<PAGE>
Dear Contract Owner:
We are pleased to provide this 1996 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 1995 was as
follows:
December 31 December 31
1996 1995
----------- -----------
Accumulation Unit Value $22.87 $22.03
------ ------
------ ------
Percentage Change 3.81%
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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 economy expanded at a stronger pace in the first three quarters of 1996, as
indicated by the Gross Domestic Product (GDP), up 3.0% compared to the annual
1995 increase of 2.2%. The unemployment rate was 5.3% in December of 1996 and
ranged from a high in January of 5.8% to a low in August of 5.1%. Inflation is
expected to be at a reasonable level in 1997.
The Federal Reserve Board reduced the Federal Funds rate in January of 1996 by
25 basis points to 5.25% and then held the rate steady for the balance of the
year. Commercial paper rates declined slightly in early 1996 after the Federal
Reserve Board reduced the Federal Funds rate. Short term rates remained steady
for the balance of the year. Short term interest rates are expected to hold
relatively steady for 1997, unless there is unexpected growth in the economy or
inflation concerns reoccur.
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,
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, 1996
Assets
Investments-at cost which approximates fair value
Corporate short-term notes $ 839,077
U.S. Government short-term note 997,465
----------
1,836,542
Cash on deposit 160,877
Interest receivable 3,597
----------
Total Assets 2,001,016
Liability-Due to The Franklin Life Insurance Company 2,832
----------
Contract Owners' Equity
Value of 87,386 Accumulation Units outstanding,
equivalent to $22.86614003 per unit $1,998,184
----------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
Investment Income-Interest $ 111,989
Expenses
Mortality and expense charges $23,215
Investment management services 8,171
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Total Expenses 31,386
----------
Net Investment Income $ 80,603
----------
----------
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
YEAR ENDED DECEMBER 31
1996 1995
------------------------------
Net investment income $ 80,603 $ 106,270
Net contract purchase payments 38,349 36,795
Reimbursement (payment) for contract guarantees 51 (148)
Withdrawals (425,220) (640,200)
Administrative expense charges (820) (1,060)
------------------------------
Net Decrease in Contract Owners' Equity (307,037) (498,343)
Contract Owners' Equity at Beginning of Year 2,305,221 2,803,564
------------------------------
Contract Owners' Equity at End of Year $ 1,998,184 $2,305,221
------------------------------
------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL FAIR
AMOUNT VALUE
- --------- -----------
CORPORATE SHORT-TERM NOTES
(41.99%)
AUTOMOTIVE (4.72%)
$ 95,000 Ford Motor Credit Corporation
5.36%, due 2/11/97 $ 94,293
FINANCE COMPANIES - CONSUMER (13.66%)
95,000 Associates Corporation of North America
5.34%, due 1/28/97 94,323
95,000 Household Finance Corporation
5.35%, due 2/4/97 94,294
85,000 Norwest Financial, Inc.
5.42%, due 2/10/97 84,322
---------
272,939
FINANCE COMPANIES - COMMERCIAL (4.72%)
95,000 General Electric Capital Corporation
5.40%, due 2/5/97 94,288
FINANCIAL SAVINGS & SERVICE (4.71%)
95,000 American Express Credit Corporation
5.35%, due 2/18/97 94,195
MACHINERY - INDUSTRIAL & CONSTRUCTION
(4.72%)
$ 95,000 John Deere Capital Corporation
5.32%, due 1/23/97 $ 94,368
OILS & OIL RELATED PRODUCTS (9.46%)
95,000 Chevron Oil Finance Company
5.40%, due 1/16/97 94,587
95,000 Texaco Incorporated
5.48%, due 1/29/97 94,407
------------
188,994
TOTAL CORPORATE SHORT-TERM
NOTES (COST-$839,077) 839,077
------------
U.S. GOVERNMENT SHORT-TERM NOTE
(49.92%)
1,005,000 United States Treasury Bill
due 2/13/97 (cost-$997,465) 997,465
------------
TOTAL INVESTMENTS (91.91%)
(COST-$1,836,542) 1,836,542
------------
CASH, LESS LIABILITY (8.09%) 161,642
------------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $1,998,184
------------
------------
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>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
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
YEAR ENDED DECEMBER 31
1996 1995
-----------------------------------------------
Units Amount Units Amount
----- ------ ----- ------
Balance at
beginning of
year 104,641 $2,305,221 132,646 $2,803,564
Purchases 1,740 38,349 1,801 36,795
Net
investment
income - 80,603 - 106,270
Withdrawals (18,962) (425,220) (29,757) (640,200)
Reimbursement
(payment) for
contract
guarantees - 51 - (148)
Administrative
expense
charge (33) (820) (49) (1,060)
-----------------------------------------------
Balance at end
of year 87,386 $1,998,184 104,641 $2,305,221
-----------------------------------------------
-----------------------------------------------
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 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>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
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
1996 1995 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $1.162 $1.203 $.846 $.617 $.746
Expenses .326 .309 .303 .294 .286
---------------------------------------------------------------
Net investment income .836 .894 .543 .323 .460
Accumulation unit value:
Beginning of year 22.030 21.136 20.593 20.270 19.810
---------------------------------------------------------------
End of year $22.866 $22.030 $21.136 $20.593 $20.270
---------------------------------------------------------------
---------------------------------------------------------------
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 3.71% 4.17% 2.58% 1.58% 2.32%
Number of accumulation units outstanding at end of year 87,386 104,641 132,646 159,929 210,310
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS
An annual meeting of Contract Owners of the Fund was held on April 15, 1996. At
the meeting, the individuals named below were elected as Members of the Board of
Managers of the Fund, 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.
Matter Votes:
- ---------- -----------------------------------
For Against Abstain
--- ------- -------
Election of
Robert G. Spencer as
Member, Board of Managers 54,766 1,789 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 54,766 1,789 0
Election of
James W. Voth as
Member, Board of Managers 54,766 1,789 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 54,766 1,789 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 54,069 308 2,177
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, 1996, the related statement of operations for
the year then ended and the statements of changes in contract owners' equity,
and the table of per-unit income and changes in accumulation unit value for each
of the two years 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 audits. The table of per-unit income and
changes in accumulation unit value for each of the three years in the period
ended December 31, 1994 was audited by other auditors whose report dated
February 1, 1995, expressed an unqualified opinion on that table.
We conducted our audits 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,
1996. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the 1996 and 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, 1996, and the results of its operations
for the year then ended, and the changes in its contract owners' equity, and
per-unit income and changes in accumulation unit value for each of the two years
then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 31, 1997
6
