As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/05/14  Franklin Templeton Var Ins Pr… Tr N-CSRS      6/30/14    4:11M                                    RR Donnelley/FA
          → Franklin Allocation VIP Fund ⇒ Class 2
          → Franklin Dynatech Vip Fund ⇒ Class 2
          → Franklin Global Real Estate Vip Fund ⇒ Class 2
          → Franklin Growth & Income Vip Fund ⇒ Class 2
          → Franklin High Income Vip Fund ⇒ Class 2
          → Franklin Income Vip Fund ⇒ Class 2
          → Franklin Large Cap Growth Vip Fund ⇒ Class 2
          → Franklin Large Cap Value Vip Fund ⇒ Class 2
          → Franklin Mutual Global Discovery Vip Fund ⇒ Class 2
          → Franklin Mutual Shares Vip Fund ⇒ Class 2
          → Franklin Rising Dividends Vip Fund ⇒ Class 2
          → Franklin Small Cap Value Vip Fund ⇒ Class 2
          → Franklin Small-Mid Cap Growth Vip Fund ⇒ Class 2
          → Franklin Strategic Income Vip Fund ⇒ Class 2
          → Franklin U.S. Government Securities Vip Fund ⇒ Class 2
          → Franklin VolSmart Allocation VIP Fund ⇒ Class 2 — Class 5
          → Templeton Developing Markets Vip Fund ⇒ Class 2
          → Templeton Foreign Vip Fund ⇒ Class 2
          → Templeton Global Bond Vip Fund ⇒ Class 2
          → Templeton Growth Vip Fund ⇒ Class 2

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSRS      Franklin Templeton Variable Insurance Products      HTML   7.50M 
                          Trust                                                  
 4: EX-99.906CERT  906 Certifications                               HTML      8K 
 3: EX-99.CERT  302 Certifications                                  HTML     14K 
 2: EX-99.CODE  Code of Ethics                                      HTML     43K 

 

Fund Goal and Main Investments: Franklin Flex Cap Growth VIP Fund seeks capital appreciation. Under normal market conditions, the Fund invests predominantly in equity securities of companies that the investment manager believes have the potential for capital appreciation.

 

 

Fund Risks: All investments involve risks, including possible loss of principal. Growth stock prices reflect projections of future earnings or revenues, and can, therefore, fall dramatically if the company fails to meet those projections. Smaller, midsized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger company stocks, especially over the short term. To the extent the Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risk of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. 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.

 

 

Performance Overview

You can find the Fund’s six-month total return in the Performance Summary. In comparison, the Russell 1000^® Growth Index generated a +6.31% total return, and the Russell 3000^® Growth Index delivered a +5.98% total return, for the same period.¹

Economic and Market Overview

The U.S. economy showed some signs of recovery during the six-month period ended June 30, 2014, despite a first-quarter contraction in gross domestic product. Manufacturing activity expanded, and the unemployment rate declined to 6.1% in June 2014 from 6.7% in December 2013.² Except for a sharp increase in March, retail sales rose at a modest pace that missed consensus expectations. The housing market had some

Manager’s Discussion

During the six months under review, most sectors represented in the Fund’s portfolio delivered positive returns and contributed to absolute performance. Relative to the Russell 3000 Growth Index, stock selection in health care, industrials and energy drove performance.⁴ In the health care sector, genetic research firm Illumina and generic pharmaceutical company Actavis were among the top performers. Illumina announced strong quarterly earnings, supported by healthy global demand for its sequencing products and services. The company raised its revenue and earnings guidance for fiscal year 2014. Actavis’s shares rallied after the company announced it would acquire Forest Laboratories to strengthen its specialty pharmaceuticals portfolio. Actavis also reported stronger-than-expected quarterly earnings, boosted by its acquisition of specialty drug maker Warner Chilcott in 2013.

In the industrials sector, key contributors included equipment rental company United Rentals and crane and foodservice equipment manufacturer The Manitowoc Co. United Rentals continued to deliver stronger-than-expected quarterly earnings, driven by growth in equipment rentals and sales. Manitowoc reported solid quarterly earnings, resulting from new product introductions, cost control measures and its foodservice division’s performance. Manitowoc’s stock price surged near period-end following news that an activist investment firm sought to break up the company, which indicated it would review the potential long-term benefits of separating its crane and foodservice businesses.

The energy sector performed well during the period as crude oil prices rose because of supply concerns stemming from geopolitical tensions in certain oil producing and transit regions. Within the sector, Diamondback Energy was a top contributor as the oil and gas exploration company reported solid quarterly earnings and raised its full-year 2014 production guidance. Further boosting its shares were a subsidiary’s initial public offering and market speculation that it could be an acquisition target of Spanish multinational oil and gas company Repsol. Key individual contributors also included an off-benchmark holding in Netherlands-based integrated circuit manufacturer NXP Semiconductors and positions in storage solutions provider SanDisk, a new holding this period, and apparel and footwear manufacturer Under Armour.

 

sectors.⁵ In consumer staples, Whole Foods Market hurt relative results as heightened competition in the organic food market led the natural and organic foods retailer to deliver disappointing fiscal second-quarter revenues and earnings and lower its fiscal year 2014 guidance. In the financials sector, Intercontinental Exchange, which owns Europe’s second-largest futures market, weighed on relative performance. The exchange and clearinghouse operator’s share price declined after the company released a higher second-quarter expense forecast and the European Union revised trading rules to increase competition among the region’s derivatives exchanges.

In the IT sector, global electronic payments company MasterCard and online professional networking operator LinkedIn hindered relative results. MasterCard’s share price declined after the company reported softer-than-expected fiscal year 2013 earnings. Investor concerns about the potential impact of U.S. economic sanctions on Russia further weighed on the stock. Russia accounted for about 2% of MasterCard’s global net revenues, and the country’s pending electronic payment rule changes could have a small negative effect on fiscal year 2014 results. Potentially offsetting this negative effect was MasterCard’s organic growth, including new branding and co-branding agreements. The company continued to repurchase its shares and delivered stronger-than-expected first-quarter 2014 revenues and earnings. Although LinkedIn reported solid fiscal year 2013 revenues and earnings, weaker-than-expected fiscal year 2014 guidance weighed on its stock price. The company delivered healthy first-quarter 2014 revenue growth, driven by strength in talent solutions and premium subscriptions segments, and raised its full-year 2014 revenue guidance. However, weaker-than-expected second-quarter guidance pressured its share price.

In the consumer discretionary sector, sports goods retailer Dick’s Sporting Goods and media company Discovery Communications detracted from relative returns. Dick’s Sporting Goods’ share price fell after the company reported disappointing first-quarter 2014 earnings results and lowered its fiscal year 2014 guidance amid weakness in its golf and hunting businesses. Discovery Communications reported lower-than-expected first-quarter 2014 profits as higher expenses offset robust revenue growth, especially in the international segment. Other key individual detractors included biopharmaceutical firm Celldex Therapeutics and hydrocarbon and gas production and storage equipment manufacturer Chart Industries.

 

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.

 

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

 

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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 levels. 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.

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 management investment company, consisting of twenty separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Franklin Flex Cap Growth VIP 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 June 30, 2014, 78.46% of the Fund’s shares were held through one insurance company. Investment activities of these insurance company separate accounts could have a material impact on the Fund. The Fund offers two classes of shares: 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.

Effective May 1, 2014, the Franklin Flex Cap Growth Securities Fund was renamed the Franklin Flex Cap Growth VIP Fund.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in 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. The Fund calculates the net asset value (NAV) per share at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to 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

security values is delivered to the Fund on the next business day. The collateral is invested in a non-registered money fund as indicated on the Statement of Investments. 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.

c. 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 if applicable, 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 June 30, 2014, 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