<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 Variable Annuity Fund A contract.
<TABLE>
<CAPTION>
Investment Position as of December 31, 1995
-------------------------------------------
<S> <C>
Accumulation Unit Value $69.20
------
Fixed Portion Interest Rate on Amounts Contributed During
Most Recent Contract Year. Current Crediting Rate Not
Guaranteed For Future Years. 6.50% *
------
</TABLE>
*LESS A CONTRACT EXPENSE CHARGE
The economy showed reasonable growth in 1995, with unemployment staying around
the 5.6% level and corporate profits continuing to show good growth. The stock
market continued its strong performance in the second half of 1995, with the
Standard & Poor's 500 Index up 13.1%. The Standard & Poor's 500 Index was up
34.1% for the year.
<TABLE>
<CAPTION>
Variable Portion: December 31, 1995 June 30, 1995 December 31, 1994
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Accumulation Unit Value $69.20 $60.09 $53.99
----- ------ -------
Percentage Change From:
December 31,1994 +28.2%
------
June 30, 1995 +15.2%
------
</TABLE>
The accumulation unit value is based on the market price of the investments
held by the Fund. A listing of the investments held at December 31, 1995
appears on page 3.
FIXED PORTION:
As noted above, 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 first 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 during or prior to the contract year ending in
1994 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, for the first three quarters of 1995, slowed to a more normal
2.5% to 3.0% growth pace, after being up 4.1% in 1994, as indicated by the Gross
Domestic Product. The Federal Reserve has changed its interest rate position
and lowered the Fed Funds rate in July and December. This rate currently stands
at 5.50%. 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. Inflation continues to be at an acceptable
level. Short term interest rates could stay around the current level, with the
possibility of slightly lower rates during the year. The stock market has some
potential for an upward move, but many factors will need to be positive for this
to happen in 1996.
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/Robert J. Gibbons
Robert J. Gibbons
President
and Chief Executive Officer
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments-at fair value (cost-$8,118,227):
Common stocks $ 8,634,319
Short-term note 1,661,216
------------
10,295,535
Cash on deposit 114,797
Dividends and interest receivable 31,435
------------
Total Assets 10,441,767
Liability - Due to The Franklin Life Insurance Company 12,854
------------
Contract Owners' Equity
Annuity reserves $ 16,105
Value of 150,474 Accumulation Units outstanding,
equivalent to $69.199949 per unit 10,412,808 $ 10,428,913
------------ ------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Investment Income
Dividends $ 167,553
Interest 145,370
Total Income ------------ $ 312,923
Expenses
Mortality and expense charges $ 97,809
Investment management services 42,758
Total Expenses 140,567
------------ ------------
Net Investment Income 172,356
Realized and Unrealized Gain (Loss) on Investments
Net realized gain from investment transactions
Proceeds from sales $ 1,044,876
Cost of investments sold (identified cost method) 1,028,020
------------
Net Realized Gain 16,856
Net unrealized appreciation (depreciation) of investments
Beginning of year $ ( 77,823)
------------
End of year 2,177,308
------------
Net Unrealized Appreciation 2,255,131
------------
Net Gain On Investments 2,271,987
------------
Net Increase In Contract Owners'
Equity Resulting From Operations $ 2,444,343
------------
------------
</TABLE>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------
<S> <C> <C>
Net investment income $ 172,356 $ 116,171
Net realized gain from investment transactions 16,856 708,267
Net unrealized appreciation (depreciation) of investments 2,255,131 (749,740)
---------------------------
Net Increase In Contract Owners' Equity Resulting From Operations 2,444,343 74,698
Net contract purchase payments 354,276 521,549
Reimbursement for contract guarantees 407 3,436
Annuity payments (3,262) (3,002)
Withdrawals (1,694,308) (1,936,673)
---------------------------
Net Increase (Decrease) in Contract Owners' Equity 1,101,456 (1,339,992)
Contract Owners' Equity at Beginning of Year 9,327,457 10,667,449
---------------------------
Contract Owners' Equity At End of Year $10,428,913 $ 9,327,457
---------------------------
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER
OF FAIR
SHARES VALUE
- ------ -----
<S> <C> <C>
COMMON STOCKS (82.8%)
BANKING (2.3%)
3,675 Student Loan Marketing Association $242,550
BEVERAGES (3.2%)
3,200 Anheuser-Busch Companies, Inc. 214,000
2,200 PepsiCo, Incorporated 122,925
---------
336,925
BUSINESS SERVICES (1.2%)
5,600 Equifax Inc. 119,700
CHEMICALS (1.8%)
2,700 Dow Chemical 189,675
COMPUTER SERVICES (3.2%)
8,100 Ceridian Corporation* 334,125
COSMETICS & HOUSEHOLD PRODUCTS (3.5%)
3,200 Dial Corp. 94,800
5,200 Gillette Company 271,050
---------
365,850
DRUGS & HEALTH CARE (16.9%)
6,100 Eckerd Corporation* 272,213
4,000 Eli Lilly and Company 225,000
4,300 Merck & Company, Inc. 282,187
2,100 Pfizer, Incorporated 132,300
6,450 St. Jude Medical, Inc. 277,350
3,300 Schering-Plough Corporation 180,675
3,000 Stryker Corporation 157,500
8,000 Walgreen Company 239,000
---------
1,766,225
ELECTRONICS & INSTRUMENTATIONS (2.3%)
2,900 Hewlett-Packard Company 242,875
FOOD PROCESSING (2.1%)
5,300 ConAgra, Inc. 218,625
FOOD - RETAIL (1.8%)
5,700 Albertson's, Inc. 187,387
HOUSEHOLD PRODUCTS (.9%)
3,700 Newell Co. 95,738
MACHINERY - INDUSTRIAL & CONSTRUCTION (1.9%)
1,500 Fluor Corporation 99,000
3000 Trinity Industry 94,500
---------
193,500
MINING & MINERALS (.8%)
2,000 Cleveland-Cliffs Inc. 82,000
OFFICE EQUIPMENT & SERVICES (9.0%)
2,000 Compaq Computers Corporation* 96,000
5,350 Digital Equipment Corporation* 343,069
2,400 International Business Machines Corporation 219,300
5,900 Policy Management Systems Corporation* 280,987
---------
939,356
OIL SERVICES & DRILLING (1.5%)
3,100 Halliburton Company $156,938
OILS & OIL RELATED PRODUCTS (9.2%)
2,700 Amoco Corporation 193,050
1,300 Atlantic Richfield Company 143,975
2,500 British Petroleum Company, p.l.c. 255,312
3,700 Diamond Shamrock, Inc. 95,738
2,600 Kerr-McGee Corporation 165,100
3,700 Unocal Corporation 107,763
---------
960,938
PHOTOGRAPHY (2.6%)
4,100 Eastman Kodak Company 274,700
RESTAURANTS/LODGING (1.3%)
3,400 Marriott International, Inc. 130,050
RETAIL-SPECIALTY (2.4%)
3,600 NIKE, Inc. 250,650
TECHNOLOGY (6.7%)
5,000 AMP, INCORPORATED 191,250
2,200 Diebold, Incorporated 121,825
2,400 Intel Corporation 136,200
3,100 Marshall, Incorporated* 99,587
3,600 Millipore Corporation 148,050
---------
696,912
UTILITIES-ELECTRIC (6.1%)
6,500 American Electric Power Company, Inc. 263,250
6,900 Baltimore Gas and Electric Company 196,650
4,200 Texas Utilities Company 172,200
---------
UTILITIES - TELEPHONE (2.1%) 632,100
5,000 BellSouth Corporation 217,500
---------
TOTAL COMMON STOCKS
(COST-$6,457,011) 8,634,319
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM NOTE (15.9%)
$1,675,000 United States Treasury Bill
due 1/4/96 (cost-$1,661,216) 1,661,216
-----------
TOTAL INVESTMENTS (98.7%)
(COST -$8,118,227) 10,295,535
CASH AND RECEIVABLES, LESS LIABILITY (1.3%) 133,378
-----------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $10,428,913
-----------
-----------
</TABLE>
*NON-INCOME PRODUCING INVESTMENT IN 1995.
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 1995 aggregated $1,578,489 and $1,044,876,
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 year ended December 31, 1995, sales and administrative charges
aggregating $30,845 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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ----------------------
UNITS AMOUNT UNITS AMOUNT
----- ------ ----- ------
<S> <S> <S> <S> <S>
Balance at
beginning of
year 172,507 $ 9,313,322 198,763 $10,652,285
Purchases 5,872 354,276 9,726 521,549
Net investment
income* - 171,988 - 113,239
Net realized gain
from investment
transactions* - 16,819 - 690,391
Net unrealized
appreciation
(depreciation) of
investments* - 2,250,305 - (730,818)
Withdrawals (27,905) (1,694,308) (35,982) (1,936,673)
Reimbursement for
contract
guarantees* - 406 - 3,349
-------------------------------------------------
Balance at end of
year 150,474 $10,412,808 172,507 $ 9,313,322
-------------------------------------------------
-------------------------------------------------
</TABLE>
*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 December 31, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1995 1994
----------- -----------
<S> <C> <C>
Gross unrealized appreciation $2,225,359 $351,869
Gross unrealized depreciation 48,051 429,692
------------------------------
Net unrealized
appreciation (depreciation)
of investments $2,177,308 $(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 YEAR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $1.948 $1.408 $1.231 $1.064 $1.194
Expenses .875 .773 .773 .723 .654
-----------------------------------------------
Net investment income 1.073 .635 .458 .341 .540
Net realized and unrealized gain (loss) on investments 14.139 (.240) .112 .770 14.238
-----------------------------------------------
Net increase in accumulation unit value 15.212 .395 .570 1.111 14.778
Accumulation unit value:
Beginning of year 53.988 53.593 53.023 51.912 37.134
-----------------------------------------------
End of year $69.200 $53.988 $53.593 $53.023 $51.912
-----------------------------------------------
-----------------------------------------------
Ratio of expenses to average net assets 1.44% 1.44% 1.44% 2.44% 1.44%
Ratio of net investment income to average net assets 1.76% 1.18% .85% .68% 1.19%
Portfolio turnover rate 14.66% 88.99% 68.62% 59.84% 28.47%
Number of accumulation units outstanding at end of year 150,474 172,507 198,763 217,948 229,368
- ---------------------------------------------------------------------------------------------------------
</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 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 auditors 82,781 1,137 3,894
</TABLE>
5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Managers and Contract Owners
Franklin Life Variable Annuity Fund A
We have audited the accompanying statement of assets and liabilities of Franklin
Life Variable Annuity Fund A, 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 Variable
Annuity Fund A 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
