<PAGE>
1933 Act Registration No. 2-74459
1940 Act Registration No. 811-3289
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 23
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21
FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C
(Exact Name of Registrant)
The Franklin Life Insurance Company
(Name of Insurance Company)
#1 Franklin Square, Springfield, Illinois 62713
(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code: (800) 528-2011
ROSS D. FRIEND, ESQ.
Senior Vice President, Assistant
Secretary and General Counsel
THE FRANKLIN LIFE INSURANCE COMPANY
#1 Franklin Square
Springfield, Illinois 62713
(Name and Address of Agent for Service)
Copy to:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Title of Securities Being Registered: individual immediate and deferred variable
annuity contracts.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on April 30, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (i)
/X/ on April 30, 1998 pursuant to paragraph (a) (i)
/ / 75 days after filing pursuant to paragraph (a) (ii)
/ / on April 30, 1998 pursuant to paragraph (a) (ii) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
Post-Effective Amendment No. 23
Cross Reference Sheet Required by Rule 495(a)
<TABLE>
<CAPTION>
Registration Item Location in Prospectus ("P'') or Statement
of Additional Information ("SAI'')
<S> <C>
Part A INFORMATION REQUIRED IN PROSPECTUS
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page (P)
Item 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . Special Terms
Item 3. Synopsis or Highlights . . . . . . . . . . . . . . . . . . . Table of Deductions and Charges; Summary
Item 4. Condensed Financial Information. . . . . . . . . . . . . . . Per Unit Income and Changes in Accumulation Unit Value
Item 5. General Description of Registrant and Insurance Company. . . Cover Page (P); Summary; Introduction; Description of
the Separate Account; Investment Policies and
Restrictions of the Fund
Item 6. Management . . . . . . . . . . . . . . . . . . . . . . . . . Management (P)
Item 7. Deductions and Expenses. . . . . . . . . . . . . . . . . . . Summary; Deductions and Charges under the Contracts
Item 8. General Description of Variable Annuity Contracts. . . . . . Summary; Introduction; Deductions and Charges under the
Contracts-Transfers to and from Other Contracts; The
Contracts; Voting Rights; Fundamental Changes
Item 9. Annuity Period . . . . . . . . . . . . . . . . . . . . . . . Summary; Introduction; The Contracts-Deferred Variable
Annuity Accumulation Period-Annuity Period
Item 10. Death Benefit . . . . . . . . . . . . . . . . . . . . . . . The Contracts-Deferred Variable Annuity Accumulation
Period
Item 11. Purchases and Contract Value. . . . . . . . . . . . . . . . Summary; Deductions and Charges Under The Contracts;
The Contracts-General-Deferred Variable Annuity
Accumulation Period; Distribution of the Contracts
Item 12. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . Summary; The Contracts-General-Deferred Variable
Annuity Accumulation Period
Item 13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page (P); Summary; Introduction; Deductions and
Charges Under the Contracts-Premium Taxes; The
Contracts; Federal Income Tax Status; Other Variable
Annuity Contracts; Effect of Non-Qualification;
Limitations on Settlement Options (SAI)
Item 14. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 15. Table of Contents of the Statement of Additional
Information. . . . . . . . . . . . . . . . . . . . . . . Table of Contents of the Statement of Additional
Information
Part B INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
Item 16. Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . Cover Page (SAI)
Item 17. Table of Contents . . . . . . . . . . . . . . . . . . . . . Table of Contents (SAI)
Item 18. General Information and History . . . . . . . . . . . . . . General Information
Item 19. Investment Objectives and Policies. . . . . . . . . . . . . Investment Policies and Restrictions of the Fund (P);
Investment Objectives
Item 20. Management. . . . . . . . . . . . . . . . . . . . . . . . . Management (SAI)
Item 21. Investment Advisory and Other Services. . . . . . . . . . . Summary (P); Deductions and Charges under the Contracts
(P); Management (P); Management (SAI); Investment
Advisory and Other Services
Item 22. Brokerage Allocation. . . . . . . . . . . . . . . . . . . . Portfolio Turnover and Brokerage
Item 23. Purchase and Pricing of Securities Being Offered. . . . . . Summary (P); Introduction (P); Deductions and Charges
under the Contracts-Administration Deductions (P);
Distribution of the Contracts (SAI)
Item 24. Underwriters. . . . . . . . . . . . . . . . . . . . . . . . Summary (P); Deductions and Charges Under the Contracts
(P); Distribution of the Contracts (P); Distribution of
the Contracts (SAI)
Item 25. Calculation of Performance Date . . . . . . . . . . . . . . Yield Information
Item 26. Annuity Payments. . . . . . . . . . . . . . . . . . . . . . The Contracts-Annuity Period (P)
Item 27. Financial Statements. . . . . . . . . . . . . . . . . . . . Per Unit Income and Changes in Accumulation UnitValues
(P); Financial Statements; Experts (SAI)
</TABLE>
<PAGE>
EXPLANATORY STATEMENT
The Prospectus Supplement set forth on the next page will be attached to the
Prospectus when it is used to offer contracts to participants in the Texas
Optional Retirement Program, as codified in Chapter 830 of Title 8 of the
Government Code of the State of Texas, and is authorized by an order of the
Commission pursuant to Section 6(c) of the Investment Company Act, dated
January 8, 1982 (Investment Company Act Release No. 12150).
<PAGE>
SUPPLEMENT DATED APRIL 30, 1998 TO PROSPECTUS
OF FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
DATED APRIL 30, 1998
The contracts offered by this Prospectus to participants in the Texas Optional
Retirement Program, as codified in Chapter 830 of Title 8 of the Government
Code of the State of Texas, contain restrictions on redemption in addition to
those set forth in the Prospectus under the heading captioned "Deferred
Variable Annuity Accumulation Period-5. Redemption.'' In accordance with such
Chapter, redemption of contracts required by a participant in the Texas
Optional Retirement Program will not be permitted prior to such participant's
termination of employment in the Texas public institutions of higher
education, retirement, death or attainment of age 70-1/2.
<PAGE>
FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C
PROSPECTUS INDIVIDUAL VARIABLE ANNUITY CONTRACTS
#1 Franklin Square
Springfield, Illinois 62713
Telephone (800) 528-2011
THIS PROSPECTUS DESCRIBES INDIVIDUAL IMMEDIATE AND DEFERRED VARIABLE
ANNUITY CONTRACTS FOR USE AS INDIVIDUAL RETIREMENT ANNUITIES OR IN CONNECTION
WITH TRUSTS AND RETIREMENT OR DEFERRED COMPENSATION PLANS WHICH MAY OR MAY
NOT QUALIFY FOR SPECIAL FEDERAL TAX TREATMENT UNDER THE INTERNAL REVENUE CODE
(SEE "FEDERAL INCOME TAX STATUS" BELOw FOR MORE INFORMATION). THE BASIC
PURPOSE OF THE VARIABLE CONTRACTS IS TO PROVIDE ANNUITY PAYMENTS WHICH WILL
VARY WITH THE INVESTMENT PERFORMANCE OF FRANKLIN LIFE MONEY MARKET VARIABLE
ANNUITY FUND C (THE "FUND"). THE FUND NO LONGER OFFERS NEW CONTRACTS.
THE PRIMARY INVESTMENT OBJECTIVE OF THE FUND IS LONG-TERM COMPOUNDING OF
INCOME THROUGH RETENTION AND REINVESTMENT OF INCOME FROM INVESTMENTS IN A
DIVERSIFIED PORTFOLIO OF SHORT-TERM MONEY MARKET SECURITIES YIELDING A HIGH
LEVEL OF CURRENT INCOME TO THE EXTENT CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND THE MAINTENANCE OF LIQUIDITY. THERE IS NO ASSURANCE THAT THIS
OBJECTIVE WILL BE ATTAINED.
THIS PROSPECTUS SETS FORTH INFORMATION ABOUT THE FUND THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING AND SHOULD BE KEPT FOR FUTURE
REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUND AND THE FRANKLIN IS
CONTAINED IN A STATEMENT OF ADDITIONAL INFORMATION, DATED APRIL 30, 1998,
WHICH HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST. A STATEMENT OF
ADDITIONAL INFORMATION MAY BE OBTAINED FROM THE FRANKLIN BY WRITING TO THE
ADDRESS (ATTENTION: BOX 1018) OR CALLING THE TELEPHONE NUMBER (EXTENSION
2591) SET FORTH ABOVE OR BY RETURNING THE REQUEST FORM ON THE BACK COVER OF
THIS PROSPECTUS. CERTAIN INFORMATION CONTAINED IN THE STATEMENT OF ADDITIONAL
INFORMATION IS INCORPORATED HEREIN BY REFERENCE. THE TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION IS SET FORTH ON PAGE 39 OF THIS
PROSPECTUS.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED
BY THE UNITED STATES GOVERNMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Special Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table of Deductions and Charges. . . . . . . . . . . . . . . . . . . . . . 5
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Per-Unit Income and Changes in Accumulation Unit Value . . . . . . . . . . 9
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Description of the Separate Account. . . . . . . . . . . . . . . . . . . . 11
Deductions and Charges Under the Contracts . . . . . . . . . . . . . . . . 11
A. Administration Deductions. . . . . . . . . . . . . . . . . . . . 11
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 12
C. Mortality and Expense Risk Charge. . . . . . . . . . . . . . . . 12
D. Investment Management Service Charge . . . . . . . . . . . . . . 12
E. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . 12
F. Transfers to and from Other Contracts. . . . . . . . . . . . . . 13
G. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Deferred Variable Annuity Accumulation Period. . . . . . . . . . 16
C. Annuity Period . . . . . . . . . . . . . . . . . . . . . . . . . 23
Investment Policies and Restrictions of the Fund . . . . . . . . . . . . . 25
Federal Income Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . 31
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The Franklin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The Contracts: Qualified Plans. . . . . . . . . . . . . . . . . . . . 31
A. Qualified Pension, Profit-Sharing and Annuity Plans . . . . 32
B. H. R. 10 Plans (Self-Employed Individuals) . . . . . . . . 32
C. Section 403(b) Annuities . . . . . . . . . . . . . . . . . 32
D. Individual Retirement Annuities . . . . . . . . . . . . . . 33
The Contracts: Non-Qualified Plans. . . . . . . . . . . . . . . . . . 34
Required Distributions. . . . . . . . . . . . . . . . . . . . . . . . 35
Aggregation of Contracts. . . . . . . . . . . . . . . . . . . . . . . 35
Future Legislation. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . 36
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Distribution of the Contracts. . . . . . . . . . . . . . . . . . . . . . . 38
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Reports to Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Fundamental Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Year 2000 Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Other Variable Annuity Contracts; Effect of Non-Qualification. . . . . . . 40
Yield Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table of Contents of Statement of Additional Information . . . . . . . . . 41
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON HAS BEEN
AUTHORIZED BY THE FRANKLIN LIFE INSURANCE COMPANY, FRANKLIN FINANCIAL
SERVICES CORPORATION OR FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND IN ANY AUTHORIZED SUPPLEMENTAL SALES
MATERIAL.
2
<PAGE>
SPECIAL TERMS
The following is a glossary of certain terms used in this Prospectus:
ACCUMULATION UNIT--A measure used to determine the value of a Contract
Owner's interest in the Fund prior to the initial Annuity Payment Date.
ANNUITY PAYMENT DATE--The date the first monthly Annuity Payment is to be
made to the Variable Annuitant, and the same day of each month thereafter so
long as the annuity is due. Depending on the Settlement Option elected,
Annuity Payment Dates may occur on a periodic basis other than monthly.
ANNUITY PAYMENTS--Periodic payments made to a Variable Annuitant pursuant to a
Contract. In certain circumstances, Annuity Payments may be paid to a
Beneficiary after the death of a Variable Annuitant.
ANNUITY UNIT--A measure used to determine the value of Annuity Payments after
the first.
BANK DRAFT--A draft preauthorized by the Contract Owner and a bank of his or
her selection in the amount of a periodic Stipulated Payment, which, at the
time each periodic Stipulated Payment is due, is submitted by The Franklin
directly to such bank for payment.
BENEFICIARY--The person or persons designated by the Contract Owner to whom
any payment due on death is payable.
CASH VALUE--The value of all Accumulation Units or Annuity Units attributable
to a Contract.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT--An individual variable annuity contract issued by Franklin Life
Money Market Variable Annuity Fund C that is offered by this Prospectus.
CONTRACT ANNIVERSARY--An anniversary of the Effective Date of the Contract.
CONTRACT OWNER--Except in cases where the Contract is issued to a trustee of a
qualified employees' trust or pursuant to a qualified annuity plan, the
Contract Owner is the individual Variable Annuitant to whom the Contract is
issued. In cases where the Contract is issued to a trustee of a qualified
employees' trust or pursuant to a qualified annuity plan, the Contract Owner
will be respectively the trustee or the employer establishing such trust or
plan, and the employee named as the Variable Annuitant of such Contract is
referred to herein as the employee. When the term "Contract Owner" is used in
the context of voting rights, it includes the owners of all contracts which
depend in whole or in part on the investment performance of the Fund.
CONTRACT YEAR--Each year starting with the Effective Date and each Contract
Anniversary thereafter.
DEFERRED VARIABLE ANNUITY--An annuity contract which provides for Annuity
Payments to commence at some future date. Included are periodic payment
deferred contracts and single payment deferred contracts.
EFFECTIVE DATE--The date shown on the Schedule Page of the Contract as the
date the first Contract Year begins.
FIXED-DOLLAR ANNUITY--An annuity contract which provides for Annuity Payments
which remain fixed as to dollar amount throughout the Annuity Payment period.
3
<PAGE>
HOME OFFICE--The Home Office of The Franklin located at #1 Franklin Square,
Springfield, Illinois 62713.
IMMEDIATE VARIABLE ANNUITY--An annuity contract which provides for Annuity
Payments to commence immediately rather than at some future date.
INDIVIDUAL RETIREMENT ANNUITY--An annuity contract described in Section 408(b)
of the Code. Individual Retirement Annuities may also qualify as Simplified
Employee Pensions.
NON-QUALIFIED CONTRACTS--Contracts issued under Non--Qualified Plans.
NON-QUALIFIED PLANS--Retirement or deferred compensation plans or arrangements
which do not receive favorable tax treatment under the Code.
PERIODIC STIPULATED PAYMENT CONTRACT--An annuity contract which provides that
payments made to purchase the contract will be made in periodic instalments
rather than in a single sum.
QUALIFIED CONTRACTS--Contracts issued under Qualified Plans.
QUALIFIED PLANS--Retirement plans which receive favorable tax treatment under
the Code and which are described on page 10, below.
ROLLOVER CONTRIBUTION--A transfer pursuant to Sections 402(c), 403(a)(4),
403(b)(8) or 408(d)(3) of the Code.
SETTLEMENT OPTION OR OPTIONS--Alternative terms under which payment of the
amounts due in settlement of the Contracts may be received.
SIMPLIFIED EMPLOYEE PENSION--An Individual Retirement Annuity which meets the
additional requirements of Section 408(k) of the Code.
SINGLE STIPULATED PAYMENT CONTRACT--An annuity contract which provides that
the total payment to purchase the contract will be made in a single sum
rather than in periodic instalments. Included are single payment immediate
contracts and single payment deferred contracts.
STIPULATED PAYMENTS--The payment or payments provided to be made to The
Franklin under a Contract.
THE FRANKLIN--The Franklin Life Insurance Company, an Illinois legal reserve
stock life insurance company.
VALUATION DATE--Each date as of which the Accumulation Unit value is
determined. This value is determined on each day (other than a day during
which no Contract or portion thereof is tendered for redemption and no order
to purchase or transfer a Contract is received by the Fund) in which there is
a sufficient degree of trading in the securities in which the Fund invests
that the value of an Accumulation Unit might be materially affected by
changes in the value of the Fund's investments, as of the close of trading on
that day.
VALUATION PERIOD--The period commencing on a Valuation Date and ending on the
next Valuation Date.
VARIABLE ANNUITANT--Any natural person with respect to whom a Contract has
been issued and a Variable Annuity has been, will be or (but for death) would
have been effected thereunder. In certain circumstances, a Variable Annuitant
may elect to receive Annuity Payments on a fixed-basis or a combination of a
fixed and variable basis.
VARIABLE ANNUITY--An annuity contract which provides for a series of periodic
annuity payments, the amounts of which may increase or decrease as a result
of the investment experience of a separate account.
4
<PAGE>
TABLE OF DEDUCTIONS AND CHARGES
-------------------------------
Contract Owner Transaction Expenses
Deferred Sales Load (as a percentage of the lesser of (i) the Cash Value of
the part of the Contract surrendered or (ii) the Stipulated Payments made
during the immediately preceding 72 months represented by the part of the
Contract surrendered (or the Stipulated Payment in the case of a Single
Stipulated Payment Contract))
<TABLE>
<CAPTION>
Contract Total Partial
Year Redemption Redemption
---- ---------- ----------
<S> <C> <C> <C>
Single Stipulated Payment Contract 1 6.00% 6.00%
2 6.00% 6.00%
3 4.00% 4.00%
4 2.00% 4.00%
5 and thereafter 0.00% 4.00%
Periodic Stipulated Payment Contract 1 8.00% 8.00%
2 8.00% 8.00%
3 8.00% 8.00%
4 6.00% 6.00%
5 4.00% 4.00%
6 2.00% 4.00%
7 and thereafter 0.00% 4.00%
</TABLE>
Administration Fee (as a charge against purchase payments)
<TABLE>
<S> <C>
Single Stipulated Payment Contract $100
Periodic Stipulated Payment Contract $20 per Contract Year plus $1
per Stipulated Payment ($.50 if
by Bank Draft or by employer or
military preauthorized automatic
deduction)
</TABLE>
Annual Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees 0.38%
Mortality and Expense Risk Fees
Mortality Fees 0.90%
Expense Risk Fees 0.17%
-----
Total Annual Expenses 1.44%
</TABLE>
Example
<TABLE>
<S> <C> <C> <C> <C>
If you surrender your contract
at the end of the
applicable time period: 1 year 3 years 5 years 10 years
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets:
5
<PAGE>
Single Stipulated Payment Contract $ 169 $ 181 $ 171 $ 255
Periodic Stipulated Payment Contracts: $ 181 $ 191 $ 221 $ 359
If you do not surrender your contract: 1 year 3 years 5 years 10 years
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets:
Single Stipulated Payment Contract $ 113 $ 141 $ 171 $ 255
Periodic Stipulated Payment Contracts: $ 36 $ 106 $ 177 $ 359
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The Table of Deductions and Charges is intended to assist Contract Owners
in understanding the various fees and expenses that they bear directly or
indirectly. Additional deductions may be made from Stipulated Payments for
any premium taxes payable by The Franklin on the consideration received from
the sale of the Contracts. See "Premium Taxes," below. For a more detailed
description of such fees and expenses, see "Deductions and Charges under the
Contracts," below. The example assumes that a single Stipulated Payment of
$1,000 is made at the beginning of the periods shown. (It should be noted
that The Franklin will not actually issue a Single Stipulated Payment
Contract unless the single payment is at least $2,500.) This assumption
applies even with respect to Periodic Stipulated Payment Contracts, which
would normally require additional payments. The example also assumes a
constant investment return of 5% and the expenses might be different if the
return of the Fund averaged 5% over the periods shown but fluctuated during
such periods. The amounts shown in the example represent the aggregate
amounts that would be paid over the life of a Contract if the Contract were
surrendered at the end of the applicable time periods.
6
<PAGE>
SUMMARY
THE CONTRACTS
The individual variable annuity contracts (the "Contracts") being offered
by this Prospectus are for use as Individual Retirement Annuities or in
connection with trusts and retirement or deferred compensation plans which
may or may not qualify for special tax treatment under the Code. See "Federal
Income Tax Status," below. The basic purpose of the Contracts is to provide
Annuity Payments which will vary with the investment performance of Franklin
Life Money Market Variable Annuity Fund C (the "Fund"). The Contracts provide
Annuity Payments for life commencing on an initial Annuity Payment Date
selected by the Contract Owner; other Settlement Options are provided. See
"Introduction," and "The Contracts," below. At any time within 10 days
after receipt of a Contract, the Contract Owner may return the Contract and
receive a refund of any premium paid on the Contract. See "Right to
Revocation of Contract," below.
THE FUND AND ITS INVESTMENT OBJECTIVES
The Fund is an open-end diversified management investment company. The
primary investment objective of the Fund is long-term compounding of income
through retention and reinvestment of income from investments in a
diversified portfolio of short-term money market securities, yielding a high
level of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. There is no assurance that this
objective will be attained. In keeping with the primary investment objective
of investing in short-term money market securities, at least 80% of the
Fund's portfolio will be invested in securities with maturities or remaining
maturities of one year or less and not more than 20% will be invested in
securities with maturities or remaining maturities of between one and two
years. While preservation of capital is a primary investment objective of the
Fund and the money market securities in which the Fund invests generally are
considered to have low principal risk, such securities are not completely
risk-free. There is the risk of the failure of issuers to meet their
principal and interest obligations. Commercial paper generally carries the
highest risk of money market securities. The Fund may invest in Eurodollar
C.D.'s and in securities issued by the Government of Canada and Canadian
banks, which involve certain risks relating to marketability, possible
adverse political and economic developments and possible restrictions on
international currency transactions. See "Investment Policies and
Restrictions of the Fund," below.
SPECIAL INVESTMENT CONSTRAINTS
It is anticipated that the combination of the restrictions on the amount
that the Fund may invest in the securities of any one issuer and the
relatively small and decreasing size of the Fund's assets will make it more
difficult for the Fund's investment adviser to secure appropriate commercial
paper investments, which have historically constituted a substantial portion
of the Fund's investments. It is possible that the shrinking pool of
commercial paper investments available to the Fund due to its size may impair
the future investment performance of the Fund. See "Investment Policies and
Restrictions of the Fund - Special Investment Constraints," below.
INVESTMENT ADVISER; PRINCIPAL UNDERWRITER
The Franklin Life Insurance Company ("The Franklin"), an Illinois legal
reserve stock life insurance company, acts as investment adviser to the Fund.
The Franklin is engaged in the writing of ordinary life policies, annuities
and income protection policies. Franklin Financial Services Corporation, a
wholly-owned subsidiary of The Franklin, is the principal underwriter for the
Fund. The Franklin is an indirect wholly-owned subsidiary of American
General Corporation. See "Investment Management Service Charge," and
"Distribution of the Contracts," below.
DEDUCTIONS AND CHARGES
The deductions and charges applicable to a Contract are illustrated in the
Table of Deductions and Charges that appears immediately before this summary.
There are no deductions for sales charges made from Stipulated Payments under
the Contracts. However, a contingent deferred sales charge, applied against
the lesser of the Cash Value or Stipulated Payments made during the
immediately preceding 72 months, is deducted in the event of certain
redemptions. In the case of Periodic Stipulated Payment Contracts, such
charges for total redemptions start at 8% for the first three Contract Years
and then decline by 2% increments per year through the sixth Contract
Year, with no such charge being imposed after the end of the sixth Contract
Year. In the case of Single Stipulated Payment Contracts, such charges for
total redemptions start at 6% for the first two Contract Years and then
decline by 2% increments per year through the fourth Contract Year, with no
such charge being imposed after the end of the fourth Contract Year. The
contingent deferred sales charges applied to partial redemptions are
identical to those applied to total redemptions, except that such charges
remain at a constant 4% subsequent to the fifth Contract Year in the case of
Periodic Stipulated Payment Contracts, and the third Contract Year in the
case of Single Stipulated Payment
7
<PAGE>
Contracts. Contingent deferred sales charges are waived in the case of
partial redemptions of an amount in any 12-month period up to 10% of Cash
Value as of the date of the first partial redemption during such 12-month
period, death of the Variable Annuitant and where proceeds of a total
redemption are used to purchase another Variable Annuity, Fixed-Dollar
Annuity or life insurance contract issued by The Franklin. See "Contingent
Deferred Sales Charge," "Redemption," and "Transfers to Other Contracts,"
below.
A deduction of $20 per Contract Year (subject to increase by The Franklin
to a maximum of $30 per Contract Year) and a transaction fee of $1.00 per
Stipulated Payment ($.50 if by Bank Draft or by employer or military
preauthorized automatic deduction from compensation) in the case of Periodic
Stipulated Payment Contracts, and a one-time deduction of $100 in the case of
Single Stipulated Payment Contracts, is made from Stipulated Payments for
administrative expenses. Any applicable state or local premium taxes on the
Stipulated Payments (currently up to 5%) are also deducted from the single or
periodic Stipulated Payments. The amount remaining after all such deductions
and fees is allocated to the Fund. See "Redemption," "Administration
Deductions," "Contingent Deferred Sales Charge," and "Premium Taxes," below.
The charges for annuity rate and mortality assurances, expense assurances
and investment management services currently aggregate 1.440% on an annual
basis and are made daily against the net asset value of the Fund. These
charges consist of .900% for The Franklin's assurance of annuity rates or
mortality factors, .165% (subject to increase by The Franklin up to a maximum
of .850%) for The Franklin's assurances of expense factors, and .375%
(subject to increase by The Franklin up to a maximum of .500%) for investment
management services by The Franklin. See "Mortality and Expense Risk Charge,"
and "Investment Management Service Charge," below.
MINIMUM PERMITTED INVESTMENT
Subject to limited exceptions, the minimum single Stipulated Payment is
$2,500. The minimum Periodic Stipulated Payment Contract sold is one under which
the annual payments are $360 and each monthly Stipulated Payment is $30. See
"Purchase Limits," below.
NEW CONTRACTS NO LONGER BEING ISSUED
The Fund no longer issues new Contracts.
REDEMPTION
A Contract Owner under a Deferred Variable Annuity Contract, prior to the
death of the Variable Annuitant and prior to the Contract's initial Annuity
Payment Date, may, subject to any limitations on early settlement contained
in an applicable Qualified Plan and subject to limitations on early
withdrawals imposed in connection with Section 403(b) annuity purchase plans
(see "Federal Income Tax Status," below), redeem all or part of the Contract
and receive the Cash Value (equal to the number of Accumulation Units
credited to the part of the Contract redeemed times the value of an
Accumulation Unit at the end of the Valuation Period in which the request for
redemption is received) less any applicable contingent deferred sales charge,
unpaid administration deductions, and federal income tax withholding. Partial
redemptions must be in amounts not less than $500. For information as to
Accumulation Units, see "Value of the Accumulation Unit," below. Subject to
certain limitations, the Contract Owner may elect to have all or a portion of
the amount due upon a total redemption of a Contract applied under certain
Settlement Options or applied toward the purchase of other annuity or
insurance products offered by The Franklin. Federal tax penalties may apply
to certain redemptions. See "Redemption," "Contingent Deferred Sales Charge,"
"Transfers to and from Other Contracts," "Settlement Options," and "Federal
Income Tax Status," below.
TERMINATION BY THE FRANKLIN
The Franklin reserves the right to terminate Contracts if Stipulated
Payments are less than $360 in each of three consecutive Contract Years
(excluding the first Contract Year) and if the Cash Value less any surrender
charge is less than $500 at the end of such three-year period. Different
termination provisions apply in the case of Individual Retirement Annuities.
See "Termination by The Franklin," below.
8
<PAGE>
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 YEAR)
The financial information in this table for each of the three years in the
period ended December 31, 1997 has been audited by Ernst & Young LLP,
independent auditors. The financial information in this table for each of the
two years in the period ended December 31, 1994 was audited by Coopers & Lybrand
L.L.P., independent accountants. This table should be read in conjunction with
the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income $ 1.162 $ 1.203 $ .846 $ .617 $ .746 $ 1.140 $ 1.501 $ 1.542 $ 1.186
Expenses .326 .309 .303 .294 .286 .278 .265 .244 .230
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment .836 .894 .543 .323 .460 .862 1.236 1.298 .956
income
Net increase in
accumulation .836 .894 .543 .323 .460 .862 1.236 1.298 .956
unit value
Acumulation unit
value:
Beginning of 22.030 21.136 20.593 20.270 19.819 18.948 17.712 16.414 15.458
year
End of year $22.866 $22.030 $21.136 $20.593 $20.270 $19.810 $18.948 $17. 712 $16.414
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44%
assets
Ratio of net
investment
income to
average 3.71% 4.17% 2.58% 1.58% 2.32% 4.46% 6.71% 7.65% 5.98%
net assets
Number of
accumulation
units
outstanding 87,386 104,641 132,646 159,929 210,310 247,150 270,271 307,850 362,718
at end of year
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The financial statements for the Fund and The Franklin and the reports of the
independent auditors and accountants for the Fund and The Franklin are included
in the Statement of Additional Information.
9
<PAGE>
INTRODUCTION
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY
THE FRANKLIN LIFE INSURANCE COMPANY
The Qualified and Non-Qualified Contracts offered by this Prospectus are
designed primarily to assist in retirement planning for individuals. The
Contracts provide Annuity Payments for life commencing on a selected Annuity
Payment Date; other Settlement Options are available. The amount of the
Annuity Payments will vary with the investment performance of the assets of
the Fund, a separate account which has been established by The Franklin under
Illinois insurance law. For the primary investment objective of the Fund, see
"Investment Policies and Restrictions of the Fund," below.
The Qualified Contracts described in this Prospectus will not knowingly be
sold other than for use:
(1) in connection with qualified employee pension and profit-sharing trusts
described in Section 401(a) and tax-exempt under Section 501(a) of the Code, and
qualified annuity plans described in Section 403(a) of the Code;
(2) in connection with qualified pension, profit-sharing and annuity plans
established by self-employed persons ("H.R. 10 Plans");
(3) in connection with annuity purchase plans adopted by public school
systems and certain tax-exempt organizations pursuant to Section 403(b) of the
Code; or
(4) as Individual Retirement Annuities described in Section 408(b) of the
Code, including Simplified Employee Pensions described in Section 408(k) of the
Code.
Pursuant to this Prospectus, The Franklin offers two types of Qualified
and Non-Qualified Contracts: those under which Annuity Payments to the
Variable Annuitant commence immediately-"Immediate Variable Annuities"-and
those under which Annuity Payments to the Variable Annuitant commence in the
future-"Deferred Variable Annuities." Deferred Variable Annuities may be
purchased either with periodic Stipulated Payments or with a single
Stipulated Payment, while Immediate Variable Annuities may only be purchased
with a single Stipulated Payment. Periodic Stipulated Payment Contracts are
written to provide various agreed periods during which the Stipulated
Payments are to be made, with a minimum of two years.
The Franklin is a legal reserve stock life insurance company organized
under the laws of the State of Illinois in 1884. The Franklin issues
individual life insurance, annuity and accident and health insurance
policies, group annuities and group life insurance and offers a variety of
whole life, life, retirement income and level and decreasing term insurance
plans. Its Home Office is located at #1 Franklin Square, Springfield,
Illinois 62713.
American General Corporation ("American General") through its wholly-owned
subsidiary, AGC Life Insurance Company ("AGC Life"), owns all of the
outstanding shares of common stock of the Franklin. The address of AGC Life
is American General Center, Nashville, Tennessee 37250-0001. The address of
American General is 2929 Allen Parkway, Houston, Texas 77019-2155.
American General is one of the largest diversified financial services
organizations in the United States. American General's operating
subsidiaries are leading providers of retirement services, consumer loans,
and life insurance. The company was incorporated as a general business
corporation in Texas in 1980 and is the successor to American General
Insurance Company, an insurance company incorporated in Texas in 1926.
The discussion of Contract terms herein in many cases summarizes those
terms. Reference is made to the full text of the Contract forms, which are
filed with the Securities and Exchange Commission as exhibits to the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of which this Prospectus is a part. The exercise of
certain of the Qualified Contract rights herein described may be subject to
the terms and conditions of any Qualified Plan under which such Qualified
Contract may be purchased. This Prospectus contains no information concerning
any such Qualified Plan. Further information relating to some Qualified
Plans may be obtained from the disclosure documents required to be
distributed to employees under the Employee Retirement Income Security Act of
1974.
10
<PAGE>
DESCRIPTION OF THE SEPARATE ACCOUNT
The Fund was established as a separate account on July 23, 1981 by
resolution of the Board of Directors of The Franklin pursuant to the
provisions of the Illinois Insurance Code. The Fund is an open-end
diversified management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940. Such
registration does not involve supervision of the management or investment
practices or policies of the Fund or of The Franklin by the Commission. The
Board of Managers of the Fund must be elected annually by Contract Owners. A
majority of the members of the Board of Managers are persons who are not
otherwise affiliated with The Franklin. See "Management," below. The Fund
meets the definition of a "Separate Account" under the federal securities
laws.
Under the provisions of the Illinois Insurance Code: (i) the income,
gains or losses of the Fund are credited to or charged against the amounts
allocated to the Fund in accordance with the terms of the Contracts, without
regard to the other income, gains or losses of The Franklin; and (ii) the
assets of the Fund are not chargeable with liabilities arising out of The
Franklin's other business activities, including liabilities of any other
separate account which may be established. These assets are held with
relation to the Contracts described in this Prospectus and such other
Variable Annuity contracts as may be issued by The Franklin and designated by
it as participating in the Fund. All obligations arising under the Contracts,
including the promise to make Annuity Payments, are general corporate
obligations of The Franklin. Accordingly, all of The Franklin's assets
(except those allocated to other separate accounts which have been or may be
established) are available to meet its obligations and expenses under the
Contracts participating in the Fund.
The Franklin is taxed as a "life insurance company" under the Code. The
Fund is subject to tax as part of The Franklin for federal income tax
purposes. However, the operations of the Fund are considered separately from
the other operations of The Franklin in computing The Franklin's tax
liability and the Fund is not affected by federal income taxes paid by The
Franklin with respect to its other operations. The operations of the Fund are
treated separately from the other operations of The Franklin for accounting
and financial statement purposes. Under existing law, no federal income tax
is payable by The Franklin on investment income and realized capital gains of
the Fund. See "Federal Income Tax Status," below.
DEDUCTIONS AND CHARGES UNDER THE CONTRACTS
A. ADMINISTRATION DEDUCTIONS
Deductions from Stipulated Payments will be made as follows for
administrative expenses with respect to the Contracts and the Fund such as
preparation of the Contracts, custodial and transfer fees, salaries, rent,
postage, telephone and legal, accounting and periodic reporting fees:
(1) Under Single Stipulated Payment Contracts, a one-time deduction of $100.
(2) Under Periodic Stipulated Payment Contracts, a deduction of $20 per
Contract Year (subject to increase at any time by The Franklin to a maximum
of $30 per Contract Year) and a transaction fee of $1.00 per Stipulated
Payment ($.50 if by Bank Draft or by employer or military preauthorized
automatic deduction from compensation).
The above deductions for administrative expenses, and charges for
mortality and expense risk assurances discussed under "Mortality and Expense
Risk Charge," below, are made pursuant to an Administration Agreement dated
December 3, 1981 between the Fund and The Franklin. The Administration
Agreement is described under "Investment Advisory and Other Services" in the
Statement of Additional Information.
The administration deductions are designed to cover the actual expenses of
administering the Contracts and the Fund. The aggregate dollar amounts of the
administration deductions for the fiscal years ended December 31, 1995, 1996 and
1997 were $1,060, $820 and $__________, respectively.
11
<PAGE>
B. PREMIUM TAXES
At the time any premium taxes are payable by The Franklin on the
consideration received from the sale of the Contracts, the amount thereof will
be deducted from the Stipulated Payments. Premium taxes ranging up to 5% as of
________________, 1998 are charged by various jurisdictions in which The
Franklin is transacting business and in which it may, after appropriate
qualification, offer Contracts.
C. MORTALITY AND EXPENSE RISK CHARGE
While Annuity Payments will reflect the investment performance of the
Fund, they will not be affected by adverse mortality experience or by any
excess in the actual expenses of the Contracts and the Fund over the maximum
administration deductions provided for in the Contracts. The Franklin assumes
the risk that Annuity Payments will continue for a longer period than
anticipated because the Variable Annuitant lives longer than expected (or the
Variable Annuitants as a class do so) and also assumes the risk that the
administration deductions may be insufficient to cover the actual expenses of
the administration of the Contracts and of the Fund (except those expenses
listed under "Investment Management Service Charge," immediately below, which
the Fund will bear). The Franklin assumes these risks for the duration of the
Contract and the annuity rate, mortality and expense risk deductions and
charges set forth herein will not be increased beyond the stated maximum with
respect thereto regardless of the actual mortality and expense experience.
The mortality risk charge is imposed regardless of whether or not the payment
option selected involves a life contingency.
For assuming these risks, The Franklin imposes a daily charge against the
value of the Accumulation Unit and the Annuity Unit. (For further information
as to the Accumulation Unit and the Annuity Unit, see "Deferred Variable
Annuity Accumulation Period" and "Annuity Period," below.) These charges are
at the current combined annual rate of 1.065% (.002918% on a daily basis), of
which .900% is for annuity rate and mortality assurances and .165% (subject
to increase at any time by The Franklin up to a maximum of 1.750%) is for
expense assurances. If the money collected from this charge is not needed,
it will be to The Franklin's gain and may be used to cover contract
distribution expenses.
During 1995, 1996 and 1997, The Franklin earned and was paid $27,136,
$23,215 and $____________, respectively, by reason of these charges. Such
charges during 1997 were equal to 1.065% of average net assets.
D. INVESTMENT MANAGEMENT SERVICE CHARGE
The Franklin acts as investment manager of the Fund. For acting as such, The
Franklin makes a charge against the value of the Accumulation Unit and of the
Annuity Unit at an annual rate of up to .500%. The Franklin has agreed to forego
initially a portion of this charge and currently makes a charge against the
value of the Accumulation Unit and of the Annuity Unit at the annual rate of
.375% (.001027% on a daily basis). This charge may be increased up to .500% on
an annual basis only upon at least 30 days' prior written notice to Contract
Owners. The investment management services are rendered and the charge is made
pursuant to an Investment Management Agreement executed and dated January 31,
1995, pursuant to approval by the Contract Owners at their annual meeting held
on April 17, 1995, and renewal to January 31, 1999 by the Board of Managers of
the Fund at its meeting on January 19, 1998. The Investment Management Agreement
is described under "Investment Advisory and Other Services" in the Statement of
Additional Information.
During 1995, 1996 and 1997, The Franklin earned and was paid $9,551,
$8,171 and $____________, respectively, under the Investment Management
Agreement then in effect.
E. CONTINGENT DEFERRED SALES CHARGE
There are no deductions for sales charges made from Stipulated Payments under
the Contracts. However, commissions on the sale of the Contracts are paid by The
Franklin to agents of Franklin Financial Services Corporation pursuant to an
Agreement dated December 3, 1981. See "Distribution of the Contracts" in the
Statement of Additional Information. In addition, Franklin Financial Services
Corporation incurs certain sales expenses, such as sales literature preparation
and related costs, in connection with the sale of the Contracts pursuant to a
Sales Agreement dated January 31, 1995. Because the Contracts are normally
purchased for the long term, it is expected that these costs will be recovered
over time. If, however, a Contract is totally or partially redeemed in certain
circumstances prior to the initial Annuity Payment Date, a means is provided for
Franklin Financial Services Corporation to recover sales expenses at that time.
12
<PAGE>
Upon redemption of a Periodic Stipulated Payment Contract, the charges
determined as follows will be applied against the lesser of the Cash Value of
the part of the Contract redeemed or the Stipulated Payments made during the
immediately preceding 72 months represented by that part of the Contract
redeemed:
<TABLE>
<CAPTION>
Contract Percentage Charge
Year Total Redemption Partial Redemption
- -----------------------------------------------------------------------------------
<S> <C> <C>
1 8% 8%
2 8% 8%
3 8% 8%
4 6% 6%
5 4% 4%
6 2% 4%
7 and thereafter 0% 4%
</TABLE>
Upon redemption of a Single Stipulated Payment Contract, the charges
determined as follows will be applied against the lesser of the Cash Value of
the part of the Contract redeemed or the Stipulated Payment:
<TABLE>
<CAPTION>
Contract Percentage Charge
Year Total Redemption Partial Redemption
- -----------------------------------------------------------------------------------
<S> <C> <C>
1 6% 6%
2 6% 6%
3 4% 4%
4 2% 4%
5 and thereafter 0% 4%
</TABLE>
The above charges are not, however, applied to distributions made upon the
death of the Variable Annuitant, to partial redemption of an amount in any
twelve-month period up to 10% of the Cash Value as of the date of the first
partial redemption in such twelve-month period, or to certain transfers
described below. Partial redemptions must be in amounts not less than $500.
In no event will the total amount of contingent deferred sales charges
paid under a Contract exceed 9% of total Stipulated Payments made under such
Contract in the first twelve Contract Years (or such fewer Contract Years
over which Stipulated Payments are made).
The deferred sales charges were $108 and $___________ during 1995 and
1997, respectively. There were no deferred sales charges during 1996.
Franklin Financial Services Corportion paid no allowances to unaffiliated
dealers in connection with the sale of the Contracts during 1995, 1996 and
1997.
F. TRANSFERS TO OTHER CONTRACTS
Subject to any limitations in a Qualified Plan, Contracts may be
redeemed prior to the death of the Variable Annuitant and the initial Annuity
Payment Date and the Cash Value (less the required amount of federal income
tax withholding, if any) may be applied to the purchase of certain other
Variable Annuities, Fixed-Dollar Annuities or life insurance contracts issued
by The Franklin. Franklin Life Variable Annuity Fund A and Franklin Life
Variable Annuity Fund B, other separate accounts of The Franklin funding
Variable Annuity contracts, no longer issue new contracts. If a Contract is
fully redeemed and such Cash Value is immediately applied to the purchase of
such other contracts, no contingent deferred sales charge for redeeming the
Fund C Contract will apply. Any sales deductions under such other contracts
will apply to amounts transferred as if such amounts were a single stipulated
payment under such other contracts (however, total sales deductions on the
transferred funds will in no instance exceed 9% of all Stipulated Payments
made under the Fund C Contract with respect to such transferred funds);
provided, however, that if such a transfer occurs after the sixth Contract
Year in the case of Periodic Stipulated Payment Contracts or the fourth
Contract Year in the case of Single Stipulated Payment Contracts, The
Franklin will waive the sales deductions of such other contract with respect
to such transferred funds.
13
<PAGE>
It is not clear whether gain or loss will be recognized for federal income
tax purposes upon the redemption of a Fund C Contract, another annuity
contract or life insurance contract issued by The Franklin for purposes of
applying the redemption proceeds to the purchase of another contract issued
by The Franklin. Federal tax penalties may also apply to such redemptions.
Since the income and withholding tax consequences of such redemption and
purchase depend on many factors, any person contemplating redemption of a
Fund C Contract or another contract issued by The Franklin for purposes of
purchasing a different contract issued by The Franklin (or any other
contract) is advised to consult a qualified tax advisor prior to the time of
redemption.
G. MISCELLANEOUS
The Fund's total expenses for 1997 were $____________, or 1.44% of average
net assets during 1997.
THE CONTRACTS
A. GENERAL
Certain significant provisions of the Contracts and administrative practices
of The Franklin with respect thereto are discussed in the following paragraphs.
Contract Owner inquiries may be directed to the Equity Administration
Department of The Franklin at the address or telephone number set forth on the
cover of this Prospectus.
1. ANNUITY PAYMENTS
Variable Annuity Payments are determined on the basis of (i) an annuity
rate table specified in the Contract, and (ii) the investment performance of
the Fund. In the case of Deferred Variable Annuity Contracts, the annuity
rate table is set forth in the Contract (but see below). In the case of
Immediate Variable Annuities, the table is that used by The Franklin on the
date of issue of the Contract. The amount of the Annuity Payments will not
be affected by mortality experience adverse to The Franklin or by an increase
in The Franklin's expenses related to the Fund or the Contracts in excess of
the expense deductions provided for in the Contracts. The Variable Annuitant
under an annuity with a life contingency or one providing for a number of
Annuity Payments certain will receive the value of a fixed number of Annuity
Units each month, determined as of the initial Annuity Payment Date on the
basis of the applicable annuity rate table and the then value of his or her
account. The value of Annuity Units, and thus the amounts of the monthly
Annuity Payments, will, however, reflect investment gains and losses and
investment income occurring after the initial Annuity Payment Date, and thus
the amount of the Annuity Payments will vary with the investment experience
of the Fund. See "Annuity Period," below.
Court decisions, particularly ARIZONA GOVERNING COMMITTEE v. NORRIS, have
held that the use of gender-based mortality tables to determine benefits
under an employer-related retirement or benefit plan may violate Title VII of
the Civil Rights Act of 1964 ("Title VII"). These cases indicate that plans
sponsored by employers subject to Title VII generally may not provide
different benefits for similarly-situated men and women.
The Contracts described in this Prospectus incorporate annuity rate
tables which reflect the age and sex of the Variable Annuitant and the
Settlement Option selected. Such sex-distinct tables continue to be
appropriate for use, for example, under Contracts which are not purchased in
connection with an "employer-related" plan subject to NORRIS (such as
individual retirement annuities not sponsored by an employer). However, in
order to enable subject employers to comply with NORRIS, The Franklin will
provide "unisex" annuity rate tables for use under Contracts purchased in
connection with "employer-related" plans. Persons contemplating purchase of a
Contract, as well as current Contract Owners, should consult a legal advisor
regarding the applicability and implications of NORRIS in connection with
their purchase and ownership of a Contract.
14
<PAGE>
2. INCREASE OR DECREASE BY CONTRACT OWNER IN AMOUNT OR NUMBER OF PERIODIC
STIPULATED PAYMENTS
Stipulated Payments can be paid on an annual, semi-annual or quarterly
schedule or, with The Franklin's consent, monthly. The first Stipulated
Payment is due as of the date of issue and each subsequent Stipulated Payment
is due on the first day following the interval covered by the next preceding
Stipulated Payment and on the same date each month as the date of issue. The
Contract Owner may increase the amount of a Stipulated Payment on an
annualized basis under a Periodic Stipulated Payment Contract (except in the
case of an Individual Retirement Annuity, which cannot be increased above the
amounts described under "Purchase Limits," immediately below) up to an amount
on an annualized basis equal to ten times the amount of the first Stipulated
Payment on an annualized basis. Similarly, subject to the limitations
described under "Purchase Limits," immediately below, the amount of a
periodic Stipulated Payment may be decreased by the Contract Owner on any
date a Stipulated Payment is due. Unless otherwise agreed to by The
Franklin, the mode of Stipulated Payment may be changed only on a Contract
Anniversary.
The Contract Owner may continue making Stipulated Payments after the
agreed number of Stipulated Payments has been made, but The Franklin will not
accept Stipulated Payments after age 75. Submission of a Stipulated Payment
in an amount different from that of the previous payment, subject to the
aforesaid limits, will constitute notice of the election of the Contract
Owner to make such change.
3. ASSIGNMENT OR PLEDGE
A Qualified Contract may not be assigned by the Contract Owner except when
issued to a trustee in connection with certain types of plans designed to
qualify under Section 401 of the Code or when made pursuant to a qualified
domestic relations order rendered by a state court in satisfaction of family
support obligations. In general, a pledge or assignment made with respect to
certain Qualified Contracts may, depending on such factors as the amount
pledged or assigned, be treated as a taxable distribution. See "Individual
Retirement Annuities," below, for special rules applicable thereto. Moreover,
in certain instances, pledges or assignments of a Qualified Contract may
result in the imposition of certain tax penalties. See generally "The
Contracts: Qualified Plans," below.
A Non-Qualified Contract may be assigned by the Contract Owner or pledged
by him or her as collateral security as provided in the Non-Qualified
Contract. Assignments or pledges of a Non-Qualified Contract will be treated
as distributions that may be taxable. Moreover, in certain instances, pledges
or assignments of a Non-Qualified Contract may result in the imposition of
certain tax penalties. See "The Contracts: Non-Qualified Plans," below.
Persons contemplating the assignment or pledge of a Qualified Contract or
a Non-Qualified Contract are advised to consult a qualified tax advisor
concerning the federal income tax consequences thereof.
4. PURCHASE LIMITS
No periodic Stipulated Payment may be less than $30 per month ($360 per
year). No single Stipulated Payment may be less than $2,500, except that in
the case of a deferred Single Stipulated Payment Contract to be used as an
Individual Retirement Annuity funded with a Rollover Contribution, the total
Stipulated Payment applicable to the Variable Annuity, prior to
administration deductions, must be at least $1,000 unless with consent of The
Franklin a smaller single Stipulated Payment is permitted. In the case
of a Qualified Contract issued for use as an Individual Retirement
Annuity, annual premium payments may not, in general, exceed $2,000.
However, if the Individual Retirement Annuity is a Simplified Employee
Pension, annual premium payments may not exceed $24,500. Single Stipulated
Payment Contracts are not available as Individual Retirement Annuities except
for those funded with Rollover Contributions and except for those to be used
as Simplified Employee Pensions.
5. TERMINATION BY THE FRANKLIN
The Franklin reserves the right to terminate any Contract, other than a
Contract issued for use as an Individual Retirement Annuity, if total
Stipulated Payments paid are less than $360 in each of three consecutive
Contract Years (excluding the first Contract Year) and if the Cash Value less
any surrender charge is less than $500 at the end of such three-year period.
The Franklin must give 31 days' notice by mail to the Contract Owner of such
termination. The Franklin will not exercise any right to terminate such
Contract if the value of the Contract declines to less than $500 as a result
of a decline in the market value of the securities held by the Fund.
15
<PAGE>
The Franklin reserves the right to terminate any Contract issued for use
as an Individual Retirement Annuity if no Stipulated Payments have been
received for any two Contract Years and if the first monthly Annuity Payment,
determined at the initial Annuity Payment Date, arising from the Stipulated
Payments received prior to such two-year period would be less than $20.
Upon termination as described above, The Franklin will pay to the Contract
Owner the Cash Value of the Contract, less any unpaid administration
deductions. For certain tax consequences upon such payment, see "Federal
Income Tax Status," below.
6. RIGHT TO REVOCATION OF CONTRACt
A Contract Owner has the right to revoke the purchase of a Contract within
10 days after receipt of the Contract, and upon such revocation will be
entitled to a return of the entire amount paid. The request for revocation
must be made by mailing or hand-delivering the Contract within such 10-day
period either to The Franklin Life Insurance Company, Cashiers Department, #1
Franklin Square, Springfield, Illinois 62713, or to the agent from whom the
Contract was purchased. In general, notice of revocation given by mail is
deemed to be given on the date of the postmark, or, if sent by certified or
registered mail, the date of certification or registration.
7. NEW CONTRACTS NO LONGER BEING ISSUED
The Fund no longer issues new Contracts.
B. DEFERRED VARIABLE ANNUITY ACCUMULATION PERIOD
1. CREDITING ACCUMULATION UNITS; DEDUCTION FOR ADMINISTRATIVE EXPENSES
During the accumulation period-the period before the initial Annuity
Payment Date-deductions from Stipulated Payments for administrative expenses
are made as specified under "Deductions and Charges Under the Contracts,"
above. In addition, any applicable premium taxes, also as specified above
under that caption, are deducted from the Stipulated Payments. The balance of
each Stipulated Payment is credited to the Contract Owner in the form of
Accumulation Units.
The number of a Contract Owner's Accumulation Units is determined by
dividing the net amount of Stipulated Payments credited to his or her
Contract by the value of an Accumulation Unit at the end of the Valuation
Period during which the Stipulated Payment is received, except that, in the
case of the original application for a Variable Annuity Contract, the value
of an Accumulation Unit within two business days after receipt of the
application will be used if the application and all information necessary to
process the application are complete upon receipt. If the application and
such information are not complete upon receipt, The Franklin, within five
days after the receipt of an original application and initial payment at the
Home Office of The Franklin, will attempt to complete the application and
will either accept the application or reject the application and return the
initial payment.
The number of Accumulation Units so determined will not be changed by any
subsequent change in the dollar value of an Accumulation Unit, but the dollar
value of an Accumulation Unit may vary from day to day depending upon the
investment experience of the Fund.
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<PAGE>
2. VALUATION OF A CONTRACT OWNER'S CONTRACT
The Cash Value of a Contract at any time prior to the initial Annuity
Payment Date can be determined by multiplying the total number of
Accumulation Units credited to the account by the current Accumulation Unit
value. The Contract Owner bears the investment risk, that is, the risk that
market values may decline. There is no assurance that the Cash Value of the
Contract will equal or exceed the Stipulated Payments made. A Contract Owner
may obtain from the Home Office of The Franklin information as to the current
value of an Accumulation Unit and the number of Accumulation Units credited
to his or her Contract.
3. VALUE OF THE ACCUMULATION UNIT
The value of an Accumulation Unit was set at $10 effective July 1, 1981.
Accumulation Units currently are valued each Valuation Date (each day in
which there is a sufficient degree of trading in the securities in which the
Fund invests that the value of an Accumulation Unit might be materially
affected by changes in the value of the Fund's investments, other than a day
during which no Contract or portion thereof is tendered for redemption and no
order to purchase or transfer a Contract is received by the Fund, as of the
close of trading on that day). After the close of trading on a Valuation
Date, or on a day when Accumulation Units are not valued, the value of an
Accumulation Unit is equal to its value as of the immediately following
Valuation Date. The value of an Accumulation Unit on the last day of any
Valuation Period is determined by multiplying the value of an Accumulation
Unit on the last day of the immediately preceding Valuation Period by the Net
Investment Factor (defined below) for the current Valuation Period.
At each Valuation Date a gross investment rate for the Valuation Period
then ended is determined from the investment performance of the Fund for the
Valuation Period. Such rate is equal to (i) accrued investment income for the
Valuation Period, plus capital gains and minus capital losses for the period,
whether realized or unrealized, on the assets of the Fund (adjusted by a
deduction for the payment of any applicable state or local taxes as to the
income or capital gains of the Fund) divided by (ii) the value of the assets
of the Fund at the beginning of the Valuation Period. The gross investment
rate may be positive or negative.
The net investment rate for the Valuation Period is then determined by
deducting, currently, .003945% (1.440% on an annual basis) for each day of
the Valuation Period as a charge against the gross investment rate. This
charge is made by The Franklin for providing investment management services,
annuity rate or mortality assurances and expense assurances and may be
increased by The Franklin to a maximum of 2.250% on an annual basis. See
"Deductions and Charges Under the Contracts," above.
The net investment factor for the Valuation Period is the sum of
1.00000000 plus the net investment rate for the Valuation Period ("Net
Investment Factor").
The net investment rate may be negative if the combined capital losses,
Valuation Period deductions and increase in the tax reserve exceed investment
income and capital gains. Thus, the net investment factor may be less than
1.00000000, and the value of an Accumulation Unit at the end of a Valuation
Period may be less than the value for the previous Valuation Period.
4. VALUATION OF FUND ASSETS
The value of the assets of the Fund is the value of the securities held by
the Fund plus any cash or other assets minus all liabilities.
The money market securities in which the Fund invests are traded primarily
in the over-the-counter market. Portfolio securities will be valued using the
best method currently available as determined by the Board of Managers of the
Fund. Securities with a maturity or remaining maturity of 60 days or less
(including master demand notes) are valued on an amortized cost basis. Under
this method of valuation, the security is initially valued at cost on the
date of purchase (or in the case of securities purchased with more than 60
days remaining to maturity, the market value on the 61st day prior to
maturity); thereafter the Fund assumes a constant proportionate amortization
in value until maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the security. In periods
of declining interest rates, the daily yield on portfolio securities valued
on an amortized cost basis
17
<PAGE>
may tend to be higher than the yield derived by using a method of valuation
based upon market prices and estimates; in periods of rising interest rates,
the daily yield on portfolio securities valued on an amortized cost basis may
tend to be lower than the yield derived by using a method of valuation based
upon market prices and estimates. For purposes of valuation, the maturity of
a variable rate certificate of deposit is deemed to be the next coupon date
on which the interest rate is to be adjusted. Securities with a remaining
maturity of more than 60 days currently are valued on each Valuation Date
generally at the mean between the most recent bid and asked prices or yield
equivalent as obtained from dealers that make markets in such securities.
Investments for which market quotations are not readily available as of the
close of trading on relevant markets on each Valuation Date are valued at
prices deemed best to reflect their fair value as determined in good faith by
or under the direction of the Board of Managers of the Fund in a manner
authorized by the Board of Managers and applied on a consistent basis. The
Board of Managers of the Fund has determined that the fair value of
Eurodollar certificates of deposit generally will be the market price thereof
at the close of trading on European exchanges, unless events between such
close and the close of trading on the New York Stock Exchange require a
different valuation, in which case the Board of Managers will promptly
consider what other method of valuation should be applied to determine fair
value.
The Board of Managers monitors on an ongoing basis the methods of
valuation used to determine what action, if any, should be taken to assure
that portfolio securities of the Fund are valued at fair value as determined
in good faith by the Board of Managers.
5. REDEMPTION
A Contract Owner under a Deferred Variable Annuity Contract, prior to the
death of the Variable Annuitant and prior to the initial Annuity Payment
Date, may, subject to any limitations on early settlement contained in an
applicable Qualified Plan, redeem the Contract, in whole or in part (but, if
in part, not less than $500), by submission of the Contract and a written
request for its redemption to The Franklin's Home Office, and will receive
the Cash Value of the part of the Contract redeemed, less any applicable
contingent deferred sales charges and unpaid administration deductions
referred to under "Deductions and Charges Under the Contracts," above. Early
withdrawal of certain amounts attributable to Contracts issued pursuant to an
annuity purchase plan meeting the requirements of Code Section 403(b) may be
prohibited. See "Federal Income Tax Status," below. The Cash Value of a
Contract or part thereof redeemed prior to the initial Annuity Payment Date
is the number of Accumulation Units credited to the Contract (or that part so
redeemed) times the value of an Accumulation Unit at the end of the Valuation
Period in which the request for redemption is received. Except in limited
circumstances discussed below, the payment of the Cash Value will be made
within seven days after the date a properly completed and documented request
for redemption is received by The Franklin at its Home Office. The right of
redemption may be suspended or the date of payment postponed during any
periods when the New York Stock Exchange is closed (other than customary
weekend and holiday closings); when trading in the markets the Fund normally
utilizes is restricted, or an emergency exists as determined by the
Securities and Exchange Commission so that disposal of the Fund's investments
or determination of its net asset value is not reasonably practicable; or for
such other periods as the Securities and Exchange Commission by order may
permit to protect Contract Owners.
In lieu of a single payment of the amount due upon redemption of a
Contract, the Contract Owner may elect, at any time prior to the initial
Annuity Payment Date and during the lifetime of the Variable Annuitant, to
have all or any portion of the amount due applied under any available
Settlement Option. See "Settlement Options," below. However, no Settlement
Option may be elected upon redemption without surrender of the entire
Contract.
The payment of the Cash Value of a redeemed Contract either in a single
payment or under an available Settlement Option may be subject to federal
income tax withholding and federal tax penalties. See "Federal Income Tax
Status," below.
18
<PAGE>
6. PAYMENT OF ACCUMULATED VALUE AT TIME OF DEATH
In the event of the death of the Variable Annuitant prior to the initial
Annuity Payment Date, death benefits payable to the surviving Beneficiary
will be paid by The Franklin within seven days of receipt by The Franklin of
written notice of such death. The death proceeds payable will be the Cash
Value of the Contract determined as of the date on which written notice of
death is received by The Franklin by mail if such date is a Valuation Date;
if such date is not a Valuation Date, the determination will be made on the
next following Valuation Date. There is no assurance that the Cash Value of a
Contract will equal or exceed the Stipulated Payments made. No contingent
deferred sales charge is made in the case of such death. For payment of death
proceeds in the event no Beneficiary is surviving at the death of the
Variable Annuitant, see "Change of Beneficiary or Mode of Payment of
Proceeds; Death of Beneficiaries," below. The Code imposes certain
requirements concerning payment of death benefits payable before the initial
Annuity Payment Date in the case of Qualified Contracts. Under those
Contracts, death benefits will be paid as required by the Code and as
specified in the governing plan documents. The terms of such documents should
be consulted to determine the death benefits and any limitations the plan may
impose. You should consult your legal counsel and tax advisor regarding
these requirements.
Subject to the foregoing the Contract Owner may, at any time prior to the
initial Annuity Payment Date, elect that all or any portion of such death
proceeds be paid to the Beneficiary under any one of the available Settlement
Options. See "Settlement Options," below. If the Contract Owner has not made
such an election, the Beneficiary may do so after the death of the Variable
Annuitant. The Contract Owner or the Beneficiary, whichever selects the
method of settlement, may designate contingent Beneficiaries to receive any
other amounts due should the first Beneficiary die before completion of the
specified payments. If neither the Contract Owner nor the Beneficiary elects
payment of death proceeds under an available Settlement Option, payment will
be made to the Beneficiary in a single sum.
Death proceeds may be applied to provide variable payments, fixed-dollar
payments or a combination of both.
The payment of death proceeds may be subject to federal income tax
withholding. See "Income Tax Withholding," below
In the event of the death of the Variable Annuitant after the initial
Annuity Payment Date, payments under a Contract will be made as described in
"Settlement Options," below.
7. OPTIONS UPON FAILURE TO MAKE STIPULATED PAYMENTS
Upon a failure to make a Stipulated Payment under a Periodic Stipulated
Payment Contract, subject to The Franklin's power of termination described
under "Termination by The Franklin," above, and subject to the right of The
Franklin to pay the value of the Contract Owner's account in a single sum at
the initial Annuity Payment Date if the value on such date is less than
$2,000, the Contract Owner may elect, prior to the death of the Variable
Annuitant and prior to the initial Annuity Payment Date, either of the
following options:
(a) to exercise any of the available Settlement Options described under
"Settlement Options," below, or redeem the Contract as described under
"Redemption," above; or
(b) to have the Contract continued from the date of failure to make a
Stipulated Payment as a paid-up annuity to commence on the initial Annuity
Payment Date stated in the Contract.
If no option is elected by the Contract Owner within 31 days after failure
to make a Stipulated Payment, the Contract will automatically be continued
under the paid-up annuity option.
8. REINSTATEMENT (AS TO PERIODIC STIPULATED PAYMENT CONTRACTS)
A Contract Owner, by making one Stipulated Payment, may reinstate a
Periodic Stipulated Payment Contract as to which there has been a failure to
make a Stipulated Payment, if the Contract at the time of the payment is
being continued as a paid-up annuity. However, such reinstatement does not
automatically reinstate the benefits provided by any riders to the Contract
providing life insurance or disability benefits. Administration deductions
will not accrue during Contract Years in which no Stipulated Payments are
made.
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<PAGE>
9. CHANGE OF BENEFICIARY OR MODE OF PAYMENT OF PROCEEDS; DEATH OF
BENEFICIARIES
While the Contract is in force the Contract Owner may (by filing a written
request at the Home Office of The Franklin) change the Beneficiary or
Settlement Option, or, if agreed to by The Franklin, change to a mode of
payment different from one of the Settlement Options, subject to applicable
limitations under the Code and any governing Qualified Plan.
If any Beneficiary predeceases the Variable Annuitant, the interest of
such Beneficiary will pass to the surviving Beneficiaries, if any, unless
otherwise provided by endorsement. If no Beneficiary survives the Variable
Annuitant and no other provision has been made, then, upon the death of the
Variable Annuitant, the proceeds will be paid in a single sum to the Contract
Owner or, if the Variable Annuitant was the Contract Owner, to the executors
or administrators of the Contract Owner's estate.
10. SETTLEMENT OPTIONS
At any time prior to the initial Annuity Payment Date and during the
lifetime of the Variable Annuitant, the Contract Owner may elect to have all
or a portion of the amount due in settlement of the Contract applied under
any of the available Settlement Options described below. If the Contract
Owner fails to elect a Settlement Option, payment automatically will be made
in the form of a life annuity. See "First Option," below, and "Deferred
Variable Annuity Contracts," below.
Annuity Payments under a Settlement Option are made to the Variable
Annuitant during his or her lifetime, or for such shorter period that may
apply under the particular Settlement Option. Upon the death of the original
Variable Annuitant after the initial Annuity Payment Date, any remaining
Annuity Payments that are due under the Settlement Option elected will be
continued to the Beneficiary or, if elected by the Contract Owner (or, if so
designated by the Contract Owner, by the Beneficiary), the Cash Value of the
Contract, as described under such Settlement Option below, will be paid to
the Beneficiary in one lump sum. Upon the death of any Beneficiary to whom
payments are being made under a Settlement Option, a single payment equal to
the then remaining Cash Value of the Contract, if any, will be paid to the
executors or administrators of the Beneficiary, unless other provision has
been specified and accepted by The Franklin. For a discussion of payments if
no Beneficiary is surviving at the death of the Variable Annuitant, see
"Change of Beneficiary or Mode of Payment of Proceeds; Death of
Beneficiaries," immediately above.
Payment to a Contract Owner upon redemption of a Contract, and payment of
death proceeds to a Beneficiary upon the death of the Variable Annuitant
prior to the initial Annuity Payment Date, may also be made under an
available Settlement Option in certain circumstances. See "Redemption,"
above, and "Payment of Accumulated Value at Time of Death," above.
Available Settlement Options may be selected on a fixed or variable basis
or a combination thereof, except the Seventh Option, which is available on a
fixed basis only. Under an Option which is paid on a fixed basis, there is no
sharing in the investment experience of the Fund and, upon commencement of
payments, participation in the Fund terminates (the subject Contract will be
transferred to the general account of The Franklin). Settlement under the
First, Second, Third, Fourth or Fifth Option below is subject to satisfactory
proof of age of the person or persons to whom the Annuity Payments are to be
made.
The minimum amount of proceeds which may be applied under any Settlement
Option for any person is $2,000 and proceeds of a smaller amount may be paid
in a single sum in the discretion of The Franklin, except in the case of a
deferred Single Stipulated Payment Contract funded with a Rollover
Contribution not in excess of $2,000. See "Purchase Limits," above. Further,
if at any time payments under a Settlement Option become less than $25 per
payment, The Franklin has the right to change the frequency of payment to
such intervals as will result in payments of at least $25.
In the case of Immediate Variable Annuity Contracts, the only Settlement
Options offered are the life annuity, the life annuity with 120, 180 or 240
monthly payments certain, or the joint and last survivor life annuity. See
"First Option," "Second Option" and "Fourth Option," below, and "Immediate
Variable Annuity Contracts," below.
20
<PAGE>
The distribution rules which Qualified Plans must satisfy in order to
be tax-qualified under the Code may limit the utilization of certain
Settlement Options, or may make certain Settlement Options unavailable, in
the case of Qualified Contracts issued in connection therewith. Similarly,
the distribution rules which Non-Qualified Contracts must satisfy in order to
qualify as "annuity contracts" under the Code may also limit available
Settlement Options under Non-Qualified Contracts. These distribution rules
could affect such factors as the commencement of distributions and the period
of time over which distributions may be made. All Settlement Options are
offered subject to the limitations of the distribution rules.
The Statement of Additional Information describes certain limitations on
Settlement Options based on The Franklin's current understanding of the
distribution rules generally applicable to Non-Qualified Contracts and to
Qualified Contracts purchased under this Prospectus for use as Individual
Retirement Annuities or issued in connection with Section 403(b) annuity
purchase plans. See "Limitations on Settlement Options" in the Statement of
Additional Information. Persons considering the purchase of a Contract and
Contract Owners contemplating election of a Settlement Option are urged to
obtain and read the Statement of Additional Information. Various questions
exist, however, about the application of the distribution rules to
distributions from the Contracts and their effect on Settlement Option
availability thereunder. Persons contemplating the purchase of a Contract
should consult a qualified tax advisor concerning the effect of the
distribution rules on the Settlement Option or Options he or she is
contemplating.
Neither this Prospectus nor the Statement of Additional Information,
however, describes limitations on Settlement Options based on applicable
distribution rules in the case of Qualified Contracts issued in connection
with qualified pension and profit-sharing plans under Section 401(a) of the
Code and annuity plans under Section 403(a) of the Code. Under those
Contracts, available Settlement Options are limited to those Options
specified in the governing plan documents. The terms of such documents should
be consulted to determine Settlement Option availability and any other
limitations the plan may impose on early redemption of the Qualified
Contract, payment in settlement thereof, or similar matters. Generally,
limitations comparable to those described in the Statement of Additional
Information for Individual Retirement Annuities and Section 403(b) annuity
purchase plans also apply with respect to such qualified pension,
profit-sharing and annuity plans (including H.R. 10 Plans).
Persons contemplating election of the Fifth, Sixth or Seventh Option
should consult a qualified tax advisor to determine whether the continuing
right of redemption under any such Option might be deemed for tax purposes to
result in the "constructive receipt" of the Cash Value of the Contract or
proceeds remaining on deposit with The Franklin.
FIRST OPTION--LIFE ANNUITY. An annuity payable monthly during the
lifetime of the Variable Annuitant, ceasing with the last Annuity Payment due
prior to the death of the Variable Annuitant. This Option offers the maximum
level of monthly Annuity Payments since there is no guarantee of a minimum
number of Annuity Payments or provision for any continued payments to a
Beneficiary upon the death of the Variable Annuitant. It would be possible
under this Option for the Variable Annuitant to receive only one Annuity
Payment if he or she died before the second Annuity Payment Date, or to
receive only two Annuity Payments if he or she died after the second Annuity
Payment Date but before the third Annuity Payment Date, and so forth.
SECOND OPTION--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN. An annuity payable monthly during the lifetime of the Variable
Annuitant including the commitment that if, at the death of the Variable
Annuitant, Annuity Payments have been made for less than 120 months, 180
months or 240 months (as selected by the Contract Owner in electing this
Option), Annuity Payments shall be continued during the remainder of the
selected period to the Beneficiary. The cash value under this Settlement
Option is the present value of the current dollar amount of any unpaid
Annuity Payments certain.
THIRD OPTION--UNIT REFUND LIFE ANNUITY. An annuity payable monthly
during the lifetime of the Variable Annuitant, ceasing with the last Annuity
Payment due prior to the death of the Variable Annuitant, provided that, at
the death of the Variable Annuitant, the Beneficiary will receive a payment
of the then dollar value of the number of Annuity Units equal to the excess,
if any, of (a) over (b) where (a) is the total amount applied under this
Option divided by the Annuity Unit value at the initial Annuity Payment Date
and (b) is the number of Annuity Units represented by each Annuity Payment
multiplied by the number of Annuity Payments made.
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<PAGE>
For example, if $10,000 were applied on the first Annuity Payment Date
to the purchase of an annuity under this Option, the Annuity Unit value at
the initial Annuity Payment Date were $2.00, the number of Annuity Units
represented by each Annuity Payment were 30.55, 10 Annuity Payments were paid
prior to the date of the Variable Annuitant's death and the value of an
Annuity Unit on the Valuation Date following the Variable Annuitant's death
were $2.05, the amount paid to the Beneficiary would be $9,623.73, computed
as follows:
<TABLE>
<S> <C> <C> <C>
($10,000 - (30.55 X 10)) X $2.05 = (5,000 - 305.5) X 2.05 = 4,694.5 X $2.05 = $9,623.73
-----
$2.00
</TABLE>
FOURTH OPTION--JOINT AND LAST SURVIVOR LIFE ANNUITY. An annuity payable
monthly during the joint lifetime of the Variable Annuitant and a secondary
variable annuitant, and thereafter during the remaining lifetime of the
survivor, ceasing with the last Annuity Payment due prior to the death of the
survivor. Since there is no minimum number of guaranteed payments under this
Option, it would be possible under this Option to receive only one Annuity
Payment if both the Variable Annuitant and the secondary variable annuitant
died before the second Annuity Payment Date, or to receive only two Annuity
Payments if both the Variable Annuitant and the secondary variable annuitant
died after the second Annuity Payment Date but before the third Annuity
Payment Date, and so forth.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD. An amount payable
monthly to the Variable Annuitant for a number of years which may be from one
to 30 (as selected by the Contract Owner in electing this Option). At the
death of the Variable Annuitant, payments will be continued to the
Beneficiary for the remaining period. The cash value under this Settlement
Option is the then present value of the current dollar amount of any unpaid
Annuity Payments certain. A Contract under which Annuity Payments are being
made under this Settlement Option may be redeemed in whole or in part (but,
if in part, not less than $500) at any time by the Contract Owner for the
aforesaid cash value of the part of the Contract redeemed. See "Redemption,"
above.
It should be noted that, while this Option does not involve a life
contingency, charges for annuity rate assurances, which include a factor for
mortality risks, are included in the computation of Annuity Payments due
under this Option. Further, although not contractually required to do so, The
Franklin currently follows a practice, which may be discontinued at any time,
of permitting persons receiving Annuity Payments under this Option to elect
to convert such payments to a Variable Annuity involving a life contingency
under the First, Second, Third or Fourth Options above if, and to the extent,
such other Options are otherwise available to such person.
SIXTH OPTION--PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. The amount due
will be paid to the Variable Annuitant in equal annual, semiannual, quarterly
or monthly Annuity Payments of a designated dollar amount (not less than $75
a year per $1,000 of the original amount due) until the remaining balance
(adjusted each Valuation Period by the Net Investment Factor for the period)
is less than the amount of one Annuity Payment, at which time such balance
will be paid and will be the final Annuity Payment under this Option. Upon
the death of the Variable Annuitant, payments will be continued to the
Beneficiary until such remaining balance is paid. The cash value under this
Settlement Option is the amount of proceeds then remaining with The Franklin.
A Contract under which Annuity Payments are being made under this Settlement
Option may be redeemed at any time by the Contract Owner for the aforesaid
cash value.
Annuity Payments made under the Sixth Option may, under certain
circumstances, be converted into a Variable Annuity involving a life
contingency. See the last paragraph under the Fifth Option, above, which
applies in its entirety to the Sixth Option as well.
SEVENTH OPTION--INVESTMENT INCOME. The amount due may be left on
deposit with The Franklin in its general account and a sum will be paid
annually, semiannually, quarterly or monthly, as selected by the Contract
Owner in electing this Option, which shall be equal to the net investment
rate of 3% stipulated as payable upon fixed-dollar amounts for the period
multiplied by the amount remaining on deposit. Upon the death of the Variable
Annuitant, the aforesaid payments will be continued to the Beneficiary. The
sums left on deposit with The Franklin may be withdrawn at any time.
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<PAGE>
Periodic payments received under this Option may be treated like
interest for federal income tax purposes. Interest payments are fully taxable
and are not subject to the general rules applicable to the taxation of
annuities described in "Federal Income Tax Status," below. Persons
contemplating election of this Seventh Option are advised to consult a
qualified tax advisor concerning the availability and tax effect of its
election.
C. ANNUITY PERIOD
1. ELECTING ANNUITY PAYMENTS AND SETTLEMENT OPTION; COMMENCEMENT OF
ANNUITY PAYMENTS
(a) DEFERRED VARIABLE ANNUITY CONTRACTS
A Contract Owner selects a Settlement Option and an initial Annuity
Payment Date prior to the issuance of the Deferred Variable Annuity Contract,
except that Qualified Contracts issued in connection with qualified pension
and profit-sharing plans (including H.R. 10 Plans) under Section 401(a) of
the Code and annuity plans (including H.R. 10 Plans) under Section 403(a) of
the Code provide for Annuity Payments to commence at the date and under the
Settlement Option specified in the plan. The Contract Owner may defer the
initial Annuity Payment Date and continue the Contract to a date not later
than the Contract Anniversary on which the attained age of the Variable
Annuitant is 75 unless the provisions of the Code or any governing Qualified
Plan require Annuity Payments to commence at an earlier date. See
"Limitations on Settlement Options" in the Statement of Additional
Information. The Franklin will require satisfactory proof of age of the
Variable Annuitant prior to the initial Annuity Payment Date.
(b) IMMEDIATE VARIABLE ANNUITY CONTRACTS
The Franklin offers three forms of Immediate Variable Annuity Contracts:
the life annuity, the life annuity with 120, 180 or 240 monthly payments
certain and the joint and last survivor life annuity. For a description of
these forms of annuity, see the First, Second and Fourth Options under
"Settlement Options," above.
Under an Immediate Variable Annuity, the first Annuity Payment is made
to the Variable Annuitant one month after the Effective Date of the Contract,
unless the period selected by the Contract Owner for the frequency of Annuity
Payments is more than one month, in which case the first Annuity Payment will
be made after a period equal to the period so selected from the Effective
Date (subject in every case to the survival of the Variable Annuitant, except
in cases where a guaranteed payment period is provided).
2. THE ANNUITY UNIT
The Annuity Unit is a measure used to value the First Option (including
the automatic life annuity) and the Second, Third, Fourth and Fifth Options,
if elected, on a variable basis.
The value of the Annuity Unit as of July 1, 1981 was fixed at $1.00 and
for each day thereafter is determined by multiplying the value of the Annuity
Unit on the preceding day by the "Annuity Change Factor" for the Valuation
Period ending on the tenth preceding day or by 1.0 if no Valuation Period
ended on the tenth preceding day. The "Annuity Change Factor" for any
Valuation Period is equal to the amount determined by dividing the Net
Investment Factor for that Valuation Period by a number equal to 1.0 plus the
interest rate for the number of calendar days in such Valuation Period at the
effective annual rate of 3-1/2%. The division by 1.0 plus an interest factor
of 3-1/2% in calculating the Annuity Change Factor is effected in order to
cancel out the assumed net investment rate of 3-1/2% per year which is built
into the annuity tables specified in the Contract. See "Determination of
Amount of First Monthly Annuity Payment (Deferred Variable Annuity Contracts
Only)," below, and "Assumed Net Investment Rate," below.
Annuity Units are valued in respect of each Annuity Payment Date as of a
Valuation Date not less than 10 days prior to the Annuity Payment Date in
question in order to permit calculation of amounts of Annuity Payments and
mailing of checks in advance of their due dates.
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3. DETERMINATION OF AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT (DEFERRED
VARIABLE ANNUITY CONTRACTS ONLY)
When Annuity Payments commence under a Deferred Variable Annuity
Contract, the value of the Contract Owner's account is determined as the
product of the value of an Accumulation Unit on the first Annuity Payment
Date and the number of Accumulation Units credited to the Contract Owner's
account as of such Annuity Payment Date.
The Contract utilizes tables indicating the dollar amount of the first
monthly Annuity Payment under each Settlement Option for each $1,000 of Cash
Value of the Contract. The first monthly Annuity Payment varies according to
the Settlement Option selected (see "Settlement Options," above) and the
"adjusted age" of the Variable Annuitant. The first monthly Annuity Payment
may also vary according to the sex of the Variable Annuitant. See "Annuity
Payments," above. (The Contracts provide for age adjustment based on the year
of birth of the Variable Annuitant and any joint Variable Annuitant; a
person's actual age when Annuity Payments commence may not be the same as the
"adjusted age" used in determining the amount of the first Annuity Payment.)
For Contracts utilizing sex-distinct annuity tables, the tables for the
First, Second, Third and Fourth Options are determined from the Progressive
Annuity Table assuming births in the year 1900 and a net investment rate of
3-1/2% a year. The tables for the Fifth Option are based on a net investment
rate of 3% for the General Account and 3-1/2% for the Separate Account. The
total first monthly Annuity Payment is determined by multiplying the number
of thousands of dollars of Cash Value of the Contract Owner's Contract by the
amount of the first monthly Annuity Payment per $1,000 of value from the
tables in the Contract.
The amount of the first monthly Annuity Payment, determined as above, is
divided as of the initial Annuity Payment Date by the value of an Annuity
Unit to determine the number of Annuity Units represented by the first
Annuity Payment. Annuity Units are valued as of a Valuation Date not less
than 10 days prior to the initial Annuity Payment Date, pursuant to the
procedure discussed under "The Annuity Unit," above. Thus, there will be a
double effect of the investment experience of the Fund during the 10-day
period referred to in the preceding sentence, since that experience will be
included (as part of the value of an Accumulation Unit) in valuing the
Contract Owner's Contract on the initial Annuity Payment Date and (as part of
the changes in value of an Annuity Unit) in determining the second monthly
Annuity Payment. Also, the number of Annuity Units (and hence the amount of
Annuity Payments) will be affected by the net asset values of the Fund
approximately 10 days prior to the initial Annuity Payment Date even though
changes in those net asset values have occurred during that 10-day period,
and even though the value of the Accumulation Units used to determine the
Cash Value of the Contract will reflect those changes. See "Amount of Second
and Subsequent Monthly Annuity Payments (Deferred Variable Annuity Contracts
Only)," immediately below.
Each Contract contains a provision that the first monthly Annuity
Payment will not be less than 103% of the first monthly Annuity Payment
available under a then currently issued Immediate Variable Annuity of The
Franklin if a single Stipulated Payment were made equal to the value which is
being applied under the Contract to provide annuity benefits. This provision
assures the Variable Annuitant that if at the initial Annuity Payment Date
the annuity rates then applicable to new Immediate Variable Annuity Contracts
are significantly more favorable than the annuity rates provided in his or
her Contract, the Variable Annuitant will be given the benefit of the new
annuity rates.
4. AMOUNT OF SECOND AND SUBSEQUENT MONTHLY ANNUITY PAYMENTS (DEFERRED
VARIABLE ANNUITY CONTRACTS ONLY)
The number of Annuity Units credited to a Contract on the initial
Payment Date remains fixed during the annuity period, and as of each
subsequent Annuity Payment Date the dollar amount of the Annuity Payment is
determined by multiplying this fixed number of Annuity Units by the then
value of an Annuity Unit.
5. DETERMINATION OF AMOUNT OF ANNUITY PAYMENTS (IMMEDIATE VARIABLE
ANNUITY CONTRACTS ONLY)
In the case of Immediate Variable Annuities, the number of Annuity Units
per month purchased is specified in the Contract. The number of such units is
determined by: (1) multiplying the net single Stipulated Payment (after
deductions for administrative expenses and premium taxes) by the
applicable annuity factor from the annuity
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tables then used by The Franklin for Immediate Variable Annuity Contracts,
and (2) dividing such product by the value of the Annuity Unit as of the
date of issue of the Contract. This number of Annuity Units remains fixed for
each month during the annuity period, and the dollar amount of the Annuity
Payment is determined as of each Annuity Payment Date by multiplying this
fixed number of Annuity Units by the value of an Annuity Unit as of each such
Annuity Payment Date.
Annuity Units are valued as of a Valuation Date not less than 10 days
prior to the Effective Date of the Contract, pursuant to the procedure
discussed under "The Annuity Unit," above. Thus, the number of Annuity Units
(and hence the amount of the Annuity Payments) will be affected by the net
asset value of the Fund approximately 10 days prior to the Effective Date of
the Contract, even though changes in those net asset values have occurred
during that 10-day period.
As of the date of this Prospectus, The Franklin was using, in connection
with the determination of the number of Annuity Units per month purchased
under Immediate Variable Annuity Contracts, the 1955 American Annuity Table
with assumed 4-1/2% interest, the purchase rates in such table being
increased by 0.5% (which percentage is decreased 0.2% for each year of age at
the Effective Date in excess of 70 years for male Variable Annuitants and in
excess of 75 years for female Variable Annuitants). However, in lieu of such
table, The Franklin will provide "unisex" annuity rate tables for use under
Contracts purchased in connection with employer-related plans subject to the
decision of the Supreme Court in ARIZONA GOVERNING COMMITTEE v. NORRIS. See
"Annuity Payments," above.
The Annuity Change Factors used by The Franklin for Immediate Variable
Annuity Contracts assume a net investment rate of 3-1/2%.
6. ASSUMED NET INVESTMENT RATE
The objective of a Variable Annuity Contract is to provide level Annuity
Payments during periods when the economy, price levels and investment returns
are relatively stable and to reflect as increased Annuity Payments only the
excess investment results flowing from inflation, increases in productivity
or other factors increasing investment returns. The achievement of this
objective will depend in part upon the validity of the assumption in the
annuity factor that a 3-1/2% net investment rate would be realized in the
periods of relative stability assumed. A higher rate assumption would mean a
higher initial Annuity Payment but a more slowly rising series of subsequent
Annuity Payments in the event of a rising actual investment rate (or a more
rapidly falling series of subsequent Annuity Payments in the event of a lower
actual investment rate). A lower assumption would have the opposite effect.
If the actual net investment rate is at the annual rate of 3-1/2%, the
Annuity Payments under Contracts whose Annuity Payments are measured by
Annuity Units will be level.
INVESTMENT POLICIES AND RESTRICTIONS OF THE FUND
The long-term compounding of income from investments in a diversified
portfolio of short-term money market securities yielding a high level of
current income to the extent consistent with preservation of capital and the
maintenance of liquidity is the primary investment objective of the Fund.
This objective does not necessarily require investment in long-term
securities since the nature of annuity contracts themselves connotes a
long-term relationship; the continual retention and reinvestment of proceeds
from matured short-term securities provides the long-term compounding of
income. The Board of Managers of the Fund has determined that, in keeping
with the primary investment objective of investing in short-term money market
securities, at least 80% of the Fund's portfolio will be invested in
securities having maturities or remaining maturities of one year or less and
not more than 20% will be invested in securities having maturities or
remaining maturities of between one and two years. The Board of Managers of
the Fund will give consideration to the creditworthiness of the issuers of
all money market securities in which the Fund proposes to invest prior to
such investment. The Fund's investment authority is also limited by
regulations of the Securities and Exchange Commission. See "Legal
Restrictions," below.
The following investment policies summarize the instruments in which the
Fund may invest in order to achieve its primary investment objective, all of
which will be in United States dollar obligations:
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(a) OBLIGATIONS OF THE UNITED STATES GOVERNMENT AND ITS AGENCIES:
Obligations issued by or guaranteed as to principal and interest by the
United States Government, its agencies or instrumentalities. These include a
variety of securities issued by the United States Treasury which are direct
obligations of the United States Government and which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have a
maturity of one year or less, Treasury Notes have maturities of one to ten
years and Treasury Bonds generally have maturities of greater than five
years. These also include securities issued or guaranteed by United States
Government agencies or instrumentalities such as the Federal Home Loan
Mortgage Corporation, Federal Home Loan Bank, Federal National Mortgage
Association, Government National Mortgage Association and the Farmers Home
Administration. Some obligations of United States Government agencies and
instrumentalities are supported by the full faith and credit of the United
States Treasury; others, by the right of the issuer or guarantor to borrow
from the United States Treasury; while still others are supported only by the
credit of the agency or instrumentality. Accordingly, depending upon the
particular obligations of United States agencies and instrumentalities
purchased, at any given time the Fund's investment in these obligations may
be supported only by the credit of such agencies or instrumentalities.
(b) BANK OBLIGATIONS: Negotiable time deposits, negotiable
certificates of deposit (including certificates of deposit issued by London
branches of United States banks-- "Eurodollar C.D.'s"), bankers' acceptances,
and short-term notes of banks (domestic or Canadian) having total assets in
excess of one billion dollars (U.S.) as of the date of their most recently
published financial statements (including foreign branches of domestic
banks). While normally these large domestic banks will be members of the
Federal Reserve System and have deposits insured by the Federal Deposit
Insurance Corporation, these are not investment requirements. Accordingly,
the securities purchased by the Fund and issued by domestic banks may or may
not be insured by the Federal Deposit Insurance Corporation, or, if insured,
may not be insured for the full amount purchased. (The purchase of
obligations issued by foreign branches of domestic banks, including
Eurodollar C.D.'s, and by Canadian banks involves investment considerations
that are different in some respects from those associated with obligations of
domestic issuers, including the possible imposition of withholding taxes on
interest income or exchange controls, expropriation, confiscatory taxation,
the possible adoption of foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations,
limitations on the removal of funds, or other adverse political or economic
developments. In addition, it may be more difficult to obtain and enforce a
judgment against a Canadian bank or foreign branch of a domestic bank. To the
extent the Fund purchases Eurodollar C.D.'s, consideration will be given to
their marketability and possible restrictions on international currency
transactions.) Eurodollar C.D.'s will be considered to be one industry for
the purpose of the fundamental restrictions set out below, and thus no more
than 25% of the Fund's assets at the time of purchase will be invested in
Eurodollar C.D.'s.
(c) SAVINGS ASSOCIATION OBLIGATIONS: Negotiable time deposits,
negotiable certificates of deposit, and other short-term notes of domestic
mutual savings banks and savings and loan associations having total assets in
excess of one billion dollars (U.S.) as of the date of their most recently
published financial statements. The deposits of these savings associations
may or may not be insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation. Accordingly, the securities
purchased by the Fund and issued by savings associations may or may not be
insured, or, if insured, may not be insured for the full amount purchased.
(d) COMMERCIAL PAPER: Short-term obligations of domestic issuers which
at the time of investment are (i) rated A-1 or A-2 by Standard & Poor's
Corporation or Prime-1 or Prime-2 by Moody's Investors Service, Inc., or (ii)
if not rated, issued by a company which at the date of investment has any
outstanding debt securities rated at least AA by Standard & Poor's or Aa by
Moody's. (See Appendix for an explanation of these ratings.) Commercial paper
obligations may include variable amount master demand notes which are
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund,
as lender, and the borrower. These notes permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. The borrower is typically a large industrial or finance company
which also issues commercial paper. Generally these notes provide that the
interest rate is set daily by the borrower; the rate is usually the same or
similar to the interest rate on commercial paper being issued by the
borrower. Because variable amount master demand notes are direct
lending arrangements between the lender and borrower, it is not generally
contemplated that such instruments will be traded,
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<PAGE>
and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at the face
value, plus accrued interest, at any time. Accordingly, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and
interest on demand. In connection with master demand note arrangements, the
Fund considers earning power, cash flow and other liquidity ratios of the
issuer. The Fund will only invest in master demand notes of domestic issuers.
If master demand notes are rated by credit rating agencies, the Fund will
invest in them only if such notes meet the Fund's rating standards for
investment in all commercial paper, described above. If master demand notes
are not rated, the Fund will invest in such notes only if the issuer thereof
has, at the date of investment, any outstanding debt securities rated at
least AA by Standard & Poor's or Aa by Moody's. The Fund does not have any
specific limits on the amount it may invest in master demand notes. (See
Appendix for an explanation of these ratings.)
(e) OTHER CORPORATE DEBT SECURITIES: Other marketable, nonconvertible
corporate debt securities of domestic issuers, including bonds and
debentures, which at the time of purchase have two years or less remaining to
maturity and are rated at least AA by Standard & Poor's or Aa by Moody's.
(See Appendix for an explanation of these ratings.)
(f) CANADIAN GOVERNMENT SECURITIES: United States dollar denominated
securities, such as bonds and Treasury bills, issued or guaranteed by the
Government of Canada, a province of Canada, or their instrumentalities or
political subdivisions. Some of these securities may be supported by the full
faith and credit of the Canadian Government while others may be supported
only by the credit of the province, instrumentality or political subdivision.
Accordingly, depending upon the particular securities issued by Canadian
provinces, instrumentalities or political subdivisions purchased, at any
given time the Fund's investment in these securities may be supported only by
the credit of such provinces, instrumentalities or political subdivisions.
See "Bank Obligations" above regarding investment considerations involving
Canadian issues.
(g) REPURCHASE AGREEMENTS: A short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and at a set
price, thereby determining the yield during the purchaser's holding period.
Repurchase agreements usually are for short periods, such as one week or
less, but may be longer. The Fund may enter into repurchase agreements with a
member bank of the Federal Reserve System or a United States securities
dealer. The Fund will not enter into repurchase agreements of more than one
week's duration if more than 10% of its total net assets would then be so
invested-considering only the remaining days to maturity of existing
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt securities and are considered to be loans under the
Investment Company Act of 1940. The underlying securities could be any of
those described above (normally securities of the United States Government or
its agencies and instrumentalities).
In addition, the Fund may lend portfolio securities to brokers, dealers
and financial institutions provided that cash, or equivalent collateral,
equal to at least 100% of the market value of the securities loaned is
maintained by the borrower with the Fund. During the time such securities are
on loan, the borrower will pay the Fund any income accruing thereon and the
Fund may invest the cash collateral and earn additional income or the Fund
may receive an agreed-upon fee from the borrower who has delivered equivalent
collateral. Loans will be subject to termination at the Fund's or the
borrower's option. The Fund will retain all rights of beneficial ownership as
to the loaned portfolio securities, including voting rights and rights to
distributions, and will have the right to regain record ownership of loaned
securities to exercise such beneficial rights. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.
The Board of Managers of the Fund has set guidelines and standards for
review of investments in repurchase agreements and the creditworthiness of
the seller thereof, and monitors the actions of the Fund's investment advisor
in entering into repurchase agreements. Repurchase agreements may involve
certain risks in the event of bankruptcy or other default by the seller,
including possible delays and expenses in liquidating the collateral, decline
in collateral value and loss of interest.
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The Fund will make portfolio investments primarily in anticipation of or
in response to changing economic and money market conditions and trends.
Investment yields on relatively short-term obligations such as will
compromise the Fund's portfolio are subject to substantial and rapid
fluctuation. The value of the Fund's assets generally will vary inversely to
changes in interest rates. If interest rates increase after a security is
purchased, the security, if sold, may return less than its cost. Thus,
current yield levels should not be considered representative of yields for
any future period of time. Because of the variability of interest rates and
the risks inherent in investing in money market securities, including those
risks discussed above with respect to securities of foreign branches of
domestic banks and of Canadian banks, there can be no assurance that the
Fund's investment objective will be attained. In addition, to the extent that
investments are made in instruments of non-governmental issuers (and of
governmental issuers, except those instruments backed by the full faith and
credit of that government), these assets, despite their favorable credit
ratings, are subject to some risk of default. Moreover, should many Contract
Owners redeem their Contracts or transfer from the Fund to some other annuity
product of The Franklin at about the same time, the Fund might have to sell
portfolio securities at a time when it would be disadvantageous to do so, and
at a lower price than if such securities were held to maturity. There can be
no assurance that the Cash Value of the Contracts during the years prior to
the Variable Annuitant's initial Annuity Payment Date or the aggregate amount
received during the years following the initial Annuity Payment Date will
equal or exceed the Stipulated Payments made under the Contracts.
Except as limited by the fundamental investment restrictions below, the
foregoing investment policies are not fundamental and the Board of Managers
of the Fund may change such policies without approval of the Contract Owners.
However, the primary investment objective is fundamental and may not be
changed without such approval.
The following are the fundamental investment restrictions applicable to
the Fund:
(1) The Fund will not concentrate its investments in any one industry
or group of related industries, and no more than 25% of the value of the
Fund's assets at the time of purchase will be invested in any one industry or
group of related industries, except that there is no limitation with respect
to investments in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, or in bankers' acceptances,
repurchase agreements or certificates of deposit of domestic banks. For
purposes of this restriction, telephone, gas and electric utilities each
shall be considered a separate industry. In addition, banks, savings
associations, personal credit institutions, business credit institutions and
insurance companies shall each be considered a separate industry.
(2) The Fund will not issue senior securities, except that the Fund may
borrow money as set forth in paragraph (3), below.
(3) The Fund will not borrow money except for temporary or emergency
purposes, and any such borrowings will not be used to purchase investment
securities and will not exceed 5% of the value of the Fund's assets;
provided, however, that the Fund may borrow money up to one-third of its
assets, not to increase its income but to meet redemption requests which
might otherwise require untimely dispositions of portfolio securities. So
long as such borrowings exceed 5% of the value of the Fund's assets, the Fund
will not make any new investments. In addition, to the extent such borrowings
exceed the 5% limit and cause a subsequent reduction of the required asset
coverage, the Fund will reduce the amount of its borrowings to comply with
the appropriate asset coverage required under the Investment Company Act of
1940.
(4) The Fund will not pledge, hypothecate, mortgage or otherwise
encumber its assets except in an amount not in excess of 15% of the value of
its assets to secure borrowings made in accordance with investment
restriction (3) above.
(5) The Fund will not underwrite securities of other issuers, except
that the Fund may acquire portfolio securities under circumstances where, if
sold, it might be deemed to be an underwriter for purposes of the Securities
Act of 1933. No such securities will be acquired except where parties other
than the Fund shall have agreed to bear any and all costs of registration
under the Securities Act of 1933. (However, it should be noted that even
though an agreement to register has been obtained, enforcement of such an
agreement may prove unfeasible or may involve delays which could adversely
affect the Fund's ability to resell such securities or the price at which
such securities might be resold.) No more than 10% of the value of the
Fund's assets will at any time be invested in such securities.
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(6) The Fund will not engage in the purchase and sale of interests in
real estate, except that the Fund may engage in the purchase and sale of
money market securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein.
(7) The Fund will not engage in the making of loans to other persons,
except that the Fund may acquire qualified debt obligations or other money
market securities and enter into repurchase agreements referred to above
(provided, however, that the aggregate value of repurchase agreements
maturing in more than seven days will not exceed 10% of the Fund's total
assets), and may lend its portfolio securities (provided that such loans do
not in the aggregate exceed 20% of the value of the Fund's assets) if such
loans are made according to the guidelines of the Securities and Exchange
Commission and the Board of Managers of the Fund, including maintaining
collateral from the borrower equal at all times to the current market value
of the securities loaned.
(8) The Fund will not engage in the purchase or sale of commodities or
commodity contracts or invest in oil, gas or other mineral exploration or
development programs.
(9) The Fund will not purchase securities (other than under repurchase
agreements of not more than seven days' duration--considering only the
remaining days to maturity of each existing repurchase agreement--or master
demand notes) for which there exists no readily available market, or for
which there are legal or contractual restrictions on resale (excepting from
this restriction securities that are subject to such resale restrictions but
which, in the judgment of The Franklin, are readily redeemable on demand), if
as a result of any such purchase, more than 10% of the value of the Fund's
assets would be invested in such securities.
(10) The Fund will not purchase securities on margin, except for such
short-term credits as are necessary for the clearance of transactions.
(11) The Fund will not make short sales of securities or write,
purchase or sell puts, calls, straddles, spreads or combinations thereof.
(12) The Fund will not purchase the securities of any one issuer, other
than obligations issued or guaranteed by the United States Government and its
agencies or instrumentalities, if such purchase would cause more than 5% of
the Fund's assets to be invested in the securities of such issuer, except
that up to 25% of the Fund's total assets taken at current value may be
invested without regard to such 5% limitation.
(13) The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer, other than obligations issued or guaranteed by
the United States Government and its agencies or instrumentalities (for this
purpose, all indebtedness of an issuer shall be deemed a single class);
except that up to 25% of the Fund's total assets taken at current value may
be invested without regard to such 10% limitation.
The primary investment objective and the fundamental investment
restrictions stated above may not be changed without approval by a vote of a
majority of the votes available to the Contract Owners. This means that the
objective or restrictions in question may not be changed without the approval
of the lesser of (a) the Contract Owners holding 67% or more of the voting
power of the Contract Owners present or represented at a meeting if Contract
Owners holding more than 50% of the total voting power of all Contract Owners
in the Fund are present or represented by proxy, or (b) Contract Owners
holding more than 50% of the total voting power of all Contract Owners in the
Fund.
The following investment restrictions are not fundamental and may be
changed by action of the Board of Managers of the Fund:
(14) All securities in which the Fund invests shall be permissible for
the Fund under the Illinois Insurance Code. The Illinois Insurance Code
provides that investments of a separate account, like the Fund, are free of
the restrictions or provisions generally applicable to insurance companies
under that Code, and does not currently provide any special investment
restrictions applicable to separate accounts. However, no investment
permitted under the Illinois Insurance Code is thereby exempted from the
other investment restrictions specified under this caption.
(15) The Fund will not invest in companies for the purpose of
exercising control or management.
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(16) The Fund will not invest in the securities of other investment
companies.
(17) The Fund will not invest more than 5% of the value of its assets
in securities of issuers (other than issuers of United States agency
securities) which, with their predecessors, have a record of less than three
years' continuous operation.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit resulting
from a change in values of portfolio securities or net assets will not be
considered a violation.
LEGAL RESTRICTIONS
The Securities and Exchange Commission imposes restrictions on the
investment authority of money market funds, such as the Fund, which are more
restrictive than the policies and restrictions of the Fund described above.
In general, such restrictions provide that a money market fund may not
purchase any instrument with a remaining maturity greater than 13 months or
maintain a dollar-weighted average portfolio maturity which exceeds ninety
days. In addition, money market funds are limited to making investments in
United States dollar-denominated investments which its board of directors
determines present minimal credit risk and which are at the time of
acquisition rated (or which have been issued by an issuer that has been
rated) in one of the two highest rating categories by at least two national
rating agencies or, if unrated, that the money market fund's board of
directors determines are of comparable quality to a security so rated. Money
market funds are also generally prohibited from acquiring a security if,
after such acquisition, (i) more than 5% of the money market fund's assets
would be invested in the securities of the issuer of the acquired security,
or (ii) if the acquired security is not rated in the highest category by at
least two national rating agencies or is not an unrated security of
comparable quality, more than 1% of the money market fund's assets would be
invested in the securities of the issuer of the acquired security or more
than 5% of the money market fund's assets would be invested in securities
that are not rated in the highest category by at least two national rating
agencies or that are not of comparable quality. The foregoing percentage
restrictions do not apply to securities issued or guaranteed as to principal
by the United States or by an instrumentality of the United States and such
securities may be purchased with remaining maturities of up to two years. The
acquisition of a security that is rated by only one national rating agency
must be approved by the money market fund's board of directors.
SPECIAL INVESTMENT CONSTRAINTS
The amount of assets that the Fund may invest in the securities of any
one issuer is restricted by the Fund's fundamental investment restrictions
and the regulations of the Securities and Exchange Commission and the
Internal Revenue Service. See "Federal Income Tax Status - The Contracts:
Non-Qualified Plans," below. Under the most restrictive of these provisions,
the Fund generally may not invest more than 5% of its assets in the
securities of any issuer, except that it may invest up to 55% of its assets
in securities issued or guaranteed as to principal by the United States
government. It is anticipated that the combination of these restrictions and
the relatively small and decreasing size of the Fund's assets will make it
more difficult for the Fund's investment adviser to secure appropriate
commercial paper investments, which have historically constituted a
substantial portion of the Fund's investments. As of December 31, 1997, the
Fund's total assets were $__________ (compared to total assets of $1,968,663
as of June 30, 1997 and total assets of $2,001,016 as of December 31, 1996),
and the maximum amount that the Fund was permitted to invest in the
commercial paper of any one issuer was approximately $_________. Due to
market conditions, it is more difficult to purchase an issue of commercial
paper in an amount less than $100,000. It is possible that the shrinking
pool of commercial paper investments available to the Fund due to its size
may impair the future investment performance of the Fund.
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FEDERAL INCOME TAX STATUS
INTRODUCTION
The Contracts are designed for use by individuals in connection with
Qualified Plans or Non-Qualified Plans under the Code. The federal income tax
treatment of the Contracts and payments received thereunder depends on
various factors, including, among other factors, the tax status of The
Franklin, the type of retirement plan or program in connection with which the
Contracts are used and the form in which payments are received. The
discussion of federal income taxes contained in this Prospectus, which
focuses on rules applicable to Contracts purchased under this Prospectus, is
general in nature and is based on existing federal income tax law, which is
subject to change. The tax discussion is not intended as tax advice. The
applicable federal income tax law is complex and contains many special rules
and exceptions in addition to the general rules summarized herein. For these
reasons, various questions about the applicable rules exist. Accordingly,
each person contemplating the purchase of a Contract is advised to consult
with a qualified tax advisor concerning federal income taxes and any other
federal, state or local taxes that may be applicable.
THE FRANKLIN
The Franklin is taxed as a "life insurance company" under the Code.
Since the operations of the Fund are part of the overall operations of The
Franklin, the Fund is subject to tax as part of The Franklin for federal
income tax purposes. Thus, the Fund is not taxed separately as a "regulated
investment company" under the Code.
Under the Code a life insurance company like The Franklin is generally
taxed at regular corporate rates, under a single-phase system, on its
specially-computed life insurance company taxable income. Some special rules
continue to apply, however, in the case of segregated asset accounts like the
Fund.
Investment income and realized capital gains on the assets of the Fund
are reinvested by The Franklin for the benefit of the Fund and are taken into
account in determining the value of Accumulation Units and Annuity Units. As
a result, such income and gains are applied to increase reserves applicable
to the Fund. Under the Code, no federal income tax is payable by The Franklin
on such investment income or on realized capital gains of the Fund on assets
held in the Fund. However, if changes in the federal tax laws or
interpretations thereof result in The Franklin being taxed on income or gains
attributable to the Fund, then The Franklin may impose a charge against the
Fund (with respect to some or all Contracts) in order to set aside provisions
to pay such taxes.
THE CONTRACTS: QUALIFIED PLANS
The manner in which payments received under a Contract are taxed for
federal income tax purposes depends on the form of payment. If payments are
received in the form of an annuity, then, in general, under Section 72 of the
Code, such payment is taxable to the recipient as ordinary income to the
extent that such payment exceeds the portion, if any, of the cost basis of
the Contract that is allocable to that payment. A payment received on account
of partial redemption of an annuity contract generally is taxable in whole or
part. The taxation of a partial redemption is governed by complex rules and a
qualified tax advisor should be consulted prior to a proposed partial
redemption. If the Variable Annuitant's life span exceeds his or her life
expectancy, the Variable Annuitant's cost basis will eventually be recovered,
and any payments made after that point will be fully taxable. If, however,
the Annuity Payments cease after the initial Annuity Payment Date by reason
of the death of the Variable Annuitant, the amount of any unrecovered cost
basis in the Qualified Contract will generally be allowed as a deduction to
the Variable Annuitant for his or her last taxable year.
Generally, payment of the proceeds of a Qualified Contract in a lump sum
instead of in the form of an annuity, either at or before maturity, also is
taxable as ordinary income to the extent the lump sum exceeds the cost basis
of the Qualified Contract. Taxation may be deferred, however, to the extent,
if any, that "rollover" treatment is available and elected for a particular
distribution.
The Qualified Contracts are designed for use in connection with several
types of Qualified Plans, as described generally below.
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A. QUALIFIED PENSION, PROFIT-SHARING AND ANNUITY PLANS
Under pension and profit-sharing plans that qualify under Section 401(a)
of the Code and annuity purchase plans that qualify under Section 403(a) of
the Code (collectively "Corporate Qualified Plans"), amounts contributed by
an employer to the Corporate Qualified Plan on behalf of an employee and any
gains thereon are not, in general, taxable to the employee until
distribution. Generally, the cost basis of an employee under a Corporate
Qualified Plan will equal the amount of non-deductible contributions, if any,
that the employee made to the Corporate Qualified Plan. These retirement
plans may permit the purchase of the Contracts to accumulate retirement
savings under the plans. Adverse tax consequences to the plan, to the
participant, or both may result if this Contract is assigned or transferred
to any individual as a means to provide benefit payments.
The Code imposes an additional tax of 10% on the taxable portion of any
early withdrawal from a Corporate Qualified Plan made by a Variable Annuitant
before age 59-1/2, death, or disability. The additional income tax on early
withdrawals will not apply however to certain distributions including (a)
distributions beginning after separation from service that are part of a
series of substantially equal periodic payments made at least annually for
the life of the Variable Annuitant or the joint lives of the Variable
Annuitant and his or her Beneficiary, and (b) distributions made to Variable
Annuitants after attaining age 55 and after separating from service. Further,
additional penalties may apply to distributions made on behalf of a
"5-percent owner" (as defined by Section 416(i)(1)(B) of the Code).
If a lump sum payment of the proceeds of a Contract qualifies as a "lump
sum distribution" under the Code, special tax rules (including limited
capital gain and income averaging treatment in some circumstances) may apply.
B. H.R. 10 PLANS (SELF-EMPLOYED INDIVIDUALS)
Self-employed persons (including members of partnerships) are permitted
to establish and participate in Corporate Qualified Plans under Sections
401(a) and 403(a) of the Code. Corporate Qualified Plans in which
self-employed persons participate are commonly referred to as "H.R. 10 Plans."
The tax treatment of annuity payments and lump sum payments received in
connection with an H.R. 10 Plan is, in general, subject to the same rules
described in "Qualified Pension, Profit-Sharing and Annuity Plans,"
immediately above. Some special rules apply, however, in the case of
self-employed persons which, for example, affect certain "lump sum
distribution" and "rollover" rules.
C. SECTION 403(b) ANNUITIES
Section 403(b) of the Code permits public schools and other tax-exempt
organizations described in Section 501(c)(3) of the Code to purchase annuity
contracts for their employees subject to special tax rules.
If the requirements of Section 403(b) are satisfied, amounts contributed
by the employer to purchase an annuity contract for an employee, and any
gains thereon, are not, subject to certain limitations, taxable to the
employee until distributed to the employee. However, these payments may be
subject to FICA (Social Security) taxes. Generally, the cost basis of an
employee under a Section 403(b) annuity contract will equal the amount of any
non-deductible contributions the employee made toward the contract plus any
employer contributions that were taxable to the employee because they
exceeded excludable amounts.
Federal tax law imposes limitations on distributions from Section 403(b)
annuity contracts. Withdrawals of amounts attributable to contributions made
pursuant to a salary reduction agreement in connection with a Section 403(b)
annuity contract will be permitted only (1) when an employee attains age
59-1/2, separates from service, dies or becomes totally and permanently
disabled or (2) in the case of hardship. A withdrawal made in the case of
hardship may not include income attributable to the contributions. However,
these limitations generally do not apply to distributions which are
attributable to assets held as of December 31, 1988. In general, therefore,
contributions made prior to January 1, 1989, and earnings on such
contributions through December 31, 1988, are not subject to these
limitations. In addition, these limitations do not apply to contributions
made other than by a salary reduction agreement. A number of questions exist
concerning the application of these rules. Anyone considering a withdrawal
from a Contract issued in connection with a Section 403(b) annuity plan
should consult a qualified tax advisor.
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The 10% penalty tax on early withdrawals described under "Qualified
Pension, Profit-Sharing and Annuity Plans," immediately above, also applies
to Section 403(b) annuity contracts.
D. INDIVIDUAL RETIREMENT ANNUITIES
1. SECTION 408(b) INDIVIDUAL RETIREMENT ANNUITIES
Under Sections 408(b) and 219 of the Code, special tax rules apply to
Individual Retirement Annuities. As described below, certain contributions to
such annuities (other than Rollover Contributions) are deductible within
certain limits and the gains on contributions (including Rollover
Contributions) are not taxable until distributed. Generally, the cost basis
in an Individual Retirement Annuity will equal the amount of non-deductible
contributions (other than rollovers), if any, made to the Individual
Retirement Annuity. Under special rules, all individual retirement plans will
be treated as one plan for purposes of these rules.
Section 408(b) sets forth various requirements that an annuity contract
must satisfy before it will be treated as an Individual Retirement Annuity.
Although final regulations that interpret some of these requirements have
been adopted, other regulations have been proposed that interpret the
additional requirement that, under a Section 408(b) Individual Retirement
Annuity, the premiums may not be fixed. These proposed regulations, which
contain certain ambiguities, may, of course, be changed before they are
issued in final form. ACCORDINGLY, WHILE THE FRANKLIN BELIEVES THAT THE
CONTRACTS OFFERED BY THIS PROSPECTUS MEET THE REQUIREMENTS OF SECTION 408(b),
THE FINAL REGULATIONS AND THE CURRENTLY PROPOSED REGULATIONS THEREUNDER,
THERE CAN BE NO ASSURANCE THAT THE CONTRACTS QUALIFY AS INDIVIDUAL RETIREMENT
ANNUITIES UNDER SECTION 408(b) PENDING THE ISSUANCE OF COMPLETE FINAL
REGULATIONS UNDER THAT CODE SECTION.
Individuals who are not "active participants" in an employer-related
retirement plan described in Section 219(g) of the Code will, in general, be
allowed to contribute to an Individual Retirement Annuity and to deduct a
maximum of $2,000 annually (or 100% of the individual's compensation if
less). This deduction is phased out at certain income levels for individuals
who are active participants in employer-related retirement plans. These
income levels are scheduled to gradually increase in the future. Generally,
one spouse's active participant status will not affect the other spouse's
ability to make deductible contributions. In addition, an individual will
not be considered married for a year in which the individual and the
individual's spouse (1) file separate returns and (2) did not live together
at any time during the year. Individuals who may not make deductible
contributions to an Individual Retirement Annuity may, instead, make
non-deductible contributions (up to the applicable maximum described above)
on which earnings will accumulate on a tax-deferred basis. If the Individual
Retirement Annuity includes non-deductible contributions, distributions will
be divided on a pro rata basis between taxable and non-taxable amounts.
Special rules apply if, for example, an individual contributes to an
Individual Retirement Annuity for his or her own benefit and to another
Individual Retirement Annuity for the benefit of his or her spouse.
Individual Retirement Annuities are subject to limitations on the time
when distributions must commence. In addition, the 10% penalty tax on early
withdrawals described under "Qualified Pension, Profit-Sharing and Annuity
Plans," above, also applies to Individual Retirement Annuities, except that
the circumstances in which the penalty tax will not apply are different in
certain respects. Further, for any year in which a Contract Owner borrows any
money under or by use of the Individual Retirement Annuity, the Contract
ceases to qualify under Section 408(b), and an amount equal to the fair
market value of the Contract as of the first day of such year will be
includible in the Contract Owner's gross income for such year.
The sale of a Contract for use with an Individual Retirement Annuity may
be subject to special disclosure requirements of the Internal Revenue
Service. Purchasers of a Contract for use with Individual Retirement
Annuities will be provided with supplemental information required by the
Internal Revenue Service or other appropriate agency. Such purchasers will
have the right to revoke their purchase within 7 days of the earlier of the
establishment of the Individual Retirement Annuity or their purchase. A
Qualified Contract issued in connection with an Individual Retirement Annuity
will be amended as necessary to conform to the requirements of the Code.
Purchasers should seek competent advice as to the suitability of the Contract
for use with Individual Retirement Annuities.
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2. SECTION 408(k) SIMPLIFIED EMPLOYEE PENSIONS
An Individual Retirement Annuity described in Section 408(b) of the Code
that also meets the special requirements of Section 408(k) qualifies as a
Simplified Employee Pension. Under a Simplified Employee Pension, employers
may contribute to the Individual Retirement Annuities of their employees
subject to the limitation in Section 408(j). An employee may exclude the
employer's contribution on his or her behalf to a Simplified Employee
Pension from gross income subject to certain limitations. Elective deferrals
under a Simplified Employee Pension are to be treated like elective deferrals
under a cash or deferred arrangement under Section 401(k) of the Code and are
subject to a $7,000 limitation, adjusted for inflation. In general, the
employee may also contribute and deduct an additional amount not in excess of
the lesser of (a) $2,000 or (b) 100% of compensation, subject to the phaseout
discussed above, if the Simplified Employee Pension meets the qualifications
for an Individual Retirement Annuity.
In general, except as stated in this section, the rules discussed in
"Section 408(b) Individual Retirement Annuities," immediately above, apply to
a Simplified Employee Pension.
THE CONTRACTS: NON-QUALIFIED PLANS
In the case of Non-Qualified Contracts issued in connection with
retirement or deferred compensation plans which are Non-Qualified Plans, the
provisions of the Plan generally determine the tax treatment of Plan
participants.
For example, contributions to, or deferred compensation in connection
with, Non-Qualified Plans may or may not be currently taxable to participants.
Payments received under a Non-Qualified Contract are subject to tax
under Section 72 of the Code. If payments are received in the form of an
annuity, then, in general, each payment is taxable as ordinary income to the
extent that such payment exceeds the portion of the cost basis of the annuity
contract that is allocable to that payment. Payment of the proceeds of an
annuity contract in a lump sum either before or at maturity is taxable as
ordinary income to the extent the lump sum exceeds the cost basis of the
annuity contract. If the Variable Annuitant's life span exceeds his or her
life expectancy, the Variable Annuitant's cost basis will eventually be
recovered, and any payments made after that point will be fully taxable. If,
however, the Annuity Payments cease after the initial Annuity Payment Date by
reason of the death of the Variable Annuitant, the amount of any unrecovered
cost basis in the Contract will generally be allowed as a deduction to the
Variable Annuitant for his or her last taxable year.
A payment received on account of a partial redemption of an annuity
contract generally is taxable as ordinary income in whole or in part. Also,
if prior to the initial Annuity Payment Date, (i) an annuity contract is
assigned or pledged, or (ii) a Contract issued after April 22, 1987 is
transferred without adequate consideration, then the amount assigned, pledged
or transferred may similarly be taxable. Special rules may apply with respect
to investments in a Contract made before August 14, 1982. Because the
applicable tax treatment is complex, a qualified tax advisor should be
consulted prior to a partial withdrawal, assignment, pledge, or contract
transfer.
Further, in general, in the case of a payment received under a
Non-Qualified Contract, a penalty may be imposed equal to 10% of the taxable
portion of the payment. However, the 10% penalty does not apply in various
circumstances. For example, the penalty is generally inapplicable to payments
that are: (i) made on or after age 59-1/2; (ii) allocable to investments in
the Contract before August 14, 1982, (iii) made on or after the death of the
holder; (iv) made incident to disability; (v) part of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or the life expectancy) of the Variable Annuitant or the
joint lives (or joint life expectancies) of the Variable Annuitant and his or
her beneficiary; or (vi) made under a Contract purchased with a single
premium and which has an annuity starting date commencing no later than one
year from the purchase date of the annuity and which provides for a series of
substantially equal periodic payments (to be made not less frequently than
annually) during the annuity period.
A Non-Qualified Contract will not be treated as an annuity contract for
purposes of certain Code sections, including Section 72, for any period (and
any subsequent period) for which the investments made by the Fund
attributable to such Non-Qualified Contract are not, in accordance with Code
Section 817(h) and the Treasury regulations thereunder, adequately
diversified. Although certain questions exist about the diversification
standards, The Franklin believes that the Fund presently satisfies those
standards and intends that the Fund will continue to be adequately
diversified for those purposes.
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In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The Internal Revenue Service has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning
the circumstances in which investor control for the investments of a
segregated asset account may cause the investor [i.e., the Owner], rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular Sub-Accounts without being treated as owners
of the underlying assets." As of the date of this prospectus, no guidance
has been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from those described by the Internal Revenue Service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, a Contract Owner has additional
flexibility in allocating premium payments and account values. These
differences could result in a Contract Owner being treated as the owner of a
pro rata portion of the assets of the Fund. In addition, The Franklin does
not know what standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to issue. The
Franklin therefore reserves the right to modify the Contract as necessary to
attempt to prevent a Contract Owner from being considered the owner of a pro
rata share of the assets of the Fund.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax
purposes, section 72(s) of the Code requires Non-Qualified Contracts to
provide that (a) if any Contract Owner dies on or after the annuity date but
prior to the time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as of the date of such
owner's death; and (b) if any Contract Owner dies prior to the annuity date,
the entire interest in the Contract will be distributed within five years
after the date of such owner's death. These requirements will be considered
satisfied as to any portion of an owner's interest which is payable to or for
the benefit of a "designated beneficiary" and which is distributed over the
life of such "designated beneficiary" or over a period not extending beyond
the life expectancy of that beneficiary, provided that such distributions
begin within one year of the Contract Owner's death. The "designated
beneficiary" refers to a natural person designated by the owner as a
Beneficiary and to whom ownership of the Contract passes by reason of death.
However, if the "designated beneficiary" is the surviving spouse of the
deceased Contract Owner, the Contract may be continued with the surviving
spouse as the new Contract Owner.
The Non-Qualified Contracts contain provisions which are intended to
comply with the requirements of section 72(s) of the Code, although no
regulations interpreting these requirements have yet been issued. The
Franklin intends to review such provisions and modify them if necessary to
assure that they comply with the requirements of Code section 72(s) when
clarified by regulation or otherwise. Other rules may apply to Qualified
Contracts.
AGGREGATION OF CONTRACTS
Under a provision of the federal tax law effective for annuity contracts
entered into after October 21, 1988, all annuity contracts (other than
contracts held in connection with Qualified Plans) issued by the same company
(or affiliates) to the same contract owner during any calendar year will
generally be treated as one annuity contract for thepurpose of determining
the amount of any distribution, not in the form of an annuity, that is
includable in gross income. This rule may have the effect of causing more
rapid taxation of the distributed amounts from such combination of contracts.
It is not certain how this rule will be applied or interpreted by the
Internal Revenue Service. In particular, it is not clear if or how this rule
applies to Immediate Variable Annuity Contracts or "split" annuity
arrangements. Accordingly, a qualified tax advisor should be consulted about
the application and effect of this rule.
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FUTURE LEGISLATION
Legislation has been proposed in 1998 that, if enacted, would adversely
modify the federal taxation of certain insurance and annuity contracts. For
example, one proposal would tax transfers among investment options and tax
exchanges involving variable contracts. A second proposal would reduce the
"investment in the contract" under cash value life insurance and certain annuity
contracts by certain amounts, thereby increasing the amount of income for
purposes of computing gain. Although the likelihood of there being any changes
is uncertain, there is always the possibility that the tax treatment of the
Contracts could change by legislation or other means. Moreover, it is also
possible that any change could be retroactive (that is, effective prior to the
date of the change). You should consult a tax adviser with respect to
legislative developments and their effect on the Contract.
INCOME TAX WITHHOLDING
Withholding of federal income tax is generally required from
distributions from Qualified Plans and Non-Qualified Plans, or Contracts
issued in connection therewith, to the extent the distributions are taxable
and are not otherwise subject to withholding as wages ("Distributions"). See
"The Contracts: Qualified Plans," above, and "The Contracts: Non-Qualified
Plans," above, regarding the taxation of Distributions.
Federal income tax is generally required to be withheld from all or any
portion of a Distribution made on or after January 1, 1993 that constitutes
an "eligible rollover distribution." An "eligible rollover distribution"
generally includes any distribution from a qualified trust described in
Section 401(a) of the Code, a qualified annuity plan described in Section
403(a) of the Code or a qualified annuity contract described in Section
403(b) of the Code except for (i) a distribution which is one of a series of
substantially equal periodic instalments payable at least annually for the
life (or over the life expectancy) of the Variable Annuitant or for the joint
lives (or over the joint life expectancies) of the Variable Annuitant and his
or her Beneficiary, or for a specified period of 10 years or more or (ii) a
minimum distribution required pursuant to Section 401(a)(9) of the Code and
(iii) an amount which is not includible in gross income (for example, the
return of non-deductible contributions). Any eligible rollover distribution
which is not rolled over directly from a Section 401(a) qualified trust, a
Section 403(a) qualified annuity plan or a Section 403(b) qualified annuity
contract to an "eligible retirement plan" is subject to mandatory federal
income tax withholding in an amount equal to 20% of the eligible rollover
distribution. An "eligible retirement plan" generally includes a qualified
trust described in Section 401(a) of the Code, a qualified annuity plan
described in Section 403(a) of the Code, an individual retirement account
described in Section 408(a) of the Code or an Individual Retirement Annuity
described in Section 408(b) of the Code. Mandatory federal income tax
withholding is required even if the Variable Annuitant receives an eligible
rollover distribution and rolls it over within 60 days to an eligible
retirement plan. Federal income tax is not required to be withheld from any
eligible rollover distribution which is rolled over directly from a qualified
trust described in Section 401(a) of the Code, a qualified annuity plan
described in Section 403(a) of the Code or a qualified annuity contract
described in Section 403(b) of the Code to an eligible retirement plan.
Except with respect to certain payments delivered outside the United
States or any possession of the United States, federal income tax is not
required to be withheld from any Distribution which does not constitute an
eligible rollover distribution, if the Variable Annuitant or Beneficiary
properly elects in accordance with the prescribed procedures not to have
withholding apply. In the absence of a proper election not to have
withholding apply, the amount to be withheld from a Distribution which is not
an eligible rollover distribution depends upon the type of payment being
made. Generally, in the case of a periodic payment which is not an eligible
rollover distribution, the amount to be withheld from such payment is the
amount that would be withheld therefrom under specified wage withholding
tables if the payment were a payment of wages for the appropriate payroll
period. In the case of a nonperiodic payment which is not an eligible
rollover distribution, the amount to be withheld is generally equal to 10% of
the amount of the Distribution.
The applicable federal law pertaining to income tax withholding from
Distributions is complex and contains many special rules and exceptions in
addition to the general rules summarized above. Special rules apply, for
example, if the Distribution is made to the surviving spouse of a Variable
Annuitant or if the Distribution is an eligible rollover distribution from a
qualified annuity contract under Section 403(b) of the Code. Any Variable
Annuitant or Beneficiary considering a Distribution should consult a
qualified tax advisor.
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MANAGEMENT
The Fund is managed by a Board of Managers elected annually by the Contract
Owners. The Board of Managers currently has four members. The members of
the Board of Managers also serve as the Board of Managers of Franklin Life
Variable Annuity Fund A and Franklin Life Variable Annuity Fund B, separate
accounts of The Franklin having investment objectives of long-term
appreciation of capital through investment appreciation and retention and
reinvestment of income derived mainly from investments in equity securities,
particularly common stocks. The assets of Fund A are held with respect
to Variable Annuity contracts used in connection with certain
qualified plans and trusts or individual retirement annuities accorded
special tax treatment under the Code and those of Fund B are held with
respect to Variable Annuity contracts used for retirement planning for
individuals and not in connection with qualified plans and trusts, individual
retirement annuities or employer-related plans that are accorded such special
tax treatment.
The affairs of the Fund are conducted in accordance with Rules and
Regulations adopted by the Board of Managers. Under the Rules and
Regulations, the Board of Managers is authorized to take various actions on
behalf of the Fund, including the entry into contracts for the purpose of
services with respect to the Fund under circumstances where the approval of
such contracts is not required to be submitted to the Contract Owners.
Subject to the authority of the Board of Managers, officers and employees of
The Franklin are responsible for overall management of the Fund's business
affairs.
VOTING RIGHTS
All Contract Owners will have the right to vote upon:
(1) The initial approval of any investment management agreement and any
amendment thereto.
(2) Ratification of an independent auditor for the Fund.
(3) Any change in the primary investment objective or fundamental
investment restrictions of the Fund.
(4) Election of members of the Board of Managers of the Fund (cumulative
voting is not permitted).
(5) Termination of the investment management agreement (such termination
may also be effected by the Board of Managers).
(6) Any other matter submitted to them by the Board of Managers.
The number of votes which a Contract Owner may cast as to any Contract,
except after the initial Annuity Payment Date, is equal to the number of
Accumulation Units credited to the Contract. With respect to any Contract as
to which Annuity Payments measured by Annuity Units have commenced, the
Contract Owner may cast a number of votes equal to (i) the amount of the
assets in the Fund to meet the Variable Annuity obligations related to such
Contract, divided by (ii) the value of an Accumulation Unit. Accordingly,
the voting rights of a Contract Owner will decline during the Annuity Payment
period as the amount of assets in the Fund required to meet the Annuity
Payments decreases and, in addition, will decline as the value of an
Accumulation Unit increases. Fractional votes will be counted.
An employee covered by an H.R. 10 Plan, if not the Contract Owner, will
have the right to instruct the Contract Owner with respect to all votes
attributable to the Qualified Contract. An employee covered by a Qualified
Contract issued in connection with a qualified pension or profit-sharing plan
described in Section 401 of the Code will have the right to instruct the
Contract Owner with respect to votes attributable to his or her payments to
the plan, if any, and, to the extent authorized by the terms of the plan,
with respect to any additional votes under the Qualified Contract. If Annuity
Payments are being made under an annuity to a person who is not a Contract
Owner, that person will have the right to instruct the Contract Owner with
respect to votes attributable to the amount of the assets in the Fund to meet
the Annuity Payments related to the Contract.
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Qualified Contract Owners will cast votes with respect to which
instructions have been received in accordance with such instructions. Votes
with respect to which employees, Variable Annuitants or other persons to whom
payments are being made under a Qualified Contract are entitled to instruct
the Contract Owner, but for which the Contract Owner has received no
instructions, shall be cast by the Contract Owner for or against each
proposal to be voted on in the same proportion as votes for which
instructions have been received by such Contract Owner. If no one is entitled
to instruct the Contract Owner, or if the Contract Owner receives no
instructions, all votes which the Contract Owner is entitled to cast may be
cast at his or her sole discretion. Neither the Fund nor The Franklin has any
duty to inquire as to the instructions received or the authority of the
Contract Owner to cast such votes; except to the extent that the Fund or The
Franklin has actual knowledge to the contrary, the votes cast by Contract
Owners will be considered valid and effective as among the Fund, The Franklin
and other persons having voting rights with respect to the Fund.
Should assets be maintained in the Fund with respect to contracts other
than those offered by this Prospectus, contract owners under such contracts
would be entitled to vote, and their votes would be computed in a similar
manner. Assets maintained by The Franklin in the Fund in excess of the
amounts attributable to the Contracts or other contracts of The Franklin will
entitle The Franklin to vote and its vote would be computed in a similar
manner. The Franklin will cast its votes in the same proportion as the votes
cast by Contract Owners and the owners of such other contracts.
The number of votes which each Contract Owner may cast at a meeting shall
be determined as of a record date to be chosen by the Board of Managers
within 120 days of the date of the meeting. At least 20 days' written notice
of the meeting will be given to Contract Owners of record. To be entitled to
vote or to receive notice, a Contract Owner must have been such on the record
date.
DISTRIBUTION OF THE CONTRACTS
Franklin Financial Services Corporation ("Franklin Financial") serves as
"principal underwriter" (as that term is defined in the Investment Company
Act of 1940) for the Contracts pursuant to a Sales Agreement with the Fund.
The Sales Agreement is described under "Distribution of The Contracts" in the
Statement of Additional Information. Franklin Financial, located at #1
Franklin Square, Springfield, Illinois 62713, is organized under the laws of
the State of Delaware and is a wholly-owned subsidiary of The Franklin.
The Fund no longer offers new Contracts. Commissions are paid to
registered representatives of Franklin Financial with respect to Stipulated
Payments received by The Franklin under the Contracts to a maximum of 2% of
such Stipulated Payments.
STATE REGULATION
As a life insurance company organized and operated under Illinois law, The
Franklin is subject to statutory provisions governing such companies and to
regulation by the Illinois Director of Insurance. An annual statement is
filed with the Director on or before March 1 of each year covering the
operations of The Franklin for the preceding year and its financial condition
on December 31 of such year. The Franklin's books and accounts are subject to
review and examination by the Illinois Insurance Department at all times, and
a full examination of its operations is conducted by the National Association
of Insurance Commissioners ("NAIC") periodically. The NAIC has divided the
country into six geographic zones. A representative of each such zone may
participate in the examination.
In addition, The Franklin is subject to the insurance laws and
regulations of the jurisdictions other than Illinois in which it is licensed
to operate. Generally, the insurance departments of such jurisdictions apply
the laws of Illinois in determining permissible investments for The Franklin.
For certain provisions of Illinois law applicable to the Fund's
investments, see "Investment Policies and Restrictions of the Fund," above.
REPORTS TO OWNERS
The Franklin will mail to the Contract Owner, at the last known address
of record at the Home Office of The Franklin, at least annually, a report
containing such information as may be required by any applicable law or
regulation and a statement showing the then Cash Value of his or her Contract.
38
<PAGE>
FUNDAMENTAL CHANGES
Upon compliance with applicable law, including obtaining any necessary
affirmative vote of Contract Owners in each case: (a) the Fund may be
operated in a form other than as a "management company" under the Investment
Company Act of 1940 (including operation as a "unit investment trust"); (b)
the Fund may be deregistered under the Investment Company Act of 1940 in the
event such registration is no longer required; or (c) the provisions of the
Contracts may be modified to assure qualification under the pertinent
provisions of the Code or to comply with other applicable federal or state
laws. In the event of any such fundamental change, The Franklin may make
appropriate amendments to the Contracts to give effect to such change or take
such other action as may be necessary in this respect.
The Board of Managers of the Fund, and the respective Board of Managers of
each of Franklin Life Variable Annuity Fund A ("Fund A") and Franklin Life
Variable Annuity Fund B ("Fund B"), have approved resolutions whereby Contract
Owners will be asked during 1998 to approve or to disapprove an Agreement and
Plan of Reorganization ("the Agreement") and related transactions (together, the
Agreement and related transactions are the "Reorganization") whereby: (i) the
Fund will be restructured into a single unit investment trust consisting of
three subaccounts; (ii) the assets of each of the Fund, Fund A and Fund B will
be liquidated and the proceeds transferred to one of the three subaccounts in
the restructured Fund (so that the interests of Contract Owners and of Fund A
and Fund B contract owners will continue as interests in the restructured Fund);
and (iii) each subaccount will invest exclusively in shares of a specified
mutual fund portfolio.
Contract Owners will be provided with a proxy statement describing the
Reorganization in detail. If the Reorganization is approved, then immediately
following the consummation of the Reorganization, each Contract Owner will have
an interest in a number of units in a subaccount of the restructured Fund having
a value equal to the value of the Contract Owner's interest in a Fund
immediately prior to the Reorganization.
YEAR 2000 TRANSITION
Like all financial services providers, The Franklin utilizes systems that
may be affected by Year 2000 transition issues and it relies on service
providers, including banks, custodians, and investment managers that also may
be affected. The Franklin and its affiliates have developed, and are in the
process of implementing, a Year 2000 transition plan, and are confirming that
their service providers are also so engaged. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome
of these efforts, will have any negative impact on The Franklin. However, as
of the date of this prospectus, it is not anticipated that Contract Owners
will experience negative effects on their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. The Franklin currently anticipates that its systems will be
Year 2000 compliant on or about December 31, 1998, but there can be no
assurance that The Franklin will be successful, or that interaction with
other service providers will not impair The Franklin's services at that time.
LEGAL PROCEEDINGS
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating to life insurance pricing and sales
practices, and a number of these lawsuits have resulted in substantial
settlements. The Franklin is a defendant in certain purported class action
lawsuits. These claims are being defended vigorously by The Franklin. Given
the uncertain nature of litigation and the early stages of this litigation, the
outcome of these actions cannot be predicted at this time. The Franklin
nevertheless believes that the ultimate outcome of all such pending litigation
should not have a material adverse effect on the Fund or on The Franklin's
financial position; however, it is possible that settlements or adverse
determinations in one or more of these actions or other future proceedings could
have a material adverse effect on The Franklin's results of operations for a
given period. No provision has been made in the consolidated financial
statements related to this pending litigation because the amount of loss, if
any, from these actions cannot be reasonably estimated at this time.
39
<PAGE>
The Franklin is a party to various other lawsuits and proceedings arising
in the ordinary course of business. Many of these lawsuits and proceedings
arise in jurisdictions, such as Alabama, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon
information presently available, The Franklin believes that the total amounts
that will ultimately be paid, if any, arising from these lawsuits and
proceedings will not have a material adverse effect on the Fund or on The
Franklin's results of operations and financial position. However, it should be
noted that the frequency of large damage awards, including large punitive damage
awards, that bear little or no relation to actual economic damages incurred by
plaintiffs in jurisdictions like Alabama continues to increase and creates the
potential for an unpredictable judgment in any given suit.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Contracts offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and amendments thereto
and exhibits filed as a part thereof, to all of which reference is hereby
made for further information concerning the Fund, The Franklin and the
Contracts offered hereby. Statements contained in this Prospectus as to the
content of Contracts and other legal instruments are summaries. For a
complete statement of the terms thereof, reference is made to such
instruments as filed.
OTHER VARIABLE ANNUITY CONTRACTS; EFFECT OF NON-QUALIFICATION
The Franklin may offer, under other prospectuses, other variable annuity
contracts having interests in the Fund and containing different terms and
conditions from those offered hereby.
In the event that a plan intended to qualify as a Qualified Plan under
the Code fails to meet the applicable qualification requirements under the
Code (including Section 818(a)) or in the event a Qualified Plan ceases to
qualify thereunder, The Franklin shall have the right, upon receiving notice
of such non-qualification, to treat any such Contract issued in connection
with such a plan as a Non-Qualified Contract participating in the Fund.
YIELD INFORMATION
In accordance with regulations adopted by the Securities and Exchange
Commission, the Fund has computed an annualized yield and an effective yield
for a seven-day period ending on the date of the Fund's most recent balance
sheet. The annualized yield is computed by determining the net change,
exclusive of realized gains and losses from the sale of investments and
unrealized appreciation and depreciation on investments, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit
at the beginning of the period, dividing the net change in account value by
the value of the account at the beginning of the seven-day period (the "base
period return") and multiplying this result by 365/7 to obtain an annualized
yield. The annualized yield for the seven calendar day period ended December
31, 1997 was ____%.The effective yield is computed by compounding the base
period return by adding one, raising the sum to a power equal to 365 divided
by 7, and substracting one from the result. The effective yield for the seven
calendar day period ended December 31, 1997 was ____%. The effective yield is
higher because it represents a compound yield, i.e., it assumes that the
increase in account value represented by the base period return is reinvested.
Yield as determined with respect to a portfolio composed primarily of
money market securities normally will fluctuate on a daily basis and is
affected by changes in interest rates on money market securities, average
portfolio maturities, the type and quality of portfolio securities held and
the expenses of the Fund. Therefore, the yield for any given past period
should not be considered as a representation of the yield for any future
period.
In addition, although yield information may be useful in reviewing the
Fund's performance and in providing a basis for comparison with other
investment alternatives, it should be kept in mind that the Fund's yield
cannot be compared to the yield on bank deposits and other investments which
pay fixed yields for a stated period of time and that other investment
companies may calculate yield on additional bases. When comparing the yields
of investment companies,
40
<PAGE>
consideration should be given to the quality and maturity of the portfolio of
securities of each company as well as to the type of expenses incurred. In
this connection, it should be noted that the accrued expenses of the Fund
differ from those incurred under conventional money market funds that do not
offer variable annuity contracts in that additional charges are made against
the Fund relating to The Franklin's assumption of mortality and expense risks
under the Contract. See "Mortality and Expense Risk Charge," above. In
addition, the yield information contained herein does not reflect
administration deductions from Stipulated Payments or deductions for premium
taxes, which would reduce the yield and effective yield contained herein.
Furthermore, unlike investments in conventional money market funds which may
be held on a non-qualified basis by the investor, investment income earned by
the Fund during the accumulation period is not currently taxable to holders
of Contracts. See "Federal Income Tax Status," above.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
PAGE IN STATEMENT OF
ADDITIONAL INFORMATION
----------------------
<S> <C>
General Information . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objectives. . . . . . . . . . . . . . . . . . . . . . . 3
Limitations on Settlement Options. . . . . . . . . . . . . . . . . 3
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Advisory and Other Services . . . . . . . . . . . . . . 7
Distribution of The Contracts. . . . . . . . . . . . . . . . . . . 8
Portfolio Turnover and Brokerage . . . . . . . . . . . . . . . . . 9
Safekeeper of Securities . . . . . . . . . . . . . . . . . . . . . 10
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Financial Statements. . . . . . . . . . . . . . . . . . . F-1
</TABLE>
41
<PAGE>
APPENDIX--DEBT SECURITY RATINGS
STANDARD & POOR'S CORPORATION--BOND RATINGS
AAA--Highest grade. Capacity to pay principal and interest is extremely
strong. AA--High grade. Capacity to pay principal and interest is very strong,
and in the majority of instances these bonds differ from AAA issues only in a
small degree. A--Strong capacity to pay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
MOODY'S INVESTORS SERVICE, INC.--BOND RATINGS
Aaa--Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt-edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa--High quality by all
standards. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger.
A--Upper medium grade. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. An A-1 rating (highest quality) by Standard & Poor's indicates that
the degree of safety regarding timely repayment is strong. An A-2 rating
indicates that capacity for timely payment is satisfactory, although the
relative degree of safety is not as high as for issues designated A-1. An A-3
rating indicates adequate capacity for repayment but with more vulnerability
to the adverse effects of changes in circumstances than obligations carrying
the higher designations.
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Issuers (or institutions supplying credit support) rated
Prime-1 (Moody's highest rating) have a superior ability for repayment of
senior short-term debt obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers (or institutions supplying credit support) rated
Prime-2 have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained. Issuers (or institutions
supplying credit support) rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability
in earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
42
<PAGE>
PROSPECTUS
FRANKLIN LIFE MONEY
MARKET VARIABLE
ANNUITY FUND C
INDIVIDUAL VARIABLE
ANNUITY CONTRACTS
ISSUED BY
THE FRANKLIN LIFE INSURANCE COMPANY
#1 FRANKLIN SQUARE
SPRINGFIELD, ILLINOIS 62713
- -------------------------------------------------------------------------------
Complete and return this form to:
The Franklin Life Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
Attention: Box 1018
(800) 528-2011, extension 2591
Please send me the Statement of Additional Information dated April 30, 1998 for
Franklin Life Money Market Variable Annuity Fund C.
- -------------------------------------------------------------------------------
(Name)
- -------------------------------------------------------------------------------
(Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip Code)
<PAGE>
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
FRANKLIN LIFE MONEY MARKET THE FRANKLIN LIFE INSURANCE COMPANY
VARIABLE ANNUITY #1 FRANKLIN SQUARE
FUND C SPRINGFIELD, ILLINOIS 62713
TELEPHONE (800) 528-2011
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus dated April 30, 1998 relating to
the offering of individual variable annuities for use as individual
retirement annuities or in connection with trusts and retirement or deferred
compensation plans which may or may not qualify for special federal tax
treatment under the Internal Revenue Code. A copy of the Prospectus may be
obtained by writing to The Franklin Life Insurance Company at the address set
forth above (Attention: Box 1018) or by calling (800) 528-2011, extension
2591.
- ------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
- ------------------------------------------------------------------------------
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS APRIL 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objectives . . . . . . . . . . . . . . . . . . . . . . 3
Limitations on Settlement Options . . . . . . . . . . . . . . . . 3
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Advisory and Other Services. . . . . . . . . . . . . . 7
Distribution of The Contracts . . . . . . . . . . . . . . . . . . 8
Portfolio Turnover and Brokerage. . . . . . . . . . . . . . . . . 9
Safekeeper of Securities. . . . . . . . . . . . . . . . . . . . . 10
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Financial Statements . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE>
GENERAL INFORMATION
The individual variable annuity contracts offered by the Prospectus
dated April 30, 1998 (the "Prospectus") are designed primarily to provide
annuity payments which will vary with the investment performance of Franklin
Life Money Market Variable Annuity Fund C (the "Fund"), a separate account
which has been established by The Franklin Life Insurance Company ("The
Franklin") under Illinois insurance law. Reference is made to the
Prospectus, which should be read in conjunction with this Statement of
Additional Information. Capitalized terms not otherwise defined in this
Statement of Additional Information shall have the meanings designated in the
Prospectus.
American General Corporation ("American General") through its
wholly-owned subsidiary, AGC Life Insurance Company ("AGC Life"), owns all of
the outstanding shares of common stock of The Franklin. The address of AGC
Life is American General Center, Nashville, Tennessee 37250-0001. The
address of American General is 2929 Allen Parkway, Houston, Texas 77019-2155.
American General is one of the largest diversified financial services
organizations in the United States. American General's operating
subsidiaries are leading providers of retirement services, consumer loans,
and life insurance. The company was incorporated as a general business
corporation in Texas in 1980 and is the successor to American General
Insurance Company, an insurance company incorporated in Texas in 1926.
American General has advised the Fund that there was no person who was
known to it to be the beneficial owner of 10% or more of the voting power of
American General as of ________________, 1998.
INVESTMENT OBJECTIVES
The investment objectives and policies of the Fund are described under
"Investment Policies and Restrictions of the Fund" in the Prospectus.
LIMITATIONS ON SETTLEMENT OPTIONS
A. LIMITATIONS ON CHOICE OF SETTLEMENT OPTION
Described below are certain limitations on Settlement Options based on
The Franklin's current understanding of the distribution rules generally
applicable to Non-Qualified Contracts and to Qualified Contracts purchased
for use as Individual Retirement Annuities or issued in connection with
Section 403(b) annuity purchase plans. Various questions exist, however,
about the application of the distribution rules to distributions from the
Contracts and their effect on Settlement Option availability thereunder.
The Internal Revenue Service has proposed regulations relating to
required distributions from qualified plans, individual retirement plans, and
annuity contracts under Section 403(b) of the Code. These proposed
regulations may limit the availability of the Settlement Options in Contracts
purchased for use as Individual Retirement Annuities or issued in connection
with Section 403(b) annuity purchase plans. The proposed regulations are
generally effective for calendar years after 1984; persons contemplating the
purchase of a Contract should consult a qualified tax advisor concerning the
effect of the proposed regulations on the Settlement Option or Options he or
she is contemplating.
FIRST OPTION--LIFE ANNUITY. Under Qualified Contracts issued for use as
Individual Retirement Annuities or in connection with Section 403(b) annuity
purchase plans, if the Variable Annuitant dies before Annuity Payments have
commenced, this Option is not available to a Beneficiary unless distributions
to the Beneficiary begin not later than one year after the date of the
Variable Annuitant's death (except that distributions to a Beneficiary who is
the surviving spouse of the Variable Annuitant need not commence earlier than
the date on which the Variable
3
<PAGE>
Annuitant would have attained age 70-1/2). If the surviving spouse of the
Variable Annuitant is the Beneficiary and such surviving spouse dies before
Annuity Payments to such spouse have commenced, the surviving spouse will be
treated as the Variable Annuitant for purposes of the preceding rule.
Under Non-Qualified Contracts, the limitations of the preceding
paragraph (other than the parenthetical clause) apply.
SECOND OPTION--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN. Under Qualified Contracts issued for use as Individual Retirement
Annuities or in connection with Section 403(b) annuity purchase plans, this
Option is not available unless the selected period does not extend beyond the
life expectancy of the Variable Annuitant (or the life expectancy of the
Variable Annuitant and his or her Beneficiary). Further, if the Variable
Annuitant dies before Annuity Payments have commenced, this Option is not
available to a Beneficiary unless (i) the selected period does not extend
beyond the life expectancy of the Beneficiary and (ii) the distribution to
the Beneficiary commences not later than one year after the date of the
Variable Annuitant's death (except that distributions to a Beneficiary who is
the surviving spouse of the Variable Annuitant need not commence earlier than
the date on which the Variable Annuitant would have attained age 70-1/2). If
the surviving spouse of the Variable Annuitant is the Beneficiary and the
surviving spouse dies before Annuity Payments to such spouse have commenced,
the surviving spouse will be treated as the Variable Annuitant for purposes
of the preceding sentence. This Option is also not available under Individual
Retirement Annuities or in connection with Section 403(b) annuity purchase
plans unless certain minimum distribution incidental benefit requirements of
the proposed regulations are met.
Under Non-Qualified Contracts the limitations of the second and third
sentences of the preceding paragraph (other than the parenthetical clause)
apply.
THIRD OPTION--UNIT REFUND LIFE ANNUITY. This Option is not available
under Qualfied Contracts issued for use as Individual Retirement Annuities.
Also, under Qualified Contracts issued in connection with Section 403(b)
annuity purchase plans, if the Variable Annuitant dies before Annuity
Payments have commenced, this Option is not available to a Beneficiary unless
distributions to the Beneficiary begin not later than one year after the date
of the Variable Annuitant's death (except that distributions to a Beneficiary
who is the surviving spouse of the Variable Annuitant need not commence
earlier than the date on which the Variable Annuitant would have attained age
70-1/2). If the surviving spouse of the Variable Annuitant is the Beneficiary
and such surviving spouse dies before Annuity Payments to such spouse have
commenced, the surviving spouse will be treated as the Variable Annuitant for
purposes of the preceding rule. This Option is also not available in
connection with Section 403(b) annuity purchase plans unless certain minimum
distribution incidental benefit requirements of the proposed regulations are
met.
Under Non-Qualified Contracts the limitations of the second and third
sentences of the preceding paragraph (other than the parenthetical clause)
apply.
FOURTH OPTION--JOINT AND LAST SURVIVOR LIFE ANNUITY. Under Qualified
Contracts issued for use as Individual Retirement Annuities or in connection
with Section 403(b) annuity purchase plans, this Option is not available
unless the secondary variable annuitant is the spouse of the Variable
Annuitant or unless certain minimum distribution incidental benefit
requirements of the proposed regulations are met. Further, if the Variable
Annuitant dies before Annuity Payments have commenced, this Option is not
available to a Beneficiary under a Non-Qualified Contract or a Qualified
Contract issued for use as Individual Retirement Annuities or in connection
with Section 403(b) annuity purchase plans.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD. Under Qualified
Contracts issued for use as Individual Retirement Annuities or in connection
with Section 403(b) annuity purchase plans, this Option is not available
unless the limitations described in the Second Option, above, applicable to
such Qualified Contracts, are satisfied, except that this Option is otherwise
available to a Beneficiary where the Variable Annuitant dies before Annuity
Payments have commenced, if the designated period does not exceed a period
that terminates five years after the death of the Variable Annuitant or the
substituted surviving spouse, as the case may be. In addition, this Option is
not available if the number of years in the selected period over which
Annuity Payments would otherwise be paid plus the attained age of the
Variable Annuitant at the initial Annuity Payment Date would exceed 95.
4
<PAGE>
Under Non-Qualified Contracts this Option is not available to a
Beneficiary where the Variable Annuitant dies before Annuity Payments have
commenced, unless either the limitations described in the Second Option,
above, applicable to such Non-Qualified Contracts are satisfied, or the
selected period does not exceed a period that terminates five years after the
death of the Variable Annuitant or the substituted surviving spouse, as the
case may be.
SIXTH OPTION--PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. This Option is not
available under Qualified Contracts issued for use as Individual Retirement
Annuities or in connection with Section 403(b) annuity purchase plans. This
Option also is not available to a Beneficiary under a Non-Qualified Contract
where the Variable Annuitant dies before Annuity Payments have commenced,
unless the amount selected results in a distribution period which either
satisfies the limitations described in the Second Option, above, applicable
to such Non-Qualified Contracts, or which terminates not more than five years
after the death of the Variable Annuitant or the substitute surviving spouse,
as the case may be.
SEVENTH OPTION--INVESTMENT OPTION. This Option is not available under
Qualified Contracts issued in connection with any Qualified Plan. If the
Variable Annuitant dies before Annuity Payments have commenced, this Option
also is not available to a Beneficiary under a Non-Qualified Contract.
B. LIMITATIONS ON COMMENCEMENT OF ANNUITY PAYMENTS
The Contract Owner may defer the initial Annuity Payment Date and
continue the Contract to a date not later than age 75 unless the provisions
of the Code or any governing Qualified Plan require Annuity Payments to
commence at an earlier date. For example, under Qualified Contracts, other
than those issued for use as Individual Retirement Annuities, the Contract
Owner may not defer the initial Annuity Payment Date beyond April 1 of the
calendar year following the later of the calendar year in which the Variable
Annuitant (i) attains age 70-1/2, or (ii) retires, and must be made in a
specified form or manner. In addition, if the plan participant is a "5
percent owner" (as defined in the Code), or if the Contract is issued for use
as an Individual Retirement Annuity, distributions generally must begin no
later than the date described in (i). The Franklin will require satisfactory
proof of age of the Variable Annuitant prior to the initial Annuity Payment
Date.
MANAGEMENT
The following persons hold the positions designated with respect to the
Board of Managers. The table also shows any positions held with The Franklin
and Franklin Financial Services Corporation, a wholly-owned subsidiary of The
Franklin which serves as distributor for the Contracts. (See "Distribution of
the Contracts," below.)
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS POSITIONS HELD
DURING PAST 5 YEARS WITH THE FUND
<S> <C> <C>
ROBERT G. SPENCER* Officer of The Franklin; currently, Chairman and Member,
#1 Franklin Square Vice President of The Franklin; Board of Managers
Springfield, Illinois 62713 prior to 1996, also Treasurer of The
Franklin and Treasurer and Assistant
Secretary of Franklin Financial
Services Corporation.
ELIZABETH E. ARTHUR* Officer of The Franklin; currently, Secretary, Board of Managers
#1 Franklin Square Vice President, Assistant Secretary
Springfield, Illinois 62713 and Associate General Counsel of
The Franklin. Ms. Arthur also
serves as Assistant Secretary of
Franklin Financial Services Corporation.
DR. ROBERT C. SPENCER Visiting Professor of Government, Member, Board of Managers
2303 South 3rd Avenue Montana State University, since 1992;
Bozeman, Montana 59715 Professor of Government and Public
Affairs, Sangamon State University,
prior thereto.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS POSITIONS HELD
DURING PAST 5 YEARS WITH THE FUND
<S> <C> <C>
JAMES W. VOTH Chairman, Resource International Corp., Member, Board of Managers
50738 Meadow Green Court South Bend, Indiana (marketing,
Granger, Indiana 46530 manufacturing and engineering service
to industry); prior to 1993, also
President of Resource International Corp.
CLIFFORD L. GREENWALT Director, President and Chief Executive Member, Board of Managers
607 East Adams Street Officer, CIPSCO Incorporated,
Springfield, Illinois 62739 since October, 1990 (utility holding
company); Director, President and Chief
Executive Officer, Central Illinois Public
Service Company, Springfield, Illinois
(a subsidiary of CIPSCO Incorporated);
Director, Electric Energy, Inc., Joppa,
Illinois; Director, First of America
Bank, Kalamazoo, Michigan; Director,
First of America Bank - Illinois,
N.A. (a subsidiary of First of America
Bank).
</TABLE>
*DENOTES INDIVIDUALS WHO ARE "INTERESTED PERSONS" (AS DEFINED IN THE
INVESTMENT COMPANY ACT OF 1940) OF THE FUND, THE FRANKLIN OR FRANKLIN
FINANCIAL SERVICES CORPORATION BY REASON OF THE CURRENT POSITIONS HELD BY
THEM AS SET FORTH IN THE ABOVE TABLE.
The following table sets forth a summary of compensation paid for
services to the Fund and certain other entities that are deemed to be part of
the same "Fund Complex" in accordance with the rules of the Securities and
Exchange Commission to all members of the Board of Managers for the year
ended December 31, 1997. Pursuant to the terms of its agreement to assume
certain of the Fund's administrative expenses, The Franklin pays all
compensation received by the members of the Board of Managers and the
officers of the Fund. Members of the Board of Managers or officers of the
Fund who are also officers, directors or employees of The Franklin do not
receive any remuneration for their services as members of the Board of
Managers or officers of the Fund. Other members of the Board of Managers
received a fee of $1,400 for the year and, thus, the aggregate direct
remuneration of all such members of the Board of Managers was $4,200 during
1997. It is currently anticipated that the annual aggregate remuneration of
such members of the Board of Managers to be paid during 1998 will not exceed
$4,200.
<TABLE>
<CAPTION>
NAME OF PERSON, POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION
RELATING TO FUND RELATING TO FUND
AND FUND COMPLEX PAID
TO EACH MEMBER
<S> <C> <C>
Each member of the Board of
Managers (except Robert G. Spencer) $1,400 (1) $4,200 (1)(2)
</TABLE>
-----------------------------------
(1) Paid by The Franklin pursuant to an agreement to assume certain Fund
administrative expenses.
(2) Includes amounts paid to members of the Board of Managers who are not
officers, directors or employees of The Franklin for service on the Boards
of Managers of Franklin Life Variable Annuity Fund A and Franklin Life
Variable Annuity Fund B.
6
<PAGE>
Neither any member of the Board of Managers nor the Secretary of the
Fund was, as of April 20, 1998, the owner of any contract participating in
the investment experience of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Franklin acts as investment manager of the Fund pursuant to an
Investment Management Agreement executed and dated January 31, 1995, which
was approved by Contract Owners at their annual meeting held on April 17,
1995 and was renewed to January 31, 1999 by the Board of Managers of the Fund
at its meeting on January 19, 1998. The method of determining the advisory
charge is described in the Prospectus under "Investment Management Service
Charge."
The Investment Management Agreement:
(1) May not be terminated by The Franklin without the prior approval
of a new investment management agreement by a "majority" (as that term is
defined in the Investment Company Act of 1940) of the votes available to the
Contract Owners, and may be terminated without the payment of any penalty on
60 days' written notice by a vote of the Board of Managers of the Fund or by
a vote of a majority of the votes available to the Contract Owners.
(2) Shall continue in effect from the date of its execution until the
second anniversary of such execution date and thereafter shall continue in
effect from year to year but only if such continuance is specifically
approved at least annually by the Board of Managers or by a vote of a
majority of the votes available to Contract Owners, provided that in either
case the continuation is also approved by the vote of a majority of the Board
of Managers who are not "interested persons" (as that term is defined in the
Investment Company Act of 1940) of the Fund or of The Franklin, cast in
person at a meeting called for the purpose of voting on such approval.
(3) Shall not be amended without prior approval by a majority of the
votes available to the Contract Owners.
(4) Shall terminate automatically on "assignment" (as that term is
defined in the Investment Company Act of 1940).
A "majority" of the votes available to the Contract Owners is defined
in the Investment Company Act of 1940 as meaning the lesser of (i) Contract
Owners holding 67% or more of the voting power of the Contract Owners present
at a meeting if Contract Owners holding more than 50% of the total voting
power of all Contract Owners in the Fund are present or represented by proxy,
or (ii) Contract Owners holding more than 50% of the total voting power of
all Contract Owners in the Fund. For the voting rights of Contract Owners,
see "Voting Rights," in the Prospectus.
Under the Investment Management Agreement, The Franklin, subject to the
control of the Board of Managers of the Fund, is authorized and has the duty
to manage the investment of the assets of the Fund, subject to the Fund's
investment policies and the restrictions on investment activities set forth
in the Prospectus, and to order the purchase and sale of securities on behalf
of the Fund. In carrying out its obligations to manage the investment of the
assets of the Fund, The Franklin is committed by the Agreement, so long as
it remains in force, to pay all investment expenses of the Fund other than
the following, which the Fund will bear: (i) taxes, if any, based on the
income of, capital gains of assets in, or existence of, the Fund; (ii) taxes,
if any, in connection with the acquisition, disposition or transfer of assets
of the Fund; (iii) commissions or other capital items payable in connection
with the purchase or sale of the Fund's investments; and (iv) interest on
account of any borrowings by the Fund.
Robert G. Spencer and Elizabeth E. Arthur are "affiliated persons," as
defined in the Investment Company Act of 1940, of both The Franklin and the
Fund by reason of the positions held by them with The Franklin and the Fund
as set forth in the table under "Management," above.
7
<PAGE>
The Administration Agreement discussed under "Deductions and Charges
Under the Contracts-Administration Deduction" in the Prospectus provides
that The Franklin will provide all services and will assume all expenses
required for the administration of the Contracts, including expenses for
legal and accounting services to the Fund and the cost of such
indemnification of members of the Board of Managers and officers, agents, or
employees of the Fund as is provided by the Fund in its Rules and
Regulations. The Franklin is not,however, obligated under the Administration
Agreement to pay the investment management service charge discussed under
"Investment Management Service Charge," in the Prospectus. The
Administration Agreement also provides that The Franklin will from time to
time adjust the assets of the Fund by withdrawing sums in cash or by
transferring cash to the Fund so that the assets of the Fund will be equal to
the actuarial value of the amounts payable under all outstanding Contracts
having an interest in the Fund. The Administration Agreement may be amended
or terminated at any time by mutual consent of the Fund and The Franklin.
DISTRIBUTION OF THE CONTRACTS
Franklin Financial Services Corporation ("Franklin Financial"), #1
Franklin Square, Springfield, Illinois 62713, is organized under the laws of
the State of Delaware and is a wholly-owned subsidiary of The Franklin.
Franklin Financial serves as "principal underwriter" (as that term is
defined in the Investment Company Act of 1940) for the Contracts, pursuant to
a Sales Agreement with the Fund. The present Sales Agreement was approved by
the Board of Managers of the Fund, and came into effect, on January 31, 1995.
It was last renewed by the Board of Managers on January 19, 1998. Franklin
Financial's employment will continue thereunder if specifically approved at
least annually by the Board of Managers of the Fund, or by a majority of
votes available to Contract Owners, provided that in either case the
continuance of the Sales Agreement is also approved by a majority of the
members of the Board of Managers of the Fund who are not "interested
persons" (as that term is defined in the Investment Company Act of 1940) of
the Fund or Franklin Financial. The employment of Franklin Financial as
principal underwriter automatically terminates upon "assignment" (as that
term is defined in the Investment Company Act of 1940) of the Sales Agreement
and is terminable by either party on not more than 60 days' and not less than
30 days' notice.
The Fund no longer issues new Contracts. To the extent that Stipulated
Payments continue to be made on Contracts, the Fund may nevertheless be
deemed to be offering interests in Contracts on a continuous basis.
Contracts are sold primarily by persons who are insurance agents or brokers
for The Franklin authorized by applicable law to sell life and other forms of
personal insurance and who are similarly authorized to sell Variable
Annuities. Pursuant to an Agreement, dated December 3, 1981, between The
Franklin and Franklin Financial, Franklin Financial agreed to employ and
supervise agents chosen by The Franklin to sell the Contracts and to use its
best efforts to qualify such persons as registered representatives of
Franklin Financial, which is a broker-dealer registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. Franklin
Financial also may enter into agreements with The Franklin and each such
agent with respect to the supervision of such agent.
Franklin Financial incurs certain sales expenses, such as sales
literature preparation and related costs, in connection with the sale of the
Contracts pursuant to a Sales Agreement with the Fund. Surrender charges
imposed in connection with the redemption of a Contract and certain partial
redemptions are paid to Franklin Financial as a means to recover sales
expenses. Surrender charges are not necessarily related to Franklin
Financial's actual sales expenses in any particular year. To the extent sales
expenses are not covered by surrender charges, Franklin Financial will cover
them from other assets.
Pursuant to an Agreement between The Franklin and Franklin Financial,
The Franklin has agreed to pay commissions earned by registered
representatives of Franklin Financial on the sale of the Contracts and
Franklin Financial has agreed to remit to The Franklin the excess of all
surrender charges paid to Franklin Financial over the sales or promotional
expenses incurred by Franklin Financial to the extent necessary to reimburse
The Franklin for commissions or other remuneration paid in connection with
sales of the Contracts. Such agreement also provides that the amount of such
commissions and other remuneration not so reimbursed shall be deemed to have
been contributed by The Franklin to the capital of Franklin Financial.
Commissions and other remuneration will be paid by The Franklin from its
General Account to the extent it does not receive reimbursement from Franklin
Financial.
8
<PAGE>
Registration as a broker-dealer does not mean that the Securities and
Exchange Commission has in any way passed upon the financial standing,
fitness or conduct of any broker or dealer, upon the merits of any securities
offering or upon any other matter relating to the business of any broker or
dealer. Salesmen and employees selling Contracts, where required, are also
licensed as securities salesmen under state law.
Elizabeth E. Arthur is an "affiliated person" (as that term is defined
in the Investment Company Act of 1940) of both Franklin Financial and the
Fund by reason of the positions held by her with Franklin Financial and the
Fund as set forth in the table under "Management," above.
PORTFOLIO TURNOVER AND BROKERAGE
Since the Fund's assets will be invested in securities with short
maturities, the Fund's portfolio of money market instruments is expected to
turn over several times a year. A meaningful portfolio turnover rate for 1997
or 1996 is not able to be calculated as a result of the short maturities of
the assets in which the Fund invested during those periods.
Decisions to buy or sell securities for the Fund will be made by The
Franklin, as the Fund's investment manager, subject to the control of the
Fund's Board of Managers. The Franklin, as investment manager, also is
responsible for placing the brokerage business of the Fund and, where
applicable, negotiating the amount of the commission rate paid, subject to
the control of the Fund's Board of Managers. Portfolio securities normally
will be purchased directly from the issuer or from an underwriter or market
maker for the securities. Thus, there usually will be no brokerage
commissions paid by the Fund for such purchases. Purchases from underwriters
of portfolio securities will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market
makers will include the spread between the bid and asked price. The Fund has
no formula for the distribution of brokerage business in connection with the
placing of orders for the purchase and sale of investments for the Fund. It
is The Franklin's intention to place such orders, consistent with the best
execution, to secure the highest possible price on sales and the lowest
possible price on purchases of securities. Portfolio transactions executed in
the over-the-counter market will be placed directly with the primary market
makers unless better executions are available elsewhere. Subject to the
foregoing, The Franklin may give consideration in the allocation of brokerage
business to services performed by a broker or dealer in furnishing
statistical data and research to it. The Franklin may thus be able to
supplement its own information and to consider the views and information of
other research organizations in arriving at its investment decisions. Any
such services would also be available to The Franklin in the management of
its own assets and those of any other separate account. To the extent that
such services are used by The Franklin in performing its investment
management functions with respect to the Fund, they may tend to reduce The
Franklin's expenses. However, the dollar value of any information which
might be received is indeterminable and may, in fact, be negligible. The
Franklin does not consider the value of any research services provided by
brokers or dealers in negotiating commissions. No brokerage commissions were
paid during 1997, 1996 and 1995. No officer or director of The Franklin or
Franklin Financial (the principal underwriter for the Contracts), and no
member of the Board of Managers, is affiliated with any brokerage firm
(except with Franklin Financial Services Corporation, as described under
"Investment Management Service Charge," in the Prospectus, and
"Distribution of the Contracts," above) and no beneficial owner of 5% or
more of the total voting power of The Franklin or any of its parents is known
to be affiliated with any brokerage firm utilized by the Fund (except with
Franklin Financial).
SAFEKEEPER OF SECURITIES
Securities of the Fund are held by State Street Bank and Trust Company
("State Street"), which is located at 1776 Heritage Drive, North Quincy,
Massachusetts, under a Custodian Agreement dated April 17, 1995 to which The
Franklin and State Street are parties. Representatives of the Securities and
Exchange Commission, the Illinois Insurance Department and the NAIC zonal
examination committee have access to such securities in the performance of
their official duties.
9
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice
on certain matters relating to the federal securities laws.
EXPERTS
The statement of assets and liabilities, including the portfolio of
investments, as of December 31, 1997 and 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 of the Fund, appearing herein,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein. The consolidated balance
sheets as of December 31, 1997 and 1996 of The Franklin, and the related
consolidated statements of income, shareholder's equity and cash flows for
the years ended December 31, 1997 and 1996, the eleven months ended December
31, 1995 and the one month ended January 31, 1995, appearing herein, have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein. The table of per-unit
income and changes in accumulation unit value for each of the two years in
the period ended December 31, 1994 of the Fund, appearing herein, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their report thereon appearing elsewhere herein. Such financial statements
and tables of per-unit income and changes in accumulation unit value referred
to above are included in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
10
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE FRANKLIN LIFE INSURANCE COMPANY
#1 FRANKLIN SQUARE
SPRINGFIELD, ILLINOIS 62713
<PAGE>
PART C
OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) Financial Statements:
Included in the Prospectus:
Franklin Life Money Market Variable Annuity Fund C:
Per-Unit Income and Changes in Accumulation Unit Value for
the ten years ended December 31, 1997
Included in the Statement of Additional Information:
Franklin Life Money Market Variable Annuity Fund C:
Reports of Independent Auditors and Accountants
Financial Statements:
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations for the year ended
December 31, 1997
Statements of Changes in Contract Owners' Equity for
the two years ended December 31, 1997
Portfolio of Investments, December 31, 1997
Notes to Financial Statements
Supplementary Information - Per-Unit Income and Changes
in Accumulation Unit Value for the five years ended
December 31, 1997
The Franklin Life Insurance Company and Subsidiaries:
Reports of Independent Auditors and Accountants
Financial Statements:
Consolidated Balance Sheet, December 31, 1997 and 1996
Consolidated Statement of Income for the years ended
December 31, 1997 and 1996, the eleven months ended
December 31, 1995, and the one month ended
January 31, 1995
Consolidated Statement of Shareholder's Equity for the
years ended December 31, 1997 and 1996, the eleven
months ended December 31, 1995, and the one month
ended January 31, 1995
Consolidated Statement of Cash Flows for the years
ended December 31, 1997 and 1996, the eleven months
ended December 31, 1995, and the one month ended
January 31, 1995
Notes to Consolidated Financial Statements
Schedules to the Financial Statements have been omitted because they
are not required under the related instructions or are not applicable,
or the information has been shown elsewhere.
(b) Exhibits:
<TABLE>
<S> <C>
1 - Resolution of The Franklin Life Insurance Company's Board of
Directors creating Franklin Life Money Market Variable
Annuity Fund C is incorporated herein by reference to
Exhibit 1 of Registrant's Registration Statement on
Form N-1, filed October 15, 1981 (File No. 2-74459).
2 - Rules and Regulations adopted by Registrant, as amended, are
incorporated herein by reference to Exhibit 2 of
Registrant's Registration Statement Amendment No. 2 on Form
N-1, filed December 18, 1981 (File No. 2-74459).
C-1
<PAGE>
3 - Custodian Agreement dated April 17, 1995 between The
Franklin Life Insurance Company and State Street Bank and
Trust Company is incorporated herein by reference to Exhibit
3 to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-3, filed April 30, 1996.
4 - Investment Management Agreement dated January 31, 1995
between Registrant and The Franklin Life Insurance Company
is incorporated herein by reference to Exhibit 4 of
Registrant's Post-Effective Amendment No. 19 on Form N-3,
filed March 2, 1995.
5 (a) - Sales Agreement dated January 31, 1995 between Registrant
and Franklin Financial Services Corporation is incorporated
herein by reference to Exhibit 5(a) of Registrant's Post-
Effective Amendment No. 19 on Form N-3, filed March 2, 1995.
(b) - Form of Agreement to be entered into among The Franklin Life
Insurance Company, Franklin Financial Services, and agents
is incorporated herein by reference to Exhibit 6(b) of
Registrant's Registration Statement Amendment No. 2 on Form
N-1, filed December 18, 1981 (File No. 2-74459).
6 (a) - Amended specimen copy of Form 1175, periodic payment
deferred variable annuity contract, is incorporated herein
by reference to Exhibit 4(a) of Registrant's Registration
Statement Amendment No. 2 on Form N-1, filed December 18,
1981 (File No. 2-74459).
(b) - Amended specimen copy of Form 1176, single payment deferred
variable annuity contract, is incorporated herein by
reference to Exhibit 4(b) of Registrant's Registration
Statement Amendment No. 2 on Form N-1, filed December 18,
1981 (File No. 2-74459).
(c) - Specimen of copy of Form 1177, single payment immediate life
variable annuity contract, is incorporated herein by
reference to Exhibit 4(c) of Registrant's Registration
Statement on Form N-1, filed October 15, 1981 (File
No. 2-74459).
(d) - Specimen copy of Form 1178, single payment immediate life
variable annuity contract with guaranteed period, is
incorporated herein by reference to Exhibit 4(d) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(e) - Specimen copy of Form 1179, single payment immediate joint
and last survivor life variable annuity contract, is
incorporated herein by reference to Exhibit 4(e) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(f) - Specimen copy of Form 4840, "Endorsement to Make Contract
Nontransferable," attached as endorsement to Forms 1175,
1176, 1177, 1178 and 1179, is incorporated herein by
reference to Exhibit 4(f) of Registrant's Registration
Statement on Form N-1, filed October 15, 1981 (File No. 2-
74459).
(g) - Specimen copy of Form 6012, "Waiver of Stipulated Payment
Disability Benefit," for use as endorsement to Form 1175, is
incorporated herein by reference to Exhibit 4(g) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(h) - Specimen copy of Form 6275-A, "Variable Annuity
Endorsement," attached as endorsement to Forms 1175, 1176,
1177, 1178 and 1179 when such contracts are issued to
variable annuitants in the State of Texas, is incorporated
herein by reference to Exhibit 4(h) of Registrant's
Registration Statement on Form N-1, filed October 15, 1981
(File No. 2-74459).
(i) - Specimen copy of Form 6296, "Amendments to this Contract,"
attached as endorsement to Forms 1175, 1176, 1177, 1178 and
1179 when such contracts are issued to variable annuitants
in the State of New Jersey, is incorporated herein by
reference to Exhibit 4(i) of Registrant's Registration
Statement on Form N-1, filed October 15, 1981 (File No. 2-
74459).
(j) - Specimen copy of endorsement to Forms 1175, 1176, 1177, 1178
and 1179 when such contracts are issued to variable
annuitants in the State of Texas is incorporated herein by
reference to Exhibit 6 (j) to Post-Effective Amendment No.
13 to Registrant's Registration Statement on Form N-3, filed
March 1, 1990 (File No. 2-74459).
7 - The applications for Forms 1175, 1176, 1177, 1178 and 1179
set forth in Exhibit 6 are included as parts of the
respective contract forms.
8 (a) - Certificate of Incorporation of The Franklin Life Insurance
Company is incorporated herein by reference to Exhibit 8(a)
to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-3, filed March 1, 1990
(File No. 2-74459).
(b) - By-Laws of The Franklin Life Insurance Company are
incorporated herein by reference to Exhibit 8(b) to Post-
Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-3, filed April 30, 1997 (File No. 2-
74459).
9 - Not applicable.
10 - Not applicable.
11(a) - Administration Agreement dated December 3, 1981 between The
Franklin Life Insurance Company and Franklin Financial
Services Corporation is hereby incorporated by reference to
Exhibit 9(a) of Registrant's Registration Statement
Amendment No. 2 on Form N-1, filed December 18, 1981 (File
No. 2-74459).
C-2
<PAGE>
(b) - Agreement dated December 3, 1981 between The Franklin Life
Insurance Company and Franklin Financial Services
Corporation is incorporated herein by reference to Exhibit
9(b) of Registrant's Registration Statement Amendment No. 2
on Form N-1, filed December 18, 1981 (File No. 2-74459).
12 - Opinion and consent dated April 2, 1986 of Stephen P.
Horvat, Jr., Esq., Senior Vice President, General Counsel
and Secretary of The Franklin Life Insurance Company is
incorporated herein by reference to Exhibit 10(b) of
Registrant's Post-Effective Amendment No. 8 of Form N-1,
filed April 29, 1986 (File No. 2-74459).
13(a) - List of Consents Pursuant to Rule 483(c). (To be filed by
amendment.)
(b) - Consent of Ernst & Young LLP, Independent Auditors. (To be
filed by amendment.)
(c) - Consent of Coopers & Lybrand L.L.P., Independent
Accountants. (To be filed by amendment.)
(d) - Consent of Sutherland, Asbill & Brennan LLP (To be filed by
amendment.)
14 - Not applicable.
15 - Contribution Agreement dated as of October 30, 1981 between
Registrant and The Franklin Life Insurance Company is
incorporated herein by reference to Exhibit 13 of
Registrant's Registration Statement Amendment No. 2 on Form
N-1, filed December 18, 1981 (File No. 2-74459).
16 - Computation of performance data set forth under "Yield
Information" in the Prospectus (unaudited). (To be filed by
amendment.)
17 - Power of Attorney.
27 - Financial Data Schedule meeting the requirements of
Rule 483. (To be filed by amendment.)
</TABLE>
Item 29. Directors and Officers of Insurance Company
Information concerning the name, principal business address and positions
and offices with The Franklin of each officer and director of The Franklin is
hereby incorporated herein by reference to Item 33. Information concerning the
positions and offices with the Fund of Robert G. Spencer and Elizabeth E.
Arthur, the only directors or officers of The Franklin who hold positions or
offices with the Fund, is hereby incorporated herein by reference to the table
under "Management" in the Statement of Additional Information.
Item 30. Persons Controlled by or under Common Control with the Insurance
Company or Registrant.
There is no person controlled by or under common control with Registrant.
The Franklin is an indirect wholly-owned subsidiary of American General
Corporation ("AGC"). A list of the subsidiaries of AGC is set forth below.
The following chart sets forth the identities of, and the
interrelationships among, AGC and all affiliated persons within the holding
company system.
The following is a list of American General Corporation's
subsidiaries(1,2,3,4) as of December 31, 1997. All subsidiaries listed are
corporations, unless otherwise indicated. Subsidiaries of subsidiaries are
indicated by indentations and unless otherwise indicated, all subsidiaries are
wholly owned. Inactive subsidiaries are denoted by an asterisk (*).
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
- ---- --------------- -------
<S> <C> <C>
AGC Life Insurance Company(5) Missouri Yes
American General Life and Accident Insurance Company(6) Tennessee Yes
American General Exchange, Inc. Tennessee No
Independent Fire Insurance Company Florida Yes
American General Property Insurance Company of Florida Florida Yes
Old Faithful General Agency, Inc. Texas No
Independent Life Insurance Company Georgia Yes
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
- ---- --------------- -------
<S> <C> <C>
American General Life Insurance Company(7) Texas Yes
American General Annuity Service Corporation Texas No
American General Life Insurance Company of New York New York Yes
The Winchester Agency Ltd. New York No
The Variable Annuity Life Insurance Company Texas Yes
The Variable Annuity Marketing Company Texas No
VALIC Investment Services Company Texas No
VALIC Retirement Services Company Texas No
VALIC Trust Company Texas No
Astro Acquisition Corp. Delaware No
The Franklin Life Insurance Company Illinois Yes
The American Franklin Life Insurance Company Illinois Yes
Franklin Financial Services Corporation Delaware No
HBC Development Corporation Virginia No
Allen Property Company Delaware No
Florida Westchase Corporation Delaware No
Hunter's Creek Communications Corporation Florida No
Westchase Development Corporation Delaware No
American General Capital Services, Inc. Delaware No
American General Corporation* Delaware No
American General Delaware Management Corporation(1) Delaware No
American General Finance, Inc. Indiana No
AGF Investment Corp. Indiana No
American General Auto Finance, Inc. Delaware No
American General Finance Corporation(8) Indiana No
American General Finance Group, Inc. Delaware No
American General Financial Services, Inc.(9) Delaware No
The National Life and Accident Insurance Company Texas Yes
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
- ---- --------------- -------
<S> <C> <C>
Merit Life Insurance Co. Indiana Yes
Yosemite Insurance Company California Yes
American General Finance, Inc. Alabama No
American General Financial Center Utah No
American General Financial Center, Inc.* Indiana No
American General Financial Center, Incorporated* Indiana No
American General Financial Center Thrift Company* California No
Thrift, Incorporated* Indiana No
American General Independent Producer Division Co. Delaware No
American General Investment Advisory Services, Inc.* Texas No
American General Investment Holding Corporation(10) Delaware No
American General Investment Management Corporation(10) Delaware No
American General Realty Advisors, Inc. Delaware No
American General Realty Investment Corporation Texas No
American General Mortgage Company Delaware No
GDI Holding, Inc.*(11) California No
Ontario Vineyard Corporation Delaware No
Pebble Creek Country Club Corporation Florida No
Pebble Creek Service Corporation Florida No
SR/HP/CM Corporation Texas No
American General Property Insurance Company Tennessee Yes
Bayou Property Company Delaware No
AGLL Corporation(12) Delaware No
American General Land Holding Company Delaware No
AG Land Associates, LLC(12) California No
Hunter's Creek Realty, Inc.* Florida No
Summit Realty Company, Inc. So. Carolina No
Florida GL Corporation Delaware No
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
- ---- --------------- -------
<S> <C> <C>
GPC Property Company Delaware No
Cinco Ranch East Development, Inc. Delaware No
Cinco Ranch West Development, Inc. Delaware No
Hickory Downs Development, Inc. Delaware No
Lake Houston Development, Inc. Delaware No
South Padre Development, Inc. Delaware No
Green Hills Corporation Delaware No
Knickerbocker Corporation Texas No
American Athletic Club, Inc. Texas No
Pavilions Corporation Delaware No
USLIFE Corporation New York No
All American Life Insurance Company Illinois Yes
1149 Investment Corp. Delaware No
American General Life Insurance Company of Pennsylvania Pennsylvania Yes
New D Corporation* Iowa No
The Old Line Life Insurance Company of America Wisconsin Yes
The United States Life Insurance Company in the City of New York New York Yes
USLIFE Advisers, Inc. New York No
USLIFE Agency Services, Inc. Illinois No
USLIFE Credit Life Insurance Company Illinois Yes
USLIFE Credit Life Insurance Company of Arizona Arizona Yes
USLIFE Indemnity Company Nebraska Yes
USLIFE Financial Corporation of Delaware* Delaware No
Midwest Holding Corporation Delaware No
I.C. Cal* Nebraska No
Midwest Property Management Co. Nebraska No
USLIFE Financial Institution Marketing Group, Inc. California No
USLIFE Insurance Services Corporation Texas No
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
- ---- --------------- -------
<S> <C> <C>
USLIFE Realty Corporation Texas No
405 Leasehold Operating Corporation New York No
405 Properties Corporation* New York No
USLIFE Real Estate Services Corporation Texas No
USLIFE Realty Corporation of Florida Florida No
USLIFE Systems Corporation Delaware No
</TABLE>
American General Finance Foundation, Inc. is not included on this list. It is a
non-profit corporation.
NOTES
(1) The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of each are
jointly owned by AGC and AGDMC and the business and affairs of each are
managed by AGDMC:
American General Capital, L.L.C.
American General Delaware, L.L.C.
(2) On November 26, 1996, American General Institutional Capital A ("AG Cap
Trust A"), a Delaware business trust, was created. On March 10, 1997,
American General Institutional Capital B ("AG Cap Trust B"), also a
Delaware business trust, was created. Both AG Cap Trust A's and AG Cap
Trust B's business and affairs are conducted through their trustees:
Bankers Trust Company and Bankers Trust (Delaware). Capital securities of
each are held by non-affiliated third party investors and common securities
of AG Cap Trust A and AG Cap Trust B are held by AGC.
(3) On November 14, 1997, American General Capital I, American General Capital
II, American General Capital III, and American General Capital IV
(collectively, the "Trusts"), all Delaware business trusts, were created.
Each of the Trusts' business and affairs are conducted through its
trustees: Bankers Trust (Delaware) and James L. Gleaves (not in his
individual capacity but solely as Trustee).
(4) On July 10, 1997, the following insurance subsidiaries of AGC became the
direct owners of the parenthetically indicated percentages of membership
units of SBIL B, L.L.C. ("SBIL B"), a U.S. limited liability company: VALIC
(22.6%), FL (8.1%), AGLA (4.8%) and AGL (4.8%).
Through its aggregate 40.3% interest in SBIL B, VALIC, FL, AGLA and AGL
indirectly own approximately 28% of the securities of SBI, an English
company, and 14% of the securities of ESBL, an English company, SBP, an
English company, and SBFL, a Cayman Islands company. These interests are
held for investment purposes only.
(5) On December 23, 1994, AGCL purchased approximately 40% of the shares of
common stock of Western National Corporation ("WNC"), Western National Life
Insurance Company's ("WNL") indirect intermediate parent. Therefore, WNL
became approximately 40% indirectly controlled by AGC. On September 30,
1996, AGC purchased 7,254,464 shares of WNC's Series A Participating
Convertible Preferred Stock (the "Convertible Preferred Stock"). On
November 30, 1996, AGC contributed the Convertible Preferred Stock to AGCL.
On May 14, 1997, WNC's shareholders approved the conversion of 7,254,464
shares of WNC's Series A Participating Convertible Preferred Stock held by
AGCL into an equal number of WNC common stock. Thus, at present, the
percentage of WNC common stock owned directly by AGCL (and indirectly by
AGC) is 46.2%. WNC, a Delaware corporation, owns the following companies:
C-7
<PAGE>
WNL Holding Corporation
Western National Life Insurance Company (TX)
Independent Advantage Financial & Insurance Services, Inc.
WNL Investment Advisory Services, Inc.
Conseco Annuity Guarantee Corp.
WNL Brokerage Services, Inc.
WNL Insurance Services, Inc.
However, AGCL (1) holds the direct interest in WNC (and the indirect
interests in WNC's subsidiaries) for investment purposes; (2) does not
direct the operations of WNC or WNL; (3) has no representatives on the
Board of Directors of WNC; and (4) is restricted, pursuant to a
Shareholder's Agreement between WNC and AGCL, in its right to vote its
shares against the slate of directors proposed by WNC's Board of Directors.
Accordingly, although WNC and its subsidiaries technically are members of
the American General insurance holding company system under insurance
holding company laws, AGCL does not direct the operations of WNC or its
subsidiaries.
(6) AGLA owns approximately 11% of Whirlpool Financial Corp. ("Whirlpool") on
a fully diluted basis. The total investment of AGLA in Whirlpool
represents approximately 3% of the voting power of the capital stock of
Whirlpool, but approximately 11% of the Whirlpool stock which has voting
rights. The interests in Whirlpool (which is a corporations that is not
associated with AGC) are held for investment purposes only.
(7) AGL owns 100% of the common stock of American General Securities
Incorporated ("AGSI"), a full-service NASD broker-dealer. AGSI, in turn,
owns 100% of the stock of the following insurance agencies:
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
In addition, the following agencies are indirectly related to AGSI, but not
owned or controlled by AGSI:
American General Insurance Agency of Ohio, Inc. (Ohio)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
AGSI and the foregoing agencies are not affiliates or subsidiaries of AGL
under applicable holding company laws, but they are part of the AGC group
of companies under other laws.
(8) American General Finance Corporation is the parent of an additional 48
wholly owned subsidiaries incorporated in 30 states and Puerto Rico for the
purpose of conducting its consumer finance operations, including those
noted in footnote 7 below.
(9) American General Financial Services, Inc. is the parent of an additional 7
wholly owned subsidiaries incorporated in 4 states and Puerto Rico for the
purpose of conducting its consumer finance operations.
(10) American General Investment Management, L.P. is jointly owned by AGIHC and
AGIMC. AGIHC holds a 99% limited partnership interest, and AGIMC owns a 1%
general partnership interest.
(11) AGRI owns only a 75% interest in GDI Holding, Inc.
(12) AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
Item 31. Number of Holders of Securities.
C-8
<PAGE>
As of February 20, 1998, the number of record holders of the sole class of
securities of Registrant was as indicated below:
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Holders
- --------------------------------------------------------------------------------
<S> <C>
Accumulation Units Under
Variable Annuity Contracts
</TABLE>
Item 32. Indemnification.
The information called for by this item has not changed from that provided
in Registrant's initial Registration Statement on Form N-1 (1933 Act File
No. 2-74459 and 1940 Act File No. 811-3289) filed with the Commission on
October 19, 1981, as amended by Amendment No. 1 filed with the Commission on
November 6, 1981 and Amendment No. 2 filed with the Commission on December 22,
1981.
Item 33. Business and Other Connections of Investment Adviser.
The Franklin Life Insurance Company ("The Franklin") is an Illinois legal
reserve stock life insurance company engaged in the writing of ordinary life
policies, annuities and income protection policies. The Franklin also acts as
investment adviser to Franklin Life Variable Annuity Fund A and Franklin Life
Variable Annuity Fund B. The business, profession, vocation or employment of a
substantial nature in which the directors and officers of The Franklin are or
have been, at any time during the past two fiscal years, engaged for their own
account or in the capacity of director, officer, employee, partner or trustee
are described below:
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
----------------------------------- ------------------------------------------------------------------------------------------
<S> <C>
Vickie J. Alton . . . . . . . . . . Vice President, The Franklin
Elizabeth E. Arthur . . . . . . . . Vice President, Associate General Counsel and Assistant Secretary, The Franklin
Earl W. Baucom. . . . . . . . . . . Treasurer, The Franklin, since June 30, 1997; Senior Vice President and Chief Financial
Officer, The Franklin, since June 10, 1996; Director, The Franklin, since August 21,
1996; Chief Financial Officer, Providian Direct Insurance, from October, 1993 to
December, 1995.
Robert M. Beuerlein . . . . . . . . Senior Vice President-Actuarial and Director, The Franklin
Mark R. Butler. . . . . . . . . . . Vice President, The Franklin
Philip D. Calderwood. . . . . . . . Vice President and Actuary, The Franklin
Eldon R. Canary . . . . . . . . . . Vice President - Actuarial, The Franklin
Brady W. Creel. . . . . . . . . . . Senior Vice President, Chief Marketing Officer and Director, The Franklin, since
September 3, 1996; Regional Manager, The Franklin, prior to September, 1996.
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
----------------------------------- ------------------------------------------------------------------------------------------
<S> <C>
Robert M. Devlin. . . . . . . . . . Senior Chairman, The Franklin, since September 5, 1997; Chairman of the Board, The
Franklin, from August 21, 1996 to September 5, 1997; Director, The Franklin, since
February, 1995; Senior Chairman, The Franklin, from February, 1995 to August, 1996;
Chief Executive Officer, American General Corporation, Houston, Texas, since
October 24, 1996; Chairman of the Board, American General Corporation, since
__________, 1997; Director, American General Corporation; President, American General
Corporation, from October, 1995 to October, 1996; Vice Chairman, American General
Corporation, prior to October, 1995.
Steve A. Dmytrack . . . . . . . . . Vice President, The Franklin, since August 24, 1995; Assistant Vice President, The
Franklin, prior thereto
Paul C. Ely . . . . . . . . . . . . Vice President, The Franklin
Barbara Fossum. . . . . . . . . . . Vice President, The Franklin, since June, 1995; Vice President, American General Life
Insurance Company, prior thereto.
Ross D. Friend. . . . . . . . . . . Senior Vice President and General Counsel, The Franklin,, since September 3, 1996;
Assistant Secretary, The Franklin, since November 13, 1997; Secretary, The Franklin,
from September 3, 1996 to November 13, 1997; Attorney-in-Charge, Prudential Life
Insurance Company, Jacksonville, Florida, from July, 1995 to September, 1996; Chief
Legal Officer, Confederation Life Insurance Company, Atlanta, Georgia, prior to July,
1995.
Jerry P. Jourdan. . . . . . . . . . Director of Information Services, The Franklin, since January 31, 1996; Assistant Vice
President, The Franklin, prior thereto
Darrell J. Malano . . . . . . . . . Vice President, The Franklin
Margaret L. Manola. . . . . . . . . Vice President, The Franklin
Thomas K. McCracken . . . . . . . . Vice President, The Franklin
Mark R. McGuire . . . . . . . . . . Vice President, The Franklin, since January 6, 1997; Consultant/Manager, American General
Life Insurance Company, Houston, Texas, prior to January, 1997.
Sylvia A. Miller. . . . . . . . . . Vice President, The Franklin
Cheryl E. Morton. . . . . . . . . . Vice President - Actuarial, The Franklin
Jon P. Newton . . . . . . . . . . . Director and Vice Chairman, The Franklin, since January 31, 1996; Vice Chairman and
General Counsel, American General Corporation, 2929 Allen Parkway, Houston, Texas 77019
since October 26, 1995; Senior Vice President and General Counsel, American General
Corporation, prior thereto
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
----------------------------------- ------------------------------------------------------------------------------------------
<S> <C>
James M. Quigley. . . . . . . . . . Vice President, The Franklin, since August 24, 1995.
Gary D. Reddick . . . . . . . . . . Director, The Franklin since February 22, 1995; Vice Chairman, The Franklin, since July 1,
1997; Executive Vice President, The Franklin, from February 22, 1995 to July 1, 1997;
Senior Vice President, American General Corporation, Houston, Texas prior to February,
1995.
Dale W. Sachtleben. . . . . . . . . Vice President, The Franklin
William A. Simpson. . . . . . . . . Chairman, Chief Executive Officer and President, The Franklin, since September 5, 1997;
President and Chief Executive Officer, The Old Line Life Insurance Company of America,
Milwaukee, Wisconsin, from May 1, 1990 to September 8, 1997; President-Life Insurance
Division, USLIFE Corporation, New York, New York, from February, 1996 to May, 1996;
President and Chief Executive Officer, USLIFE Corporation from January, 1995 to
February, 1996; Vice Chairman and Chief Executive Officer, All American Life Insurance
Company, Chicago, Illinois from October 25, 1994 to May 1, 1995; President and Chief
Executive Officer, All American Life Insurance Company, from April 16, 1990 to
October 25, 1994.
Robert G. Spencer . . . . . . . . . Vice President, The Franklin; prior to 1996, also Treasurer, The Franklin
T. Clayton Spires . . . . . . . . . Director, Corporate Tax, The Franklin, since February 3, 1997; Assistant Vice President
and Tax Manager, First Colony Life, Lynchburg, Virginia, prior to February, 1997.
Peter V. Tuters . . . . . . . . . . Director, Vice President and Chief Investment Officer, The Franklin since February 22,
1995; Senior Vice President since 1992 and Chief Investment Officer since December,
1993, American General Corporation, 2929 Allen Parkway, Houston, Texas 77019
J. Alan Vala. . . . . . . . . . . . Vice President and Agency Secretary, The Franklin
David G. Vanselow . . . . . . . . . Vice President, The Franklin
Cynthia P. Wieties. . . . . . . . . Director of Communications, The Franklin, since March 19, 1997; Assistant Vice President,
The Franklin, prior to March, 1997.
</TABLE>
Item 34. Principal Underwriters.
(a) Franklin Life Variable Annuity Fund A, Franklin Life Variable Annuity
Fund B, Separate Account VUL and Separate Account VUL-2 of The American Franklin
Life Insurance Company, which offer interests in flexible premium variable life
insurance policies, and Separate Account VA-1 of The American Franklin Life
Insurance Company, which offers interest in variable annuity contracts (The
American Franklin Life Insurance Company is a wholly-owned subsidiary of The
Franklin), are the only investment companies (other than Registrant) for which
Franklin Financial Services Corporation, the principal underwriter of
Registrant, also acts as principal underwriter, depositor, sponsor or investment
adviser.
C-11
<PAGE>
(b) Information required with respect to each director or officer of the
principal underwriter of Registrant is set forth below. Unless otherwise
indicated below, the principal business address of each individual is c/o The
Franklin Life Insurance Company, #1 Franklin Square, Springfield, Illinois
62713.
<TABLE>
<CAPTION>
(1) (2) (3)
Name Positions and Offices with Positions and Offices
Underwriter with Registrant
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elizabeth E. Arthur Assistant Secretary Secretary to the Board of Managers
Bruce R. Baker Assistant Vice President and None
665 North Newbridge Road Marketing Officer
Levitttown, NY 11756
Earl W. Baucom Treasurer and Director None
Robert M. Beuerlein Senior Vice President None
Tony Carter Vice President None
2900 Greenbrier Drive
Springfield, IL 62704
Peter Dawson Assistant Vice President and None
665 North Newbridge Road Marketing Officer
Levittown, NY 11756
Ross D. Friend Director, Vice President None
and Secretary
James L. Gleaves Assistant Treasurer None
2929 Allen Parkway
Houston, TX 77019
Karen Kunz Chief Financial Officer and None
Director of Compliance
and Administration
Deanna Osmonson Vice President None
and Assistant Secretary
Gary D. Osmonson President and Director None
Gary D. Reddick Vice Chairman and None
Director
William A. Simpson Chairman of the Board None
Dan E. Trudan Vice President and Assistant None
Secretary
</TABLE>
(c) Information regarding commissions and other compensation received by
each principal underwriter, directly or indirectly, from Registrant during 1997,
Registrant's last fiscal year, is set forth below:
C-12
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage Other
Underwriters Commissions or Annuitization Commissions Compensation
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Franklin Financial
Services Corporation -0- -0- -0- -0-
</TABLE>
Item 35. Location of Accounts and Records.
The information called for by this item has not changed from that provided
in Registrant's initial Registration Statement on Form N-1 (1933 Act File No. 2-
74459 and 1940 Act File No. 811-3289) filed with the Commission on October 19,
1981, as amended by Amendment No. 1 filed with the Commission on November 6,
1981 and Amendment No. 2 filed with the Commission on December 22, 1981.
Item 36. Management Services.
Registrant has no management-related service contract not discussed in Part
A or Part B hereof.
Item 37. Undertakings and Representations.
(b) The Registrant hereby undertakes to file a post-effective amendment to
this Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the Contracts may be accepted.
(c) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that the
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information.
(d) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-3 promptly upon written or oral request.
(e) The Registrant is relying upon the "no-action" letter of the Securities
and Exchange Commission dated November 28, 1988 in response to the American
Council of Life Insurance with respect to restrictions on withdrawal of amounts
from Contracts issued in connection with annuity purchase plans meeting the
requirements of Internal Revenue Code Section 403(b), which amounts are
attributable to contributions made on or after January 1, 1989 pursuant to a
salary reduction agreement or to income earned on or after January 1, 1989 with
respect to contributions made pursuant to a salary reduction agreement. The
Registrant represents that it has complied with the requirement of numbered
paragraphs (1) through (4) of such "no-action" letter.
(f) The Franklin Life Insurance Company hereby represents that the fees and
charges deducted under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by The Franklin Life Insurance Company.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 ("1933 Act") and
the Investment Company Act of 1940 ("1940 Act"), Franklin Life Money Market
Variable Annuity Fund C has duly caused this Post-Effective Amendment to the
Registration Statement under the 1933 Act and this Amendment to the Registration
Statement under the 1940 Act to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Springfield, and State of Illinois, on
the 23rd day of February, 1998.
FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C
By /s/ Elizabeth E. Arthur
------------------------------------------------
(Elizabeth E. Arthur, Secretary, Board of Managers)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Clifford L. Greenwalt* Member, Board February 23, 1998
- ------------------------------------------ of Managers
(Clifford L. Greenwalt)
/s/ Robert C. Spencer* Member, Board February 23, 1998
- ------------------------------------------ of Managers
(Robert C. Spencer)
/s/ Robert G. Spencer* Chairman, Board February 23, 1998
- ------------------------------------------ of Managers
(Robert G. Spencer)
/s/ James W. Voth* Member, Board February 23, 1998
- ------------------------------------------ of Managers
(James W. Voth)
/s/ Elizabeth E. Arthur Secretary, Board February 23, 1998
- ------------------------------------------ of Managers
(Elizabeth E. Arthur)
/s/ Elizabeth E. Arthur
- ------------------------------------------
* By Elizabeth E. Arthur, Attorney-in-Fact
</TABLE>
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 ("1933 Act") and
the Investment Company Act of 1940 ("1940 Act"), The Franklin Life Insurance
Company has duly caused this Post-Effective Amendment to the Registration
Statement under the 1933 Act and this Amendment to the Registration Statement
under the 1940 Act to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Springfield, and State of Illinois, on the 23rd day
of February, 1998.
THE FRANKLIN LIFE INSURANCE COMPANY
By /s/ William A. Simpson
-------------------------------------------
(William A. Simpson, Chairman, Chief Executive
Officer, and President)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Earl W. Baucom* Senior Vice President, Chief February 23, 1998
- ------------------------------------------ Financial Officer and Treasurer
(Earl W. Baucom) (principal financial officer and
principal accounting officer)
and Director
/s/ Robert M. Beuerlein* Senior Vice President- February 23, 1998
- ------------------------------------------ Actuarial and Director
(Robert M. Beuerlein)
/s/ Brady W. Creel* Senior Vice President, February 23, 1998
- ------------------------------------------ Chief Marketing Officer and Director
(Brady W. Creel)
Director ____________, 1998
- ------------------------------------------
(James S. D'Agostino)
Director ____________, 1998
- ------------------------------------------
(Robert M. Devlin)
Director ____________, 1998
- ------------------------------------------
(Rodney O. Martin, Jr.)
Director ____________, 1998
- ------------------------------------------
(Jon P. Newton)
/s/ Gary D. Reddick* Vice Chairman and Director February 23, 1998
- ------------------------------------------
(Gary D. Reddick)
/s/ William A. Simpson* President and Director February 23, 1998
- ------------------------------------------ (principal executive officer)
(William A. Simpson)
/s/ Peter V. Tuters* Vice President, Chief Investment February 23, 1998
- ------------------------------------------ Officer and Director
(Peter V. Tuters)
/s/ Elizabeth E. Arthur
- ------------------------------------------
* By Elizabeth E. Arthur, Attorney-in-Fact
</TABLE>
C-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C> <C>
1 - Resolution of The Franklin Life Insurance Company's
Board of Directors creating Franklin Life Money Market
Variable Annuity Fund C is incorporated herein by
reference to Exhibit 1 of Registrant's Registration
Statement on Form N-1, filed October 15, 1981 (File
No. 2-74459).
2 - Rules and Regulations adopted by Registrant, as
amended, are incorporated herein by reference to
Exhibit 2 of Registrant's Registration Statement
Amendment No. 2 on Form N-1, filed December 18, 1981
(File No. 2-74459).
3 - Custodian Agreement dated April 17, 1995 between The
Franklin Life Insurance Company and State Street Bank
and Trust Company is incorporated herein by reference
to Exhibit 3 to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-3, filed
April 30, 1996.
4 - Investment Management Agreement dated January 31, 1995
between Registrant and The Franklin Life Insurance
Company is incorporated herein by reference to Exhibit
4 of Registrant's Post-Effective Amendment No. 19 on
Form N-3, filed March 2, 1995.
5 (a) - Sales Agreement dated January 31, 1995 between
Registrant and Franklin Financial Services Corporation
is incorporated herein by reference to Exhibit 5(a) of
Registrant's Post-Effective Amendment No. 19 on Form
N-3, filed March 2, 1995.
(b) - Form of Agreement to be entered into among The
Franklin Life Insurance Company, Franklin Financial
Services, and agents is incorporated herein by
reference to Exhibit 6(b) of Registrant's Registration
Statement Amendment No. 2 on Form N-1, filed December
18, 1981 (File No. 2-74459).
6 (a) - Amended specimen copy of Form 1175, periodic payment
deferred variable annuity contract, is incorporated
herein by reference to Exhibit 4(a) of Registrant's
Registration Statement Amendment No. 2 on Form N-1,
filed December 18, 1981 (File No. 2-74459).
(b) - Amended specimen copy of Form 1176, single payment
deferred variable annuity contract, is incorporated
herein by reference to Exhibit 4(b) of Registrant's
Registration Statement Amendment No. 2 on Form N-1,
filed December 18, 1981 (File No. 2-74459).
(c) - Specimen of copy of Form 1177, single payment
immediate life variable annuity contract, is
incorporated herein by reference to Exhibit 4(c) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(d) - Specimen copy of Form 1178, single payment immediate
life variable annuity contract with guaranteed period,
is incorporated herein by reference to Exhibit 4(d) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(e) - Specimen copy of Form 1179, single payment immediate
joint and last survivor life variable annuity
contract, is incorporated herein by reference to
Exhibit 4(e) of Registrant's Registration Statement on
Form N-1, filed October 15, 1981 (File No. 2-74459).
(f) - Specimen copy of Form 4840, "Endorsement to Make
Contract Nontransferable," attached as endorsement to
Forms 1175, 1176, 1177, 1178 and 1179, is incorporated
herein by reference to Exhibit 4(f) of Registrant's
Registration Statement on Form N-1, filed October 15,
1981 (File No. 2-74459).
(g) - Specimen copy of Form 6012, "Waiver of Stipulated
Payment Disability Benefit," for use as endorsement to
Form 1175, is incorporated herein by reference to
Exhibit 4(g) of Registrant's Registration Statement on
Form N-1, filed October 15, 1981 (File No. 2-74459).
<PAGE>
6 (h) - Specimen copy of Form 6275-A, "Variable Annuity
Endorsement," attached as endorsement to Forms 1175,
1176, 1177, 1178 and 1179 when such contracts are
issued to variable annuitants in the State of Texas,
is incorporated herein by reference to Exhibit 4(h) of
Registrant's Registration Statement on Form N-1, filed
October 15, 1981 (File No. 2-74459).
(i) - Specimen copy of Form 6296, "Amendments to this
Contract," attached as endorsement to Forms 1175,
1176, 1177, 1178 and 1179 when such contracts are
issued to variable annuitants in the State of New
Jersey, is incorporated herein by reference to Exhibit
4(i) of Registrant's Registration Statement on Form N-
1, filed October 15, 1981 (File No. 2-74459).
(j) - Specimen copy of endorsement to Forms 1175, 1176,
1177, 1178 and 1179 when such contracts are issued to
variable annuitants in the State of Texas is
incorporated herein by reference to Exhibit 6 (j) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-3, filed March 1,
1990 (File No. 2-74459).
7 - The applications for Forms 1175, 1176, 1177, 1178 and
1179 set forth in Exhibit 6 are included as parts of
the respective contract forms.
8 (a) - Certificate of Incorporation of The Franklin Life
Insurance Company is incorporated herein by reference
to Exhibit 8(a) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-3, filed
March 1, 1990 (File No. 2-74459).
(b) - By-Laws of The Franklin Life Insurance Company are
incorporated herein by reference to Exhibit 8(b) to
Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-3, filed April 30,
1997 (File No. 2-74459).
9 - Not applicable.
10 - Not applicable.
11(a) - Administration Agreement dated December 3, 1981
between The Franklin Life Insurance Company and
Franklin Financial Services Corporation is hereby
incorporated by reference to Exhibit 9(a) of
Registrant's Registration Statement Amendment No. 2 on
Form N-1, filed December 18, 1981 (File No. 2-74459).
(b) - Agreement dated December 3, 1981 between The Franklin
Life Insurance Company and Franklin Financial Services
Corporation is incorporated herein by reference to
Exhibit 9(b) of Registrant's Registration Statement
Amendment No. 2 on Form N-1, filed December 18, 1981
(File No. 2-74459).
12 - Opinion and consent dated April 2, 1986 of Stephen P.
Horvat, Jr., Esq., Senior Vice President, General
Counsel and Secretary of The Franklin Life Insurance
Company is incorporated herein by reference to Exhibit
10(b) of Registrant's Post-Effective Amendment No. 8
of Form N-1, filed April 29, 1986 (File No. 2-74459).
13(a) - List of Consents Pursuant to Rule 483(c). (To be
filed by amendment.)
(b) - Consent of Ernst & Young LLP, Independent Auditors.
(To be filed by amendment.)
(c) - Consent of Coopers & Lybrand L.L.P., Independent
Accountants. (To be filed by amendment.)
(d) - Consent of Sutherland, Asbill & Brennan LLP (To be
filed by amendment.)
14 - Not applicable.
<PAGE>
15 - Contribution Agreement dated as of October 30, 1981
between Registrant and The Franklin Life Insurance
Company is incorporated herein by reference to Exhibit
13 of Registrant's Registration Statement Amendment
No. 2 on Form N-1, filed December 18, 1981 (File No.
2-74459).
16 - Computation of performance data set forth under "Yield
Information" in the Prospectus (unaudited). (To be
filed by amendment.)
17 - Power of Attorney.
27 - Financial Data Schedule meeting the requirements of
Rule 483. (To be filed by amendment.)
</TABLE>
<PAGE>
EXHIBIT 17
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated opposite their
respective names below, hereby constitute and appoint ROSS D. FRIEND and
ELIZABETH E. ARTHUR, and each of them, singularly, attorneys-in-fact of the
undersigned with full power to each of them to sign for and in the name of the
undersigned in the capacities indicated below (a) Post-Effective Amendment No.
23 to the Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), and Amendment No. 21 to the Registration Statement under the
Investment Company Act of 1940, as amended (the "1940 Act"), on Form N-3 (1933
Act File No. 2-74459 and 1940 Act File No. 811-3289) of Franklin Life Money
Market Variable Annuity Fund C of The Franklin Life Insurance Company ("The
Franklin") and (b) any and all amendments (including further Post-Effective
Amendments and Amendments) thereto, and to give any certification which may be
required in connection therewith pursuant to Rule 485 under the 1933 Act.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Elizabeth E. Arthur
- ----------------------------
Elizabeth E. Arthur Secretary, Board of Managers of the Fund February 13, 1998
/s/ Earl W. Baucom
- ----------------------------
Earl W. Baucom Senior Vice President, Chief Financial January 13, 1998
Officer, Treasurer (principal financial
officer and principal accounting officer)
and Director of The Franklin
/s/ Robert M. Beuerlein
- ----------------------------
Robert M. Beuerlein Senior Vice President - Actuarial and Director of January 14, 1998
The Franklin
/s/ Brady W. Creel
- ----------------------------
Brady W. Creel Senior Vice President and Chief Marketing Officer January 14, 1998
and Director of The Franklin
- ----------------------------
James S. D'Agostino Vice Chairman and Director of The Franklin ________, 1998
- ----------------------------
Robert M. Devlin Senior Chairman and Director of The Franklin ________, 1998
/s/ Ross D. Friend
- ----------------------------
Ross D. Friend Senior Vice President, General Counsel and January 19, 1998
Assistant Secretary of The Franklin
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Clifford L. Greenwalt Member, Board of Managers of the Fund January 22, 1998
- ----------------------------
Clifford L. Greenwalt
- ----------------------------
Rodney O. Martin, Jr. Director of The Franklin ________, 1998
- ----------------------------
Jon P. Newton Vice Chairman and Director of The Franklin ________, 1998
/s/ Gary D. Reddick
- ----------------------------
Gary D. Reddick Vice Chairman and Director of The Franklin January 23, 1998
/s/ William A. Simpson
- ----------------------------
William A. Simpson Chairman of the Board, Chief Executive Officer and January 19, 1998
President (principal executive officer) of The
Franklin
/s/ Robert C. Spencer
- ----------------------------
Robert C. Spencer Member, Board of Managers of the Fund January 19, 1998
/s/ Robert G. Spencer
- ----------------------------
Robert G. Spencer Chairman, Board of Managers of the Fund January 19, 1998
/s/ Peter V. Tuters
- ----------------------------
Peter V. Tuters Vice President, Chief Investment Officer and February 9, 1998
Director of The Franklin
/s/ James W. Voth
- ----------------------------
James W. Voth Member, Board of Managers of the Fund January 19, 1998
</TABLE>
2
