/12 - 9/28/12		213,370,000	LKR		1,832,844
Total Foreign Government and Agency Securities (Cost $210,293,047)					194,846,068
Total Investments before Repurchase Agreements (Cost $2,027,951,066)					2,065,411,739
Repurchase Agreements (Cost $186,697,298) 7.7%
United States 7.7%
jJoint Repurchase Agreement, 0.011%, 1/03/12 (Maturity Value $186,697,523)		186,697,298			186,697,298
BNP Paribas Securities Corp. (Maturity Value $22,590,400)
Credit Suisse Securities (USA) LLC (Maturity Value $27,106,613)
Deutsche Bank Securities Inc. (Maturity Value $28,570,322)
HSBC Securities (USA) Inc. (Maturity Value $45,180,802)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $27,106,613)
Morgan Stanley & Co. LLC (Maturity Value $9,036,160)
UBS Securities LLC (Maturity Value $27,106,613)
Collateralized by U.S. Government Agency Securities, 0.16% - 5.25%, 6/07/12 - 2/05/14; iU.S. Treasury Bills, 1/12/12 - 9/20/12; U.S. Treasury Bonds, 0.50% - 11.25%, 5/31/13 - 2/15/16; and U.S. Treasury Notes, 0.125% - 4.875%, 12/31/11 - 5/15/19 (valued at $190,529,923)
Total Investments (Cost $2,214,648,364) 93.1%					2,252,109,037
Other Assets, less Liabilities 6.9%					168,028,522
Net Assets 100.0%				$	2,420,137,559

See Abbreviations on page TGB-43.

TGB-20

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

*The principal amount is stated in U.S. dollars unless otherwise indicated.

^aThe coupon rate shown represents the rate at period end.

^bThe principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.

^cPrincipal amount is stated in 1,000 Brazilian Real Units.

^dRedemption price at maturity is adjusted for inflation. See Note 1(g).

^eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the aggregate value of these securities was $204,121,151, representing 8.43% of net assets.

^fSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2011, the value of this security was $2,831,017, representing 0.12% of net assets.

^gPrincipal amount is stated in 100 Mexican Peso Units.

^hA supranational organization is an entity formed by two or more central governments through international treaties.

ⁱThe security is traded on a discount basis with no stated coupon rate.

^jSee Note 1(c) regarding joint repurchase agreement.

TGB-21

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

At December 31, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Japanese Yen		DBAB		Sell		770,370,000		9,941,541			1/04/12	$	—	$	(68,590	)
Swedish Krona		DBAB		Buy		136,332,733		15,020,408	EUR		1/05/12		365,426		—
Euro		CITI		Sell		5,040,000		6,519,290			1/10/12		—		(4,469	)
Japanese Yen		BZWS		Sell		277,330,000		3,353,446			1/10/12		—		(250,495	)
Japanese Yen		UBSW		Sell		138,650,000		1,676,805			1/10/12		—		(124,970	)
Japanese Yen		CITI		Sell		138,680,000		1,677,960			1/10/12		—		(124,206	)
Euro		BZWS		Sell		1,726,000		2,233,444			1/11/12		—		(700	)
Euro		UBSW		Sell		13,846,000		17,922,609			1/11/12		271		—
Euro		DBAB		Sell		9,460,000		12,259,119			1/11/12		14,044		—
Japanese Yen		DBAB		Sell		139,110,000		1,682,491			1/12/12		—		(125,319	)
Japanese Yen		HSBC		Sell		139,250,000		1,687,572			1/12/12		—		(122,057	)
Chilean Peso		MSCO		Buy		2,254,600,000		4,442,999			1/13/12		—		(112,471	)
Euro		JPHQ		Sell		937,000		1,211,775			1/13/12		—		(1,099	)
Japanese Yen		BZWS		Sell		394,150,000		4,771,792			1/13/12		—		(350,479	)
Japanese Yen		HSBC		Sell		397,130,000		4,811,539			1/13/12		—		(349,459	)
Japanese Yen		UBSW		Sell		313,510,000		3,797,176			1/13/12		—		(277,119	)
Philippine Peso		JPHQ		Buy		374,905,000		8,515,730			1/13/12		30,477		—
Philippine Peso		HSBC		Buy		60,160,000		1,367,801			1/17/12		3,336		—
Euro		DBAB		Sell		4,856,000		6,438,109			1/18/12		152,178		—
Philippine Peso		HSBC		Buy		115,942,000		2,602,806			1/18/12		39,566		—
Philippine Peso		DBAB		Buy		66,125,000		1,484,121			1/18/12		22,899		—
Philippine Peso		JPHQ		Buy		165,119,000		3,670,535			1/19/12		92,433		—
Philippine Peso		DBAB		Buy		41,372,000		931,592			1/19/12		11,252		—
British Pound		BZWS		Buy		906,238		1,435,872			1/24/12		—		(28,590	)
British Pound		DBAB		Buy		903,679		1,430,452			1/24/12		—		(27,144	)
British Pound		CITI		Buy		603,463		953,634			1/24/12		—		(16,527	)
British Pound		DBAB		Buy		474,519		755,031			1/26/12		—		(18,172	)
Japanese Yen		BZWS		Sell		1,079,470,000		13,122,660			1/26/12		—		(908,680	)
Japanese Yen		UBSW		Sell		944,420,000		11,488,596			1/26/12		—		(787,316	)
Japanese Yen		DBAB		Sell		897,860,782		10,935,263			1/26/12		—		(735,456	)
Philippine Peso		HSBC		Buy		154,149,000		3,423,251			1/26/12		88,596		—
British Pound		BZWS		Buy		601,378		945,862			1/27/12		—		(12,019	)
British Pound		MSCO		Buy		358,395		564,198			1/27/12		—		(7,668	)
British Pound		JPHQ		Buy		119,423		190,002			1/27/12		—		(4,557	)
Chilean Peso		DBAB		Buy		2,227,910,000		4,404,290			1/27/12		—		(134,289	)
Euro		CITI		Sell		4,998,400		6,758,487			1/27/12		287,828		—
Japanese Yen		HSBC		Sell		1,162,462,488		14,183,290			1/27/12		—		(927,050	)
British Pound		JPHQ		Buy		237,230		373,367			1/30/12		—		(4,997	)
Chilean Peso		DBAB		Buy		5,127,860,000		10,218,932			1/30/12		—		(394,837	)
Chilean Peso		JPHQ		Buy		675,370,000		1,337,102			1/30/12		—		(43,209	)
British Pound		MSCO		Buy		116,956		185,153			1/31/12		—		(3,546	)
Chilean Peso		DBAB		Buy		3,093,470,000		6,161,677			1/31/12		—		(235,663	)
Euro		DBAB		Sell		31,205,000		42,438,800			1/31/12		2,041,161		—
Philippine Peso		DBAB		Buy		128,745,000		2,986,361			1/31/12		—		(53,985	)
British Pound		CITI		Buy		391,619		619,451			2/01/12		—		(11,359	)
British Pound		MSCO		Buy		450,886		710,738			2/01/12		—		(10,618	)
British Pound		BZWS		Buy		48,594		76,617			2/01/12		—		(1,162	)
Euro		UBSW		Sell		5,540,000		7,543,763			2/01/12		371,672		—
Philippine Peso		DBAB		Buy		155,800,000		3,505,772			2/03/12		42,260		—
Philippine Peso		HSBC		Buy		99,500,000		2,237,354			2/03/12		28,559		—
Indian Rupee		JPHQ		Buy		21,500,000		445,873			2/06/12		—		(43,618	)

TGB-22

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Philippine Peso		HSBC		Buy		84,800,000		1,916,384			2/06/12	$	14,458	$	—
Philippine Peso		JPHQ		Buy		60,500,000		1,362,613			2/07/12		14,861		—
Singapore Dollar		HSBC		Buy		6,206,000		4,860,284			2/07/12		—		(76,226	)
Singapore Dollar		DBAB		Buy		6,207,000		4,860,459			2/07/12		—		(75,629	)
Australian Dollar		UBSW		Buy		10,557,970		10,238,591			2/08/12		510,979		—
Australian Dollar		MSCO		Buy		10,560,886		10,268,877			2/08/12		483,661		—
Euro		UBSW		Sell		4,929,000		6,676,084			2/08/12		294,562		—
Euro		CITI		Sell		6,572,000		8,878,181			2/08/12		369,484		—
Euro		HSBC		Sell		1,200,000		1,621,680			2/08/12		68,053		—
Norwegian Krone		UBSW		Buy		72,121,400		9,100,722	EUR		2/08/12		259,205		—
Singapore Dollar		DBAB		Buy		12,363,000		9,721,129			2/08/12		—		(190,785	)
Australian Dollar		DBAB		Buy		3,351,000		265,995,678	JPY		2/09/12		—		(46,932	)
Australian Dollar		CITI		Buy		3,351,000		265,901,850	JPY		2/09/12		—		(45,712	)
Australian Dollar		BZWS		Buy		3,351,000		265,734,300	JPY		2/09/12		—		(43,533	)
Euro		JPHQ		Sell		300,000		405,840			2/09/12		17,430		—
Euro		HSBC		Sell		600,000		806,880			2/09/12		30,059		—
Euro		BZWS		Sell		800,000		1,078,400			2/09/12		42,639		—
Euro		DBAB		Sell		180,000		242,431			2/09/12		9,385		—
Norwegian Krone		UBSW		Buy		100,802,700		12,673,686	EUR		2/09/12		421,309		—
Norwegian Krone		DBAB		Buy		144,025,000		18,112,935	EUR		2/09/12		595,472		—
Polish Zloty		DBAB		Buy		17,528,000		4,407,896	EUR		2/09/12		—		(647,273	)
Singapore Dollar		BZWS		Buy		1,717,028		1,347,894			2/09/12		—		(24,278	)
Chilean Peso		DBAB		Buy		1,145,000,000		2,326,290			2/10/12		—		(134,869	)
Euro		BZWS		Sell		612,000		829,872			2/10/12		37,507		—
Japanese Yen		HSBC		Sell		413,563,000		5,052,077			2/10/12		—		(325,026	)
Japanese Yen		MSCO		Sell		394,373,000		4,826,319			2/10/12		—		(301,278	)
Polish Zloty		BZWS		Buy		17,528,000		4,405,238	EUR		2/10/12		—		(644,368	)
Chilean Peso		BZWS		Buy		1,142,900,000		2,319,196			2/13/12		—		(132,393	)
Chilean Peso		DBAB		Buy		1,058,220,000		2,149,980			2/13/12		—		(125,201	)
Euro		UBSW		Sell		657,000		892,055			2/13/12		41,403		—
Singapore Dollar		HSBC		Buy		6,117,200		4,803,595			2/13/12		—		(87,991	)
British Pound		BZWS		Buy		2,562,230		4,082,606			2/14/12		—		(104,567	)
Chilean Peso		MSCO		Buy		1,963,430,000		4,038,733			2/14/12		—		(282,285	)
Chilean Peso		DBAB		Buy		1,130,600,000		2,305,465			2/14/12		—		(142,393	)
Malaysian Ringgit		DBAB		Buy		97,443,480		31,603,632			2/14/12		—		(954,218	)
Polish Zloty		DBAB		Buy		17,528,000		4,365,194	EUR		2/14/12		—		(594,669	)
Singapore Dollar		HSBC		Buy		4,404,400		3,458,582			2/14/12		—		(63,334	)
Japanese Yen		JPHQ		Sell		144,920,000		1,765,595			2/15/12		—		(118,817	)
Japanese Yen		DBAB		Sell		123,057,280		1,497,958			2/15/12		—		(102,170	)
Chilean Peso		MSCO		Buy		3,554,470,000		7,382,077			2/16/12		—		(582,881	)
Euro		JPHQ		Sell		1,971,000		2,636,410			2/16/12		84,380		—
Euro		UBSW		Sell		1,971,000		2,637,533			2/16/12		85,503		—
Euro		DBAB		Sell		2,038,000		2,734,629			2/17/12		95,823		—
Malaysian Ringgit		HSBC		Buy		4,899,000		1,582,569			2/17/12		—		(41,869	)
Singapore Dollar		HSBC		Buy		7,334,000		5,736,724			2/17/12		—		(83,117	)
Singapore Dollar		DBAB		Buy		7,334,000		5,736,544			2/17/12		—		(82,938	)
Singapore Dollar		BZWS		Buy		4,886,000		3,824,209			2/17/12		—		(57,707	)
Chilean Peso		DBAB		Buy		1,455,470,000		3,009,657			2/21/12		—		(226,818	)
Chilean Peso		JPHQ		Buy		1,055,800,000		2,167,411			2/21/12		—		(148,736	)
Euro		UBSW		Sell		2,038,000		2,728,495			2/21/12		89,586		—
Chilean Peso		JPHQ		Buy		1,792,000,000		3,719,772			2/22/12		—		(293,805	)
Japanese Yen		HSBC		Sell		385,460,000		4,651,662			2/22/12		—		(361,179	)

TGB-23

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Chilean Peso		DBAB		Buy		1,435,490,000		2,965,643		2/23/12	$	—	$	(221,506	)
Japanese Yen		JPHQ		Sell		385,700,000		4,652,313		2/23/12		—		(363,744	)
Singapore Dollar		DBAB		Buy		9,547,000		7,468,688		2/24/12		—		(109,132	)
Chilean Peso		CITI		Buy		2,285,090,000		4,709,098		2/27/12		—		(342,426	)
Chilean Peso		MSCO		Buy		2,254,540,000		4,646,859		2/27/12		—		(338,566	)
Chilean Peso		DBAB		Buy		2,094,920,000		4,297,757		2/27/12		—		(294,488	)
Euro		DBAB		Sell		5,346,000		7,284,299		2/27/12		361,617		—
Singapore Dollar		DBAB		Buy		5,952,000		4,667,869		2/27/12		—		(79,613	)
Chilean Peso		MSCO		Buy		1,559,200,000		3,181,392		2/28/12		—		(202,123	)
Chilean Peso		JPHQ		Buy		593,800,000		1,223,069		2/28/12		—		(88,455	)
Chilean Peso		BZWS		Buy		2,006,200,000		4,086,779		2/29/12		—		(253,847	)
Chilean Peso		DBAB		Buy		790,050,000		1,632,200		2/29/12		—		(122,775	)
Euro		DBAB		Sell		3,252,140		4,444,049		2/29/12		232,673		—
Singapore Dollar		DBAB		Buy		5,960,000		4,668,212		2/29/12		—		(73,754	)
Chilean Peso		DBAB		Buy		1,253,970,000		2,553,390		3/01/12		—		(157,907	)
Chilean Peso		BZWS		Buy		1,004,500,000		2,043,328		3/01/12		—		(124,412	)
Euro		DBAB		Sell		1,530,900		2,087,306		3/01/12		104,835		—
Japanese Yen		UBSW		Sell		447,200,000		5,501,021		3/01/12		—		(315,662	)
Japanese Yen		JPHQ		Sell		401,100,000		4,934,793		3/01/12		—		(282,272	)
Japanese Yen		HSBC		Sell		400,800,000		4,932,923		3/01/12		—		(280,240	)
Chilean Peso		DBAB		Buy		1,253,970,000		2,553,390		3/02/12		—		(158,188	)
Chilean Peso		DBAB		Buy		1,328,230,000		2,706,255		3/05/12		—		(170,100	)
Euro		DBAB		Sell		1,536,000		2,099,251		3/05/12		110,083		—
Chilean Peso		DBAB		Buy		1,320,220,000		2,682,556		3/07/12		—		(162,286	)
Euro		UBSW		Sell		6,915,000		9,567,248		3/08/12		611,791		—
Euro		MSCO		Sell		5,225,000		7,228,526		3/08/12		461,749		—
Euro		HSBC		Sell		1,844,000		2,548,408		3/08/12		160,286		—
Chilean Peso		DBAB		Buy		1,284,460,000		2,629,396		3/09/12		—		(177,965	)
Chilean Peso		MSCO		Buy		662,100,000		1,346,279		3/12/12		—		(83,085	)
Chilean Peso		DBAB		Buy		2,600,220,000		5,301,695		3/15/12		—		(342,579	)
Japanese Yen		CITI		Sell		286,112,008		3,688,722		3/15/12		—		(33,907	)
Australian Dollar		CITI		Buy		16,742,000		15,737,313		3/19/12		1,237,293		—
Japanese Yen		CITI		Sell		407,702,000		5,074,644		3/19/12		—		(230,491	)
Japanese Yen		UBSW		Sell		330,530,000		4,114,396		3/19/12		—		(186,555	)
Japanese Yen		MSCO		Sell		244,700,000		3,044,896		3/19/12		—		(139,211	)
Singapore Dollar		JPHQ		Buy		11,426,000		8,934,240		3/19/12		—		(124,850	)
Singapore Dollar		HSBC		Buy		9,120,000		7,147,559		3/19/12		—		(116,084	)
Singapore Dollar		DBAB		Buy		7,978,100		6,254,047		3/19/12		—		(102,970	)
Australian Dollar		DBAB		Buy		8,192,166		7,679,992		3/21/12		624,272		—
Chilean Peso		JPHQ		Buy		1,065,000,000		2,137,481		3/21/12		—		(107,747	)
Singapore Dollar		DBAB		Buy		8,589,700		6,700,757		3/21/12		—		(78,037	)
Singapore Dollar		HSBC		Buy		6,864,000		5,360,615		3/21/12		—		(68,423	)
Australian Dollar		DBAB		Buy		537,776		503,606		3/22/12		41,472		—
Japanese Yen		UBSW		Sell		242,774,840		3,005,643		3/23/12		—		(153,703	)
Euro		DBAB		Sell		2,736,000		3,829,333		3/26/12		285,253		—
Malaysian Ringgit		DBAB		Buy		16,025,000		5,047,403		3/26/12		—		(14,070	)
Malaysian Ringgit		HSBC		Buy		7,634,000		2,403,463		3/26/12		—		(5,681	)
Singapore Dollar		MSCO		Buy		10,570,700		8,235,134		3/26/12		—		(84,735	)
Singapore Dollar		FBCO		Buy		10,578,000		8,235,111		3/26/12		—		(79,084	)
British Pound		MSCO		Buy		2,852,773		4,545,238		3/29/12		—		(118,112	)
British Pound		DBAB		Buy		2,853,149		4,545,238		3/29/12		—		(117,528	)
British Pound		BZWS		Buy		5,722,896		9,090,477		3/30/12		—		(209,396	)

TGB-24

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Chilean Peso		DBAB		Buy		1,252,750,000		2,510,018			3/30/12	$	—	$	(124,883	)
New Israeli Shekel		MSCO		Buy		9,296,110		2,596,996			3/30/12		—		(161,179	)
British Pound		FBCO		Buy		3,431,879		5,454,285			4/02/12		—		(128,694	)
Chilean Peso		DBAB		Buy		1,330,940,000		2,656,408			4/02/12		—		(123,018	)
Euro		DBAB		Sell		3,712,000		5,214,432			4/04/12		405,455		—
Euro		DBAB		Sell		2,488,000		3,482,304			4/05/12		258,994		—
Euro		DBAB		Sell		7,243,000		10,201,041			4/10/12		816,668		—
Euro		HSBC		Sell		8,692,000		12,212,434			4/10/12		950,667		—
Euro		UBSW		Sell		4,346,000		6,102,436			4/10/12		471,553		—
Indian Rupee		DBAB		Buy		159,915,000		3,413,340			4/11/12		—		(453,447	)
Euro		UBSW		Sell		3,907,000		5,569,722			4/12/12		507,464		—
Indian Rupee		DBAB		Buy		342,913,000		7,346,037			4/13/12		—		(1,000,986	)
Chilean Peso		MSCO		Buy		2,645,530,000		5,374,363			4/16/12		—		(344,379	)
Euro		HSBC		Sell		6,919,000		9,915,481			4/16/12		950,029		—
Indian Rupee		JPHQ		Buy		230,330,000		4,921,581			4/16/12		—		(661,693	)
Indian Rupee		JPHQ		Buy		226,092,000		4,802,294			4/18/12		—		(622,093	)
Indian Rupee		JPHQ		Buy		112,941,000		2,396,880			4/19/12		—		(309,047	)
Indian Rupee		DBAB		Buy		79,271,000		1,678,404			4/19/12		—		(212,996	)
Malaysian Ringgit		JPHQ		Buy		4,069,213		1,329,330			4/19/12		—		(51,795	)
Chilean Peso		MSCO		Buy		2,370,410,000		4,788,707			4/20/12		—		(283,263	)
Japanese Yen		UBSW		Sell		261,900,000		3,188,653			4/20/12		—		(221,992	)
Japanese Yen		CITI		Sell		261,800,000		3,189,299			4/20/12		—		(220,044	)
Euro		DBAB		Sell		4,545,000		6,425,948			4/23/12		535,996		—
Malaysian Ringgit		JPHQ		Buy		11,659,000		3,812,498			4/23/12		—		(152,390	)
Indian Rupee		DBAB		Buy		160,601,000		3,410,512			4/26/12		—		(444,874	)
Chilean Peso		JPHQ		Buy		1,501,938,000		3,045,910			4/27/12		—		(192,780	)
Indian Rupee		JPHQ		Buy		136,582,000		2,896,755			4/27/12		—		(375,042	)
Chilean Peso		CITI		Buy		2,420,966,000		4,976,292			4/30/12		—		(378,456	)
Indian Rupee		JPHQ		Buy		113,782,000		2,415,754			4/30/12		—		(315,979	)
Indian Rupee		DBAB		Buy		71,377,981		1,505,547			4/30/12		—		(188,312	)
Swedish Krona		BZWS		Buy		122,773,200		13,607,901	EUR		4/30/12		118,922		—
Euro		DBAB		Sell		2,045,000		2,991,017			5/07/12		340,263		—
Euro		FBCO		Sell		1,731,000		2,537,646			5/07/12		293,903		—
Euro		BZWS		Sell		1,259,000		1,850,818			5/07/12		218,887		—
Euro		MSCO		Sell		1,259,000		1,851,970			5/07/12		220,039		—
Euro		DBAB		Sell		1,259,000		1,816,422			5/09/12		184,439		—
Euro		UBSW		Sell		629,000		902,238			5/09/12		86,894		—
Japanese Yen		CITI		Sell		733,721,000		9,128,949			5/10/12		—		(431,032	)
Chilean Peso		MSCO		Buy		1,150,200,000		2,368,958			5/11/12		—		(186,458	)
Japanese Yen		UBSW		Sell		733,361,000		9,122,540			5/11/12		—		(432,997	)
Japanese Yen		DBAB		Sell		490,555,000		6,101,962			5/11/12		—		(289,865	)
Euro		DBAB		Sell		1,812,000		2,538,521			5/18/12		189,368		—
Euro		DBAB		Sell		2,642,000		3,691,346			5/21/12		265,979		—
Euro		UBSW		Sell		1,812,000		2,531,002			5/21/12		181,734		—
Chilean Peso		MSCO		Buy		420,740,000		852,512			5/22/12		—		(54,864	)
Euro		DBAB		Sell		1,300,570		1,740,065			5/25/12		53,761		—
Indian Rupee		DBAB		Buy		217,594,000		4,559,807			6/01/12		—		(564,173	)
Indian Rupee		HSBC		Buy		251,448,000		5,326,160			6/04/12		—		(711,019	)
Euro		DBAB		Sell		785,200		1,123,692			6/06/12		105,413		—
Euro		DBAB		Sell		2,033,100		2,927,969			6/07/12		291,321		—
Euro		UBSW		Sell		1,057,200		1,517,505			6/07/12		146,463		—
Indian Rupee		DBAB		Buy		160,277,000		3,379,945			6/07/12		—		(439,547	)

TGB-25

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Indian Rupee		HSBC		Buy		42,784,000		908,558			6/08/12	$	—	$	(123,776	)
Polish Zloty		DBAB		Buy		30,704,000		7,583,856	EUR		6/08/12		—		(1,059,465	)
Polish Zloty		CITI		Buy		5,990,000		1,480,328	EUR		6/08/12		—		(207,733	)
Euro		DBAB		Sell		16,210,600		23,377,407			6/11/12		2,353,154		—
Indian Rupee		DBAB		Buy		43,392,000		921,078			6/11/12		—		(125,514	)
Swedish Krona		DBAB		Buy		41,300,000		4,531,649	EUR		6/11/12		88,274		—
Swedish Krona		MSCO		Buy		55,369,800		6,074,660	EUR		6/11/12		119,384		—
Euro		DBAB		Sell		6,935,000		9,949,645			6/13/12		955,042		—
Indian Rupee		HSBC		Buy		108,000,000		2,292,994			6/13/12		—		(313,495	)
Swedish Krona		BZWS		Buy		24,372,000		2,664,986	EUR		6/13/12		63,754		—
Swedish Krona		MSCO		Buy		27,990,100		3,064,681	EUR		6/13/12		67,940		—
Euro		DBAB		Sell		1,448,000		2,068,989			6/14/12		190,922		—
Swedish Krona		MSCO		Buy		21,992,000		2,398,444	EUR		6/14/12		65,555		—
Japanese Yen		CITI		Sell		310,702,000		4,014,341			6/15/12		—		(37,715	)
Indian Rupee		DBAB		Buy		108,614,000		2,300,657			6/18/12		—		(311,444	)
Indian Rupee		DBAB		Buy		98,937,000		2,087,719			6/20/12		—		(276,296	)
Indian Rupee		JPHQ		Buy		79,054,000		1,669,567			6/22/12		—		(222,626	)
Indian Rupee		DBAB		Buy		119,627,000		2,538,773			6/25/12		—		(350,232	)
Indian Rupee		HSBC		Buy		80,337,000		1,702,416			6/27/12		—		(233,128	)
South Korean Won		DBAB		Buy		10,730,000,000		9,225,346			6/27/12		—		(52,446	)
South Korean Won		DBAB		Buy		10,710,000,000		9,129,267			6/27/12		26,535		—
Malaysian Ringgit		JPHQ		Buy		14,772,000		4,766,853			6/29/12		—		(134,922	)
Swedish Krona		UBSW		Buy		302,991,000		32,586,637	EUR		6/29/12		1,467,682		—
Indian Rupee		DBAB		Buy		79,423,000		1,704,455			7/11/12		—		(254,307	)
Indian Rupee		JPHQ		Buy		127,745,000		2,753,345			7/12/12		—		(421,185	)
Indian Rupee		DBAB		Buy		40,128,000		861,351			7/12/12		—		(128,759	)
Malaysian Ringgit		DBAB		Buy		18,006,622		5,897,043			7/12/12		—		(252,777	)
Malaysian Ringgit		DBAB		Buy		13,610,000		4,466,835			7/13/12		—		(200,823	)
Euro		DBAB		Sell		2,243,000		3,142,533			7/16/12		231,680		—
Euro		UBSW		Sell		8,965,000		12,558,620			7/16/12		924,294		—
Euro		MSCO		Sell		7,888,000		11,004,746			7/16/12		768,096		—
Euro		UBSW		Sell		8,965,000		12,571,171			7/18/12		936,401		—
Euro		DBAB		Sell		3,518,000		4,934,663			7/18/12		369,006		—
Euro		MSCO		Sell		1,791,000		2,507,400			7/18/12		183,042		—
Malaysian Ringgit		DBAB		Buy		2,637,000		865,896			7/18/12		—		(39,445	)
Malaysian Ringgit		DBAB		Buy		11,455,000		2,669,790	EUR		7/18/12		125,214		—
Euro		BZWS		Sell		2,638,000		3,696,102			7/19/12		272,442		—
Indian Rupee		JPHQ		Buy		39,422,000		848,332			7/19/12		—		(129,230	)
Euro		MSCO		Sell		12,182,000		16,976,226			7/20/12		1,165,834		—
Euro		DBAB		Sell		1,935,000		2,699,035			7/20/12		187,698		—
Malaysian Ringgit		DBAB		Buy		4,160,000		1,361,880			7/20/12		—		(58,180	)
Malaysian Ringgit		DBAB		Buy		12,933,000		3,036,058	EUR		7/20/12		112,723		—
Euro		DBAB		Sell		1,759,000		2,467,437			7/23/12		184,391		—
Malaysian Ringgit		DBAB		Buy		5,058,000		1,667,216			7/25/12		—		(82,299	)
Malaysian Ringgit		DBAB		Buy		16,628,000		3,885,501	EUR		7/25/12		167,089		—
Malaysian Ringgit		JPHQ		Buy		5,318,000		1,763,964			7/27/12		—		(97,663	)
Malaysian Ringgit		JPHQ		Buy		16,628,000		3,875,268	EUR		7/27/12		179,907		—
Malaysian Ringgit		HSBC		Buy		3,005,000		1,009,745			7/31/12		—		(68,279	)
Euro		BZWS		Sell		185,174		262,429			8/01/12		22,046		—
Euro		BZWS		Sell		97,724		139,325			8/02/12		12,463		—
Euro		DBAB		Sell		5,724,900		8,099,168			8/06/12		666,706		—
Euro		BZWS		Sell		2,762,518		3,924,433			8/06/12		337,941		—

TGB-26

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity			Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Malaysian Ringgit		JPHQ		Buy		1,100,000			365,509			8/06/12	$	—	$	(20,934	)
Euro		CITI		Sell		1,210,637			1,699,674			8/08/12		127,881		—
Euro		DBAB		Sell		6,343,900			8,927,453			8/08/12		691,049		—
Malaysian Ringgit		HSBC		Buy		6,100,000			2,030,220			8/08/12		—		(119,492	)
Euro		CITI		Sell		351,512			494,595			8/09/12		38,212		—
Euro		DBAB		Sell		4,845,000			6,861,651			8/09/12		571,177		—
South Korean Won		HSBC		Buy		21,363,430,000			19,660,804			8/09/12		—		(1,409,747	)
Euro		DBAB		Sell		2,166,000			3,061,186			8/10/12		248,920		—
Euro		DBAB		Sell		4,115,000			5,828,152			8/13/12		485,061		—
Polish Zloty		DBAB		Buy		59,155,000			13,945,073	EUR		8/16/12		—		(1,278,338	)
Euro		BZWS		Sell		19,627,000			28,201,112			8/20/12		2,713,177		—
Euro		FBCO		Sell		7,851,000			11,275,606			8/20/12		1,080,173		—
Euro		DBAB		Sell		7,851,000			11,258,098			8/20/12		1,062,665		—
Euro		MSCO		Sell		3,925,000			5,631,786			8/20/12		534,719		—
Japanese Yen		UBSW		Sell		758,781,000			9,947,313			8/20/12		33,913		—
Japanese Yen		JPHQ		Sell		377,047,000			4,932,265			8/20/12		6,183		—
Japanese Yen		DBAB		Sell		461,885,000			6,045,536			8/20/12		11,054		—
Japanese Yen		HSBC		Sell		1,621,372,000			21,274,729			8/20/12		91,663		—
Japanese Yen		BZWS		Sell		376,247,000			4,942,165			8/22/12		26,266		—
Japanese Yen		MSCO		Sell		300,000,000			3,940,421			8/22/12		20,736		—
Japanese Yen		DBAB		Sell		376,727,000			4,947,885			8/22/12		25,715		—
Euro		BZWS		Sell		1,002,141			1,441,079			8/23/12		139,608		—
Japanese Yen		FBCO		Sell		746,218,000			9,807,044			8/23/12		56,981		—
Japanese Yen		CITI		Sell		751,731,000			9,896,406			8/23/12		74,310		—
Japanese Yen		DBAB		Sell		371,821,000			4,902,929			8/23/12		44,727		—
Euro		BZWS		Sell		1,678,784	��		2,408,384			8/24/12		228,122		—
Indian Rupee		HSBC		Buy		143,891,000			3,048,648			8/24/12		—		(435,114	)
Indian Rupee		DBAB		Buy		124,700,000			2,639,248			8/24/12		—		(374,286	)
Japanese Yen		JPHQ		Sell		750,133,000			9,833,296			8/24/12		31,812		—
Euro		BZWS		Sell		8,738,369			12,570,326			8/27/12		1,221,027		—
Euro		HSBC		Sell		18,537,726			26,609,988			8/27/12		2,533,388		—
Japanese Yen		BZWS		Sell		1,085,075,000			14,227,693			8/27/12		48,586		—
Japanese Yen		DBAB		Sell		685,950,000			9,026,608			8/27/12		63,026		—
Japanese Yen		UBSW		Sell		937,086,000			12,324,808			8/27/12		79,533		—
Japanese Yen		JPHQ		Sell		751,903,000			9,886,956			8/27/12		61,540		—
Japanese Yen		HSBC		Sell		1,247,125,000			16,361,102			8/27/12		64,423		—
Malaysian Ringgit		JPHQ		Buy		8,340,000			2,788,645			8/27/12		—		(177,567	)
Swedish Krona		UBSW		Buy		30,000,000			3,253,973	EUR		8/27/12		99,551		—
United States Dollar		CITI		Buy		7,760,297			5,387,112	EUR		8/27/12		763,573		—
United States Dollar		UBSW		Buy		16,993,151			11,812,119	EUR		8/27/12		1,651,697		—
United States Dollar		JPHQ		Buy		11,099,031			7,711,034	EUR		8/27/12		1,084,023		—
Euro		JPHQ		Sell		6,190,317			8,900,685			8/29/12		860,461		—
Euro		DBAB		Sell		1,011,997			1,448,775			8/29/12		134,354		—
Japanese Yen		BZWS		Sell		890,300,000			11,683,727			8/30/12		48,870		—
Euro		DBAB		Sell		46,315			66,985			8/31/12		6,827		—
Japanese Yen		JPHQ		Sell		372,662,000			4,883,848			8/31/12		13,593		—
Euro		DBAB		Sell		541,000			767,582			9/06/12		64,803		—
Indian Rupee		DBAB		Buy		88,183,000			1,858,088			9/06/12		—		(258,860	)
Euro		BZWS		Sell		1,033,224			1,450,750			9/10/12		108,451		—
Euro		DBAB		Sell		1,191,000			1,665,983			9/10/12		118,712		—
Euro		BZWS		Sell		1,012,110			1,414,930			9/12/12		100,011		—
Euro		DBAB		Sell		541,000			740,256			9/13/12		37,383		—

TGB-27

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Euro		BZWS		Sell		2,890,070		3,953,110			9/14/12	$	198,229	$	—
Euro		UBSW		Sell		2,694,506		3,693,359			9/17/12		192,362		—
Japanese Yen		BZWS		Sell		285,057,504		3,677,924			9/18/12		—		(49,274	)
Euro		BZWS		Sell		678,250		940,190			9/19/12		58,900		—
Euro		BZWS		Sell		1,647,381		2,241,295			9/24/12		100,551		—
Euro		DBAB		Sell		8,070,000		11,027,953			9/24/12		541,124		—
Philippine Peso		DBAB		Buy		165,158,000		3,711,833			9/24/12		10,951		—
Euro		DBAB		Sell		3,753,000		5,077,396			9/26/12		200,241		—
Malaysian Ringgit		HSBC		Buy		11,490,000		3,605,271			9/26/12		—		(10,765	)
Malaysian Ringgit		DBAB		Buy		3,068,000		961,349			9/26/12		—		(1,562	)
South Korean Won		HSBC		Buy		21,510,000,000		18,213,995			9/26/12		148,507		—
Indian Rupee		DBAB		Buy		25,000,000		485,692			9/27/12		—		(33,404	)
Euro		HSBC		Sell		5,430,000		7,294,553			9/28/12		237,782		—
Euro		DBAB		Sell		14,880,000		20,050,113			9/28/12		712,220		—
Euro		MSCO		Sell		4,020,000		5,461,472			9/28/12		237,121		—
Euro		FBCO		Sell		12,170,000		16,453,565			9/28/12		637,560		—
Hungary Forint		DBAB		Buy		1,517,800,000		6,921,755			9/28/12		—		(856,503	)
Japanese Yen		JPHQ		Sell		172,207,000		2,268,867			9/28/12		16,585		—
Philippine Peso		HSBC		Buy		49,600,000		1,134,648			9/28/12		—		(16,692	)
Philippine Peso		HSBC		Buy		39,700,000		904,431			10/03/12		—		(9,671	)
Swedish Krona		DBAB		Buy		340,320,000		49,645,514			10/03/12		—		(611,724	)
Philippine Peso		DBAB		Buy		195,560,000		4,490,471			10/04/12		—		(82,988	)
Philippine Peso		HSBC		Buy		156,866,000		3,558,585			10/04/12		—		(23,179	)
Euro		UBSW		Sell		6,370,000		8,488,184			10/05/12		208,586		—
Philippine Peso		DBAB		Buy		233,811,000		5,368,794			10/05/12		—		(99,286	)
Philippine Peso		HSBC		Buy		233,867,000		5,271,906			10/05/12		—		(1,135	)
Euro		DBAB		Sell		12,680,000		16,748,632			10/09/12		266,041		—
Philippine Peso		DBAB		Buy		191,936,000		4,409,787			10/09/12		—		(84,253	)
Philippine Peso		JPHQ		Buy		61,767,000		1,416,025			10/09/12		—		(24,023	)
Philippine Peso		HSBC		Buy		230,704,000		5,304,638			10/11/12		—		(105,544	)
Philippine Peso		DBAB		Buy		153,588,000		3,528,325			10/11/12		—		(67,101	)
Philippine Peso		JPHQ		Buy		76,627,000		1,756,694			10/11/12		—		(29,845	)
Malaysian Ringgit		DBAB		Buy		11,434,805		3,598,680			10/12/12		—		(22,236	)
Philippine Peso		JPHQ		Buy		108,152,000		2,500,624			10/12/12		—		(63,366	)
Philippine Peso		DBAB		Buy		45,732,000		1,047,698			10/12/12		—		(17,104	)
Malaysian Ringgit		DBAB		Buy		4,934,783		1,552,893			10/15/12		—		(9,514	)
Philippine Peso		JPHQ		Buy		194,374,000		4,458,552			10/15/12		—		(78,403	)
Philippine Peso		HSBC		Buy		76,252,000		1,747,496			10/15/12		—		(29,184	)
Euro		HSBC		Sell		12,569,000		17,260,839			10/17/12		919,799		—
Norwegian Krone		BZWS		Buy		61,773,000		7,840,706	EUR		10/18/12		38,348		—
Philippine Peso		HSBC		Buy		154,149,000		3,574,801			10/19/12		—		(101,282	)
Philippine Peso		DBAB		Buy		41,880,000		959,011			10/19/12		—		(15,307	)
Philippine Peso		DBAB		Buy		167,411,000		3,834,425			10/22/12		—		(62,208	)
Philippine Peso		JPHQ		Buy		84,061,000		1,935,551			10/22/12		—		(41,432	)
Chilean Peso		CITI		Buy		921,291,798		1,731,752			10/24/12		—		(5,680	)
Euro		BZWS		Sell		649,907		893,037			10/24/12		47,965		—
Euro		BZWS		Sell		4,954,399		6,873,733			10/25/12		431,408		—
Euro		CITI		Sell		1,935,410		2,694,420			10/26/12		177,706		—
Chilean Peso		DBAB		Buy		398,486,000		763,749			10/29/12		—		(17,401	)
Chilean Peso		BZWS		Buy		199,342,000		382,028			10/29/12		—		(8,668	)
Indian Rupee		HSBC		Buy		213,392,000		4,137,549			10/29/12		—		(287,680	)
Indian Rupee		DBAB		Buy		208,500,000		4,036,434			10/29/12		—		(274,824	)

TGB-28

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Global Bond Securities Fund

Forward Exchange Contracts (continued)

Currency	Counterparty		Type		Quantity		Contract Amount*			Settlement Date		Unrealized Appreciation		Unrealized Depreciation
Norwegian Krone		BZWS		Buy		61,766,000		7,904,530	EUR		10/29/12	$	—	$	(51,441	)
Philippine Peso		JPHQ		Buy		82,631,000		1,919,821			10/29/12		—		(58,087	)
Philippine Peso		MSCO		Buy		17,610,000		407,639			10/29/12		—		(10,873	)
Euro		DBAB		Sell		3,319,244		4,679,503			10/31/12		362,867		—
Indian Rupee		DBAB		Buy		440,314,000		8,559,792			10/31/12		—		(617,334	)
Indian Rupee		HSBC		Buy		317,880,000		6,178,426			10/31/12		—		(444,453	)
Euro		DBAB		Sell		224,556		312,344			11/02/12		20,299		—
Euro		BZWS		Sell		1,581,109		2,179,717			11/05/12		123,289		—
Euro		BZWS		Sell		8,969,211		12,334,011			11/08/12		667,707		—
Japanese Yen		CITI		Sell		341,992,119		4,415,023			11/08/12		—		(63,356	)
Norwegian Krone		UBSW		Buy		47,173,200		5,985,687	EUR		11/08/12		23,547		—
Japanese Yen		BZWS		Sell		335,950,000		4,355,069			11/13/12		—		(44,847	)
Japanese Yen		BZWS		Sell		429,663,000		5,572,802			11/14/12		—		(54,636	)
Japanese Yen		UBSW		Sell		340,600,700		4,423,099			11/14/12		—		(37,861	)
Philippine Peso		DBAB		Buy		48,500,000		1,121,647			11/14/12		—		(29,126	)
Euro		BZWS		Sell		10,778,730		14,705,960			11/15/12		683,949		—
Japanese Yen		DBAB		Sell		796,770,000		10,433,980			11/16/12		—		(2,202	)
Euro		UBSW		Sell		4,794,427		6,515,147			11/19/12		277,571		—
Euro		BZWS		Sell		3,019,521		4,139,310			11/19/12		210,897		—
Euro		DBAB		Sell		933,877		1,266,617			11/19/12		51,638		—
Japanese Yen		JPHQ		Sell		397,873,000		5,207,421			11/19/12		—		(4,432	)
Japanese Yen		UBSW		Sell		317,836,000		4,168,341			11/19/12		4,915		—
Japanese Yen		HSBC		Sell		207,909,000		2,723,818			11/19/12		357		—
Japanese Yen		BZWS		Sell		986,239,000		12,942,769			11/19/12		23,738		—
Euro		BZWS		Sell		10,515,154		14,269,064			11/21/12		588,219		—
Japanese Yen		BZWS		Sell		1,107,834,000		14,557,608			11/21/12		44,900		—
Euro		BZWS		Sell		4,730,771		6,421,075			11/23/12		265,801		—
Euro		DBAB		Sell		5,440,000		7,321,696			12/03/12		242,150		—
Euro		HSBC		Sell		2,155,292		2,897,574			12/07/12		92,470		—
Euro		UBSW		Sell		1,343,551		1,798,948			12/10/12		50,210		—
Euro		BZWS		Sell		5,095,000		6,861,437			12/12/12		229,617		—
Malaysian Ringgit		JPHQ		Buy		13,361,013		4,138,330			12/17/12		36,739		—
Japanese Yen		JPHQ		Sell		285,510,329		3,694,970			12/27/12		—		(49,273	)
Unrealized appreciation (depreciation)													58,119,290		(44,123,134	)
Net unrealized appreciation (depreciation)												$	13,996,156

*In U.S. dollars unless otherwise indicated.

At December 31, 2011, the Fund had the following interest rate swap contracts outstanding. See Note 1(d).

Interest Rate Swap Contracts

Counterparty	Pay/Receive Floating Rate		Fixed Rate		Floating Rate	Notional Amount*		Expiration Date		Unrealized Appreciation		Unrealized Depreciation
JPHQ		Receive		3.558%	3-month USD BBA LIBOR		3,240,000		3/4/21	$	—	$	(479,748	)
DBAB		Receive		3.523%	3-month USD BBA LIBOR		14,630,000		3/28/21		—		(2,100,146	)
CITI		Receive		4.347%	3-month USD BBA LIBOR		7,460,000		2/25/41		—		(2,802,849	)
JPHQ		Receive		4.349%	3-month USD BBA LIBOR		7,460,000		2/25/41		—		(2,888,155	)
JPHQ		Receive		4.320%	3-month USD BBA LIBOR		5,600,000		2/28/41		—		(2,079,888	)
JPHQ		Receive		4.299%	3-month USD BBA LIBOR		1,870,000		3/1/41		—		(682,813	)
Net unrealized appreciation (depreciation)										$	—	$	(11,033,599	)

*In U.S. Dollars unless otherwise indicated.

The accompanying notes are an integral part of these financial statements.

TGB-29

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Templeton Global Bond Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	2,027,951,066
Cost - Repurchase agreements		186,697,298
Total cost of investments	$	2,214,648,364
Value - Unaffiliated issuers	$	2,065,411,739
Value - Repurchase agreements		186,697,298
Total value of investments		2,252,109,037
Restricted cash (Note 1e)		6,920,000
Foreign currency, at value (cost $124,578,395)		124,679,223
Receivables:
Investment securities sold		121,134
Capital shares sold		9,296,517
Interest		29,257,286
Due from brokers		12,205,000
Unrealized appreciation on forward exchange contracts		58,119,290
Other assets		55
Total assets		2,492,707,542
Liabilities:
Payables:
Capital shares redeemed		1,815,032
Affiliates		1,854,413
Funds advanced by custodian		82,618
Due to brokers		6,920,000
Unrealized depreciation on forward exchange contracts		44,123,134
Unrealized depreciation on swap contracts		11,033,599
Deferred tax		5,397,098
Accrued expenses and other liabilities		1,344,089
Total liabilities		72,569,983
Net assets, at value	$	2,420,137,559
Net assets consist of:
Paid-in capital	$	2,263,842,907
Undistributed net investment income		117,957,425
Net unrealized appreciation (depreciation)		34,069,657
Accumulated net realized gain (loss)		4,267,570
Net assets, at value	$	2,420,137,559

The accompanying notes are an integral part of these financial statements.

TGB-30

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Templeton Global Bond Securities Fund
Class 1:
Net assets, at value	$	269,818,678
Shares outstanding		14,495,798
Net asset value and maximum offering price per share	$	18.61
Class 2:
Net assets, at value	$	1,812,813,528
Shares outstanding		99,856,649
Net asset value and maximum offering price per share	$	18.15
Class 3:
Net assets, at value	$	185,810,513
Shares outstanding		10,236,976
Net asset value and maximum offering price per sharea	$	18.15
Class 4:
Net assets, at value	$	151,694,840
Shares outstanding		8,224,200
Net asset value and maximum offering price per share	$	18.44

^aRedemption price is equal to net asset value less redemption fees retained by the Fund.

The accompanying notes are an integral part of these financial statements.

TGB-31

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Templeton Global Bond Securities Fund
Investment income:
Interest (net of foreign taxes of $4,220,818)	$	115,048,301
Expenses:
Management fees (Note 3a)		10,704,656
Distribution fees: (Note 3c)
Class 2		4,232,572
Class 3		481,772
Class 4		557,170
Unaffiliated transfer agent fees		4,571
Custodian fees (Note 4)		1,534,910
Reports to shareholders		526,303
Professional fees		75,763
Trustees’ fees and expenses		8,325
Other		47,441
Total expenses		18,173,483
Expense reductions (Note 4)		(19	)
Net expenses		18,173,464
Net investment income		96,874,837
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		53,540,262
Foreign currency transactions		(227,615	)
Futures contracts		3,393
Swap contracts		(711,473	)
Net realized gain (loss)		52,604,567
Net change in unrealized appreciation (depreciation) on:
Investments		(165,488,912	)
Translation of other assets and liabilities denominated in foreign currencies		(9,182,902	)
Change in deferred taxes on unrealized appreciation		(5,397,098	)
Net change in unrealized appreciation (depreciation)		(180,068,912	)
Net realized and unrealized gain (loss)		(127,464,345	)
Net increase (decrease) in net assets resulting from operations	$	(30,589,508	)

The accompanying notes are an integral part of these financial statements.

TGB-32

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Templeton Global Bond Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	96,874,837		$	93,415,601
Net realized gain (loss) from investments, foreign currency transactions, futures contracts and swap contracts		52,604,567			26,725,973
Net change in unrealized appreciation (depreciation) on investments, translation of other assets and liabilities denominated in foreign currencies and deferred taxes		(180,068,912	)		123,023,722
Net increase (decrease) in net assets resulting from operations		(30,589,508	)		243,165,296
Distributions to shareholders from:
Net investment income and net foreign currency gains:
Class 1		(15,683,467	)		(3,860,853	)
Class 2		(93,946,669	)		(17,334,382	)
Class 3		(10,753,201	)		(2,167,994	)
Class 4		(8,615,701	)		(1,885,595	)
Net realized gains:
Class 1		(1,762,080	)		(610,541	)
Class 2		(10,925,216	)		(3,135,836	)
Class 3		(1,252,885	)		(394,847	)
Class 4		(1,020,280	)		(338,834	)
Total distributions to shareholders		(143,959,499	)		(29,728,882	)
Capital share transactions: (Note 2)
Class 1		17,171,380			48,911,860
Class 2		451,366,379			75,615,219
Class 3		16,706,473			21,722,929
Class 4		12,126,720			26,968,281
Total capital share transactions		497,370,952			173,218,289
Redemption fees		18,113			23,708
Net increase (decrease) in net assets		322,840,058			386,678,411
Net assets:
Beginning of year		2,097,297,501			1,710,619,090
End of year	$	2,420,137,559		$	2,097,297,501
Undistributed net investment income included in net assets:
End of year	$	117,957,425		$	102,069,075

The accompanying notes are an integral part of these financial statements.

TGB-33

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Templeton Global Bond Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Templeton Global Bond Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers four classes of shares: Class 1, Class 2, Class 3, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates market value.

Certain derivative financial instruments (derivatives) trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements

TGB-34

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is 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. A repurchase agreement is accounted for as a loan by the fund to the seller, collateralized by securities which are delivered to the fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. The joint repurchase agreement held by the Fund at year end had been entered into on December 30, 2011.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

TGB-35

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Derivative Financial Instruments (continued)

The Fund entered into futures contracts primarily to manage interest rate and/or foreign exchange rate risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for a specified price on a future date. Required initial margin deposits of cash or securities are pledged by the Fund. Subsequent payments, known as variation margin, are made or received by the Fund, depending on fluctuations in the value of the underlying security. Such variation margin is accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional principal amount. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized. Pursuant to the terms of the interest rate swap contract, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

At December 31, 2011, the Fund holds $10,141,489 in U.S. treasury bills, bonds, and notes and Government National Mortgage Association bonds as collateral for derivatives.

See Note 9 regarding other derivative information.

e. Restricted Cash

At December 31, 2011, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.

f. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

TGB-36

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as interest income on the Statement of Operations.

h. 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 expenses during the reporting period. Actual results could differ from those estimates.

i. Redemption Fees

Redemptions and exchanges of interests in an insurance company subaccount that invests in Class 3 shares of the Fund will be subject to a 1.0% short term trading fee if the interest in the subaccount has been held for less than 60 days. Such fees are retained by the Fund and accounted for as an addition to paid-in capital, allocated to each class of shares based upon the relative proportion of net assets of each class.

j. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

TGB-37

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		2,403,657		$	47,343,365			4,522,323		$	85,300,049
Shares issued in reinvestment of distributions		889,172			17,445,546			243,806			4,471,394
Shares redeemed		(2,450,491	)		(47,617,531	)		(2,152,653	)		(40,859,583	)
Net increase (decrease)		842,338		$	17,171,380			2,613,476		$	48,911,860
Class 2 Shares:
Shares sold		29,318,184		$	564,580,203			23,116,184		$	432,400,311
Shares issued in reinvestment of distributions		5,473,480			104,871,884			1,140,402			20,470,218
Shares redeemed		(11,438,342	)		(218,085,708	)		(20,598,509	)		(377,255,310	)
Net increase (decrease)		23,353,322		$	451,366,379			3,658,077		$	75,615,219
Class 3 Shares:
Shares sold		1,851,973		$	36,090,442			2,390,123		$	44,722,862
Shares issued in reinvestment of distributions		626,622			12,006,087			142,856			2,562,841
Shares redeemed		(1,654,785	)		(31,390,056	)		(1,387,144	)		(25,562,774	)
Net increase (decrease)		823,810		$	16,706,473			1,145,835		$	21,722,929
Class 4 Shares:
Shares sold		1,191,215		$	23,562,082			1,871,353		$	34,938,015
Shares issued on reinvestment of distributions		494,660			9,635,982			122,020			2,224,429
Shares redeemed		(1,090,109	)		(21,071,344	)		(549,061	)		(10,194,163	)
Net increase (decrease)		595,766		$	12,126,720			1,444,312		$	26,968,281

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Franklin Advisers, Inc. (Advisers)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
0.625%	Up to and including $100 million
0.500%	Over $100 million, up to and including $250 million
0.450%	Over $250 million, up to and including $7.5 billion
0.440%	Over $7.5 billion, up to and including $10 billion

TGB-38

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees (continued)

Annualized Fee Rate	Net Assets
0.430%	Over $10 billion, up to and including $12.5 billion
0.420%	Over $12.5 billion, up to and including $15 billion
0.400%	In excess of $15 billion

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2, Class 3, and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.25%, 0.35%, and 0.35% per year of its average daily net assets of Class 2, Class 3, and Class 4, respectively. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 3.

d. Transfer Agent Fees

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

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from:
Ordinary Income	$	130,777,554	$	25,248,824
Long term capital gain		13,181,945		4,480,058
	$	143,959,499	$	29,728,882

TGB-39

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

5. INCOME TAXES (continued)

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments	$	2,228,846,787
Unrealized appreciation	$	149,299,655
Unrealized depreciation		(126,037,405	)
Net unrealized appreciation (depreciation)	$	23,262,250
Undistributed ordinary income	$	173,648,253
Undistributed long term capital gains		4,334,661
Distributable earnings	$	177,982,914

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, bond discounts and premiums, tax straddles, and inflation related adjustments on foreign securities.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $893,596,104 and $637,958,693, respectively.

7. CREDIT RISK

At December 31, 2011, the Fund had 16.71% of its portfolio invested in high yield or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. OTHER DERIVATIVE INFORMATION

At December 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

	Asset Derivatives			Liability Derivatives
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value Amount		Statement of Assets and Liabilities Location	Fair Value Amount
Interest rate contracts	Unrealized appreciation on swap contracts	$	—	Unrealized depreciation on swap contracts	$	11,033,599
Foreign exchange contracts	Unrealized appreciation on forward exchange contracts		58,119,290	Unrealized depreciation on forward exchange contracts		44,123,134

TGB-40

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

9. OTHER DERIVATIVE INFORMATION (continued)

For the period ended December 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Locations	Realized Gain (Loss) for the Year Ended December 31, 2011			Change in Unrealized Appreciation (Depreciation) for the Year Ended December 31, 2011
Interest rate contracts	Net realized gain (loss) from futures/swap contracts/Net change in unrealized appreciation (depreciation) on investments	$	(708,080	)	$	(11,036,651	)
Foreign exchange contracts	Net realized gain (loss) from foreign currency transactions / Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies		(2,279,806	)		(7,512,599	)

For the year ended December 31, 2011, the average month end market value of derivatives represented 3.40% of average month end net assets. The average month end number of open derivative contracts for the year was 412.

See Note 1(d) regarding derivative financial instruments.

10. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

11. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

TGB-41

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

11. FAIR VALUE MEASUREMENTS (continued)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Foreign Government and Agency Securities	$	—	$	1,845,190,090	$	—	$	1,845,190,090
Municipal Bonds		—		25,375,581		—		25,375,581
Short Term Investments		—		381,543,366		—		381,543,366
Total Investments in Securities	$	—	$	2,252,109,037	$	—	$	2,252,109,037
Forward Exchange Contracts		—		58,119,290		—		58,119,290
Liabilities:
Swaps		—		11,033,599		—		11,033,599
Forward Exchange Contracts		—		44,123,134		—		44,123,134

12. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

13. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

TGB-42

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Global Bond Securities Fund

ABBREVIATIONS
Counterparty	Currency	Selected Portfolio
BZWS - Barclays Bank PLC	AUD - Australian Dollar	BHAC - Berkshire Hathaway Assurance Corp.
CITI - Citigroup, Inc.	BRL - Brazilian Real	FRN - Floating Rate Note
DBAB - Deutsche Bank AG	EGP - Egyptian Pound	GO - General Obligation
FBCO - Credit Suisse Group AG	EUR - Euro
HSBC - HSBC Bank USA, N.A.	GBP - British Pound
JPHQ - JP Morgan Chase & Co.	HUF - Hungarian Forint
MSCO - Morgan Stanley	IDR - Indonesian Rupiah
UBSW - UBS AG	ILS - New Israeli Shekel
	JPY - Japanese Yen
	KRW - South Korean Won
	LKR - Sri Lankan Rupee
	MXN - Mexican Peso
	MYR - Malaysian Ringgit
	NOK - Norwegian Krone
	PEN - Peruvian Nuevo Sol
	PHP - Philippine Peso
	PLN - Polish Zloty
	SEK - Swedish Krona
	SGD - Singapore Dollar

TGB-43

Franklin Templeton Variable Insurance Products Trust

Templeton Global Bond Securities Fund

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Templeton Global Bond Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

TGB-44

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Templeton Global Bond Securities Fund

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $13,181,945 as a long term capital gain dividend for the fiscal year ended December 31, 2011.

At December 31, 2011, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. The Fund elects to treat foreign taxes paid as allowed under Section 853 of the Code. This election will allow shareholders of record as of the 2012 distribution date, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

TGB-45

TEMPLETON GROWTH SECURITIES FUND

This annual report for Templeton Growth Securities Fund covers the fiscal year ended December 31, 2011.

Performance Summary as of 12/31/11

Average annual total return of Class 1 shares represents the 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.

Periods ended 12/31/11

	1-Year		5-Year		10-Year
Average Annual Total Return		-6.80%		-4.78%		+2.76%

Total Return Index Comparison for a Hypothetical $10,000 Investment (1/1/02–12/31/11)

The graph below shows the change in value of a hypothetical $10,000 investment in the Fund over the indicated period and includes reinvestment of any income or distributions. The Fund’s performance is compared to the performance of the MSCI World Index. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Important Notes to Performance Information preceding the Fund Summaries.

*Source: © 2012 Morningstar. Please see Index Descriptions following the Fund Summaries.

Templeton 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.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares.

Current performance may differ from figures shown.

TG-1

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

Performance Overview

You can find the Fund’s one-year total return in the Performance Summary. The Fund underperformed the -5.02% total return of the MSCI World Index for the period under review.¹

Economic and Market Overview

Global stocks declined in 2011 as deepening sovereign debt, political paralysis and economic growth concerns led to escalating investor anxiety and severe market volatility. Stocks entered the year supported by positive momentum in corporate earnings and renewed economic stimulus measures in the developed world. However, a number of events interrupted the market’s rise early in 2011, including a severe natural disaster and nuclear crisis in Japan and populist uprisings across the oil-and-gas-producing regions of the Middle East and North Africa. Global markets recovered quickly from these setbacks but soon faced more significant turmoil as Europe’s sovereign debt crisis worsened in the summer. Portugal, Greece and Ireland received bailouts and had their credit ratings slashed to junk grade, while rising bond yields in the larger economies of Italy and Spain, and eventually in the critical core economies of Germany and France, threatened the survival of the European Monetary Union. The U.S.’s sovereign debt issues and political dysfunction, accompanied by the downgrade of its AAA credit rating to AA+, further pressured investor sentiment during the summer months. Additionally, the precarious state of the global banking system as well as emerging signs of a renewed global economic slowdown and possible hard landing in China weighed on the markets.

Despite these global challenges, corporate profits remained remarkably resilient, some signs of U.S. economic improvement emerged toward year-end, and European policymakers ultimately stepped up their response to their sovereign debt and banking crisis. Greek and Italian prime ministers were replaced with technocrats tasked with arresting a debt spiral, the European Central Bank cut short-term interest rates and expanded bank lending facilities, and six key global central banks agreed

1. Source: © 2012 Morningstar. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Please see Index Descriptions following the Fund Summaries.

Fund Risks: All investments involve risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign investing, especially in emerging or developing markets, involves additional risks, including currency fluctuations, economic instability, market volatility, and political and social instability. The Fund may have significant investments in one or more countries or in particular sectors, such as financial services, from time to time and may be at greater risk of adverse developments in a country or sector than a fund that invests more broadly. Because the Fund may invest in bonds and other debt obligations, its share price and yield may be affected by interest rate movements. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

TG-2

to lower dollar funding costs for Europe’s distressed commercial banks. Meanwhile, the Federal Reserve Board increased purchases of long-dated bonds to reduce key borrowing costs and hinted at “additional policy accommodation.” Chinese policymakers lowered commercial bank reserve requirements and the International Monetary Fund revamped its credit line and eased its lending terms. Commodities initially rallied due to the coordinated monetary stimulus, but most ultimately declined as global economic prospects weakened. Gold and oil, however, made annual gains. In currency markets, the euro declined with escalating weakness at year-end, while the dollar ultimately rose after a late surge. Amid general global market declines, perceived safe-haven currencies such as the Japanese yen and Swiss franc rallied strongly, and U.S. Treasuries posted their best one-year return since 2008.

Investment Strategy

Our investment philosophy is bottom up, value oriented and long term. In choosing investments, we will focus on the market price of a company’s securities relative to our evaluation of the company’s potential long-term earnings, asset value and cash flow. Among factors we may consider are a company’s historical value measures, including price/earnings ratio, profit margins and liquidation value. We do in-depth research to construct a bargain list from which we buy.

Manager’s Discussion

Global stocks, as measured by the MSCI World Index, declined in 2011 amid sensitivity to the changing global economic outlook. In our opinion, investors overlooked business fundamental prospects during the period as they focused on short-term economic or political developments. Although equity markets began 2011 with positive momentum after stocks staged a strong rally in the last six months of 2010, growing concerns about economic growth rates and sovereign debt led to heightened volatility. Traditionally defensive sectors and regions ultimately led market returns in 2011.

For the Fund, allocations and stock selection among defensive and cyclical sectors delivered some of the best returns. Among defensive sectors, health care holdings outperformed the MSCI World Index in absolute terms.² Our health care positions also aided relative returns, benefiting from an overweighted Fund allocation as well as stock-specific

2. The health care sector comprises biotechnology, health care equipment and supplies, health care providers and services, life sciences tools and services, and pharmaceuticals in the SOI.

TG-3

strength. Two major pharmaceuticals manufacturers, the U.S.’s Pfizer and the U.K.’s GlaxoSmithKline, along with U.S. biotechnology firm Amgen, represented top sector contributors. Although we believe the global health care sector’s strength was partly attributable to the market’s defensive rotation, we believe pharmaceuticals industry valuations at roughly half their long-term average present the opportunity for future outperformance given the industry’s strong fundamentals and long-term earnings potential we believe has been overlooked.

Among cyclical sectors, the Fund’s materials holdings helped relative results, benefiting from our underweighted exposure during a period of commodity price weakness and from stock selection within the sector.³ Our underweighting of what we viewed as expensive metals and mining stocks and our selective participation in the undervalued construction materials industry notably contributed to performance. With overall metals prices barely off their 100-year highs in 2011, we found what we considered to be more attractive value opportunities elsewhere. Energy stocks, for example, seemed to offer compelling cyclically leveraged opportunities given valuations that we believed understated future earnings potential for select firms capable of extracting increasingly valuable carbon reserves.⁴ The Fund’s energy holdings were key contributors in 2011, led by European oil companies from outside the eurozone, including the U.K.’s Royal Dutch Shell and Norway’s Statoil. Shell is consolidating its operational and financial turnaround with production volume growth above consensus expectations and consistent earnings, and we remained favorable toward the stock at recent, low valuations.

The relative contribution of the Fund’s consumer discretionary positions demonstrated, in our opinion, how value-oriented stock selection can add value.⁵ Strong corporate fundamentals helped the Fund’s holdings in the diverse consumer discretionary sector, led by South Korean auto manufacturer Hyundai Motor⁶ and U.S.-based media conglomerate News Corp., which ultimately posted strong annual gains despite considerable controversy and volatility in 2011.

Industrials represent another sector where we believe investors overlooked certain company management’s prudent capital allocation

3. The materials sector comprises chemicals, construction materials, metals and mining, and paper and forest products in the SOI.

4. The energy sector comprises energy equipment and services; and oil, gas and consumable fuels in the SOI.

5. The consumer discretionary sector comprises auto components; automobiles; hotels, restaurants and leisure; Internet and catalog retail; media; multiline retail; and specialty retail in the SOI.

6. This holding is not an index component and was sold during the period.

Top 10 Holdings

Templeton Growth Securities Fund

12/31/11

Company Sector/Industry, Country	% of Total Net Assets
Amgen Inc.		2.5%
Biotechnology, U.S.
Pfizer Inc.		2.4%
Pharmaceuticals, U.S.
Microsoft Corp.		2.3%
Software, U.S.
Samsung Electronics Co. Ltd.		2.3%
Semiconductors & Semiconductor Equipment, South Korea
Sanofi		2.2%
Pharmaceuticals, France
GlaxoSmithKline PLC		2.2%
Pharmaceuticals, U.K.
Royal Dutch Shell PLC		2.1%
Oil, Gas & Consumable Fuels, U.K.
Vodafone Group PLC		2.0%
Wireless Telecommunication Services, U.K.
Singapore Telecommunications Ltd.		2.0%
Diversified Telecommunication Services, Singapore
Comcast Corp.		1.8%
Media, U.S.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

TG-4

strategies within an attractive global opportunity set.⁷ The Fund’s industrials stock selection detracted from performance as we believe investors treated industrial concerns as economic proxies, indiscriminately selling as global growth prospects dimmed. Early cyclical professional services firms such as Switzerland’s Adecco and the Netherlands’ Randstad Holding were easy targets for increasingly pessimistic investors, as were cyclical airline stocks such as International Consolidated Airlines Group, the parent of British Airways and Spain’s Iberia. Share price declines even affected Fund holdings we believed would be more resilient amid cyclicality, such as global industrial conglomerates including Germany’s Siemens and the Netherlands’ Koninklijke Philips Electronics. We remained favorable toward these stocks given their low valuations and leading market positions across a diverse range of product lines and geographies.

Among cyclical sectors, our financials stock selection was another significant detractor, with weakness from European financial concerns such as Italy’s Unicredit and France’s Credit Agricole.⁸ While we remained cautiously underweighted given the sector’s lack of political and regulatory visibility, we believe contrarian investors can find selective financials opportunities in this environment. Europe’s average bank price-to-book multiple stood at 0.6 times at year-end compared to an average of 1.5 times over the last decade.⁹ This valuation seems overly negative, even acknowledging that the higher capital requirements mandated under accelerated Basel III regulatory provisions may restrain future industry returns. U.S. banks traded at undemanding valuations despite having repaid nearly all federal bailout funds and having what we believe to be dramatically improved capital ratios, credit losses, liquidity, loan-to-value ratios and earnings. Although Asian bank valuations traded at somewhat higher valuations, many Asian bank stocks looked reasonable to us given the region’s higher returns on equity, stronger balance sheets and secular earnings drivers. In our assessment, select opportunities also emerged for investment banks, asset managers and insurers whose valuations we believe overstated the long-term risks of systemic volatility and muted economic growth.

7. The industrials sector comprises aerospace and defense, air freight and logistics, airlines, commercial services and supplies, construction and engineering, electrical equipment, industrial conglomerates, machinery, professional services, road and rail, and trading companies and distributors in the SOI.

8. The financials sector comprises capital markets, commercial banks, consumer finance, diversified financial services, insurance, and real estate management and development in the SOI.

9. Source: MSCI, Inc.

TG-5

We found less long-term potential in the consumer staples sector, where a 30% premium valuation to the broader market seemed unjustified given the potential margin impact of growing competitive pressures and volatile input prices.^9,10 Our resulting underweighting detracted from relative performance during the year because in our view, risk-averse investors flocked to staples stocks for their perceived defensive characteristics. We found compelling opportunities in telecommunication services, where robust dividend yields and diverse global growth opportunities were available at what we believed were low valuations.¹¹ Although the Fund’s overweighted position contributed to performance, Fund holding U.S. wireless carrier Sprint Nextel declined mainly due to growing liquidity concerns. We believed Sprint’s cash flow issues were largely a function of better-than-expected growth, and though increased capital expenditures may constrain the firm’s liquidity in the near-term, we believe they represent a critical investment in the firm’s long-term competitive prospects.

From a regional perspective, stock selection in Asia benefited relative performance. Although a steady stream of negative news flowed out of developed Europe, global emerging markets represented the worst-performing group in 2011 as investor capital retreated to traditionally safe-haven markets. This trend supported bellwether U.S. stocks, although the Fund’s underweighting in North America offset much of the stock selection benefit. Value-added stock selection in Europe did not offset our detractive overweighting in the troubled region during the year, and European stocks ultimately lagged.

It is important to recognize the effect of currency movements on the Fund’s performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the 12 months ended December 31, 2011, the U.S. dollar rose in value relative to most currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s substantial investment in securities with non-U.S. currency exposure.

10. The consumer staples sector comprises food and staples retailing and food products in the SOI.

11. The telecommunication services sector comprises diversified telecommunication services and wireless telecommunication services in the SOI.

TG-6

At year-end, we believe increasing fiscal consolidation and regulation in the developed world and a potential slowdown in emerging markets following the withdrawal of immense stimulus may increase the likelihood of a period of below trend economic growth. The importance of strong business fundamentals may again rise to the forefront, benefiting a value philosophy that has been challenging in macro-driven markets but performed well over longer term horizons. Volatility can continue to create compelling equity opportunities for disciplined, long-term value investors. We believe investors should also focus on total return as company managers seek to enhance shareholder value in an uncertain environment, keeping in mind that dividend income has accounted for 71% of total returns for the MSCI World Index since 1970.⁹ International equities looked attractive to us with an average earnings yield of over 8% and dividend yield of 3.5%, compared to 10-year Treasuries, German bunds and Japanese government bonds, which were each yielding at or below 2.0% at year-end.¹² We remember the words of Sir John Templeton, who advised, “Whenever you can buy a large amount of future earnings power for a low price, you have made a good investment.”

Thank you for your participation in Templeton Growth Securities Fund. We look forward to serving your future investment needs.

12. Sources: Bloomberg LP (U.S. Treasury and Japanese government bonds); Deutsche Bundesbank (German bunds).

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as 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 investment manager 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.

TG-7

Fund Expenses

As an investor in a variable insurance contract (Contract) that indirectly provides for investment in an underlying mutual fund, you can incur transaction and/or ongoing expenses at both the Fund level and the Contract level.

• Transaction expenses can include sales charges (loads) on purchases, redemption fees, surrender fees, transfer fees and premium taxes.

• Ongoing expenses can include management fees, distribution and service (12b-1) fees, contract fees, annual maintenance fees, mortality and expense risk fees and other fees and expenses. All mutual funds and Contracts have some types of ongoing expenses.

The expenses shown in the table are meant to highlight ongoing expenses at the Fund level only and do not include ongoing expenses at the Contract level, or transaction expenses at either the Fund or Contract level. While the Fund does not have transaction expenses, if the transaction and ongoing expenses at the Contract level were included, the expenses shown below would be higher. You should consult your Contract prospectus or disclosure document for more information.

The table shows Fund-level ongoing expenses and can help you understand these expenses and compare them with those of other mutual funds offered through the Contract. The table assumes a $1,000 investment held for the six months indicated. Please refer to the Fund prospectus for additional information on operating expenses.

Actual Fund Expenses

The first line (Actual) of the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of ongoing Fund expenses, but does not include the effect of ongoing Contract expenses.

You can estimate the Fund-level expenses you incurred during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Fund-Level Expenses Incurred During Period.”

If Fund-Level Expenses Incurred During Period were $7.50, then

8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses incurred this period at the Fund level are $64.50.

Templeton Growth Securities Fund – Class 1

TG-8

Hypothetical Example for Comparison with Other Mutual Funds

Information in the second line (Hypothetical) of the table can help you compare ongoing expenses of the Fund with those of other mutual funds offered through the Contract. This information may not be used to estimate the actual ending account balance or expenses you incurred during the period. The hypothetical “Ending Account Value” is based on the Fund’s actual expense ratio and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Fund-Level Expenses Incurred During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds offered through a Contract.

Class 1	Beginning Account Value 7/1/11		Ending Account Value 12/31/11		Fund-Level Expenses Incurred During Period* 7/1/11–12/31/11
Actual	$	1,000	$	858.00	$	3.65
Hypothetical (5% return before expenses)	$	1,000	$	1,021.27	$	3.97

*Expenses are calculated using the most recent six-month annualized expense ratio for the Fund’s Class 1 shares (0.78%), which does not include any ongoing expenses of the Contract for which the Fund is an investment option, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

TG-9

Franklin Templeton Variable Insurance Products Trust

Financial Highlights

Templeton Growth Securities Fund

	Year Ended December 31,
Class 1	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.19		$	10.56		$	8.34		$	15.68		$	16.16
Income from investment operationsa:
Net investment incomeb		0.25			0.17			0.17			0.29			0.27
Net realized and unrealized gains (losses)		(0.99	)		0.62			2.36			(6.50	)		0.19
Total from investment operations		(0.74	)		0.79			2.53			(6.21	)		0.46
Less distributions from:
Net investment income		(0.18	)		(0.16	)		(0.31	)		(0.26	)		(0.25	)
Net realized gains		—			—			—			(0.87	)		(0.69	)
Total distributions		(0.18	)		(0.16	)		(0.31	)		(1.13	)		(0.94	)
Net asset value, end of year	$	10.27		$	11.19		$	10.56		$	8.34		$	15.68
Total returnc		(6.80)%			7.74%			31.33%			(42.13)%			2.55%
Ratios to average net assets
Expenses before expense reduction		0.78%			0.77%			0.79%			0.78%			0.77%
Expenses net of expense reduction		0.78%	d		0.77%	d		0.79%	d		0.78%	d		0.76%
Net investment income		2.22%			1.71%			2.00%			2.64%			1.64%
Supplemental data
Net assets, end of year (000’s)	$	1,200,682		$	1,348,622		$	824,575		$	371,700		$	406,538
Portfolio turnover rate		42.13%	e		9.61%			14.95%			18.37%			20.45%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

^eExcludes the value of portfolio securities delivered as a result of a redemption in-kind.

The accompanying notes are an integral part of these financial statements.

TG-10

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Growth Securities Fund

	Year Ended December 31,
Class 2	2011			2010			2009			2008			2007
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.01		$	10.40		$	8.20		$	15.44		$	15.93
Income from investment operationsa:
Net investment incomeb		0.21			0.15			0.16			0.29			0.22
Net realized and unrealized gains (losses)		(0.96	)		0.60			2.32			(6.44	)		0.20
Total from investment operations		(0.75	)		0.75			2.48			(6.15	)		0.42
Less distributions from:
Net investment income		(0.15	)		(0.14	)		(0.28	)		(0.22	)		(0.22	)
Net realized gains		—			—			—			(0.87	)		(0.69	)
Total distributions		(0.15	)		(0.14	)		(0.28	)		(1.09	)		(0.91	)
Net asset value, end of year	$	10.11		$	11.01		$	10.40		$	8.20		$	15.44
Total returnc		(6.97)%			7.39%			31.10%			(42.32)%			2.35%
Ratios to average net assets
Expenses before expense reduction		1.03%			1.02%			1.04%			1.03%			1.02%
Expenses net of expense reduction		1.03%	d		1.02%	d		1.04%	d		1.03%	d		1.01%
Net investment income		1.97%			1.46%			1.75%			2.39%			1.39%
Supplemental data
Net assets, end of year (000’s)	$	1,254,193		$	1,626,885		$	1,718,894		$	1,513,557		$	3,182,203
Portfolio turnover rate		42.13%	e		9.61%			14.95%			18.37%			20.45%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^bBased on average daily shares outstanding.

^cTotal return does not include 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.

^dBenefit of expense reduction rounds to less than 0.01%.

^eExcludes the value of portfolio securities delivered as a result of a redemption in-kind.

The accompanying notes are an integral part of these financial statements.

TG-11

Franklin Templeton Variable Insurance Products Trust

Financial Highlights (continued)

Templeton Growth Securities Fund

	Year Ended December 31,
Class 4	2011			2010			2009			2008a
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	11.11		$	10.50		$	8.31		$	14.08
Income from investment operationsb:
Net investment incomec		0.20			0.14			0.14			0.09
Net realized and unrealized gains (losses)		(0.98	)		0.61			2.36			(4.73	)
Total from investment operations		(0.78	)		0.75			2.50			(4.64	)
Less distributions from:
Net investment incomee		(0.14	)		(0.14	)		(0.31	)		(0.26	)
Net realized gains		—			—			—			(0.87	)
Total distributions		(0.14	)		(0.14	)		(0.31	)		(1.13	)
Net asset value, end of year	$	10.19		$	11.11		$	10.50		$	8.31
Total returnd		(7.14)%			7.31%			30.98%			(35.79)%
Ratios to average net assetse
Expensesf		1.13%			1.12%			1.14%			1.13%
Net investment income		1.87%			1.36%			1.65%			2.29%
Supplemental data
Net assets, end of year (000’s)	$	56,170		$	60,569		$	56,218		$	24,877
Portfolio turnover rate		42.13%	g		9.61%			14.95%			18.37%

^aFor the period February 29, 2008 (effective date) to December 31, 2008.

^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

^cBased on average daily shares outstanding.

^dTotal return does not include 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.

^eRatios are annualized for periods less than one year.

^fBenefit of expense reduction rounds to less than 0.01%.

^gExcludes the value of portfolio securities delivered as a result of a redemption in-kind.

The accompanying notes are an integral part of these financial statements.

TG-12

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011

Templeton Growth Securities Fund	Country	Shares		Value
Common Stocks 94.7%
Aerospace & Defense 0.4%
BAE Systems PLC	United Kingdom		2,385,309	$	10,551,787
Air Freight & Logistics 2.1%
Deutsche Post AG	Germany		798,754		12,343,898
FedEx Corp.	United States		197,560		16,498,236
United Parcel Service Inc., B	United States		339,990		24,883,868
					53,726,002
Airlines 2.0%
Deutsche Lufthansa AG	Germany		2,101,944		24,892,997
aInternational Consolidated Airlines Group SA	United Kingdom		11,509,160		26,403,741
					51,296,738
Auto Components 0.6%
Compagnie Generale des Etablissements Michelin, B	France		259,222		15,324,467
Automobiles 2.3%
aMazda Motor Corp.	Japan		8,460,370		14,949,786
Nissan Motor Co. Ltd.	Japan		1,718,430		15,450,576
Toyota Motor Corp.	Japan		785,840		26,189,562
					56,589,924
Biotechnology 2.5%
Amgen Inc.	United States		963,620		61,874,040
Capital Markets 2.8%
Credit Suisse Group AG	Switzerland		817,506		19,227,748
Morgan Stanley	United States		1,414,280		21,398,057
Nomura Holdings Inc.	Japan		3,221,100		9,751,397
aUBS AG	Switzerland		1,632,469		19,450,102
					69,827,304
Chemicals 1.0%
Akzo Nobel NV	Netherlands		496,137		23,990,729
Commercial Banks 5.3%
BNP Paribas SA	France		315,040		12,375,403
Credit Agricole SA	France		2,566,880		14,485,284
aDanske Bank AS	Denmark		152,716		1,939,897
DBS Group Holdings Ltd.	Singapore		1,338,690		11,889,375
HSBC Holdings PLC	United Kingdom		2,748,024		20,875,726
ICICI Bank Ltd., ADR	India		416,350		11,004,130
Intesa Sanpaolo SpA	Italy		16,216,401		27,159,621
KB Financial Group Inc.	South Korea		594,254		18,608,083
UniCredit SpA	Italy		1,813,084		15,065,648
					133,403,167
Commercial Services & Supplies 0.2%
aRentokil Initial PLC	United Kingdom		5,180,715		5,055,493
Communications Equipment 3.1%
aBrocade Communications Systems Inc.	United States		2,621,030		13,603,146
Cisco Systems Inc.	United States		2,119,990		38,329,419
Telefonaktiebolaget LM Ericsson, B	Sweden		2,458,661		25,155,649
					77,088,214

TG-13

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Growth Securities Fund	Country	Shares		Value
Common Stocks (continued)
Computers & Peripherals 1.5%
aDell Inc.	United States		779,240	$	11,400,281
Seagate Technology	United States		1,626,148		26,668,827
					38,069,108
Construction & Engineering 0.1%
Carillion PLC	United Kingdom		727,680		3,409,456
Construction Materials 1.5%
CRH PLC	Ireland		1,833,961		36,459,967
Consumer Finance 0.8%
American Express Co.	United States		435,650		20,549,611
Diversified Financial Services 2.7%
Bank of America Corp.	United States		1,119,120		6,222,307
Citigroup Inc.	United States		771,230		20,291,061
aING Groep NV	Netherlands		3,990,689		28,718,227
JPMorgan Chase & Co.	United States		358,850		11,931,763
					67,163,358
Diversified Telecommunication Services 5.3%
France Telecom SA	France		1,949,580		30,620,748
Singapore Telecommunications Ltd.	Singapore		20,628,160		49,141,172
Telefonica SA	Spain		1,292,628		22,393,753
Telekom Austria AG	Austria		512,129		6,123,395
Vivendi SA	France		1,137,882		24,919,111
					133,198,179
Electrical Equipment 1.0%
Alstom SA	France		847,234		25,692,752
Electronic Equipment, Instruments & Components 1.0%
aFlextronics International Ltd.	Singapore		1,972,800		11,166,048
TE Connectivity Ltd.	United States		415,598		12,804,574
					23,970,622
Energy Equipment & Services 2.5%
Baker Hughes Inc.	United States		429,070		20,869,965
Halliburton Co.	United States		314,450		10,851,670
Noble Corp.	United States		640,470		19,355,003
SBM Offshore NV	Netherlands		544,135		11,212,041
					62,288,679
Food & Staples Retailing 2.4%
CVS Caremark Corp.	United States		716,870		29,233,958
Tesco PLC	United Kingdom		4,978,078		31,201,357
					60,435,315
Health Care Equipment & Supplies 1.1%
Medtronic Inc.	United States		714,240		27,319,680
Industrial Conglomerates 3.3%
Citic Pacific Ltd.	China		7,000		12,618
General Electric Co.	United States		1,336,230		23,931,880
Koninklijke Philips Electronics NV	Netherlands		1,428,011		30,089,911
Siemens AG	Germany		289,596		27,674,763
					81,709,172

TG-14

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Growth Securities Fund	Country	Shares		Value
Common Stocks (continued)
Insurance 5.2%
AIA Group Ltd.	Hong Kong		3,332,200	$	10,404,276
Aviva PLC	United Kingdom		5,708,745		26,645,658
AXA SA	France		1,770,080		23,013,241
Muenchener Rueckversicherungs-Gesellschaft AG	Germany		191,967		23,503,099
RenaissanceRe Holdings Ltd.	United States		274,670		20,427,208
aSwiss Re Ltd.	Switzerland		541,112		27,604,872
					131,598,354
Life Sciences Tools & Services 0.5%
Lonza Group AG	Switzerland		191,947		11,352,969
Machinery 0.4%
aNavistar International Corp.	United States		258,030		9,774,176
Media 6.1%
Comcast Corp., Special A	United States		1,952,832		46,008,722
News Corp., A	United States		1,880,832		33,554,043
Time Warner Cable Inc.	United States		348,940		22,182,116
Time Warner Inc.	United States		604,180		21,835,065
Viacom Inc., B	United States		235,808		10,708,041
The Walt Disney Co.	United States		528,110		19,804,125
					154,092,112
Multiline Retail 0.6%
Target Corp.	United States		304,580		15,600,588
Oil, Gas & Consumable Fuels 10.0%
BP PLC	United Kingdom		6,212,477		44,402,310
Chevron Corp.	United States		280,000		29,792,000
Eni SpA	Italy		1,115,195		23,108,784
Gazprom, ADR	Russia		2,053,300		21,931,297
Royal Dutch Shell PLC, B	United Kingdom		1,361,951		51,907,861
Statoil ASA	Norway		756,852		19,425,444
Talisman Energy Inc.	Canada		1,092,260		13,911,137
bTotal SA, B	France		888,216		45,409,910
					249,888,743
Pharmaceuticals 10.8%
GlaxoSmithKline PLC	United Kingdom		2,369,672		54,152,193
Merck & Co. Inc.	United States		1,102,571		41,566,927
Merck KGaA	Germany		186,167		18,579,390
Pfizer Inc.	United States		2,770,073		59,944,380
Roche Holding AG	Switzerland		248,138		42,098,971
Sanofi	France		757,937		55,671,629
					272,013,490
Professional Services 1.3%
Adecco SA	Switzerland		140,580		5,895,266
Hays PLC	United Kingdom		3,623		3,620
Randstad Holding NV	Netherlands		909,891		26,921,580
					32,820,466
Real Estate Management & Development 0.4%
Cheung Kong (Holdings) Ltd.	Hong Kong		933,303		11,121,622

TG-15

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Growth Securities Fund	Country		Shares		Value
Common Stocks (continued)
Semiconductors & Semiconductor Equipment 3.2%
Samsung Electronics Co. Ltd.		South Korea		62,450	$	56,995,557
Taiwan Semiconductor Manufacturing Co. Ltd.		Taiwan		9,628,585		24,099,282
						81,094,839
Software 5.3%
Microsoft Corp.		United States		2,230,739		57,909,984
Nintendo Co. Ltd.		Japan		157,640		21,710,960
Oracle Corp.		United States		790,290		20,270,938
SAP AG		Germany		637,693		33,773,979
						133,665,861
Specialty Retail 0.8%
Kingfisher PLC		United Kingdom		5,183,728		20,181,398
Trading Companies & Distributors 0.7%
Itochu Corp.		Japan		1,707,480		17,348,787
Wireless Telecommunication Services 3.9%
China Mobile Ltd.		China		811,850		7,933,898
aSprint Nextel Corp.		United States		8,776,630		20,537,314
aTurkcell Iletisim Hizmetleri AS, ADR		Turkey		1,655,120		19,464,211
Vodafone Group PLC		United Kingdom		18,096,428		50,299,759
						98,235,182
Total Common Stocks (Cost $2,625,810,541)						2,377,782,351
Preferred Stocks 0.7%
Metals & Mining 0.5%
Vale SA, ADR, pfd., A		Brazil		592,750		12,210,650
Oil, Gas & Consumable Fuels 0.2%
Petroleo Brasileiro SA, ADR, pfd.		Brazil		274,380		6,445,186
Total Preferred Stocks (Cost $18,810,970)						18,655,836
Non-Registered Mutual Funds (Cost $11,935,000) 0.5%
Diversified Financial Services 0.5%
a,c,d,eTempleton China Opportunities Fund, Ltd., Reg D		China		1,194,518		12,184,081
Total Investments before Short Term Investments (Cost $2,656,556,511)						2,408,622,268
			Principal Amount
Short Term Investments 4.0%
Time Deposits (Cost $101,000,000) 4.0%
Royal Bank of Canada, 0.01%, 1/03/12		United States	$	101,000,000		101,000,000

TG-16

Franklin Templeton Variable Insurance Products Trust

Statement of Investments, December 31, 2011 (continued)

Templeton Growth Securities Fund	Country		Shares		Value
Short Term Investments (continued)
fInvestments from Cash Collateral Received for Loaned Securities (Cost $13,526) 0.0%†
Money Market Funds 0.0%†
gBNY Mellon Overnight Government Fund, 0.039%		United States		13,526	$	13,526
Total Short Term Investments (Cost $101,013,526)						101,013,526
Total Investments (Cost $2,757,570,037) 99.9%						2,509,635,794
Other Assets, less Liabilities 0.1%						1,409,325
Net Assets 100.0%					$	2,511,045,119

See Abbreviations on page TG-30.

†Rounds to less than 0.1% of net assets.

^aNon-income producing.

^bA portion or all of the security is on loan at December 31, 2011. See Note 1(d).

^cSee Note 1(c) regarding investment in Templeton China Opportunities Fund, Ltd.

^dSee Note 8 regarding restricted securities.

^eSee Note 9 regarding holdings of 5% voting securities.

^fSee Note 1(d) regarding securities on loan.

^gThe rate shown is the annualized seven-day yield at period end.

The accompanying notes are an integral part of these financial statements.

TG-17

Franklin Templeton Variable Insurance Products Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2011

	Templeton Growth Securities Fund
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	2,745,635,037
Cost - Non-controlled affiliated issuers (Note 9)		11,935,000
Total cost of investments	$	2,757,570,037
Value - Unaffiliated issuers	$	2,497,451,713
Value - Non-controlled affiliated issuers (Note 9)		12,184,081
Total value of investments (includes securities loaned in the amount $12,876)		2,509,635,794
Cash		235,467
Receivables:
Investment securities sold		92,536
Capital shares sold		94,897
Dividends and interest		6,369,095
Other assets		81
Total assets		2,516,427,870
Liabilities:
Payables:
Investment securities purchased		1,951,199
Capital shares redeemed		684,386
Affiliates		2,110,694
Reports to shareholders		513,435
Payable upon return of securities loaned		13,526
Accrued expenses and other liabilities		109,511
Total liabilities		5,382,751
Net assets, at value	$	2,511,045,119
Net assets consist of:
Paid-in capital	$	3,053,263,375
Undistributed net investment income		58,485,038
Net unrealized appreciation (depreciation)		(248,007,804	)
Accumulated net realized gain (loss)		(352,695,490	)
Net assets, at value	$	2,511,045,119

The accompanying notes are an integral part of these financial statements.

TG-18

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Assets and Liabilities (continued)

December 31, 2011

	Templeton Growth Securities Fund
Class 1:
Net assets, at value	$	1,200,681,988
Shares outstanding		116,957,241
Net asset value and maximum offering price per share	$	10.27
Class 2:
Net assets, at value	$	1,254,193,485
Shares outstanding		124,090,975
Net asset value and maximum offering price per share	$	10.11
Class 4:
Net assets, at value	$	56,169,646
Shares outstanding		5,511,306
Net asset value and maximum offering price per share	$	10.19

The accompanying notes are an integral part of these financial statements.

TG-19

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statement of Operations

for the year ended December 31, 2011

	Templeton Growth Securities Fund
Investment income:
Dividends (net of foreign taxes $6,082,203)	$	84,464,694
Interest		70,448
Income from securities loaned		2,830,011
Total investment income		87,365,153
Expenses:
Management fees (Note 3a)		21,549,019
Distribution fees: (Note 3c)
Class 2		3,675,317
Class 4		209,937
Unaffiliated transfer agent fees		3,678
Custodian fees (Note 4)		350,210
Reports to shareholders		529,624
Professional fees		141,797
Trustees’ fees and expenses		11,242
Other		69,492
Total expenses		26,540,316
Expense reductions (Note 4)		(75	)
Net expenses		26,540,241
Net investment income		60,824,912
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (includes gains from a redemption in-kind of $9,941,638) (Note 11)		119,014,189
Foreign currency transactions		349,359
Net realized gain (loss)		119,363,548
Net change in unrealized appreciation (depreciation) on:
Investments		(404,067,405	)
Translation of other assets and liabilities denominated in foreign currencies		(340,544	)
Net change in unrealized appreciation (depreciation)		(404,407,949	)
Net realized and unrealized gain (loss)		(285,044,401	)
Net increase (decrease) in net assets resulting from operations	$	(224,219,489	)

The accompanying notes are an integral part of these financial statements.

TG-20

Franklin Templeton Variable Insurance Products Trust

Financial Statements (continued)

Statements of Changes in Net Assets

	Templeton Growth Securities Fund
	Year Ended December 31,
	2011			2010
Increase (decrease) in net assets:
Operations:
Net investment income	$	60,824,912		$	41,851,542
Net realized gain (loss) from investments and foreign currency transactions		119,363,548			(42,734,201	)
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies		(404,407,949	)		206,309,126
Net increase (decrease) in net assets resulting from operations		(224,219,489	)		205,426,467
Distributions to shareholders from:
Net investment income:
Class 1		(23,962,804	)		(15,588,191	)
Class 2		(19,367,342	)		(21,721,910	)
Class 4		(766,075	)		(762,562	)
Total distributions to shareholders		(44,096,221	)		(38,072,663	)
Capital share transactions: (Note 2)
Class 1		15,269,781			446,712,026
Class 2		(272,568,653	)		(178,452,057	)
Class 4		582,974			774,782
Total capital share transactions		(256,715,898	)		269,034,751
Net increase (decrease) in net assets		(525,031,608	)		436,388,555
Net assets:
Beginning of year		3,036,076,727			2,599,688,172
End of year	$	2,511,045,119		$	3,036,076,727
Undistributed net investment income included in net assets:
End of year	$	58,485,038		$	41,408,000

The accompanying notes are an integral part of these financial statements.

TG-21

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements

Templeton Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Variable Insurance Products Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of twenty separate funds. The Templeton Growth Securities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. Shares of the Fund are generally sold only to insurance company separate accounts to fund the benefits of variable life insurance policies or variable annuity contracts. The Fund offers three classes of shares: Class 1, Class 2, and Class 4. Each class of shares differs by its distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Investments in non-registered money market funds are valued at the closing net asset value. Time deposits are valued at cost, which approximates market value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market

TG-22

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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

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. Investment in Templeton China Opportunities Fund, Ltd.

The Fund invests in Templeton China Opportunities Fund, Ltd. (China Fund), a private offering of unregistered shares in a Cayman Islands Exempt Company. The China Fund investment objective is to seek capital growth primarily through investments in A-shares of Chinese companies listed on the Shanghai and Shenzhen stock exchanges. Chinese A-shares are traded in Chinese Renminbi and are only available as an investment to domestic (Chinese) investors and holders of a Qualified Foreign Institutional Investors license. The China Fund is managed by Templeton Investment Counsel, LLC (an affiliate of the investment manager). No additional management or administrative fees are incurred on assets invested in the China Fund.

The China Fund may be subject to certain restrictions and administrative processes relating to its ability to repatriate cash balances, investment proceeds and earnings associated with its investment, as such activities are subject to approval by agencies of the Chinese government and thus the Fund may incur delays in redeeming its investment in the China Fund. The Fund’s investment in the China Fund is valued based upon the fair value of the China Fund’s portfolio securities and other assets and liabilities.

d. Securities Lending

The Fund participates in an agency based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business

TG-23

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Securities Lending (continued)

day. The collateral is invested in a money market fund managed by the Fund’s custodian on the Fund’s behalf. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.

e. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2011, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

f. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

TG-24

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

g. 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 expenses during the reporting period. Actual results could differ from those estimates.

h. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At December 31, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2011						2010
Class 1 Shares:	Shares			Amount			Shares			Amount
Shares sold		64,351,377		$	689,220,432			56,324,674		$	579,159,138
Shares issued in reinvestment of distributions		2,081,912			23,962,804			1,592,257			15,588,191
Shares redeemed in-kind (Note 11)		(62,046	)		(778,675	)		—			—
Shares redeemed		(69,960,205	)		(697,134,780	)		(15,424,906	)		(148,035,303	)
Net increase (decrease)		(3,588,962	)	$	15,269,781			42,492,025		$	446,712,026
Class 2 Shares:
Shares sold		8,669,643		$	93,168,510			7,805,671		$	79,205,936
Shares issued in reinvestment of distributions		1,706,374			19,367,342			2,250,975			21,721,910
Shares redeemed in-kind (Note 11)		(7,322,431	)		(90,358,797	)		—			—
Shares redeemed		(26,665,336	)		(294,745,708	)		(27,579,182	)		(279,379,903	)
Net increase (decrease)		(23,611,750	)	$	(272,568,653	)		(17,522,536	)	$	(178,452,057	)
Class 4 Shares:
Shares sold		552,161		$	6,020,586			792,359		$	8,038,832
Shares issued on reinvestment of distributions		66,906			766,075			78,292			762,562
Shares redeemed		(559,011	)		(6,203,687	)		(772,020	)		(8,026,612	)
Net increase (decrease)		60,056		$	582,974			98,631		$	774,782

TG-25

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:

Subsidiary	Affiliation
Templeton Global Advisors Limited (TGAL)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

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

Annualized Fee Rate	Net Assets
1.000%	Up to and including $100 million
0.900%	over $100 million, up to and including $250 million
0.800%	over $250 million, up to and including $500 million
0.750%	over $500 million, up to and including $1 billion
0.700%	over $1 billion, up to and including $5 billion
0.675%	over $5 billion, up to and including $10 billion
0.655%	over $10 billion, up to and including $15 billion
0.635%	over $15 billion, up to and including $20 billion
0.615%	In excess of $20 billion

b. Administrative Fees

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

c. Distribution Fees

The Fund’s Board of Trustees has adopted distribution plans for Class 2 and Class 4 shares pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to 0.35% per year of its average daily net assets of each class. The Board of Trustees has agreed to limit the current rate to 0.25% per year for Class 2.

d. Transfer Agent Fees

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

f. Other Affiliated Transactions

At December 31, 2011, Franklin Templeton Variable Insurance Products Trust – Franklin Templeton VIP Founding Funds Allocation Fund owned 41.58% of the Fund’s outstanding shares.

TG-26

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At December 31, 2011, capital loss carryforwards were as follows:

Capital loss carryforwards expiring in:
2017	$	240,654,060
2018		55,299,629
	$	295,953,689

During the year ended December 31, 2011, the Fund utilized $157,539,421 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2011 and 2010, was as follows:

	2011		2010
Distributions paid from ordinary income	$	44,096,221	$	38,072,663

At December 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	2,814,562,195
Unrealized appreciation	$	229,259,904
Unrealized depreciation		(534,186,305	)
Net unrealized appreciation (depreciation)	$	(304,926,401	)
Distributable earnings – undistributed ordinary income	$	58,735,395

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2011, aggregated $1,198,508,134 and 1,284,923,812, respectively. Sales of investments excludes redemptions in-kind of $86,085,875.

TG-27

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

7. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

8. RESTRICTED SECURITIES

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.

At December 31, 2011, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

Shares		Issuer	Acquisition Dates		Cost		Value
	1,194,518	Templeton China Opportunities Fund, Ltd., Reg D (0.49% of Net Assets)		3/17/10-12/1/11	$	11,935,000	$	12,184,081

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Fund for the year ended December 31, 2011, were as shown below.

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Investment Income		Realized Capital Gain (Loss)
Non-Controlled Affiliates
Templeton China Opportunities Fund, Ltd., Reg D		1,192,192		2,326		—		1,194,518	$	12,184,081	$	—	$	—
Total Affiliated Securities (0.49% of Net Assets)

10. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matured on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 20, 2012, the Borrowers renewed the Global Credit Facility for a total of $1.5 billion, maturing January 18, 2013.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers,

TG-28

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

10. CREDIT FACILITY (continued)

including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the year ended December 31, 2011, the Fund did not use the Global Credit Facility.

11. REDEMPTION IN-KIND

During the year ended December 31, 2011, the Fund realized $9,941,638 of net gains resulting from a redemption in-kind in which a shareholder redeemed fund shares for securities held by the Fund rather than for cash. Because such gains are not taxable to the Fund, and are not distributed to remaining shareholders they will be reclassified from accumulated net realized gains to paid-in capital.

12. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of December 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities
Equity Investments:
Diversified Financial Services	$	67,163,358	$	—	$	12,184,081	$	79,347,439
Other Equity Investmentsa,b		2,329,274,829		—		—		2,329,274,829
Short Term Investments		101,000,000		13,526		—		101,013,526
Total Investments in Securities	$	2,497,438,187	$	13,526	$	12,184,081	$	2,509,635,794

^aIncludes common preferred stocks as well as other equity investments.

^bFor detailed categories, see the accompanying Statement of Investments.

TG-29

Franklin Templeton Variable Insurance Products Trust

Notes to Financial Statements (continued)

Templeton Growth Securities Fund

12. FAIR VALUE MEASUREMENTS (continued)

At December 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

	Balance at Beginning of Year		Purchases		Sales		Transfers Into (Out of) Level 3		Cost Basis Adjustmentsa		Net Realized Gain (Loss)		Net Unrealized Gain (Loss)			Balance at End of Year		Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets
Equity Investments-Diversified Financial Services	$	14,592,433	$	25,000	$	—	$	—	$	—	$	—	$	(2,433,352	)	$	12,184,081	$	(2,433,352	)

^aMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

13. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

14. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

ABBREVIATIONS

Portfolio Abbreviations

ADR - American Depositary Receipt

TG-30

Franklin Templeton Variable Insurance Products Trust

Templeton Growth Securities Fund

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

Franklin Templeton Variable Insurance Products Trust

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Templeton Growth Securities Fund (the “Fund”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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 Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 13, 2012

TG-31

Franklin Templeton Variable Insurance Products Trust

Tax Information (unaudited)

Templeton Growth Securities Fund

Under Section 854(b)(1)(A) of the Internal Revenue Code (Code), the Fund hereby reports 41.54% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2011.

At December 31, 2011, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. The Fund elects to treat foreign taxes paid as allowed under Section 853 of the Code. This election will allow shareholders of record as of the 2012 distribution date, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

TG-32

INDEX DESCRIPTIONS

The indexes are unmanaged and include reinvested distributions.

For indexes sourced by Morningstar: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Russell^® is a trademark and Russell^TM is a servicemark of the Frank Russell Company.

Barclays Capital (BC) U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) using the middle rating of Moody’s, Standard & Poor’s and Fitch, respectively.

Barclays Capital (BC) U.S. Government Index: Intermediate Component is the intermediate component of the BC U.S. Government Index, which includes public obligations of the U.S. Treasury with at least one year to final maturity and publicly issued debt of U.S. government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. government.

Citigroup World Government Bond Index is a market capitalization-weighted index consisting of investment-grade world government bond markets.

Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics, is a commonly used measure of the inflation rate.

Credit Suisse (CS) High Yield Index is designed to mirror the investable universe of the U.S. dollar-denominated high yield debt market.

Dow Jones Industrial Average is a price-weighted average of blue-chip stocks that are generally the leaders in their industry.

FTSE EPRA/NAREIT Developed Index is a free float-adjusted index designed to measure the performance of publicly traded real estate securities in the North American, European and Asian real estate markets. FTSE^® is a trademark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in and to the FTSE MPF Index series (including currency adjusted indices) are vested in FTSE. All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by FTSE for any errors or for any loss arising from use of this publication.

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

J.P. Morgan (JPM) Global Government Bond Index (GGBI) tracks total returns for liquid, fixed-rate, domestic government bonds with maturities greater than one year issued by developed countries globally.

Lipper Multi-Sector Income Funds Classification Average is calculated by averaging the total returns of all funds within the Lipper Multi-Sector Income Funds classification in the Lipper Open-End underlying funds universe. Lipper Multi-Sector Income Funds are defined as funds that seek current income by allocating assets among different fixed income securities sectors (not primarily in one sector except for defensive purposes), including U.S. and foreign governments, with a significant portion rated below investment grade. For the 12-month period ended 12/31/11, there were 192 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 Equity Income Funds Classification 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 seek relatively high current income and growth of income through investing 60% or more of their portfolios in equities. For the 12-month period ended 12/31/11, there were 61 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 Classification Average is an equally weighted average calculation of performance figures for all funds within the Lipper General U.S. Government Funds classification in the Lipper VIP underlying funds universe. Lipper General U.S. Government Funds invest primarily in U.S. government and agency issues. For the 12-month period ended 12/31/11, there were 78 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.

I-1

Lipper VIP High Current Yield Funds Classification Average is an equally weighted average calculation of performance figures for all funds within the Lipper High Current Yield Funds Classification in the Lipper VIP underlying funds universe. Lipper High Current Yield Funds aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower grade debt issues. For the 12-month period ended 12/31/11, there were 123 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.

MSCI All Country (AC) World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets.

MSCI Emerging Markets (EM) Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global emerging markets.

MSCI Europe, Australasia, Far East (EAFE) Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada.

MSCI Europe, Australasia, Far East (EAFE) Index Net Return (Local Currency) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance of global developed markets excluding the U.S. and Canada. The index is calculated in local currency and includes reinvested daily net dividends.

MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets.

Russell 1000^® Growth Index is market capitalization weighted and measures performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000^® Index is market capitalization weighted and measures performance of the largest companies in the Russell 3000^® Index, which represents the majority of the U.S. market’s total capitalization.

Russell 1000^® Value Index is market capitalization weighted and measures performance of those Russell 1000^® Index companies with lower price-to-book ratios and lower forecasted growth values.

Russell 2500™ Index is market capitalization weighted and measures performance of the smallest companies in the Russell 3000^® Index, which represent a modest amount of the Russell 3000^® Index’s total market capitalization.

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

Russell 3000^® Growth Index is market capitalization weighted and measures 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 performance of the largest U.S. companies based on total market capitalization and represents the majority of the investable U.S. equity market.

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

Russell Midcap^® Index is market capitalization weighted and measures performance of the smallest companies in the Russell 1000^® Index, which represent a modest amount of the Russell 1000^® Index’s total market capitalization.

Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance. STANDARD & POOR’S^®, S&P^® and S&P 500^® are registered trademarks of Standard & Poor’s Financial Services LLC. Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.

Standard & Poor’s Global REIT Index is designed to measure performance of the investable universe of publicly traded real estate investment trusts. Index constituents generally derive the majority of their revenue from real estate development, management, rental, and/or direct investment in physical property and with local REIT or property trust tax status.

Standard & Poor’s/International Finance Corporation Investable (S&P/IFCI) Composite Index is a free float-adjusted, market capitalization-weighted index designed to measure equity performance in global emerging markets.

I-2

Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupation during at least the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person’s successor is elected and qualified.

Independent Board Members

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Harris J. Ashton (1932) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1988	132	Bar-S Foods (meat packing company) (1981-2010).
Principal Occupation During at Least the 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).
Sam Ginn (1937) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	107	ICO Global Communications (Holdings) Limited (satellite company) (2006-2010), Chevron Corporation (global energy company) (1989-2009), Hewlett-Packard Company (technology company) (1996-2002), Safeway, Inc. (grocery retailer) (1991-1998) and TransAmerica Corporation (insurance company) (1989-1999).
Principal Occupation During at Least the Past 5 Years: Private investor; and formerly, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Group (telephone holding company) (1988-1994).
Edith E. Holiday (1952) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2005	132	Hess Corporation (exploration and refining of oil and gas), H.J. Heinz Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company).
Principal Occupation During at Least the Past 5 Years: Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
J. Michael Luttig (1954) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2009	132	Boeing Capital Corporation (aircraft financing).
Principal Occupation During at Least the Past 5 Years: Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
Frank A. Olson (1932) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2005	132	Hess Corporation (exploration and refining of oil and gas).
Principal Occupation During at Least the Past 5 Years: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and formerly, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).

BOD-1

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Larry D. Thompson (1945) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	142	Cbeyond, Inc. (business communications provider), The Southern Company (energy company) and The Washington Post Company (education and media organization).
Principal Occupation During at Least the Past 5 Years: John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2011); and formerly, Senior Vice President—Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products) (2004-May 2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).
John B. Wilson (1959) One Franklin Parkway San Mateo, CA 94403-1906	Lead Independent Trustee	Trustee since 2007 and Lead Independent Trustee since 2008	107	None
Principal Occupation During at Least the Past 5 Years: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President—Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President—Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Charles B. Johnson (1933) One Franklin Parkway San Mateo, CA 94403-1906	Trustee and Chairman of the Board	Trustee since 1988 and Chairman of the Board since 1993	132	None
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Member—Office of the Chairman and Director, Franklin Resources, 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 41 of the investment companies in Franklin Templeton Investments.
**Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 1988	50	None
Principal Occupation During at Least the Past 5 Years: Vice Chairman, Member—Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 25 of the investment companies in Franklin Templeton Investments.
James M. Davis (1952) One Franklin Parkway San Mateo, CA 94403-1906	Chief Compliance Officer and Vice President— AML Compliance	Chief Compliance Officer since 2004 and Vice President— AML Compliance since 2006	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.

BOD-2

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Laura F. Fergerson (1962) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer— Finance and Administration	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and formerly, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).
Gaston Gardey (1967) One Franklin Parkway San Mateo, CA 94403-1906	Treasurer, Chief Financial Officer and Chief Accounting Officer	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; officer of 46 of the investment companies in Franklin Templeton Investments; and formerly, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
David P. Goss (1947) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2000	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
Edward B. Jamieson (1948) One Franklin Parkway San Mateo, CA 94403-1906	President and Chief Executive Officer—Investment Management	Since 2010	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment companies in Franklin Templeton Investments.

BOD-3

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 46 of the investment companies in Franklin Templeton Investments.
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Since 2006	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 46 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and formerly, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since May 2011	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Assistant Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

  * We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be 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 investment manager and distributor.

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2007. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) 321-8563 or their insurance companies to request the SAI.

BOD-4

Franklin Templeton Variable Insurance Products Trust

Shareholder Information

Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

SI-1

VALUE BLEND GROWTH SECTOR GLOBAL INTERNATIONAL HYBRID ASSET  ALLOCATION FIXED INCOME

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Annual Report

FRANKLIN TEMPLETON

VARIABLE INSURANCE PRODUCTS TRUST

Investment Managers

Franklin Advisers, Inc.

Franklin Advisory Services, LLC

Franklin Mutual Advisers, LLC

Franklin Templeton Institutional, LLC

Templeton Asset Management, Ltd.

Templeton Global Advisors Limited

Templeton Investment Counsel, LLC

Fund Administrator

Franklin Templeton Services, LLC

Distributor

Franklin Templeton Distributors, Inc.

Franklin Templeton Variable Insurance Products Trust (FTVIP) shares are not offered to the public; they are offered and sold only to: (1) insurance company separate accounts (Separate Account) to serve as the underlying investment vehicle for variable contracts; (2) certain qualified plans; and (3) other mutual funds (funds of funds).

Authorized for distribution to investors in Separate Accounts only when accompanied or preceded by the current prospectus for the applicable contract, which includes the Separate Account and the FTVIP prospectuses. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing.

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

© 2012 Franklin Templeton Investments. All rights reserved. FTVIP A 02/12

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.

(c) N/A

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.

    (2) The audit committee financial expert is John B. Wilson and he is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $912,438 for the fiscal year ended December 31, 2011 and $849,457 for the fiscal year ended December 31, 2010.

(b) Audit-Related Fees

The aggregate fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of Item 4 were $10,000 for the fiscal year ended December 31, 2011 and $0 for the fiscal year ended December 31, 2010. The services for which these fees were paid included attestation services.

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.

(c) Tax Fees

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning were $1,295 for the fiscal year ended December 31, 2011 and $1,290 for the fiscal year ended December 31, 2010. The services for which these fees were paid included preparation of tax returns for foreign governments.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $100,000 for the fiscal year ended December 31, 2011 and $35,000 for the fiscal year ended December 31, 2010. The services for which these fees were paid included technical tax consultation for capital gain tax reporting to foreign governments and derivative instruments.

(d) All Other Fees

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2011 and $12,501 for the fiscal year ended December 31, 2010. The services for which these fees were paid include review of materials provided to the fund Board in connection with the investment management contract renewal process.

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2011 and $132,299 for the fiscal year ended December 31, 2010. The services for which these fees were paid include review of materials provided to the fund Board in connection with the investment management contract renewal process.

(e) (1)    The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:

(i)    pre-approval of all audit and audit related services;

(ii)    pre-approval of all non-audit related services to be provided to the Fund by the auditors;

(iii)    pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and

(iv)    establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.

(e) (2)    None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f)    No disclosures are required by this Item 4(f).

(g)    The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $111,295 for the fiscal year ended December 31, 2011 and $181,090 for the fiscal year ended December 31, 2010.

(h)    The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants.                    N/A

Item 6. Schedule of Investments.                    N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.                    N/A

Item 8. Portfolio Managers of Closed-End Management Investment Companies.                    N/A

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.                    N/A

Item 10. Submission of Matters to a vote of Security Holders.

There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.

Item 11. Controls and Procedures.

(a)    Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.

(b)    Changes in Internal Controls. There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.

Item 12. Exhibits.

(a)(1) Code of Ethics

(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer—Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer—Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

By:	/S/    LAURA F. FERGERSON
	Laura F. Fergerson Chief Executive Officer – Finance and Administration

Date February 24, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/S/    LAURA F. FERGERSON
	Laura F. Fergerson Chief Executive Officer – Finance and Administration

Date February 24, 2012

By:	/S/    GASTON GARDEY
	Gaston Gardey Chief Financial Officer and Chief Accounting Officer

Date February 24, 2012