<PAGE>
Dear Contract Owner:
We are pleased to provide this 1995 semiannual report which shows the
status of and balances in your Franklin Life Variable Annuity Fund A
contract.
<TABLE>
<CAPTION>
INVESTMENT POSITION AS OF JUNE 30, 1995
----------------------------------------
<S> <C>
Variable Unit Value $60.09
------
Fixed Portion Interest Rate on Amounts Contributed During
Most Recent Contract Year. Current Crediting Rate Not
Guaranteed For Future Years. 6.50%*
------
*LESS A CONTRACT EXPENSE CHARGE
</TABLE>
The economy closed out strong in 1994, with inflation and the potential for
higher interest rates being strong continuing concerns. The Federal Reserve
did raise rates in February, but signs of a slowing economy soon followed.
The stock market moved up strong in the first half of 1995 and intermediate
and long-term interest rates declined. Short-term interest rates were reduced
in July to cushion an economy that was showing signs of slowing too fast.
<TABLE>
<CAPTION>
VARIABLE PORTION: JUNE 30, 1995 DECEMBER 31, 1994 JUNE 30, 1994
----------------- ------------- ----------------- -------------
<S> <C> <C> <C>
Net asset value per unit $60.09 $53.99 $51.47
------ ------ -------
Percentage Change From:
June 30, 1994 +16.7%
------
December 31, 1994 +11.3%
------
</TABLE>
The net asset value is based on the market price of the investments
held by the Fund. A listing of the investments held at June 30, 1995
appears on page 3.
Fixed Portion:
--------------
As noted above, if your contract anniversary was in the first half of
1995, additional units in the fixed rate portion of your annuity
arising from contributions credited during the contract year ending in
1995 were based on a 6.50% interest rate, less a contract expense
charge. If your contract anniversary is in the second half of 1995,
the interest rate for the fixed portion of your annuity applicable to
contributions made during the contract year ending in 1995 is
anticipated to be 6.50%, less a contract expense charge. Amounts
selected for investment in the fixed rather than the variable portion
of your annuity do not participate in the investment experience of the
Fund. Contract units resulting from interest added or contributions
made prior to the contract year ending in 1995 continue to be credited
with additional interest based on investment yields which reflect the
years during which such units were purchased. Crediting rates are not
guaranteed for future years.
The U. S. economy slowed in the first quarter of 1995, with Gross Domestic
Product up 2.7%, after a strong fourth quarter in 1994 of +5.1% and +4.1%
for all of 1994. The Federal Reserve increased the Fed Funds rate again in
February to 6.00% as growth and inflation worries continued to be a
concern. With the slower first quarter growth reported and the second
quarter projections being even lower, the Fed reduced rates at its July
meeting to 5.75%. Corporate profits continued to show good growth and the
stock market responded in the first half of 1995 with the best six months
performance since late 1990 and early 1991. A stock market correction
continues to be anticipated, but continuing growth in the economy,
inflation staying under control and expanding corporate profits should
support the current market level. We have been holding a higher than
average cash level in anticipation of a market correction. We will reduce
the cash position somewhat as opportunities occur.
In today's fast-paced world, products, markets, client's needs, and
individual risk tolerance all change. In this environment, you may want to
take some extra time and review how well this product continues to meet
your retirement investment objectives. A Franklin Life representative
would be happy to review your financial situation with you and suggest the
most appropriate mix of products to provide financial security consistent
with your risk tolerance.
Cordially yours,
/s/ HOWARD C. HUMPHREY
------------------------------------------
Howard C. Humphrey
Chairman of the Board
and Chief Executive Officer
1
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
STATEMENT OF NET ASSETS
JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments-at market value (cost-$8,972,625):
Common stocks $6,824,978
United States Treasury Bill 2,975,033
-----------
9,800,011
Cash on deposit 32,300
Dividends and interest receivable 31,813
Miscellaneous receivables 271
----------
Total Assets 9,864,395
Liability - Due to The Franklin Life Insurance Company 14,040
----------
Contract Owners' Equity
Annuity reserves $ 15,047
Value of 163,670 Accumulation Units outstanding,
equivalent to $60.092178 per unit 9,835,308 $9,850,355
------------ ----------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
Investment Income:
Dividends $ 87,778
Interest 86,010
------------
Total Income $ 173,788
Expenses:
Mortality and expense charges $ 47,866
Investment management services 20,925
-----------
Total Expenses 68,791
-----------
Net Investment Income 104,997
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions (excluding short-term
investments):
Proceeds from sales $ 172,225
Cost of investments sold (identified cost method) 158,270
------------
Net Realized Gain 13,955
Net unrealized appreciation (depreciation) of investments:
Beginning of period $ (77,823)
End of period 827,387
------------
Net Unrealized Appreciation 905,210
-----------
Net Gain On Investments 919,165
-----------
Net Increase In Contract Owners'
Equity Resulting From Operations $1,024,162
-----------
-----------
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1995 1994
-----------------------------------
Net investment income $104,997 $116,171
Net realized gain from investment transactions 13,955 708,267
Net unrealized appreciation (depreciation) of
investments 905,210 (749,740)
-----------------------------------
Net Increase In Contract Owners' Equity
Resulting From Operations 1,024,162 74,698
Net contract purchase payments 196,541 521,549
Reimbursement for contract guarantees 296 3,436
Annuity payments (1,548) (3,002)
Withdrawal of funds on terminated contracts (696,553) (1,936,673)
-----------------------------------
Net Increase (Decrease) in Contract Owners'
Equity 522,898 (1,339,992)
Contract Owners' Equity at Beginning of
Period 9,327,457 10,667,449
-----------------------------------
Contract Owners' Equity At End of Period $9,850,355 $9,327,457
-----------------------------------
-----------------------------------
</TABLE>
See notes to financial statement
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
- ----------- -------------
<S> <C>
COMMON STOCKS (69.3%)
BANKING (2.0%)
4,175 Student Loan Marketing Association $195,703
BEVERAGES (1.9%)
3,200 Anheuser-Busch Companies, Inc. 182,000
BUSINESS SERVICES (1.3%)
2,800 Equifax Inc. 93,450
2,200 Wheelabrator Technologies, Inc. 33,825
------------
127,275
COMPUTER SERVICES (3.0%)
8,100 Ceridian Corporation* 298,688
COSMETICS & HOUSEHOLD PRODUCTS (3.2%)
3,200 Dial Corp. 79,200
5,200 Gillette Company 232,050
------------
311,250
DRUGS & HEALTH CARE (14.2%)
9,600 Beverly Enterprises, Inc.* 118,800
7,900 Eckerd Corporation* 252,800
3,000 Eli Lilly and Company 235,500
5,300 Merck & Company, Inc. 259,700
4,300 St. Jude Medical, Inc. 215,537
4,600 Schering-Plough Corporation 202,975
3,000 Stryker Corporation 115,125
------------
1,400,437
ELECTRONICS & INSTRUMENTATIONS (2.2%)
2,900 Hewlett-Packard Company 216,050
FOOD PROCESSING (2.9%)
5,300 ConAgra, Inc. 184,837
4,500 Ralcorp Holdings, Inc.* 102,938
------------
287,775
FOOD - RETAIL (1.7%)
5,700 Albertson's, Inc. 169,575
HOUSEHOLD PRODUCTS (.9%)
3,700 Newell Co. 90,650
MACHINERY - INDUSTRIAL & CONSTRUCTION (.8%)
1,500 Fluor Corporation 78,000
MINING & MINERALS (.8%)
2,000 Cleveland-Cliffs Inc. 77,000
OFFICE EQUIPMENT & SERVICES (7.3%)
5,350 Digital Equipment Corporation* 218,013
2,400 International Business Machines
Corporation 230,400
5,900 Policy Management Systems
Corporation* 271,400
------------
719,813
OIL SERVICES & DRILLING (1.1%)
3,100 Halliburton Company 110,825
OILS & OIL RELATED PRODUCTS (8.9%)
2,700 Amoco Corporation $179,887
1,300 Atlantic Richfield Company 142,675
2,500 British Petroleum Company, p.1.c. 214,062
3,700 Diamond Shamrock, Inc. 95,275
2,600 Kerr-McGee Corporation 139,425
3,700 Unocal Corporation 102,213
------------
873,537
PHOTOGRAPHY (2.5%)
4,100 Eastman Kodak Company 248,563
RESTAURANTS/LODGING (1.3%)
3,400 Marriott International, Inc. 121,975
RETAIL-SPECIALTY (1.8%)
1,800 NIKE, Inc. 151,200
4,600 Payless Cashways, Inc.* 29,325
------------
180,525
TECHNOLOGY (1.2%)
1,800 Millipore Corporation 121,500
UTILITIES-ELECRTIC (8.7%)
6,500 American Electric Power Company, Inc. 228,312
6,900 Baltimore Gas and Electric Company 172,500
9,100 DPL Inc. 201,337
4,500 Entergy Corporation 108,563
4,200 Texas Utilities Company 144,375
------------
855,087
UTILITIES - TELEPHONE (1.6%)
2,500 BellSouth Corporation 158,750
------------
TOTAL COMMON STOCKS
(COST-5,997,592) 6,824,978
PRINCIPAL U.S. TREASURY BILL (30.2%)
AMOUNT
- ---------
$3,000,000 United States Treasury Bill
due 8/3/95 (cost-$2,975,033) 2,975,033
------------
TOTAL INVESTMENTS (99.5%)
(COST - $8,972,625) 9,800,011
------------
CASH AND RECEIVABLES, LESS
LIABILITY (.5%) 50,344
------------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $9,850,355
------------
<FN>
*Non-income producing investment during the year ended June 30, 1995
</TABLE>
See notes to financial statements
- ------------------------------------------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF FRANKLIN LIFE VARIABLE
ANNUITY FUND A 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 Variable Annuity Fund A (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. Significant accounting policies
of the Fund are as follows:
VALUATION OF INVESTMENTS: Investments in common stocks listed on national
stock exchanges are valued at closing sales prices. Unlisted common stocks
are valued at the most recent bid prices, as supplied by broker-dealers.
Short-term notes are valued at cost, which approximates market.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment
transactions are accounted for on the trade date. Dividend income is recorded
on the ex-dividend date and 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.
ANNUITY RESERVES: Reserves on contracts, all involving life contingencies,
are calculated using the Progressive Annuity Table with an assumed investment
rate of 3-1/2%.
NOTE B-INVESTMENTS
Exclusive of short-term investments, the cost of investments purchased and
the proceeds from investments sold during the six months ended June 30, 1995
aggregated $249,319 and $172,225, respectively.
NOTE C-EXPENSES
Amounts are paid to The Franklin for investment management services at the
rate of .0012% of the current value of the Fund per day (.438% on an annual
basis) and for mortality and expense risk assurances at the rate of .002745%
of the current value of the Fund per day (1.002% on an annual basis).
NOTE D-SALES AND ADMINISTRATIVE CHARGES
During the six months ended June 30, 1995, sales and administrative charges
aggregating $19,096 were deducted from the proceeds of the sales of
accumulation units and retained by Franklin Financial Services Corporation
and The Franklin. Franklin Financial Services Corporation is a wholly-owned
subsidiary of The Franklin and principal underwriter for the Fund.
NOTE E-SUMMARY OF CHANGES IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
-----------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
----- ------ ----- ------
<S> <C> <C> <C> <C>
Balance at
beginning of
period 172,507 $9,313,322 198,763 $10,652,285
Purchases 3,478 196,541 9,726 521,549
Net investment
income* - 104,745 - 113,239
Net realized gain
from investment
transactions* - 13,922 - 690,391
Net unrealized
appreciation
(depreciation) of
investments* - 903,036 - (730,818)
Withdrawals (12,315) (696,553) (35,982) (1,936,673)
Reimbursement for
contract
guarantees* - 295 - 3,349
-----------------------------------------------------------
Balance at End of
period 163,670 $9,835,308 172,507 $9,313,322
-----------------------------------------------------------
-----------------------------------------------------------
<FN>
*Excludes portion allocated to annuity reserves on a pro rata basis.
</TABLE>
NOTE F-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.
NOTE G-NET UNREALIZED APPRECIATION/DEPRECIATION
Unrealized Appreciation/Depreciation on investment securities at June 30,
1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-----------------------------------
<S> <C> <C>
Gross unrealized appreciation $1,034,707 $351,869
Gross unrealized depreciation 207,320 429,692
-----------------------------------
Net $827,387 $(77,823)
-----------------------------------
-----------------------------------
</TABLE>
4
<PAGE>
SUPPLEMENTARY INFORMATION
PER-UNIT INCOME AND CHANGES IN ACCUMULATION UNIT VALUE
(SELECTED DATA AND RATIOS FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income $1.050 $1.408 $1.231 $1.064 $1.194
Expenses .416 .773 .773 .723 .654
-------------------------------------------------------------------------
Net investment income .634 .635 .458 .341 .540
Net realized and unrealized
gain (loss) on securities 5.470 (.240) .112 .770 14.238
-------------------------------------------------------------------------
Net increase in
accumulation unit value 6.104 .395 .570 1.111 14.778
-------------------------------------------------------------------------
Accumulation unit value:
Beginning of period 53.988 53.593 53.023 51.912 37.134
-------------------------------------------------------------------------
End of Period $60.092 $53.988 $53.593 $53.023 $51.912
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 2.20%* 1.18% .85% .68% 1.19%
Portfolio turnover rate 2.70% 88.99% 68.62% 59.84% 28.47%
Number of accumulation units
outstanding at end of period 163,670 172,507 198,763 217,948 229,368
- ----------------------------------------------------------------------------------------------------------
<FN>
*Annualized
</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 accountants 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 84,620 3,192 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 84,908 2,904 0
Election of
James W. Voth as
Member, Board of Managers 84,858 2,954 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 84,858 2,954 0
Approval of new Investment
Management Agreement
between the Fund and
The Franklin 80,996 2,493 4,323
Ratification of Selection
of Ernst & Young LLP as
independent accountants 82,781 1,137 3,894
</TABLE>
5
<PAGE>
CHANGE OF INDEPENDENT AUDITORS
The Board of Managers has selected the firm of Ernst & Young LLP, Chicago,
Illinois, as the independent auditors for the Fund to serve for 1995. That
firm has also been selected as the independent auditors for The Franklin and
its parents and subsidiaries, for two other separate accounts of The
Franklin, and for two separate accounts of The American Franklin Life
Insurance Company, a wholly-owned subsidiary of The Franklin. Ernst & Young
LLP has no direct or indirect interest in the Fund or in The Franklin or its
subsidiaries.
On February 22, 1995, the Fund terminated the engagement of Coopers & Lybrand
L.L.P. as the independent auditors for the Fund for periods beginning on or
after January 1, 1995. Ernst & Young LLP has been selected to audit the
financial statements of The Franklin and the Board of Managers decided to
retain Ernst & Young LLP as a matter of efficiency.
During the audits of the Fund's financial statements for the years ended
December 31, 1993 and 1994, there was no disagreement between the Fund and
Coopers & Lybrand L.L.P. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of Coopers & Lybrand
L.L.P., would have caused Coopers & Lybrand L.L.P. to make reference in
connection with its reports to the subject matter of the disagreement.
6
