<PAGE>
[LETTERHEAD]
Dear Contract Owner:
We are pleased to provide this 1996 semi-annual report which shows the status of
and balances in your Franklin Life Variable Annuity Fund A contract.
INVESTMENT POSITION AS OF JUNE 30, 1996
Accumulation Unit Value $ 74.36
Fixed Portion Interest Rate on Amounts Contributed During
Most Recent Contract Year. Current Crediting Rate Not
Guaranteed For Future Years. 6.25%*
*LESS A CONTRACT EXPENSE CHARGE
The U.S. economy closed out 1995 on the weak side, but the first quarter of 1996
showed growth potential with the prospects for the second quarter even stronger.
The Federal Reserve Board lowered interest rates in late January by 25 basis
points and held them at that level throughout the first half of the year and
retained that level at the July meeting. The stock market moved up at a good
pace in the first half of 1996 while short term interest rates held steady to up
slightly and longer term interest rates increased about one hundred basis
points. The Standard & Poor's 500 Index (with dividends) was up 10.1% in the
first half of 1996.
Variable Portion: June 30, 1996 December 31, 1995 June 30, 1995
----------------- ------------- ----------------- -------------
Accumulation Unit Value $ 74.26 $69.20 $60.09
Percentage Change From: ------ ------ ------
------ ------ ------
June 30, 1995 +23.7%
-------
-------
December 31, 1995 + 7.5%
-------
-------
The accumulation unit value is based on the market price of the investments
held by the Fund. A listing of the investments held at June 30, 1996
appears on page 3.
FIXED PORTION:
As noted above, if your contract anniversary was in the first half of 1996,
additional units in the fixed rate portion of your annuity arising from
contributions credited during the contract year ending in 1996 were based
on a 6.25% interest rate, less a contract expense charge. If your contract
anniversary is in the second half of 1996, the interest rate for the fixed
portion of your annuity applicable to contributions made during the
contract year ending in 1996 is anticipated to be 6.25%, 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 1996 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 improved in the first quarter of 1996, with Gross Domestic
Product up 2.2%, after a weak fourth quarter in 1995 of +0.5% and +2.2% for all
of 1995. Second quarter Gross Domestic Product is expected to be up more than
it was in the first quarter. Inflation continues to be at an acceptable level.
The continued employment growth and the unemployment rate at 5.3%, just
announced for June 1996, is a concern that higher inflation could be
forthcoming. The Federal Reserve Board lowered the discount rate in January by
25 basis points, but it appears that short term rates could be increased later
this year if inflation and growth appear to be headed higher. Corporate
profits, while trending downward in 1995, are still at very acceptable levels
and expected to increase in the third and fourth quarters of 1996. The stock
market reflected the acceptable earnings trend in the good first half
performance. While there is no current evidence of a major stock market
correction, there also isn't any strong evidence that we will see the stock
market move much higher in the next several months.
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,
Robert J. Gibbons
President
and Chief Executive Officer
1
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments-at fair value (cost-$7,847,133):
Common stocks $ 9,343,594
Short-term note 1,339,542
-----------
10,683,136
Cash on deposit 47,810
Dividends and interest receivable 20,347
Miscellaneous receivable 3,118
-----------
Total Assets 10,754,411
Liability -Due to The Franklin Life Insurance Company 33,627
-----------
Contract Owners' Equity
Annuity reserves $ 17,294
Value of 143,945 Accumulation Units outstanding,
equivalent to $74.35817933 per unit 10,703,490 $10,720,784
------------ -----------
-----------
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<S>
Investment Income
Dividends $ 82,451
Interest 39,050
------------
Total Income $ 121,501
Expenses
Mortality and expense charges $ 53,413
Investment management services 23,350
------------
Total Expenses 76,763
Net Investment Income 44,738
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions (excluding short-term investments):
Proceeds from sales $ 445,441
Cost of investments sold (identified cost method) ( 388,440)
------------
Net Realized Gain 57,001
Net unrealized appreciation (depreciation) of investments
Beginning of period $(2,177,308)
End of period 2,836,003
------------
Net Unrealized Appreciation 658,695
-----------
Net Gain On Investments 715,696
-----------
Net Increase In Contract Owners'
Equity Resulting From Operations $ 760,434
-----------
<CAPTION>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 1996 1995
<S> <C> <C>
Net investment income $ 44,738 $ 172,356
Net realized gain from investment transactions 57,001 16,856
Net unrealized appreciation (depreciation) of investments 658,695 2,255,131
-------------------------------
Net Increase In Contract Owners' Equity Resulting From Operations 760,434 2,444,343
Net contract purchase payments 183,616 354,276
Reimbursement for contract guarantees 3,462 407
Annuity payments (1,910) (3,262)
Withdrawals (653,731) (1,694,308)
-------------------------------
Net Increase (Decrease) in Contract Owners' Equity 291,871 1,101,456
Contract Owners' Equity at Beginning of Period 10,428,913 9,327,457
-------------------------------
Contract Owners' Equity At End of Period $ 10,720,784 $ 10,428,913
-------------------------------
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
NUMBER
OF FAIR
SHARES VALUE
- ---------- ------------
COMMON STOCKS (87.2%)
BANKING (2.5%)
3,675 Student Loan Marketing Association $ 271,950
BEVERAGES (1.5%)
4,400 PepsiCo, Incorporated 156,200
BUSINESS SERVICES (1.4%)
5,600 Equifax Inc. 147,000
CHEMICALS (1.9%)
2,700 Dow Chemical 205,200
COMPUTER SERVICES (3.8%)
8,100 Ceridian Corporation* 409,050
COSMETICS & HOUSEHOLD PRODUCTS (3.9%)
3,200 Dial Corp. 91,600
5,200 Gillette Company 324,350
-----------
415,950
DRUGS & HEALTH CARE (16.7%)
12,200 Eckerd Corporation* 276,025
4,000 Eli Lilly and Company 260,000
4,300 Merck & Company, Inc. 277,888
2,100 Pfizer, Incorporated 149,887
6,450 St. Jude Medical, Inc. 216,075
3,300 Schering-Plough Corporation 207,075
3,000 Stryker Corporation 136,500
8,000 Walgreen Company 268,000
-----------
1,791,450
ELECTRONICS & INSTRUMENTATIONS (2.7%)
2,900 Hewlett-Packard Company 288,912
FOOD PROCESSING (2.2%)
5,300 ConAgra, Inc. 240,488
FOOD - RETAIL (2.2%)
5,700 Albertson's, Inc. 235,837
FOOD - WHOLESALE (2.1%)
6,700 Sysco Corporation 229,475
HOUSEHOLD PRODUCTS (1.1%)
3,700 Newell Co. 113,313
MACHINERY - INDUSTRIAL & CONSTRUCTION
(1.9%)
1,500 Fluor Corporation 98,062
3,000 Trinity Industry 102,000
-----------
200,062
MINING & MINERALS (0.7%)
2,000 Cleveland-Cliffs Inc. 78,250
OFFICE EQUIPMENT & SERVICES (8.1%)
2,000 Compaq Computers Corporation* 98,250
5,350 Digital Equipment Corporation* 241,419
2,400 International Business Machines
Corporation 237,600
5,900 Policy Management Systems
Corporation* 295,000
-----------
872,269
OIL SERVICES & DRILLING (1.6%)
3,100 Halliburton Company $ 172,050
OILS & OIL RELATED PRODUCTS (7.2%)
2,700 Amoco Corporation 194,737
1,300 Atlantic Richfield Company 153,725
2,500 British Petroleum Company, p.l.c. 267,188
2,600 Kerr-McGee Corporation 158,275
----------
773,925
PACKAGING - CONTAINERS (2.2%)
4,200 Avery-Dennison Corporation 230,475
PHOTOGRAPHY (3.0%)
4,100 Eastman Kodak Company 318,775
RESTAURANTS/LODGING (1.7%)
3,400 Marriott International, Inc. 182,750
RETAIL-SPECIALTY (3.5%)
3,600 NIKE, Inc. 369,900
TECHNOLOGY (7.2%)
5,000 AMP, Incorporated 200,625
3,300 Diebold, Incorporated 159,225
2,400 Intel Corporation 176,250
3,100 Marshall, Incorporated* 91,062
3,600 Millipore Corporation 150,750
------------
777,912
UTILITIES-ELECTRIC (6.1%)
6,500 American Electric Power Company,
Inc. 277,063
6,900 Baltimore Gas and Electric Company 195,788
4,200 Texas Utilities Company 179,550
------------
652,401
UTILITIES - TELEPHONE (2.0%)
5,000 BellSouth Corporation 210,000
------------
TOTAL COMMON STOCKS
(COST-$6,507,591) 9,343,594
PRINCIPAL
AMOUNT
- ----------
U.S. TREASURY BILL (12.5%)
$1,350,000 United States Treasury Bill
due 8/08//96 (cost-$1,339,542) 1,339,542
------------
TOTAL INVESTMENTS (99.7%)
(COST -$7,847,133) 10,683,136
CASH AND RECEIVABLES, LESS
LIABILITY (0.3%) 37,648
------------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%)
$ 10,720,784
------------
------------
*NON-INCOME PRODUCING INVESTMENT DURING THE SEMI-ANNUAL PERIOD ENDING JUNE
30, 1996.
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. The Fund no longer issues new contracts. 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 fair value.
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, 1996
aggregated $439,020 and $445,441, 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, 1996, sales and administrative charges
aggregating $12,847.25 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
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
----------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------- ----------- ------- -----------
Balance at
beginning of
period 150,474 $10,412,808 172,507 $ 9,313,322
Purchases 2,543 183,616 5,872 354,276
Net investment
income - 44,557 - 171,988
Net realized gain
from investment
transactions - 56,770 - 16,819
Net unrealized
appreciation
(depreciation)
of investments* - 656,022 - 2,250,305
Withdrawals (9,072) (653,731) (27,905) (1,694,308)
Reimbursement for contract
guarantees* - 3,448 - 406
----------------------------------------------
Balance at end
of period 143,945 $10,703,490 150,474 $10,412,808
----------------------------------------------
----------------------------------------------
*Excludes portion allocated to annuity reserves on a pro rata basis.
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 OF
INVESTMENTS
Net unrealized appreciation/depreciation of investments at June 30, 1996 and
December 31, 1995 was as follows:
JUNE 30, DECEMBER 31,
1996 1995
------------------------------
Gross unrealized appreciation $2,878,437 $2,225,359
Gross unrealized depreciation 42,434 48,051
------------------------------
Net unrealized
appreciation (depreciation)
of investments $2,836,003 $2,177,308
------------------------------
------------------------------
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,
1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .829 $ 1.948 $ 1.408 $ 1.231 $ 1.064
Expenses .524 .875 .773 .773 .723
----------------------------------------------------------
Net investment income .305 1.073 .635 .458 .341
Net realized and unrealized gain (loss) on investments 4.853 14.139 (.240) .112 .770
----------------------------------------------------------
Net increase in accumulation unit value 5.158 15.212 .395 .570 1.111
Accumulation unit value:
Beginning of period 69.200 53.988 53.593 53.023 51.912
----------------------------------------------------------
End of period $74.358 $69.200 $53.988 $53.593 $53.023
----------------------------------------------------------
----------------------------------------------------------
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 .84% 1.76% 1.18% .85% .68%
Portfolio turnover rate 4.90% 14.66% 88.99% 68.62% 59.84%
Number of accumulation units outstanding at end of period 143,945 150,474 172,507 198,763 217,948
- ------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
Matter Votes:
-------------------- -------------------------------------------------
For Against Abstain
------- ------- -------
<S> <C> <C> <C>
Election of
Robert G. Spencer as
Member, Board of Managers 77,058 839 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 75,873 2,204 0
Election of
James W. Voth as
Member, Board of Managers 76,845 1,051 0
Election of
Clifford L. Greenwalt as
Member, Board of managers 77,058 839 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 74,487 107 3,303
</TABLE>
5
