<PAGE>
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THE FRANKLIN LIFE INSURANCE COMPANY
FRANKLIN LIFE VARIABLE ANNUITY FUND
JUNE 30, 2000
SEMI-ANNUAL REPORT
(UNAUDITED)
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PRINCIPAL OFFICE LOCATED AT:
#1 Franklin Square
Springfield, Illinois 62713
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The Semi-Annual Report of The Franklin Life Variable Annuity Fund is prepared
and provided by The Franklin Life Insurance Company.
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This Semi-Annual Report is not to be construed as an offering for sale of any
Franklin Life contract. No offering is made except in conjunction with a
prospectus which must precede or accompany this report.
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THE FRANKLIN LIFE INSURANCE COMPANY
FRANKLIN LIFE VARIABLE ANNUITY FUND
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
-------------------------------------------------------------
STOCK INDEX STOCK INDEX MONEY MARKET
FUND FUND FUND
SUBACCOUNT A SUBACCOUNT B SUBACCOUNT C
-------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in Funds at fair value
(cost: see below) $ 11,984,669 $ 1,569,675 $ 1,342,711
Due from (to) General Account (170) (385) (367)
-------------------------------------------------------------
NET ASSETS $ 11,984,499 $ 1,569,290 $ 1,342,344
=============================================================
Unit value $ 132.19 $ 154.02 $ 26.01
=============================================================
Units outstanding 90,662 10,189 51,611
=============================================================
Cost of investments $ 11,172,028 $ 1,465,278 $ 1,342,711
=============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
THE FRANKLIN LIFE INSURANCE COMPANY
FRANKLIN LIFE VARIABLE ANNUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
------------------------------------------------------------
STOCK INDEX STOCK INDEX MONEY MARKET
FUND FUND FUND
SUBACCOUNT A SUBACCOUNT B SUBACCOUNT C
------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME (EXPENSE)
Income
Dividends and interest $ 55,046 $ 6,966 $ 37,566
Capital gains distributions - - -
Expenses
Mortality and expense risk charge 63,271 8,477 6,255
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Net investment income (expense) (8,225) (1,511) 31,311
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) 62,065 6,655 -
Net unrealized appreciation (depreciation)
Beginning of period 924,575 114,346 -
End of period 812,641 104,397 -
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Net change in unrealized appreciation
(depreciation) during the period (111,934) (9,949) -
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Net realized and unrealized gain (loss) on
investments (49,869) (3,294) -
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Net increase (decrease) in net assets
from operations $ (58,094) $ (4,805) $ 31,311
============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
---------------------------------------------------------------
STOCK INDEX STOCK INDEX MONEY MARKET
FUND FUND FUND
SUBACCOUNT A SUBACCOUNT B SUBACCOUNT C
---------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ (8,225) $ (1,511) $ 31,311
Net realized gain (loss) on investments 62,065 6,655 -
Net change in unrealized appreciation
(depreciation) on investments (111,934) (9,949) -
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Net increase (decrease) in net assets
from operations (58,094) (4,805) 31,311
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 30,519 4,972 5,833
Withdrawals (1,203,446) (60,664) (76,549)
Transfers from (to) fixed account 18,007 - -
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Net increase (decrease) in net assets
from contract related transactions (1,154,920) (55,692) (70,716)
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Net increase (decrease) in net assets (1,213,014) (60,497) (39,405)
Net assets, beginning of period 13,197,513 1,629,787 1,381,749
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Net assets, end of period $ 11,984,499 $ 1,569,290 $ 1,342,344
===============================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 62,250 $ 4,572 $ 46,491
Net realized gain (loss) on investments 7,637,684 1,213,110 -
Net change in unrealized appreciation
(depreciation) on investments (6,746,099) (1,151,564) -
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Net increase (decrease) in net assets
from operations 953,835 66,118 46,491
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 234,854 16,346 15,560
Withdrawals (1,590,062) (489,383) (226,081)
Transfers from (to) fixed account 57,386 - -
---------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions (1,297,822) (473,037) (210,521)
---------------------------------------------------------------
Net increase (decrease) in net assets (343,987) (406,919) (164,030)
Net assets, beginning of year 13,541,500 2,036,706 1,545,779
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Net assets, end of year $ 13,197,513 $ 1,629,787 $ 1,381,749
===============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE FRANKLIN LIFE INSURANCE COMPANY
FRANKLIN LIFE VARIABLE ANNUITY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. NATURE OF OPERATIONS AND REORGANIZATION
Franklin Life Variable Annuity Fund (the Fund or the Ongoing Fund) is a
separate account of The Franklin Life Insurance Company (Franklin) under
Illinois insurance law and a unit investment trust under the Investment
Company Act of 1940. The Fund supports the operations of Franklin's
variable annuity contracts (the Contracts). New contracts are no longer
being issued.
Prior to April 30, 1999, Franklin maintained Franklin Life Variable Annuity
Funds A and B, and Franklin Life Money Market Variable Annuity Fund C (the
Former Funds) which were originally established as open-end diversified
management investment companies under the Investment Company Act of 1940.
On April 30, 1999, a reorganization was effected under which Franklin Life
Variable Annuity Fund A was renamed Franklin Life Variable Annuity Fund,
converted into a unit investment trust, and consolidated with Franklin Life
Variable Annuity Fund B and Franklin Life Money Market Variable Annuity
Fund C. The assets of the Former Funds were transferred to Subaccounts A,
B, and C, respectively, of the Ongoing Fund.
The Ongoing Fund consists of three subaccounts invested in units of
beneficial interest (shares) of two portfolios of American General Series
Portfolio Company (AGSPC), an affiliated open-end management investment
company. Subaccounts A and B invest in the AGSPC Stock Index Fund portfolio
and Subaccount C invests in the AGSPC Money Market Fund portfolio.
The Statement of Operations and the Statement of Changes in Net Assets for
the year ended December 31, 1999 for the new Subaccounts A, B, and C
reflect the consolidated activity of the Former Funds through April 30,
1999, and Subaccounts A, B and C of the Ongoing Fund from May 1, 1999 to
December 31, 1999.
Franklin Financial Services Corporation, a wholly owned subsidiary of
Franklin, acts as principal underwriter for the Contracts, as defined in
the Investment Company Act of 1940. The assets of the Fund are the property
of Franklin; however, the portion of the Fund's assets applicable to the
Contracts is not chargeable with liabilities arising out of any other
business Franklin may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments: Investments are carried at fair value based on the net asset
values of the respective AGSPC portfolios. Investment transactions are
recorded on the trade date. Dividends are recorded as received. Realized
gains and losses on sales of investments are determined based on the
specific identification method.
Taxation: Operations of the Fund form a part of, and are taxed with those
of, 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.
Reserves: Annuity reserves on Contracts, all involving life contingencies,
are calculated using the Progressive Annuity Table with an assumed
investment rate of 3-1/2%. At June 30, 2000, net assets includes $16,630
for annuity reserves.
3. CONTRACT CHARGES
In conjunction with the reorganization, Franklin waived all sales loads,
surrender or deferred sales charges and administrative fees specified in
each Contract beginning October 1998. AGSPC deducts a charge for investment
management and other expenses for the Stock Index Fund portfolio and the
Money Market Fund portfolio of 0.35% and 0.50%, respectively. In addition,
Franklin deducts a charge from the assets of the Fund to cover mortality
and expense risks related to the operations of the Fund at an effective
annual rate of 1.00% for Subaccounts A and B and 0.94% for Subaccount C.
Total annual Fund expenses are capped at 1.44%. Total charges paid by the
Fund to Franklin were $78,003 for the period ended June 30, 2000 and
$206,577 for the year ended December 31, 1999.
4
<PAGE>
THE FRANKLIN LIFE INSURANCE COMPANY
FRANKLIN LIFE VARIABLE ANNUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS
<TABLE>
<CAPTION>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
-----------------------------------------------------------------------
STOCK INDEX STOCK INDEX MONEY MARKET
FUND FUND FUND
SUBACCOUNT A SUBACCOUNT B SUBACCOUNT C
-----------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Unit value, beginning of period $132.58 $154.47 $25.41
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Unit value, end of period $132.19 $154.02 $26.01
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Number of units outstanding,
beginning of period 99,547 10,551 54,370
Net contract purchase payments 238 33 230
Withdrawals (9,265) (395) (2,989)
Transfers from (to) fixed account 142 - -
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Number of units outstanding,
end of period 90,662 10,189 51,611
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FOR THE YEAR ENDED DECEMBER 31, 1999
Unit value, beginning of year $123.03 $147.18 $24.59
=======================================================================
Unit value, end of year $132.58 $154.47 $25.41
=======================================================================
Number of units outstanding,
beginning of year 109,896 13,839 62,851
Net contract purchase payments 1,967 110 601
Withdrawals (12,508) (3,398) (9,082)
Transfers from (to) fixed account 192 - -
-----------------------------------------------------------------------
Number of units outstanding,
end of year 99,547 10,551 54,370
=======================================================================
</TABLE>
5. REMUNERATION OF MANAGEMENT
The Fund incurs no liability for payment to directors, members of advisory
boards, officers or any other person who might provide a service for the
Fund, except as described in Note 3.
5
