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[LOGO]
THE FRANKLIN
LIFE INSURANCE COMPANY
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-AN AMERICAN GENERAL COMPANY
#1 FRANKLIN SQUARE, SPRINGFIELD, ILLINOIS 62713-0001
Dear Contract Owner:
We are pleased to provide this unaudited report for the six-month period ended
June 30, 1998, which shows the status of and balances in your Franklin Life
Money Market Variable Annuity Fund C contract.
The gain in the accumulation unit value of the Fund since year end 1997 was as
follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Accumulation Unit Value $24.17 $23.73 23.28
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------ ------ -----
Percentage Change From:
December 31, 1997 +3.70%*
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June 30, 1997 +3.84%
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------
</TABLE>
*This represents the annualized percentage increase figure of 1.85% from
December 31, 1997 to June 30, 1998.
As we have pointed out in past reports, the annual increase figure should not be
compared with fully taxable money market fund rates. Your annuity contract
shelters this income from Federal income taxes prior to your annuity starting
date so long as your money remains with the Fund. Also, your contract provides
that Franklin Life assumes the risk that administrative deductions may be
insufficient to cover actual administrative expenses.
The United States economy continued to expand at an above average rate through
the first quarter of 1998, as measured by the Gross Domestic Product. The Gross
Domestic Product increased 3.8% in 1997 and 5.4% in the first quarter of 1998.
The economy is expected to slow from the pace of the last six quarters to a more
normal growth rate of 2.0% to 2.5% for the second quarter and balance of 1998.
Employment has continued to expand, with the unemployment rate dropping to 4.3%
in May and back up to 4.5% in June. Inflation, as measured by the Gross
Domestic Product deflator, was up 1.7% in 1997, and for the first three months
of 1998 inflation increased at an annual rate of 1.1%. The Consumer Price Index
increased by 1.7% in 1997, the lowest increase since 1986, but 1998 so far is
showing a modest increase from that low level. The May Consumer Price Index
increased 0.3%, the largest gain in 17 months. The June increase was just
announced at +0.1%, down from May, benefiting from lower energy prices and the
lower Asian currencies which reduced import prices. The Producers Price Index
increased 0.2% in April and May after recording five straight months of
declining prices. The Producers Price Index is currently showing a decline of
0.9% from May 1997 to May 1998.
The Federal Reserve Board has held the Federal Funds rate at 5.50% since March
25, 1997. Short- term rates have held steady through the first half of 1998,
with commercial paper around 5.50% and three month Treasury Bills declining from
around 5-3/8% at the end of 1997 to near 5% at the end of June. Intermediate
and long term Treasury issues also show a similar decline in rates. Short term
interest rates are expected to remain steady for the next several months.
Franklin Life Money Market Variable Annuity Fund C, like other money market
funds, offers preservation of capital, liquidity and a return that reflects
prevailing short-term interest rates. In today's interest rate environment, you
may want to take some extra time and review what role this product should play
in your retirement financial planning. Franklin Life and your registered
representative would appreciate the opportunity to discuss with you this and
other products which will help you find financial security.
Cordially yours,
/s/ William A. Simpson
William A. Simpson
Chairman and Chief Executive Officer
1
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments-at amortized cost which approximates fair value
Corporate short-term notes $ 844,003
U.S. Government short-term note 818,917
------------
1,662,920
Cash on deposit 36,005
Interest receivable 4,013
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Total Assets 1,702,938
Liability-due to The Franklin Life Insurance Company 3,779
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Contract owners' equity
Value of 70,287.681 accumulation units outstanding,
equivalent to $24.17434273 per unit $ 1,699,159
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STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Investment Income-Interest $ 45,386
Expenses
Mortality and expense charges $ 9,382
Investment management services 3,302
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Total expenses 12,684
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Net investment income $ 32,702
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STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEAR
30, 1998 ENDED DECEMBER 31,
(UNAUDITED) 1997
-------------------------------------------------
<S> <C> <C>
Net investment income $ 32,702 $ 73,170
Net contract purchase payments 13,016 28,598
Reimbursement for contract guarantees - 227
Withdrawals (267,349) (177,568)
Administrative expense charges (309) (1,512)
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Net decrease in contract owners' equity (221,940) (77,085)
Contract owners' equity at beginning of period 1,921,099 1,998,184
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Contract owners' equity at end of period $ 1,699,159 $ 1,921,099
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CARRYING
AMOUNT VALUE
--------- --------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES
(49.67%)
AUTOMOTIVE (14.90%)
$85,000 Ford Motor Credit Corporation
5.50%, due 7/9/98 $84,364
85,000 General Motors Acceptance
Corporation, 5.49%, due 7/9/98 84,430
85,000 Chrysler Financial Corporation
5.45%, due 7/16/98 84,459
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253,253
FINANCE COMPANIES - CONSUMER (14.90%)
85,000 Associates Corporation of North America
5.51%, due 8/4/98 84,362
85,000 Household Finance Corporation
5.48%, due 7/21/98 84,456
85,000 Norwest Financial, Inc.
5.50%, due 7/7/98 84,364
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253,182
FINANCIAL SAVINGS & SERVICE (4.97%)
85,000 American Express Credit Corporation
5.52%, due 7/14/98 84,453
<CAPTION>
PRINCIPAL CARRYING
AMOUNT VALUE
--------- --------
<S> <C> <C>
MACHINERY - INDUSTRIAL & CONSTRUCTION
(4.97%)
$85,000 John Deere Capital Corporation
5.50%, due 7/28/98 $84,390
OILS & OIL RELATED PRODUCTS (4.96%)
85,000 Chevron USA, Inc.
5.49%, due 8/6/98 84,352
RETAIL (4.97%)
85,000 Sears Roebuck Acceptance
Corporation 5.53%, due
8/5/98 84,373
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TOTAL CORPORATE SHORT-TERM
NOTES (COST-$844,003) 844,003
U.S. GOVERNMENT SHORT-TERM NOTE
(48.20%)
$825,000 United States Treasury Bill
4.74%, due 8/20/98 (cost-$818,917) 818,917
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TOTAL INVESTMENTS (97.87%)
(COST-$1,662,920) 1,662,920
CASH AND RECEIVABLE, LESS LIABILITY (2.13%)
36,239
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TOTAL CONTRACT OWNERS' EQUITY (100%) $1,699,159
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF FRANKLIN LIFE MONEY MARKET
VARIABLE ANNUITY FUND C CONTRACT OWNERS. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
3
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
NOTES TO FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Franklin Life Money Market Variable Annuity Fund C (the Fund) is a segregated
investment account of The Franklin Life Insurance Company (The Franklin) and is
registered as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended. The Fund no longer issues new
contracts. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS: Securities with remaining maturities of 60 days or
less are valued at amortized cost, which is equivalent to fair value.
Securities purchased with more than 60 days to maturity are valued at fair value
until the 61st day prior to maturity. Thereafter, any discount or premium from
that fair value to maturity value is recognized by constant, proportionate
amortization until maturity.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis.
FEDERAL INCOME TAXES: Operations of the Fund will form a part of, and be taxed
with those of, The Franklin which is taxed as a "life insurance company" under
the Internal Revenue Code. Under current law, no federal income taxes are
payable with respect to the Fund.
NOTE B-EXPENSES
Amounts are paid to The Franklin for investment management services at the rate
of .001027% of the current value of the Fund per day (.375% on an annual basis)
and for mortality and expense risk assurances at the rate of .002918% of the
current value of the Fund per day (1.065% on an annual basis). The investment
management service charge and the mortality and expense risk charge may be
increased to maximum rates, on an annual basis, of .500% and 1.750%,
respectively.
Certain other deductions are made from the Fund and paid to The Franklin
including administrative fees and contingent deferred sales charges on certain
amounts withdrawn. These deductions are more fully described in the Fund's
prospectus.
NOTE C-SUMMARY OF CHANGES IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------------------------------------------------
Units Amount Units Amount
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
beginning of
period 80,944 $1,921,099 87,386 $1,998,184
Purchases 544 13,016 1,238 28,598
Net
investment
income - 32,702 - 73,170
Withdrawals (11,182) (267,349) (7,651) (177,568)
Reimbursement
for contract
guarantees - - - 227
Administrative
expense
charges (18) (309) (29) (1,512)
----------------------------------------------------
Balance at end
of period 70,288 $1,699,159 80,944 $1,921,099
----------------------------------------------------
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</TABLE>
NOTE D-REMUNERATION OF MANAGEMENT
No person receives any remuneration from the Fund because The Franklin pays the
fees of members of the Board of Managers and officers and employees of the Fund
pursuant to expense assurances. Certain members of the Board of Managers and
officers of the Fund are also directors, officers or employees of The Franklin
or Franklin Financial Services Corporation. Amounts paid by the Fund to The
Franklin and to Franklin Financial Services Corporation are disclosed in this
report.
4
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FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C
SUPPLEMENTARY INFORMATION
PER-UNIT INCOME AND CHANGES IN ACCUMULATION UNIT VALUE
(SELECTED DATA AND RATIOS FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1998 -------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Investment income $.611 $1.204 $1.162 $1.203 $.846
Expenses .171 .336 .326 .309 .303
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Net investment income .440 .868 .836 .894 .543
Accumulation unit value:
Beginning of period 23.734 22.866 22.030 21.136 20.593
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End of period $24.174 $23.734 $22.866 $22.030 $21.136
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Ratio of expenses to average net assets (annualized) 1.44% 1.44% 1.44% 1.44% 1.44%
Ratio of net investment income to average net assets
(annualized) 3.70% 3.73% 3.71% 4.17% 2.58%
Number of accumulation units outstanding at end of period
(annualized) 70,288 80,944 87,386 104,641 132,646
</TABLE>
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MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS
An annual meeting of Contract Owners of the Fund was held on April 20, 1998. At
the meeting, the individuals named below were elected as Members of the Board of
Managers of the Fund, and Ernst & Young LLP was ratified as the Fund's
independent auditors for the ensuing fiscal year. The number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if applicable, as to each matter is set forth in the table below.
<TABLE>
<CAPTION>
Matter Votes:
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For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Election of
Robert G. Spencer as
Member, Board of Managers 26,443 1,459 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 26,443 1,459 0
Election of
James W. Voth as
Member, Board of Managers 26,443 1,459 0
Election of
Clifford L. Greenwalt as
Member, Board of Managers 26,443 1,459 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 26,387 573 942
</TABLE>
5
