<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
JUNE 30, 2000
SEMI-ANNUAL REPORT
(UNAUDITED)
SEPARATE ACCOUNT VA-1 FUNDING
THE CHAIRMAN-TM-
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
PRINCIPAL OFFICE LOCATED AT:
#1 Franklin Square
Springfield, Illinois 62713
--------------------------------------------------------------------------------
JUNE 30, 2000
SEMI-ANNUAL REPORTS
VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
PRINCIPAL OFFICE OF BOTH FIDELITY FUNDS LOCATED AT:
82 Devonshire Street
Boston, Massachusetts 02109
MFS VARIABLE INSURANCE TRUST
PRINCIPAL OFFICE LOCATED AT:
500 Boylston Street
Boston, Massachusetts 02116
The Semi-Annual Report of Separate Account VA-1 is prepared and provided by The
American Franklin Life Insurance Company. The Semi-Annual Reports of the
Variable Insurance Products Fund and the Variable Insurance Products Fund II are
prepared by Fidelity Investments. The Semi-Annual Report of MFS Variable
Insurance Trust is prepared by MFS Investment Management.
--------------------------------------------------------------------------------
This Semi-Annual Report is not to be construed as an offering for sale of any
American Franklin Life contract. No offering is made except in conjunction with
a prospectus which must precede or accompany this report.
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
---------------------------------------------------------------------------------------
VIP VIP VIP
MONEY EQUITY- VIP VIP HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Funds at fair value
(cost: see below) $ 8,299,736 $ 24,359,134 $ 36,796,583 $ 3,830,449 $ 2,603,440
Dividends receivable 41,367 - - - -
Due from (to) general account 846 1,167 1,502 130 63
---------------------------------------------------------------------------------------
NET ASSETS $ 8,341,949 $ 24,360,301 $ 36,798,085 $ 3,830,579 $ 2,603,503
=======================================================================================
Unit value $ 5.67 $ 6.89 $ 11.17 $ 8.22 $ 5.60
=======================================================================================
Units outstanding 1,472,096 3,538,077 3,294,130 465,952 464,786
=======================================================================================
Cost of investments $ 8,299,736 $ 25,436,112 $ 30,765,652 $ 3,405,456 $ 2,964,142
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
---------------------------------------------------------------------------------------
VIPII VIPII VIPII VIPII MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Funds at fair value
(cost: see below) $ 4,032,045 $ 7,211,659 $ 42,752,470 $ 21,485,367 $ 28,965,750
Dividends receivable - - - - -
Due from (to) general account (679) 306 1,991 824 207
---------------------------------------------------------------------------------------
NET ASSETS $ 4,031,366 $ 7,211,965 $ 42,754,461 $ 21,486,191 $ 28,965,957
=======================================================================================
Unit value $ 5.71 $ 7.19 $ 9.38 $ 9.15 $ 12.72
=======================================================================================
Units outstanding 705,442 1,003,270 4,557,839 2,347,207 2,277,029
=======================================================================================
Cost of investments $ 4,279,413 $ 7,410,388 $ 34,943,719 $ 19,850,103 $ 18,414,081
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
----------------------------------------------------------------------------------------
MFS MFS
MFS GROWTH MFS TOTAL MFS CAPITAL
RESEARCH WITH INCOME RETURN UTILITIES OPPORTUNITIES
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Funds at fair value
(cost: see below) $ 23,679,673 $ 14,284,985 $ 16,875,792 $ 14,608,378 $ 13,107,651
Dividends receivable - - - - -
Due from (to) general account 1,068 667 (181) 466 (72)
----------------------------------------------------------------------------------------
NET ASSETS $ 23,680,741 $ 14,285,652 $ 16,875,611 $ 14,608,844 $ 13,107,579
========================================================================================
Unit value $ 8.99 $ 7.86 $ 6.66 $ 9.51 $ 11.97
========================================================================================
Units outstanding 2,634,188 1,818,290 2,532,009 1,536,293 1,095,283
========================================================================================
Cost of investments $ 18,588,297 $ 13,025,431 $ 16,985,037 $ 12,758,935 $ 10,019,329
========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------
VIP VIP VIP
MONEY EQUITY- VIP VIP HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (EXPENSE)
Income
Dividends $ 274,162 $ 423,928 $ 37,207 $ 51,852 $ 193,696
Capital gains distributions - 1,597,123 3,702,113 326,527 -
Expenses
Mortality and expense risk charge 68,693 170,006 253,712 25,505 19,910
------------------------------------------------------------------------------------
Net investment income (expense) 205,469 1,851,045 3,485,608 352,874 173,786
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) - (44,509) 1,055,496 34,082 (98,889)
Net unrealized appreciation (depreciation)
Beginning of period - 1,028,036 8,935,012 923,056 (132,757)
End of period - (1,076,978) 6,030,931 424,993 (360,702)
------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the period - (2,105,014) (2,904,081) (498,063) (227,945)
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments - (2,149,523) (1,848,585) (463,981) (326,834)
------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $ 205,469 $ (298,478) $ 1,637,023 $ (111,107) $ (153,048)
====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------------------------------------
VIPII VIPII VIPII VIPII MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (EXPENSE)
Income
Dividends $ 285,524 $ 230,746 $ 433,570 $ 73,597 $ -
Capital gains distributions - 543,623 189,524 2,671,574 1,533,459
Expenses
Mortality and expense risk charge 28,776 50,773 285,173 139,020 183,827
------------------------------------------------------------------------------------
Net investment income (expense) 256,748 723,596 337,921 2,606,151 1,349,632
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) (23,414) (18,376) 648,613 179,032 360,559
Net unrealized appreciation (depreciation)
Beginning of period (112,329) 553,164 8,956,615 4,399,909 11,694,836
End of period (247,368) (198,729) 7,808,751 1,635,264 10,551,669
------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the period (135,039) (751,893) (1,147,864) (2,764,645) (1,143,167)
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (158,453) (770,269) (499,251) (2,585,613) (782,608)
------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $ 98,295 $ (46,673) $ (161,330) $ 20,538 $ 567,024
====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------------------
MFS MFS MFS
MFS GROWTH TOTAL MFS CAPITAL
RESEARCH WITH INCOME RETURN UTILITIES OPPORTUNITIES
DIVISION DIVISION DIVISION DIVISION DIVISION
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (EXPENSE)
Income
Dividends $ 8,584 $ 65,451 $ 410,861 $ 144,223 $ -
Capital gains distributions 1,473,480 118,847 395,623 1,087,248 996,805
Expenses
Mortality and expense risk charge 141,366 102,087 120,165 97,024 76,330
-------------------------------------------------------------------------------------
Net investment income (expense) 1,340,698 82,211 686,319 1,134,447 920,475
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) 270,343 220,506 121,680 68,096 94,846
Net unrealized appreciation (depreciation)
Beginning of period 5,042,578 1,515,078 273,504 2,452,662 3,040,120
End of period 5,091,376 1,259,554 (109,245) 1,849,443 3,088,322
-------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the period 48,798 (255,524) (382,749) (603,219) 48,202
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 319,141 (35,018) (261,069) (535,123) 143,048
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $ 1,659,839 $ 47,193 $ 425,250 $ 599,324 $ 1,063,523
=====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------------------------------------------------
VIP VIP VIP
MONEY EQUITY- VIP VIP HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) -------------------------------------------------------------------------------------
CHANGE IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income (expense) $ 205,469 $ 1,851,045 $ 3,485,608 $ 352,874 $ 173,786
Net realized gain (loss) on investments - (44,509) 1,055,496 34,082 (98,889)
Net change in unrealized appreciation
(depreciation) on investments - (2,105,014) (2,904,081) (498,063) (227,945)
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
operations 205,469 (298,478) 1,637,023 (111,107) (153,048)
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 1,372,779 820,322 2,072,241 273,331 103,447
Withdrawals (1,352,261) (685,569) (2,521,832) (178,242) (217,569)
Transfers between Separate Account
VA-1 divisions, net (5,213,259) (735,690) 1,456,441 212,686 (21,717)
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
contract related transactions (5,192,741) (600,937) 1,006,850 307,775 (135,839)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets (4,987,272) (899,415) 2,643,873 196,668 (288,887)
Net assets, beginning of period 13,329,221 25,259,716 34,154,212 3,633,911 2,892,390
-------------------------------------------------------------------------------------
Net assets, end of period $ 8,341,949 $ 24,360,301 $ 36,798,085 $ 3,830,579 $ 2,603,503
=====================================================================================
YEAR ENDED DECEMBER 31, 1999
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 387,970 $ 666,961 $ 1,737,917 $ 61,280 $ 234,596
Net realized gain (loss) on investments - 176,490 211,816 5,202 (141,543)
Net change in unrealized appreciation
(depreciation) on investments - (155,078) 5,917,216 867,018 101,485
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
operations 387,970 688,373 7,866,949 933,500 194,538
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 6,161,620 5,939,634 8,496,487 361,794 483,012
Withdrawals (403,806) (1,415,140) (997,367) (158,652) (176,331)
Transfers between Separate Account
VA-1 divisions, net (1,550,541) (81,381) 1,260,351 118,843 (375,225)
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
contract related transactions 4,207,273 4,443,113 8,759,471 321,985 (68,544)
-------------------------------------------------------------------------------------
Net increase in net assets 4,595,243 5,131,486 16,626,420 1,255,485 125,994
Net assets, beginning of year 8,733,978 20,128,230 17,527,792 2,378,426 2,766,396
-------------------------------------------------------------------------------------
Net assets, end of year $ 13,329,221 $ 25,259,716 $ 34,154,212 $ 3,633,911 $ 2,892,390
=====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
-------------------------------------------------------------------------------------
VIPII VIPII VIPII VIPII MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) -------------------------------------------------------------------------------------
CHANGE IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income (expense) $ 256,748 $ 723,596 $ 337,921 $ 2,606,151 $ 1,349,632
Net realized gain (loss) on investments (23,414) (18,376) 648,613 179,032 360,559
Net change in unrealized
(depreciation) on investments (135,039) (751,893) (1,147,864) (2,764,645) (1,143,167)
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
operations 98,295 (46,673) (161,330) 20,538 567,024
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 104,311 363,322 2,325,108 1,519,686 1,511,326
Withdrawals (180,586) (236,061) (1,841,734) (896,308) (907,414)
Transfers between Separate Account
VA-1 divisions, net (195,441) (77,220) 11,677 708,166 2,462,324
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
Contract related transactions (271,716) 50,041 495,051 1,331,544 3,066,236
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets (173,421) 3,368 333,721 1,352,082 3,633,260
Net assets, beginning of period 4,204,787 7,208,597 42,420,740 20,134,109 25,332,697
-------------------------------------------------------------------------------------
Net assets, end of period $ 4,031,366 $ 7,211,965 $ 42,754,461 $ 21,486,191 $ 28,965,957
=====================================================================================
YEAR ENDED DECEMBER 31, 1999
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 135,369 $ 330,617 $ (13,978) $ 296,625 $ (205,655)
Net realized gain (loss) on investments (6,167) 2,023 473,358 199,923 307,184
Net change in unrealized
(depreciation) on investments (215,545) 232,069 5,143,061 2,577,362 9,647,183
Net increase (decrease) in net assets from -------------------------------------------------------------------------------------
operations (86,343) 564,709 5,602,441 3,073,910 9,748,712
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 1,044,185 1,579,419 12,171,546 5,996,698 4,087,052
Withdrawals (194,643) (357,559) (1,626,431) (632,746) (619,611)
Transfers between Separate Account
VA-1 divisions, net 33,482 (23,131) 252,623 (122,418) 125,053
Net increase in net assets from contract -------------------------------------------------------------------------------------
related transactions 883,024 1,198,729 10,797,738 5,241,534 3,592,494
-------------------------------------------------------------------------------------
Net increase in net assets 796,681 1,763,438 16,400,179 8,315,444 13,341,206
Net assets, beginning of year 3,408,106 5,445,159 26,020,561 11,818,665 11,991,491
-------------------------------------------------------------------------------------
Net assets, end of year $ 4,204,787 $ 7,208,597 $ 42,420,740 $ 20,134,109 $ 25,332,697
=====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
---------------------------------------------------------------------------------------
MFS MFS MFS
MFS GROWTH TOTAL MFS CAPITAL
RESEARCH WITH INCOME RETURN UTILITIES OPPORTUNITIES
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) ---------------------------------------------------------------------------------------
CHANGE IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income (expense) $ 1,340,698 $ 82,211 $ 686,319 $ 1,134,447 $ 920,475
Net realized gain (loss) on investments 270,343 220,506 121,680 68,096 94,846
Net change in unrealized appreciation
(depreciation) on investments 48,798 (255,524) (382,749) (603,219) 48,202
Net increase (decrease) in net assets from ---------------------------------------------------------------------------------------
operations 1,659,839 47,193 425,250 599,324 1,063,523
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 886,981 626,223 280,011 898,597 1,028,854
Withdrawals (912,757) (486,647) (542,679) (419,825) (436,219)
Transfers between Separate Account
VA-1 divisions, net 647,390 (686,022) (1,162,792) 1,241,829 1,647,569
Net increase (decrease) in net assets from ---------------------------------------------------------------------------------------
contract related transactions 621,614 (546,446) (1,425,460) 1,720,601 2,240,204
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,281,453 (499,253) (1,000,210) 2,319,925 3,303,727
Net assets, beginning of period 21,399,288 14,784,905 17,875,821 12,288,919 9,803,852
---------------------------------------------------------------------------------------
Net assets, end of period $ 23,680,741 $ 14,285,652 $ 16,875,611 $ 14,608,844 $ 13,107,579
=======================================================================================
YEAR ENDED DECEMBER 31, 1999
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ (41,930) $ (93,742) $ 634,819 $ 453,189 $ (75,116)
Net realized gain (loss) on investments 386,598 250,078 186,241 165,818 278,487
Net change in unrealized appreciation
(depreciation) on investments 3,250,814 422,518 (697,334) 1,952,089 2,535,759
Net increase (decrease) in net assets from ---------------------------------------------------------------------------------------
operations 3,595,482 578,854 123,726 2,571,096 2,739,130
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 4,061,296 4,875,355 4,482,659 3,624,544 2,414,391
Withdrawals (1,005,043) (630,995) (1,184,152) (617,060) (455,798)
Transfers between Separate Account
VA-1 divisions, net (638,285) (89,377) (294,661) 349,318 375,655
Net increase in net assets from contract ---------------------------------------------------------------------------------------
related transactions 2,417,968 4,154,983 3,003,846 3,356,802 2,334,248
---------------------------------------------------------------------------------------
Net increase in net assets 6,013,450 4,733,837 3,127,572 5,927,898 5,073,378
Net assets, beginning of year 15,385,838 10,051,068 14,748,249 6,361,021 4,730,474
---------------------------------------------------------------------------------------
Net assets, end of year $ 21,399,288 $ 14,784,905 $ 17,875,821 $ 12,288,919 $ 9,803,852
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. NATURE OF OPERATIONS
The American Franklin Life Insurance Company (American Franklin) is a
wholly-owned subsidiary of The Franklin Life Insurance Company. American
Franklin established Separate Account VA-1 (Account) as a unit investment
trust registered under the Investment Company Act of 1940. The Account,
which consists of fifteen investment divisions, was established on May 22,
1996 in conformity with Illinois Insurance Law. The assets in each division
are invested in units of beneficial interest (shares) of a designated
portfolio (Portfolio) of three mutual funds, sponsored by Fidelity
Investments (Variable Insurance Products Fund and Variable Insurance
Products Fund II) and MFS Investment Management (MFS Variable Insurance
Trust) (collectively, the Funds). The VIP Money Market, VIP Equity-Income,
VIP Growth, VIP Overseas, and VIP High Income Divisions of the Account are
invested in shares of a corresponding Portfolio of Variable Insurance
Products Fund; the VIPII Investment Grade Bond, VIPII Asset Manager, VIPII
Index 500, and VIPII Contrafund Divisions of the Account are invested in
shares of a corresponding Portfolio of Variable Insurance Products Fund II;
and the MFS Emerging Growth, MFS Research, MFS Growth With Income, MFS
Total Return, MFS Utilities, and MFS Capital Opportunities Divisions of the
Account are invested in shares of a corresponding Portfolio of MFS Variable
Insurance Trust. The Account's financial statements should be read in
conjunction with the financial statements of the Funds. The Account
commenced operations on February 28, 1997. The accumulation unit value for
each division was $5 at the inception of the account.
The Account was established by American Franklin to support the operations
of American Franklin's The Chairman-TM- Combination Fixed and Variable
Annuity Contracts (the Contracts).
Franklin Financial Services Corporation, a wholly-owned subsidiary of The
Franklin Life Insurance Company, acts as the principal underwriter, as
defined in the Investment Company Act of 1940, of the Contracts. The assets
of the Account are the property of American Franklin. The portion of the
Account's assets applicable to the Contracts is not chargeable with
liabilities arising out of any other American Franklin business.
The net assets of the Account may not be less than the reserves applicable
to the Contracts. Assets may also be set aside in American Franklin's
General Account based on the amounts allocated under the Contracts to
American Franklin's Fixed Account. Additional assets are set aside in
American Franklin's General Account to provide for other contract benefits.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments in shares of the Funds are carried at fair value. Investments
in shares of the Funds are valued at the net asset values of the respective
Portfolios of the Funds. Investment transactions are recorded on the trade
date. Dividends are recorded on the ex-dividend date. Realized gains and
losses on sales of the Account shares are determined on the specific
identification method.
The operations of the Account are included in the federal income tax return
of American Franklin. Under the provisions of the Contracts, American
Franklin has the right to charge the Account for federal income tax
attributable to the Account. No charge is currently being made against the
Account for such tax since, under current tax law, American Franklin pays
no tax on investment income and capital gains of the Account. However,
American Franklin retains the right to charge for any federal income tax
incurred which is attributable to the Account if the law is changed.
Charges for state and local taxes, if any, attributable to the Account may
also be made.
10
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
3. CONTRACT CHARGES
Certain jurisdictions require deductions from premium payments for premium
taxes. The amount of such deductions varies and may be up to 5% of the
premium or purchase payment. Other jurisdictions assess a premium tax at
the point of annuitization. The balance of a purchase payment remaining
after any such deduction is placed by American Franklin in an account
established for each contractowner. Each year American Franklin charges $30
against each contractowner's account for administrative expenses. This
annual fee is currently waived if cumulative purchase payments are at least
$75,000. In addition, American Franklin charges for a transfer between
investment divisions in any contract year in which twelve transfers have
already been made ($25 for each additional transfer in a given contract
year). American Franklin assumes mortality and expense risks related to the
operations of the Account and deducts a charge from the assets of the
Account at an effective annual rate of 1.40% of the Account's average daily
net asset value to cover these risks and to offset other administrative
expenses not covered by the annual contract fee. The total charges paid by
the Account to American Franklin were $1,817,800 for the six months ended
June 30, 2000 and $2,885,000 for the year ended December 31, 1999.
American Franklin imposes a surrender charge on the amount of each purchase
payment withdrawn during the first seven years after receipt, unless the
withdrawal is exempt from the surrender charge. The maximum surrender
charge is 6% of purchase payments withdrawn during the first two years
after receipt; the percentage declines ratably until elimination after the
seventh year.
11
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS
Unit value information and a summary of changes in outstanding units is
shown below:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
---------------------------------------------------------------------------------
VIP VIP VIP
MONEY EQUITY- VIP VIP HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $5.54 $6.96 $10.66 $8.46 $5.91
=================================================================================
Unit value, end of period $5.67 $6.89 $11.17 $8.22 $5.60
=================================================================================
Number of units outstanding,
beginning of period 2,405,743 3,628,549 3,203,599 429,458 489,147
Net contract purchase payments 244,612 121,520 190,701 32,549 17,606
Withdrawals (241,317) (101,404) (233,095) (21,508) (38,407)
Transfers between Separate Account
VA-1 divisions, net (936,942) (110,588) 132,925 25,453 (3,560)
---------------------------------------------------------------------------------
Number of units outstanding,
end of period 1,472,096 3,538,077 3,294,130 465,952 464,786
=================================================================================
YEAR ENDED DECEMBER 31, 1999
Unit value, beginning of year $5.34 $6.73 $7.94 $6.20 $5.54
==================================================================================
Unit value, end of year $5.54 $6.96 $10.66 $8.46 $5.91
=================================================================================
Number of units outstanding,
beginning of year 1,634,822 2,991,972 2,207,408 383,712 499,418
Net contract purchase payments 1,138,347 847,264 972,450 54,281 83,357
Withdrawals (74,314) (200,988) (112,513) (23,786) (29,801)
Transfers between Separate Account
VA-1's Divisions, net (293,112) (9,699) 136,254 15,251 (63,827)
---------------------------------------------------------------------------------
Number of units outstanding,
end of year 2,405,743 3,628,549 3,203,599 429,458 489,147
=================================================================================
</TABLE>
12
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS (continued)
Unit value information and a summary of changes in outstanding units is
shown below:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
---------------------------------------------------------------------------------
VIPII VIPII VIPII VIPII MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $5.58 $7.23 $9.43 $9.15 $12.41
=================================================================================
Unit value, end of period $5.71 $7.19 $9.38 $9.15 $12.72
=================================================================================
Number of units outstanding,
beginning of period 753,885 996,623 4,500,014 2,199,553 2,040,810
Net contract purchase payments 18,474 50,586 252,048 165,086 117,637
Withdrawals (32,000) (32,925) (197,017) (96,481) (69,031)
Transfers between Separate Account
VA-1 divisions, net (34,917) (11,014) 2,794 79,049 187,613
---------------------------------------------------------------------------------
Number of units outstanding,
end of period 705,442 1,003,270 4,557,839 2,347,207 2,277,029
=================================================================================
YEAR ENDED DECEMBER 31, 1999
Unit value, beginning of year $5.70 $6.64 $8.07 $7.62 $7.48
---------------------------------------------------------------------------------
Unit value, end of year $5.58 $7.23 $9.43 $9.15 $12.41
=================================================================================
Number of units outstanding,
beginning of year 598,142 820,384 3,224,829 1,551,801 1,603,087
Net contract purchase payments 184,940 232,264 1,432,920 740,828 499,530
Withdrawals (34,631) (52,447) (189,173) (77,427) (74,352)
Transfers between Separate Account
VA-1's Divisions, net 5,434 (3,578) 31,438 (15,649) 12,545
---------------------------------------------------------------------------------
Number of units outstanding,
end of year 753,885 996,623 4,500,014 2,199,553 2,040,810
=================================================================================
</TABLE>
13
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS (continued)
Unit value information and a summary of changes in outstanding units is
shown below:
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
--------------------------------------------------------------------------------------
MFS MFS MFS
MFS GROWTH TOTAL MFS CAPITAL
RESEARCH WITH INCOME RETURN UTILITIES OPPORTUNITIES
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION
(UNAUDITED) --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $8.37 $7.83 $6.48 $9.05 $10.86
======================================================================================
Unit value, end of period $8.99 $7.86 $6.66 $9.51 $11.97
======================================================================================
Number of units outstanding,
beginning of period 2,556,910 1,889,006 2,758,393 1,358,316 903,043
Net contract purchase payments 102,263 81,656 43,790 93,259 87,917
Withdrawals (103,676) (62,756) (83,455) (43,787) (36,379)
Transfers between Separate Account
VA-1 divisions, net 78,691 (89,616) (186,719) 128,505 140,702
--------------------------------------------------------------------------------------
Number of units outstanding, 2,634,188 1,818,290 2,532,009 1,536,293 1,095,283
end of period ======================================================================================
YEAR ENDED DECEMBER 31, 1999
Unit value, beginning of year $6.95 $7.51 $6.43 $7.04 $7.59
======================================================================================
Unit value, end of year $8.37 $7.83 $6.48 $9.05 $10.86
======================================================================================
Number of units outstanding,
beginning of year 2,214,458 1,338,496 2,294,198 903,586 623,561
Net contract purchase payments 568,876 646,798 693,249 493,730 284,000
Withdrawals (137,471) (83,238) (181,718) (81,406) (51,712)
Transfers between Separate Account
VA-1 Divisions, net (88,953) (13,050) (47,336) 42,406 47,194
--------------------------------------------------------------------------------------
Number of units outstanding,
end of year 2,556,910 1,889,006 2,758,393 1,358,316 903,043
======================================================================================
</TABLE>
5. REMUNERATION OF MANAGEMENT
The Account incurs no liability or expense for payments to directors,
members of advisory boards, officers or any other person who might provide
a service for the Account, except as described in Note 3.
14
