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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 Money Market
Variable Annuity Fund C contract.
The gain in the accumulation unit value of the Fund since year end 1996 was as
follows:
June 30, 1997 December 31, 1996
------------- -----------------
Accumulation Unit Value $23.28 $22.87
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Percentage Change 3.58 %*
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*This represents the annualized percentage increase figure of 1.79% for December
31, 1996 to June 30, 1997.
As we have pointed out in past reports, the annual increase figure should not be
compared with fully taxable money market fund rates. Your annuity contract
shelters this income from Federal income taxes prior to your annuity starting
date so long as your money remains with the Fund. Also, your contract provides
that Franklin Life assumes the risk that administrative deductions may be
insufficient to cover actual administrative expenses.
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 growth for the balance of 1997 is expected to be
between 2.0% and 3.0%. The unemployment rate was 5.3% in December 1996,
declined to 4.8% in May and moved back to 5.0% in June. Inflation continues
to be under control. 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 by 0.1%, making this
the sixth month in a row showing a decline. This is the first time the index
has declined six months in a row since the index started in 1947.
The Federal Reserve Board raised the Federal Funds Rate by 25 basis points, at
the March 25, 1997 meeting, to the 5.50% level but left the short-term interest
rate unchanged at its May and July meetings. This increase was the first change
in the discount rate since it was decreased in January 1996 by 25 basis points.
Short term rates have held fairly steady over the last year. Rates did move up
some 20 basis points when the Federal Reserve increased the Federal Funds Rate
in March, 1997. Long term rates moved up some 50 basis points in the first
quarter of this year and then declined in the second quarter to end the first
half of the year near the 1996 year end level. The Federal Reserve is still
concerned about an over expanding economy producing a higher rate of inflation.
It appears the Federal Reserve will change rates as they feel necessary to keep
the economy growing at an acceptable level, with minimal inflationary impact.
Short-term rates should hold steady for the balance of the year, unless there is
a major change in the economy.
Franklin Life Money Market Variable Annuity Fund C, like other money market
funds, offers preservation of capital, liquidity and a return that reflects
prevailing short-term interest rates. In today's interest rate environment, you
may want to take some extra time and review what role this product should play
in your retirement financial planning. Franklin Life and your registered
representative would appreciate the opportunity to discuss with you this and
other products which will help you find financial security.
Cordially yours,
Robert J. Gibbons
President and
Chief Executive Officer
1
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments-at cost which approximates fair value
Corporate short-term notes $ 838,822
U.S. Government short-term notes 1,063,054
-----------
1,901,876
Cash on deposit 60,297
Interest receivable 6,490
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Total Assets 1,968,663
Liability-due to The Franklin Life Insurance Company 2,615
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Contract owners' equity
Value of 84,462.924 accumulation units outstanding,
equivalent to $23.27705058 per unit $ 1,966,048
-----------
-----------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<CAPTION>
<S> <C> <C>
Investment Income-Interest $ 50,394
Expenses
Mortality and expense charges $ 7,338
Investment management services 6,881
Miscellaneous expenses 1
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Total expenses 14,220
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Net investment income $ 36,173
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-----------
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(UNAUDITED)
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
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Net investment income $ 36,173 $ 80,603
Net contract purchase payments 16,899 38,349
Reimbursement (payment) for contract guarantees (722) 51
Withdrawals (83,426) (425,220)
Administrative expense charges (1,060) (820)
-------------------------------
Net decrease in contract owner's equity (32,136) (307,037)
Contract owners' equity at beginning of period 1,998,184 2,305,221
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Contract owners' equity at end of period $ 1,966,048 $ 1,998,184
-------------------------------
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
PRINCIPAL CARRYING
AMOUNT VALUE
- ---------- ----------
CORPORATE SHORT-TERM NOTES
(42.67%)
AUTOMOTIVE (9.58%)
$ 95,000 Ford Motor Credit Corporation
5.53%, due 7/14/97 $ 94,212
95,000 General Motors Acceptance
Corporation, 5.58%, due 7/7/97 94,205
----------
188,417
FINANCE COMPANIES - CONSUMER (18.68%)
95,000 Associates Corporation of North America
5.54%, due 8/12/97 94,269
95,000 Household Finance Corporation
5.50%, due 8/11/97 94,332
85,000 Norwest Financial, Inc.
5.55%, due 7/9/97 84,332
95,000 Sears Roebuck Acceptance Corporation
5.57%, due 8/14/97 94,266
----------
367,199
FINANCIAL SAVINGS & SERVICE (4.80%)
95,000 American Express Credit Corporation
5.55%, due 7/22/97 94,297
MACHINERY - INDUSTRIAL & CONSTRUCTION
(4.80%)
$ 95,000 John Deere Capital Corporation
5.53%, due 7/28/97 $ 94,328
OILS & OIL RELATED PRODUCTS (4.81%)
95,000 Chevron Oil Finance Company
5.47%, due 7/24/97 94,581
TOTAL CORPORATE SHORT-TERM
NOTES (COST-$838,822) 838,822
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U.S. GOVERNMENT SHORT-TERM NOTES
(54.07%)
$1,005,000 United States Treasury Bill
4.89%, due 7/24/97 (cost $998,311) $ 998,311
65,000 United States Treasury Bill
4.90% due 7/24/97
(cost-$64,743) 64,743
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TOTAL U.S. GOVERNMENT SHORT-TERM
NOTES 1,063,054
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TOTAL INVESTMENTS (96.74%)
(COST-$1,901,876) 1,901,876
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CASH AND RECEIVABLE, LESS LIABILITY
(3.26%) 64,172
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TOTAL CONTRACT OWNERS' EQUITY (100%) $1,966,048
----------
----------
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C CONTRACT OWNERS. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
3
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
NOTES TO FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Franklin Life Money Market Variable Annuity Fund C (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: Securities with remaining maturities of 60 days or
less are valued at amortized cost, which is equivalent to fair value.
Securities purchased with more than 60 days to maturity are valued at market
value until the 61st day prior to maturity. Thereafter, any discount or premium
from that market value to maturity value is recognized by constant,
proportionate amortization until maturity.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions
are accounted for on the trade date. 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.
NOTE B-EXPENSES
Amounts are paid to The Franklin for investment management services at the rate
of .001027% of the current value of the Fund per day (.375% on an annual basis)
and for mortality and expense risk assurances at the rate of .002918% of the
current value of the Fund per day (1.065% on an annual basis). The investment
management service charge and the mortality and expense risk charge may be
increased to maximum rates, on an annual basis, of .500% and 1.750%,
respectively.
Certain other deductions are made from the Fund and paid to The Franklin
including administrative fees and contingent deferred sales charges on certain
amounts withdrawn. These deductions are more fully described in the Fund's
prospectus.
NOTE C-SUMMARY OF CHANGES IN ACCUMULATION UNITS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
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Units Amount Units Amount
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Balance at
beginning of
period 87,386 $1,998,184 104,641 $2,305,221
Purchases 737 16,899 1,740 38,349
Net
investment
income - 36,173 - 80,603
Withdrawals (3,635) (83,426) (18,962) (425,220)
Reimbursement
(payment) for
contract
guarantees - (722) - 51
Administrative
expense charge (25) (1,060) (33) (820)
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Balance at end
of period 84,463 $1,966,048 87,386 $1,998,184
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NOTE D-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.
4
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
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
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<S> <C> <C> <C> <C> <C>
Investment income $ .573 $ 1.162 $ 1.203. $ .846 $ .617.
Expenses .162 .326 .309 .303 .294
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Net investment income .411 .836 .894 .543 .323
Accumulation unit value:
Beginning of period 22.866 22.030 21.136 20.593 20.270
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End of period $ 23.277 $ 22.866 $ 22.030 $ 21.136 $ 20.593
-----------------------------------------------------------
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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 3.67% 3.71% 4.17% 2.58% 1.58%
Number of accumulation units outstanding at end of period 84,463 87,386 104,641 132,646 159,929
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*(Not annualized)
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 44,045 1,210 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 44,045 1,210 0
Election of
James W. Voth as
Member, Board of Managers 44,045 1,210 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 44,045 1,210 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 43,545 870 840
5
