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[Logo of The Franklin Life Insurance Company]
Dear Contract Owner:
We are pleased to provide this report for the six-month period ended June 30,
1997, which shows the status of and balances in your Franklin Life Variable
Annuity Fund B contract.
FUND POSITION
June 30, December 31, June 30,
1997 1996 1996
-------- ------------ --------
VARIABLE PORTION:
Accumulation Unit Value $100.21 $86.88 $80.05
Percentage Change From:
June 30, 1996 +25.2%
December 31, 1996 +15.3%
The accumulation unit value is based on the market price of the investments held
by the Fund. A listing of the investments held at June 30, 1997 appears on page
3.
FIXED PORTION:
If your contract anniversary was in the first half of 1997, additional
units in the fixed rate portion of your annuity arising from contributions
credited during the contract year ending in 1997 were based on a 6.25%
interest rate, less a contract expense charge. This rate is expected to
apply to contracts with anniversaries in the second half of 1997, as well.
Amounts selected for investment in the fixed rather than the variable
portion of your annuity do not participate in the investment experience of
the Fund. Contract units resulting from interest added or contributions
made prior to the contract year ending in 1997 continue to be credited with
additional interest based on investment yields which reflect the years
during which such units were purchased. Crediting rates are not guaranteed
for future years.
The U.S. economy closed out 1996 on a very positive note, with fourth quarter
Gross Domestic Product (GDP) up 3.8%. The growth continued into 1997, with
first quarter GDP up 5.9%. GDP in the second quarter of 1997 is expected to
show growth of 2.0% to 2.5%, with growth in the last half of the year in the
area of 2.5% to 3.0%. The unemployment rate dropped from 5.3% in December 1996
to 5.0% in June 1997, with the May unemployment rate reaching 4.8%. The Federal
Reserve Board raised the Federal Funds Rate at its March 25, 1997 meeting by 25
basis points to 5.50% but left the short-term interest rate unchanged in its May
and July meetings. The increase was the first change since it lowered rates in
January 1996 by 25 basis points. The stock market declined in March and April,
losing all of its earlier year to date gains but rebounded in May and June to
record levels. The Standard & Poor's 500 Index was up 19.5% in the first half
of the year.
Inflation as measured by the Gross Domestic Product deflator was up 1.9% in
1996, with the first quarter of 1997 up 1.5%. The consumer price index
increased 3.3% in 1996, with the first quarter of 1997 up 1.4%. The Producers
Price Index, a measure of inflation at the wholesale level, declined again in
June for the sixth month in a row. The six months of decline is a record number
of declines for this index since the index was started in 1947. Inflation isn't
a concern to the economy at the present time. Corporate profits remain at a
good level, translating into increased earnings per share. The strong flow of
new money going into equity mutual funds, along with the earnings and inflation
reports, continues to push the stock market into record territory. The stock
market needs to pause in light of the current price/earnings multiple and the
high price/book value ratio. While a market correction is possible, it isn't
expected to be a lengthy correction.
In today's fast-paced world, products, markets, client's needs, and individual
risk tolerance all change. In this environment, you may want to take some extra
time and review how well this product continues to meet your retirement
investment objectives. A Franklin Life representative would be happy to review
your financial situation with you and suggest the most appropriate mix of
products to provide financial security consistent with your risk tolerance.
Cordially yours,
Robert J. Gibbons
President
and Chief Executive Officer
1
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND B
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments-at fair value (cost-$963,101)
Common stocks $1,483,599
Short-term notes 233,664
-----------
1,717,263
Cash on deposit 73,537
Dividends and interest receivable 4,207
-----------
Total Assets 1,795,007
Liability - due to The Franklin Life Insurance Company 482
-----------
Contract owners' equity
Value of 17,907.278 accumulation units outstanding,
equivalent to $100.21203344 per unit $1,794,525
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends $ 13,323
Interest 4,930
---------
Total income $ 18,254
Expenses:
Investment management services 3,635
Mortality and expense charges 8,316
Miscellaneous expense 1
---------
Total expenses 11,952
---------
Net investment income 6,302
Realized and unrealized gain on
investments:
Net realized gain from investment transactions
(excluding short-term investments):
Proceeds from sales $111,555
Cost of investments sold
(identified cost method) 91,991
---------
Net realized gain 19,564
Net unrealized appreciation of investments:
Beginning of period $537,316
End of period 754,162
---------
Net unrealized appreciation 216,846
---------
Net gain on investments 236,410
---------
Net increase in contract owners'
equity resulting from operations $ 242,712
---------
---------
</TABLE>
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Year
ended ended
June 30, 1997 December 31, 1996
------------------------------------
<S> <C> <C>
Net investment income: $ 6,302 $ 11,760
Net realized gain from investment transactions 19,564 38,924
Net unrealized appreciation of investments 216,846 219,574
------------------------------------
Net increase in contract owners'
equity resulting from operations operations 242,712 270,258
Net contract purchase payments 5,496 10,053
Reimbursement (payment) for contract guarantees 1,539 (139)
Annuity payments 0 0
Withdrawals (75,292) (197,732)
------------------------------------
Net increase in contract owners' equity 174,455 82,440
Contract owners' equity at beginning of period 1,620,070 1,537,630
------------------------------------
Contract owners' equity at end of period $1,794,525 $1,620,070
------------------------------------
------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND B
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
NUMBER
OF FAIR
SHARES VALUE
- ------ -----
COMMON STOCKS (82.67%)
AEROSPACE/AVIATION (4.65%)
900 Boeing Company $ 47,756
700 Raytheon Company 35,700
----------
83,456
BANKING (4.95%)
700 Student Loan Marketing Association 88,900
BEVERAGES (1.26%)
600 PepsiCo, Incorporated 22,538
BUSINESS SERVICES (1.87%)
900 Equifax Inc. 33,469
CHEMICALS (1.94%)
400 Dow Chemical 34,750
COMPUTER SERVICES (3.06%)
1,300 Ceridian Corporation* 54,925
COSMETICS & HOUSEHOLD PRODUCTS (3.70%)
700 Gillette Company 66,325
DRUG & HEALTH CARE (20.33%)
1,000 Eli Lilly and Company 109,313
675 Merck & Company, Inc. 69,061
300 Pfizer, Incorporated 35,850
1,800 Schering-Plough Corporation 86,175
1,200 Walgreen Company 64,350
----------
364,749
ELECTRONICS & INSTRUMENTATIONS (2.81%)
900 Hewlett-Packard Company 50,400
FOOD - RETAIL (3.15%)
1,550 Albertson's, Incorporated 56,575
FOOD - WHOLESALE (1.42%)
700 Sysco Corporation 25,550
MACHINERY - INDUSTRIAL & CONSTRUCTION (1.23%)
400 Fluor Corporation 22,075
OFFICE EQUIPMENT & SERVICES (9.14%)
300 Compaq Computers Corporation* 29,850
700 International Business Machines
Corporation 63,175
900 Xerox Corporation 70,987
----------
164,012
OILS & OIL RELATED PRODUCTS (7.37%)
250 Amoco Corporation $ 21,734
1,150 British Petroleum Company, p.l.c. 86,106
600 Enron Corporation 24,488
----------
132,328
PACKAGING - CONTAINERS (1.78%)
800 Avery-Dennison Corporation 32,100
PHOTOGRAPHY (1.07%)
250 Eastman Kodak Company 19,188
RESTAURANTS/LODGING (4.50%)
1,000 Marriott International, Inc. 61,375
400 McDonald's Corporation 19,325
----------
80,700
TECHNOLOGY (5.86%)
700 AMP, Incorporated 29,225
675 Diebold, Incorporated 26,325
350 Intel Corporation 49,634
----------
105,184
UTILITIES - TELEPHONE (2.58%)
1,000 BellSouth Corporation 46,375
----------
TOTAL COMMON STOCKS
(COST-$729,436) 1,483,599
----------
PRINCIPAL
AMOUNT SHORT-TERM NOTES (13.02%)
- ---------
$150,000 United States Treasury Bill
4.79%, due 7/3/97 (cost-$148,882) 148,882
$ 85,000 United States Treasury Bill
4.40%, due 7/3/97 (cost-$84,782)
84,782
----------
TOTAL SHORT-TERM NOTES 233,664
----------
TOTAL INVESTMENTS (95.69%) 1,717,263
(COST -$963,100)
CASH AND RECEIVABLES, LESS
LIABILITY (4.31%) 77,262
----------
TOTAL CONTRACT OWNERS'
EQUITY (100.0%) $1,794,525
----------
----------
*Non-income producing investment during the six-month period ending June 30,
1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF FRANKLIN LIFE VARIABLE
ANNUITY FUND B 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 VARIABLE ANNUITY FUND B
NOTES TO FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Franklin Life Variable Annuity Fund B (Fund) is a segregated investment account
of The Franklin Life Insurance Company (The Franklin) and is registered as an
open-end diversified management investment company under the Investment Company
Act of 1940, as amended. The Fund no longer issues new contracts. Significant
accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS: Investments in common stocks listed on national stock
exchanges are valued at closing sales prices. Unlisted common stocks are valued
at the most recent bid prices, as supplied by broker-dealers. Short-term notes
are valued at cost, which approximates fair value.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
FEDERAL INCOME TAXES: Operations of the Fund will form a part of, and be taxed
with those of, The Franklin, which is taxed as a "life insurance company" under
the Internal Revenue Code. Under current law, no federal income taxes are
payable with respect to the Fund.
NOTE B-INVESTMENTS
Exclusive of short-term investments, the cost of investments purchased and the
proceeds from investments sold during the six-month period ended June 30, 1997
aggregated $7,552 and $108,084, respectively.
NOTE C-EXPENSES
Amounts are paid to The Franklin for investment management services at the rate
of .0012% of the current value of the Fund per day (.438% on an annual basis)
and for mortality and expense risk assurances at the rate of .002745% of the
current value of the Fund per day (1.002% on an annual basis).
NOTE D-SALES AND ADMINISTRATIVE CHARGES
Sales and administrative charges aggregating $679 and $1,002 were deducted from
the proceeds of the sales of accumulation units and retained by Franklin
Financial Services Corporation and The Franklin for the six-month period ended
June 30, 1997 and the year ended December 31, 1996, respectively. Franklin
Financial Services Corporation is a wholly-owned subsidiary of The Franklin and
principal underwriter for the Fund.
NOTE E-SUMMARY OF CHANGES IN ACCUMULATION UNITS
Six months Year ended
ended June 30, 1997 December 31, 1996
--------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
----- ------ ----- ------
Balance at
beginning of
period 18,648 $1,620,070 21,059 $1,537,630
Purchases 88 5,496 200 10,053
Net investment
income - 6,302 - 11,760
Net realized gain
from investment
transactions - 19,564 - 38,924
Net unrealized
appreciation
of investments - 216,846 - 219,574
Withdrawals (829) (75,292) (2,611) (197,732)
Reimbursement
(payment) for
contract
guarantees - 1,539 - (139)
--------------------------------------------------
Balance at end of
period 17,907 $1,794,525 18,648 $1,620,070
--------------------------------------------------
--------------------------------------------------
NOTE F-REMUNERATION OF MANAGEMENT
No person receives any remuneration from the Fund because The Franklin pays the
fees of members of the Board of Managers and officers and employees of the Fund
pursuant to expense assurances. Certain members of the Board of Managers and
officers of the Fund are also directors, officers or employees of The Franklin
or Franklin Financial Services Corporation. Amounts paid by the Fund to The
Franklin and to Franklin Financial Services Corporation are disclosed in this
report.
NOTE G-NET UNREALIZED APPRECIATION OF INVESTMENTS
Net unrealized appreciation of investments at June 30, 1997 and December 31,
1996 was as follows:
JUNE 30, DECEMBER 31,
1997 1996
----------------------
Gross unrealized appreciation $754,162 $539,392
Gross unrealized depreciation - 2,076
----------------------
Net unrealized appreciation
of investments $754,162 $537,316
----------------------
----------------------
4
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FRANKLIN LIFE VARIABLE ANNUITY FUND B
SUPPLEMENTARY INFORMATION
PER-UNIT INCOME AND CHANGES IN ACCUMULATION UNIT VALUE
(SELECTED DATA AND RATIOS FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997* 1996 1995 1994 1993
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ 1.007 $ 1.777 $ 2.043 $ 1.569 $ 1.305
Expenses .659 1.169 .935 .850 .841
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Net investment income .348 .608 1.108 .719 .464
Net realized and unrealized
gain (loss) on investments 12.989 13.251 14.278 (.943) 1.697
--------------------------------------------------------------------
Net increase (decrease)
in accumulation unit value 13.337 13.859 15.386 (.224) 2.161
Accumulation unit value:
Beginning of period 86.875 73.016 57.630 57.854 55.693
--------------------------------------------------------------------
End of period $100.212 $86.875 $73.016 $57.630 $57.854
--------------------------------------------------------------------
--------------------------------------------------------------------
Ratio of expenses to average net assets 1.44% 1.44% 1.44% 1.44% 1.44%
Ratio of net investment
income to average net assets .76% .75% 1.71% 1.22% .80%
Portfolio turnover rate .63% 3.35% 22.26% 82.18% 61.50%
Number of accumulation units
outstanding at end of period 17,907 18,648 21,059 23,165 26,542
- -------------------------------------------------------------------------------------------------------------------
*(Not annualized)
</TABLE>
MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS
An annual meeting of Contract Owners of the Fund was held on April 21, 1997. At
the meeting, the individuals named below were elected as Members of the Board of
Managers of the Fund, and Ernst & Young LLP was ratified as the Fund's
independent auditors for the ensuing fiscal year. The number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if applicable, as to each matter is set forth in the table below.
<TABLE>
<CAPTION>
Matter Votes:
-------------- -----------------------------------
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Election of
Robert G. Spencer as
Member, Board of Managers 9,027 123 0
Election of
Dr. Robert C. Spencer as
Member, Board of Managers 9,027 123 0
Election of
James W. Voth as
Member, Board of Managers 9,027 123 0
Election of Clifford L. Greenwalt as
Member, Board of Managers 9,027 123 0
Ratification of Selection
of Ernst & Young LLP as
independent auditors 9,040 0 110
</TABLE>
5
