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[Logo of The Franklin Life Insurance Company]
Dear Contract Owner:
We are pleased to provide this report for the six-month period ended June 30,
1997, which shows the status of and balances in your Franklin Life Variable
Annuity Fund A contract.
Fund Position
-------------
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
Variable Portion:
- -----------------
Accumulation Unit Value $91.56 $81.48 $74.36
------ ------ ------
Percentage Change From:
June 30, 1996 +23.1%
------
December 31, 1996 +12.4%
------
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, 1997 appears on page
3.
FIXED PORTION:
If your contract anniversary was in the first half of 1997, additional
units in the fixed rate portion of your annuity arising from contributions
credited during the contract year ending in 1997 were based on a 6.25%
interest rate, less a contract expense charge. This rate is expected to
apply to contracts with anniversaries in the second half of 1997, as well.
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 1997 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 closed out 1996 on a very positive note, with fourth quarter
Gross Domestic Product (GDP) up 3.8%. The growth continued into 1997, with
first quarter GDP up 5.9%. GDP in the second quarter of 1997 is expected to
show growth of 2.0% to 2.5%, with growth in the last half of the year in the
area of 2.5% to 3.0%. The unemployment rate dropped from 5.3% in December 1996
to 5.0% in June 1997, with the May unemployment rate reaching 4.8%. The Federal
Reserve Board raised the Federal Funds Rate at its March 25, 1997 meeting by 25
basis points to 5.50% but left the short-term interest rate unchanged in its May
and July meetings.. The increase was the first change since it lowered rates in
January 1996 by 25 basis points. The stock market declined in March and April,
losing all of its earlier year to date gains but rebounded in May and June to
record levels. The Standard & Poor's 500 Index was up 19.5% in the first half
of the year.
Inflation as measured by the Gross Domestic Product deflator was up 1.9% in
1996, with the first quarter of 1997 up 1.5%. The consumer price index
increased 3.3% in 1996, with the first quarter of 1997 up 1.4%. The Producers
Price Index, a measure of inflation at the wholesale level, declined again in
June for the sixth month in a row. The six months of decline is a record number
of declines for this index since the index was started in 1947. Inflation isn't
a concern to the economy at the present time. Corporate profits remain at a
good level, translating into increased earnings per share. The strong flow of
new money going into equity mutual funds, along with the earnings and inflation
reports, continues to push the stock market into record territory. The stock
market needs to pause in light of the current price/earnings multiple and the
high price/book value ratio. While a market correction is possible, it isn't
expected to be a lengthy correction.
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
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FRANKLIN LIFE VARIABLE ANNUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments-at fair value (cost-$7,335,852):
Common stocks $ 9,915,178
Short-term notes 2,113,929
------------
12,029,107
Cash on deposit 38,976
Dividends and interest receivable 29,867
------------
Total Assets 12,097,950
Liability -due to The Franklin Life Insurance Company 14,373
------------
Contract owners' equity
Annuity reserves $ 18,161
Value of 131781.486 accumulation units outstanding,
equivalent to $91.55623614 per unit 12,065,416 $ 12,083,577
---------- ------------
------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<S> <C> <C>
Investment income
Dividends $ 92,854
Interest 38,259
----------
Total Income $ 131,113
Expenses
Mortality and expense charges $ 57,330
Investment management services 25,062
----------
Total expenses 82,392
------------
Net investment income 48,721
Realized and unrealized gain on investments:
Net realized gain from investment transactions
(excluding short-term investments):
Proceeds from sales $1,030,614
Cost of investments sold (identified cost method) 844,160
----------
Net realized gain 186,454
Net unrealized appreciation of investments
Beginning of period $3,584,070
End of period 4,693,255
----------
Net unrealized appreciation 1,109,185
------------
Net gain on investments 1,295,639
------------
Net increase in contract owners'
equity resulting from operations $ 1,344,360
------------
------------
</TABLE>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
---------------------------------
<S> <C> <C>
Net investment income $ 48,721 $ 85,278
Net realized gain from investment transactions 186,454 269,793
Net unrealized appreciation of investments 1,109,185 1,406,762
---------------------------------
Net increase in contract owners' equity resulting from operations 1,344,360 1,761,833
Net contract purchase payments 214,529 475,974
Reimbursement for contract guarantees 1,759 3,178
Annuity payments (2,151) (3,878)
Withdrawals (896,136) (1,244,804)
---------------------------------
Net increase in contract owners' equity 662,361 992,303
Contract owners' equity at beginning of period 11,421,216 10,428,913
---------------------------------
Contract owners' equity at end of period $12,083,577 $11,421,216
---------------------------------
---------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND A
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
NUMBER
OF FAIR
SHARES VALUE
- ------ ----------
COMMON STOCKS (82.05%)
BANKING (3.86%)
3,675 Student Loan Marketing Association $ 466,725
BEVERAGES (1.37%)
4,400 PepsiCo, Incorporated 165,275
BUSINESS SERVICES (1.72%)
5,600 Equifax Inc. 208,250
CHEMICALS (1.94%)
2,700 Dow Chemical 234,562
COMPUTER SERVICES (2.83%)
8,100 Ceridian Corporation* 342,225
COSMETICS & HOUSEHOLD PRODUCTS
(3.14 %)
4,000 Gillette Company 379,000
DRUGS & HEALTH CARE (19.31%)
4,000 Eli Lilly and Company 437,250
4,300 Merck & Company, Inc. 439,944
2,100 Pfizer, Incorporated 250,950
6,450 St. Jude Medical, Inc.* 251,550
6,600 Schering-Plough Corporation 315,975
6,000 Stryker Corporation 209,250
8,000 Walgreen Company 429,000
-----------
2,333,919
ELECTRONICS & INSTRUMENTATIONS
(2.69%)
5,800 Hewlett-Packard Company 324,800
FOOD PROCESSING (2.82%)
5,300 ConAgra, Inc. 340,194
FOOD - RETAIL (1.72 %)
5,700 Albertson's, Inc. 208,050
FOOD - WHOLESALE ( 2.02%)
6,700 Sysco Corporation 244,550
HOUSEHOLD PRODUCTS (1.22%)
3,700 Newell Co. 147,075
MACHINERY - INDUSTRIAL & CONSTRUCTION (.69%)
1,500 Fluor Corporation 82,781
OFFICE EQUIPMENT & SERVICES (6.80%)
2,000 Compaq Computers Corporation* 199,000
5,350 Digital Equipment Corporation* 189,591
4,800 International Business Machines
Corporation 433,200
-----------
821,791
OIL SERVICES & DRILLING ( 2.03%)
3,100 Halliburton Company $ 245,675
OILS & OIL RELATED PRODUCTS (7.92%)
2,700 Amoco Corporation 234,731
2,600 Atlantic Richfield Company 183,300
5,000 British Petroleum Company, p.l.c. 374,375
2,600 Kerr-McGee Corporation 164,775
-----------
957,181
PACKAGING - CONTAINERS ( 2.79%)
8,400 Avery-Dennison Corporation 337,050
PHOTOGRAPHY ( 2.60%)
4,100 Eastman Kodak Company 314,675
RESTAURANTS/LODGING (1.73%)
3,400 Marriott International, Inc. 208,675
RETAIL-SPECIALTY (3.48%)
7,200 NIKE, Inc. 420,300
TECHNOLOGY (7.45%)
5,000 AMP, Incorporated 208,750
4,950 Diebold, Incorporated 193,050
2,400 Intel Corporation 340,350
3,600 Millipore Corporation 158,400
-----------
900,550
UTILITIES - TELEPHONE (1.92%)
5,000 BellSouth Corporation 231,875
TOTAL COMMON STOCKS
(COST-$5,221,923) 9,915,178
-----------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM NOTES (17.5%)
$ 975,000 United States Treasury Bill
4.40%, due 7/3/97 (cost-$972,498) 972,498
$1,150,000 United States Treasury Bill
4.79%, due 7/3/97 (cost-$1,141,431) 1,141,431
-----------
TOTAL SHORT-TERM NOTES 2,113,929
TOTAL INVESTMENTS (99.55%)
(COST -$7,335,852 ) 12,029,107
CASH AND RECEIVABLES, LESS
LIABILITY (.45 %) 54,470
-----------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $12,083,577
-----------
-----------
*NON-INCOME PRODUCING INVESTMENT DURING THE SIX-MONTH PERIOD ENDING
JUNE 30, 1997.
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 the six-month period ended June 30, 1997
aggregated $54,162 and $1,004,568, 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 $9,664 and $21,860 were deducted
from the proceeds of the sales of accumulation units and retained by Franklin
Financial Services Corporation and The Franklin for the six-month period ended
June 30, 1997 and the year ended December 31, 1996, 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
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
----- ------ ----- ------
<S> <C> <C> <C> <C>
Balance at
beginning of
period 139,945 $11,403,341 150,474 $10,412,808
Purchases 5,091 214,529 6,506 475,974
Net investment
income* - 48,632 - 85,005
Net realized gain
from investment
transactions* - 186,116 - 268,930
Net unrealized
appreciation
of investments* - 1,107,178 - 1,402,260
Withdrawals (13,254) (896,136) (17,035) (1,244,804)
Reimbursement for contract
guarantees* - 1,756 - 3,168
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Balance at end
of period 131,782 $12,065,416 139,945 $11,403,341
-------------------------------------------------------------------
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</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 OF
INVESTMENTS
Net unrealized appreciation of investments at June 30, 1997 and December 31,
1996 was as follows:
JUNE 30, DECEMBER 31,
1997 1996
---------------------------
Gross unrealized appreciation $4,769,125 $3,670,260
Gross unrealized depreciation 75,870 86,190
---------------------------
Net unrealized appreciation
of investments $4,693,255 $3,584,070
---------------------------
---------------------------
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 PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997* 1996 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .975 $ 1.685 $ 1.948 $ 1.408 $ 1.231
Expenses .613 1.090 .875 .773 .773
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Net investment income .362 .595 1.073 .635 .458
Net realized and unrealized gain (loss) on investments 9.710 11.690 14.139 (.240) .112
---------------------------------------------------------------------
Net increase in accumulation unit value 10.072 12.285 15.212 .395 .570
Accumulation unit value:
Beginning of period 81.485 69.200 53.988 53.593 53.023
---------------------------------------------------------------------
End of period $ 91.557 $ 81.485 $ 69.200 $ 53.988 $ 53.593
---------------------------------------------------------------------
---------------------------------------------------------------------
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 .85% .79% 1.76% 1.18% .85%
Portfolio turnover rate .64% 4.77% 14.66% 88.99% 68.62%
Number of accumulation units outstanding at end of period 131,781 139,945 150,474 172,507 198,763
- --------------------------------------------------------------------------------------------------------------------------------
*(Not annualized)
</TABLE>
MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS
An annual meeting of Contract Owners of the Fund was held on April 21, 1997. 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 59,899 1,753 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 59,899 1,753 0
Election of
James W. Voth as
Member, Board of Managers 60,015 1,637 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 60,015 1,637 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 59,688 1,135 829
5
