<PAGE>
[THE FRANKLIN LIFE INSURANCE COMPANY-LETTERHEAD]
Dear Contract Owner:
We are pleased to provide this 1995 annual report which shows the status of and
balances in your Franklin Life Money Market Variable Annuity Fund C contract.
The gain in the accumulation unit value of the Fund since year end 1994 was as
follows:
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
------------- -------------
<S> <C> <C>
Accumulation Unit Value $22.03 $21.14
------ ------
------ ------
Percentage Change 4.21%
-------
-------
</TABLE>
As we have pointed out in past reports, the annual increase figure should not be
compared with fully taxable money market fund rates. Your annuity contract
shelters this income from Federal income taxes prior to your annuity starting
date so long as your money remains with the Fund. Also, your contract provides
that Franklin Life assumes the risk that administrative deductions may be
insufficient to cover actual administrative expenses.
The growth of the U.S. economy slowed in the first three quarters of 1995 to
between 2.5% and 3.0%, verses the 4.1% growth for the Gross Domestic Product in
1994. The unemployment rate has stayed near 5.6% for 1995. Inflation continues
to hold under 3%, where it has been since 1991. Congress is working on a budget
plan that would eliminate the deficit in seven years. This proposed action has
created a positive force for both the fixed income and equity markets.
The Federal Reserve reduced the Fed Funds rate again in December (by 25 basis
points), bringing the rate to 5.50%, the same rate at which the Fed Funds
started in 1995. Long term interest rates declined much more than short term
rates during 1995. Short term interest rates are expected to stay close to the
current level or possibly move slightly lower, unless there are renewed
inflation concerns for the market to consider.
Franklin Life Money Market Variable Annuity Fund C, like other money market
funds, offers preservation of capital, liquidity and a return that reflects
prevailing short term interest rates. In today's interest rate environment, you
may want to take some extra time and review what role this product should play
in your retirement financial planning. Franklin Life and your registered
representative would appreciate the opportunity to discuss with you this and
other products which will help you find financial security.
Cordially yours,
/s/ Robert J. Gibbons
Robert J. Gibbons
President and
Chief Executive Officer
1
<PAGE>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments-at cost which approximates fair value
Corporate short-term notes $1,211,625
U.S. Government short-term note 1,016,533
----------
2,228,158
Cash on deposit 71,869
Interest receivable 8,116
----------
Total Assets 2,308,143
Liability-Due to The Franklin Life Insurance Company 2,922
----------
Contract Owners' Equity
Value of 104,641 Accumulation Units outstanding,
equivalent to $22.029796 per unit $2,305,221
----------
----------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income-Interest $ 142,957
Expenses
Mortality and expense charges $27,136
Investment management services 9,551
-------
Total Expenses 36,687
-----------
Net Investment Income $ 106,270
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
Net investment income $ 106,270 $ 77,768
Net contract purchase payments 36,795 60,519
Payment for contract guarantees (148) (187)
Withdrawals (640,200) (626,293)
Administrative expense charges (1,060) (1,600)
------------------------
Net Decrease in Contract Owners' Equity (498,343) (489,793)
Contract Owners' Equity at Beginning of Year 2,803,564 3,293,357
------------------------
Contract Owners' Equity at End of Year $2,305,221 $2,803,564
------------------------
------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL FAIR
AMOUNT VALUE
- --------- -----------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES
(52.8%)
AUTOMOTIVE (5.0%)
$115,000 Ford Motor Credit Corporation
5.76%, due 1/24/96 $ 114,227
FINANCE COMPANIES - CONSUMER (19.2%)
115,000 Associates Corporation of North America
5.73%, due 1/3/96 114,121
115,000 Beneficial Corporation
5.80% due 1/29/96 114,222
100,000 Household Finance Corporation
5.50%, due 2/7/96 99,267
115,000 Norwest Financial, Inc.
5.75%, due 1/10/96
114,339
-----------
441,949
FINANCE COMPANIES - COMMERCIAL (8.6%)
100,000 CIT Group Holdings, Inc.
5.75%, due 1/17/96 99,345
100,000 General Electric Capital Corporation
5.52%, due 2/5/96 99,279
-----------
FINANCIAL SAVINGS & SERVICE (5.0%) 198,624
115,000 American Express Credit Corporation
5.65%, due 1/23/96 114,224
MACHINERY - INDUSTRIAL & CONSTRUCTION
(5.0%)
$115,000 John Deere Capital Corporation
5.63%, due 1/4/96 114,191
OFFICE EQUIPMENT & SERVICES (5.0%)
115,000 IBM Credit Corporation
5.60%, due 1/8/96 114,159
OILS & OIL RELATED PRODUCTS (5.0%)
115,000 Chevron Oil Finance Company
5.72%, due 1/16/96 114,251
-----------
TOTAL CORPORATE SHORT-TERM
NOTES (COST-$1,211,625) 1,211,625
-----------
U.S. GOVERNMENT SHORT-TERM NOTE
(44.2%)
1,025,000 United States Treasury Bill
due 2/1/96 (cost-$1,016,533) 1,016,533
-----------
TOTAL INVESTMENTS (97.0%)
(COST-$2,228,158) 2,228,158
-----------
CASH AND RECEIVABLE, LESS LIABILITY (3.0%) 77,063
-----------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $2,305,221
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C CONTRACT OWNERS. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Franklin Life Money Market Variable Annuity Fund C (Fund) is a segregated
investment account of The Franklin Life Insurance Company (The Franklin) and is
registered as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended. The Fund no longer issues new
contracts. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS: Securities with remaining maturities of 60 days or
less are valued at cost, which is equivalent to fair value. Securities
purchased with more than 60 days to maturity are valued at fair value until the
61st day prior to maturity. Thereafter, any discount or premium from that fair
value to maturity value is recognized by constant, proportionate amortization
until maturity.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis.
FEDERAL INCOME TAXES: Operations of the Fund will form a part of, and be taxed
with those of, The Franklin, which is taxed as a "life insurance company" under
the Internal Revenue Code. Under current law, no federal income taxes are
payable with respect to the Fund.
NOTE B-EXPENSES
Amounts are paid to The Franklin for investment management services at the rate
of .001027% of the current value of the Fund per day (.375% on an annual basis)
and for mortality and expense risk assurances at the rate of .002918% of the
current value of the Fund per day (1.065% on an annual basis). The investment
management service charge and the mortality and expense risk charge may be
increased to maximum rates, on an annual basis, of .500% and 1.750%,
respectively.
Certain other deductions are made from the Fund and paid to The Franklin
including administrative fees and contingent deferred sales charges on certain
amounts withdrawn. These deductions are more fully described in the Fund's
prospectus.
NOTE C-SUMMARY OF CHANGES IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
----------------------------------------------------
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Balance at
beginning of
year 132,646 $2,803,564 159,929 $3,293,357
Purchases 1,801 36,795 2,949 60,519
Net
investment
income - 106,270 - 77,768
Withdrawals (29,757) (640,200) (30,155) (626,293)
Payment for
contract
guarantees - (148) - (187)
Administrative
expense charge (49) (1,060) (77) (1,600)
Balance at end
of year 104,641 $2,305,221 132,646 $2,803,564
----------------------------------------------------
----------------------------------------------------
</TABLE>
NOTE D-REMUNERATION OF MANAGEMENT
No person receives any remuneration from the Fund because The Franklin pays
the fees of members of the Board of Managers and officers and employees of
the Fund pursuant to expense assurances. Certain members of the Board of
Managers and officers of the Fund are also directors, officers or employees
of The Franklin or Franklin Financial Services Corporation. Amounts paid
by the Fund to The Franklin and to Franklin Financial Services Corporation
are disclosed in this report.
4
<PAGE>
SUPPLEMENTARY INFORMATION
PER-UNIT INCOME AND CHANGES IN ACCUMULATION UNIT VALUE
(SELECTED DATA AND RATIOS FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ 1.203 $.846 $.617 $.746 $1.140
Expenses .309 .303 .294 .286 .278
----------------------------------------------
Net investment income .894 .543 .323 .460 .862
Accumulation unit value:
Beginning of year 21.136 20.593 20.270 19.810 18.948
----------------------------------------------
End of year $22.030 $21.136 $20.593 $20.270 $19.810
----------------------------------------------
----------------------------------------------
Ratio of expenses to average net assets 1.44% 1.44% 1.44% 1.44% 1.44%
Ratio of net investment income to average net assets 4.17% 2.58% 1.58% 2.32% 4.46%
Number of accumulation units outstanding at end of year 104,641 132,646 159,929 210,310 247,150
- ---------------------------------------------------------------------------------------------------------
</TABLE>
MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS
An annual meeting of Contract Owners of the Fund was held on April 17, 1995. At
the meeting, the individuals named below were elected as Members of the Board of
Managers of the Fund, a new Investment Management Agreement between The Franklin
and the Fund was approved and Ernst & Young LLP was ratified as the Fund's
independent auditors for the ensuing fiscal year. The number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if applicable, as to each matter is set forth in the table below.
<TABLE>
<CAPTION>
Matter Votes:
------------- --------------------------------------------
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Election of
Robert G. Spencer as
Member, Board of Managers 70,983 2,341 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 70,765 2,559 0
Election of
James W. Voth as
Member, Board of Managers 70,983 2,341 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 70,983 2,341 0
Approval of new Investment
Management Agreement
between the Fund and
The Franklin 67,468 1,183 4,673
Ratification of Selection
of Ernst & Young LLP as
independent auditors 70,514 805 2,005
</TABLE>
5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Managers and Contract Owners
Franklin Life Money Market Variable Annuity Fund C
We have audited the accompanying statement of assets and liabilities of Franklin
Life Money Market Variable Annuity Fund C, including the portfolio of
investments, as of December 31, 1995, and the related statements of operations,
changes in contract owners' equity, and the table of per-unit income and changes
in accumulation unit value for the year then ended. These financial statements
and the table of per-unit income and changes in accumulation unit value are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the table of per-unit income and
changes in accumulation unit value based on our audit. The statement of changes
in contract owners' equity for the year ended December 31, 1994, and the table
of per-unit income and changes in accumulation unit value for each of the four
years in the period then ended, were audited by other auditors whose report
dated February 1, 1995, expressed an unqualified opinion on that statement and
table.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the table of per-unit
income and changes in accumulation unit value are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of investments held by the custodian as of December 31, 1995. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 financial statements and the 1995 table of per-unit
income and changes in accumulation unit value referred to above present fairly,
in all material respects, the financial position of Franklin Life Money Market
Variable Annuity Fund C at December 31, 1995, and the results of its operations,
changes in its contract owners' equity, and per-unit income and changes in
accumulation unit value for the year then ended in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 2, 1996
6
