<PAGE>
Dear Contract Owner:
We are pleased to provide this 1996 annual report which shows the status of
and balances in your Franklin Life Variable Annuity Fund A contract.
INVESTMENT POSITION AS OF DECEMBER 31, 1996
-------------------------------------------
Accumulation Unit Value $81.48
------
------
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 is showing somewhat stronger growth in 1996, with the Gross
Domestic Product (GDP) expected to be above the 2.2% in 1995. The
unemployment rate was 5.3% in December of 1996, with unemployment ranging
from a high of 5.8% in January to a low of 5.1% in August. The Federal
Reserve Board lowered the Federal Funds rate in January of 1996 by 25 basis
points to 5.25% and then held the rate constant for the balance of the year.
The stock market had another good year, with the Standard & Poor's Index up
20.26% in 1996.
<TABLE>
<CAPTION>
VARIABLE PORTION: DECEMBER 31, 1996 JUNE 30, 1996 DECEMBER 31, 1995
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Accumulation Unit Value $81.48 $74.36 $69.20
-------- ------ ------
-------- ------ ------
Percentage Change From:
December 31,1995 +17.75%
--------
--------
June 30, 1996 +9.58%
--------
--------
</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, 1996 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 1996 were based on a 6.25% interest rate, less a
contract expense charge. If your contract anniversary is in the first
half of 1997, the interest rate for the fixed portion of your annuity
applicable to contributions made during the contract year ending in 1997
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 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 economy expanded at a stronger pace in the first three quarters of 1996,
as indicated by the Gross Domestic Product, up 3.0%, compared to the annual
1995 increase of 2.2%. Inflation continues to be under control and
corporate profits continue to grow at a good rate. The unemployment rate
continues at a good level, but it could be an indication of higher inflation
down the road. The Federal Reserve continues to hold the Federal Funds rate
at 5.25%. Short term interest rates have held steady during 1996, while
longer term rates have increased slightly since December of 1995. The strong
flow of new money into the equity mutual funds, good corporate profits and
inflation remaining under control will be needed in 1997 to allow the stock
market to continue its upward momentum.
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
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
Assets
Investments-at fair value (cost-$7,784,013):
Common stocks $9,595,990
Short-term notes 1,772,093
----------
11,368,083
Cash on deposit 43,985
Dividends and interest receivable 24,459
----------
Total Assets 11,436,527
Liability - Due to The Franklin Life Insurance Company 15,311
Contract Owners' Equity
Annuity reserves $ 17,875
Value of 139,945 Accumulation Units outstanding,
equivalent to $81.48471104 per unit 11,403,341 $11,421,216
------------ -----------
------------ -----------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
Investment Income
Dividends $166,120
Interest 75,477
------------
Total Income $ 241,597
Expenses
Mortality and expense charges $108,769
Investment management services 47,550
------------
Total Expenses 156,319
-----------
Net Investment Income 85,278
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions
Proceeds from sales $1,734,452
Cost of investments sold (identified cost method 1,464,659
------------
Net Realized Gain 269,793
Net unrealized appreciation of investments
Beginning of year $2,177,308
End of year 3,584,070
------------
Net Unrealized Appreciation 1,406,762
-----------
Net Gain On Investments 1,676,555
-----------
Net Increase In Contract Owners'
Equity Resulting From Operations $1,761,833
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
---------------------------
<S> <C> <C>
Net investment income $ 85,278 $ 172,356
Net realized gain from investment transactions 269,793 16,856
Net unrealized appreciation of investments 1,406,762 2,255,131
---------------------------
Net Increase In Contract Owners' Equity Resulting From Operations 1,761,833 2,444,343
Net contract purchase payments 475,974 354,276
Reimbursement for contract guarantees 3,178 407
Annuity payments (3,878) (3,262)
Withdrawals (1,244,804) (1,694,308)
---------------------------
Net Increase in Contract Owners' Equity 992,303 1,101,456
Contract Owners' Equity at Beginning of Year 10,428,913 9,327,457
---------------------------
Contract Owners' Equity At End of Year $11,421,216 $10,428,913
---------------------------
</TABLE>
See notes to financial statements
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
NUMBER
OF FAIR
SHARES VALUE
- ------ ---------
COMMON STOCKS (84.02%)
BANKING (3.0%)
3,675 Student Loan Marketing Association $ 342,234
BEVERAGES (1.13%)
4,400 PepsiCo, Incorporated 128,700
BUSINESS SERVICES (1.5%)
5,600 Equifax Inc. 171,500
CHEMICALS (1.85%)
2,700 Dow Chemical 211,612
COMPUTER SERVICES (2.87%)
8,100 Ceridian Corporation* 328,050
COSMETICS & HOUSEHOLD PRODUCTS (2.72%)
4,000 Gillette Company 311,000
DRUGS & HEALTH CARE (17.08%)
4,791 Eckerd Corporation* 153,312
4,000 Eli Lilly and Company 292,000
4,300 Merck & Company, Inc. 342,387
2,100 Pfizer, Incorporated 174,300
6,450 St. Jude Medical, Inc. 273,319
3,300 Schering-Plough Corporation 213,675
6,000 Stryker Corporation 179,250
8,000 Walgreen Company 322,000
---------
1,950,243
ELECTRONICS & INSTRUMENTATIONS (2.55%)
5,800 Hewlett-Packard Company 291,450
FOOD PROCESSING (2.31%)
5,300 ConAgra, Inc. 263,675
FOOD - RETAIL (1.78%)
5,700 Albertson's, Inc. 203,063
FOOD-WHOLESALE (1.91%)
6,700 Sysco Corporation 218,587
HOUSEHOLD PRODUCTS (1.02%)
3,700 Newell Co. 116,550
MACHINERY - INDUSTRIAL & CONSTRUCTION (1.81%)
1,500 Fluor Corporation 94,125
3,000 Trinity Industry 112,500
---------
206,625
OFFICE EQUIPMENT & SERVICES (6.18%)
2,000 Compaq Computers Corporation* 148,750
5,350 Digital Equipment Corporation* 193,938
2,400 International Business Machines
Corporation 363,600
---------
706,288
OIL SERVICES & DRILLING (1.64%)
3,100 Halliburton Company 186,775
OILS & OIL RELATED PRODUCTS (8.15%)
2,700 Amoco Corporation $ 217,688
1,300 Atlantic Richfield Company 172,250
2,500 British Petroleum Company, p.l.c. 353,437
2,600 Kerr-McGee Corporation 187,200
---------
930,575
PACKAGING - CONTAINERS (2.6%)
8,400 Avery-Dennison Corporation 297,150
PHOTOGRAPHY (2.88%)
4,100 Eastman Kodak Company 329,025
RESTAURANTS/LODGING (1.64%)
3,400 Marriott International, Inc. 187,850
RETAIL-SPECIALTY (3.78%)
7,200 NIKE, Inc. 432,000
TECHNOLOGY (8.38%)
5,000 AMP, Incorporated 191,875
3,300 Diebold, Incorporated 207,488
2,400 Intel Corporation 314,250
3,100 Marshall, Incorporated* 94,937
3,600 Millipore Corporation 148,950
---------
957,500
UTILITIES-ELECTRIC (5.46%)
6,500 American Electric Power Company, Inc. 267,313
6,900 Baltimore Gas and Electric Company 184,575
4,200 Texas Utilities Company 171,150
---------
623,038
UTILITIES - TELEPHONE (1.77%)
5,000 BellSouth Corporation 202,500
TOTAL COMMON STOCKS
(COST-$6,011,920) 9,595,990
---------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM NOTES (15.52%)
$ 200,000 United States Treasury Bill
due 1/16/97 (cost-$199,322)
199,322
1,585,000 United States Treasury Bill
due 1/16/97 (cost-$1,572,771)
1,572,771
---------
TOTAL SHORT-TERM NOTES
(COST - $1,772,093) 1,772,093
TOTAL INVESTMENTS (99.5%)
(COST -$7,784,013) 11,368,083
CASH AND RECEIVABLES, LESS
LIABILITY (.5%) 53,133
---------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%)
$11,421,216
---------
---------
*NON-INCOME PRODUCING INVESTMENT IN 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>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
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 1996 aggregated $439,020 and
$1,153,903, 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
Sales and administrative charges aggregating $21,860 and $30,845 were
deducted from the proceeds of the sales of accumulation units and retained by
Franklin Financial Services Corporation and The Franklin during 1996 and
1995, respectively. 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
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
Balance at
beginning of
year 150,474 $10,412,808 172,507 $ 9,313,322
Purchases 6,506 475,974 5,872 354,276
Net investment
income* - 85,005 - 171,988
Net realized gain
from investment
transactions* - 268,930 - 16,819
Net unrealized
appreciation
of investments* - 1,402,260 - 2,250,305
Withdrawals (17,035) (1,244,804) (27,905) (1,694,308)
Reimbursement
for contract
guarantees* - 3,168 - 406
------------------------------------------------------------
Balance at end
of year 139,945 $11,403,341 150,474 $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 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 OF INVESTMENTS
Net unrealized appreciation of investments at December 31, 1996 and 1995 was
as follows:
DECEMBER 31 DECEMBER 31
1996 1995
--------------------------------------
Gross unrealized appreciation $3,670,260 $2,225,359
Gross unrealized depreciation 86,190 48,051
--------------------------------------
Net unrealized
appreciation of investments $3,584,070 $2,177,308
--------------------------------------
--------------------------------------
4
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
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 $1.685 $1.948 $1.408 $1.231 $1.064
Expenses 1.090 .875 .773 .773 .723
---------------------------------------------------------------
Net investment income .595 1.073 .635 .458 .341
Net realized and unrealized gain (loss) on investments 11.690 14.139 (.240) .112 .770
---------------------------------------------------------------
Net increase in accumulation unit value 12.285 15.212 .395 .570 1.111
Accumulation unit value:
Beginning of year 69.200 53.988 53.593 53.023 51.912
---------------------------------------------------------------
End of year $81.485 $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 .79% 1.76% 1.18% .85% .68%
Portfolio turnover rate 4.77% 14.66% 88.99% 68.62% 59.84%
Number of accumulation units outstanding at end of year 139,945 150,474 172,507 198,763 217,948
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
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 77,058 839 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 75,873 2,024 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
6
<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, 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 Variable Annuity Fund A 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
7
