<PAGE>
1933 Act Registration No. 2-38502
1940 Act Registration No. 811-2110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 40
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
FRANKLIN LIFE
VARIABLE ANNUITY FUND B
(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 VARIABLE ANNUITY FUND B
Post-Effective Amendment No. 40
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
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-Sales and 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 Data. . . . . . Not Applicable
Item 26. Annuity Payments . . . . . . . . . . . . . The Contracts-Annuity Period (P)
Item 27. Financial Statements . . . . . . . . . . . Per Unit Income and Changes in Accumulation Unit
Values (P); Financial Statements; Experts (SAI)
</TABLE>
<PAGE>
FRANKLIN LIFE VARIABLE ANNUITY FUND B
PROSPECTUS INDIVIDUAL VARIABLE ANNUITY CONTRACTS
(NOT USED IN CONNECTION WITH QUALIFIED
TRUSTS OR PLANS) ISSUED BY
#1 Franklin Square
Springfield, Illinois 62713
Telephone (800) 528-2011
THIS PROSPECTUS DESCRIBES INDIVIDUAL IMMEDIATE AND DEFERRED VARIABLE ANNUITY
CONTRACTS PROVIDING ANNUITY INSTALLMENTS FOR LIFE COMMENCING ON A MATURITY DATE
SELECTED BY THE CONTRACT OWNER; OTHER SETTLEMENT OPTIONS ARE ALSO PROVIDED. THE
BASIC PURPOSE OF THE VARIABLE CONTRACTS IS TO PROVIDE ANNUITY PAYMENTS WHICH
WILL VARY WITH THE INVESTMENT PERFORMANCE OF FRANKLIN LIFE VARIABLE ANNUITY FUND
B (THE "FUND"). THE FUND NO LONGER OFFERS NEW CONTRACTS.
THE PRIMARY INVESTMENT OBJECTIVE OF THE FUND IS LONG-TERM APPRECIATION OF
CAPITAL THROUGH INVESTMENT APPRECIATION AND THE RETENTION AND REINVESTMENT OF
INCOME. THERE IS NO ASSURANCE THAT THIS OBJECTIVE WILL BE ATTAINED. GENERALLY,
THE FUND'S INVESTMENTS WILL CONSIST OF EQUITY SECURITIES, MAINLY COMMON STOCKS.
----------------------------------
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 35 OF THIS PROSPECTUS.
-----------------------------------
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. Sales and Administration Deductions. . . . . . . . . . . . . . . . 11
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. Mortality and Expense Risk Charge. . . . . . . . . . . . . . . . . 14
D. Investment Management Service Charge . . . . . . . . . . . . . . . 14
E. Transfers to and from Other Contracts. . . . . . . . . . . . . . . 15
F. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
B. Deferred Variable Annuity Accumulation Period. . . . . . . . . . . 17
C. Annuity Period . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Investment Policies and Restrictions of the Fund. . . . . . . . . . . . 27
Federal Income Tax Status . . . . . . . . . . . . . . . . . . . . . . . 30
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Distribution of the Contracts . . . . . . . . . . . . . . . . . . . . . 34
State Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Reports to Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Year 2000 Transition. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . 36
Other Variable Annuity Contracts. . . . . . . . . . . . . . . . . . . . 36
Table of Contents of Statement of Additional Information. . . . . . . . 37
</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 VARIABLE ANNUITY FUND B 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.
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
Variable Annuity Fund B that is offered by this Prospectus.
CONTRACT ANNIVERSARY--An anniversary of the Effective Date of the Contract.
CONTRACT OWNER--The Contract Owner is the individual Variable Annuitant to whom
the contract is issued or his or her assignee, or if an owner other than the
Variable Annuitant is designated in the application for the Contract, such other
person. 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.
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.
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.
SETTLEMENT OPTION OR OPTIONS--Alternative terms under which payment of the
amounts due in settlement of the Contracts may be received.
3
<PAGE>
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
Sales Load Imposed on Purchases (as a
percentage of purchase payments)
Single Stipulated Payment Contract 5.00%
Periodic Stipulated Payment Contract 15.00% to 1.00% (for a Contract
with a stipulated payment period of
12 or more years; 4.33% aggregate
over all years for a 12-year
Contract)
10.00% to 3.00% (for a Contract
with a stipulated payment period of
9 to 11 years; 4.44% aggregate over
all years for a 9-year Contract)
6.00% to 3.00% (for a Contract with
a stipulated payment period of 6 to
8 years; 4.50% aggregate over all
years for a 6-year Contract)
4.00% to 3.00% (for a Contract with
a stipulated payment period of 2 to
5 years; 4.00% aggregate over all
years for a 2-year Contract)
Administration Fee (as a percentage of
purchase payment)
Single Stipulated Payment Contract $100
Periodic Stipulated Payment Contract 0.00% to 10.00% (for a
Contract with a stipulated
payment period of 12 or more
years; 4.67% aggregate over
all years for a 12-year
Contract)
3.00% to 10.00% (for a
Contract with a stipulated
payment period of 9 to 11
years; 4.44% aggregate over
all years for a 9-year
Contract)
3.00% to 6.00% (for a Contract
with a stipulated payment
period of 6 to 8 years; 4.50%
aggregate over all years for a
6-year Contract)
3.00% to 5.00% (for a Contract
with a stipulated payment
period of 2 to 5 years; 5.00%
aggregate over all years for a
2-year Contract)
5
<PAGE>
<TABLE>
<CAPTION>
Annual Expenses
(as a percentage of average net assets)
<S> <C>
Management Fees 0.44%
Mortality and Expense Risk Fees
Mortality Fees 0.90%
Expense Risk Fees 0.10%
-----
Total Annual Expenses 1.44%
</TABLE>
Example
<TABLE>
<CAPTION>
If you surrender your contract at
the end of the applicable time period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming 5% annual return
on assets:
Single Stipulated Payment Contract $ 162 $ 189 $ 217 $ 297
Periodic Stipulated Payment
Contracts:
Stipulated Payment Period:
12 years or more $ 162 $ 189 $ 217 $ 297
9 to 11 years $ 162 $ 189 $ 217 $ 297
6 to 8 years $ 123 $ 151 $ 180 $ 263
2 to 5 years $ 103 $ 131 $ 162 $ 247
</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 designed for retirement planning for individuals. They
are not designed for use in connection with employer-related plans or
qualified plans and trusts (including Individual Retirement Annuities)
accorded special tax treatment under the Code. The basic purpose of the
Contracts is to provide Annuity Payments which will vary with the investment
performance of Franklin Life Variable Annuity Fund B (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. In the event of death prior to the initial Annuity Payment Date,
the contract value is paid to the Beneficiary. Periodic Stipulated Payment
Contracts and Single Stipulated Payment Contracts are offered. 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. Additional refund rights apply
to Periodic Stipulated Payment Contracts having a Stipulated Payment Period
of more than five years. See "Withdrawal by the Contract Owner," below.
Contracts held by a person (such as a corporation or partnership) who is
not a natural person are subject to special federal income tax treatment and
the income on such Contracts allocable to Stipulated Payments made after
February 28, 1986 may, subject to certain exceptions, be taxable to the
Contract Owner in the year earned. This special rule does not apply to
Contracts held by natural persons. See "Federal Income Tax Status," 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 appreciation of capital
through investment appreciation and retention and reinvestment of income.
Generally, the Fund's investments will consist of equity securities, mainly
common stocks. The value of investments held in the Fund is subject to the
risk of changing economic conditions as well as the risk inherent in
management's ability to anticipate such changes. See "Investment Policies and
Restrictions of the Fund," 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.
In the case of Periodic Stipulated Payment Contracts, a deduction, which
varies depending upon the length of the Stipulated Payment period agreed upon
in the Contract and the Contract Year with respect to which the payment is
scheduled to be made, is made for sales and administrative expenses. Over the
entire life of a 12-year Periodic Stipulated Payment Contract, total
deductions equal to 4.33% of all periodic payments are made for sales
expenses and total deductions equal to 4.67% of all periodic payments are
made for administrative expenses (for a combined total of 9%); the combined
total deductions amount to 9.89% of the net amount invested assuming no
premium taxes are applicable (4.76% for sales expenses and 5.13% for
administrative expenses). During the first four years of a 12-year contract,
however, combined total deductions amount to 17.65%. In the case of a Single
Stipulated Payment Contract, a deduction equal to 5% of the total single
payment is made for sales expenses and a deduction of $100 is made for
7
<PAGE>
administrative expenses (for a combined total, in the case of a minimum
Single Stipulated Payment Contract sold, of 9%). In the case of a minimum
Single Stipulated Payment Contract sold, the combined deductions amount to
9.89% of the net amount invested assuming no premium taxes are applicable
(5.49% for sales expenses and 4.40% for administrative expenses). Any
applicable state or local taxes on the Stipulated Payments (currently, up to
5%) also are deducted from the Single or Periodic Stipulated Payments. The
amount remaining after deductions is allocated to the Fund. See "Sales and
Administration Deductions," "Transfers to Other Contracts," and "Premium
Taxes," below.
The Contracts include The Franklin's undertaking that deductions for sales
and administrative expenses will not be increased regardless of the actual
expenses incurred, and that the Variable Annuity Payments will be paid for
the lifetime of the Variable Annuitant (and, in the case of a joint and last
survivor annuity, for the joint lives of the persons specified) commencing on
the selected initial Annuity Payment Date based on the mortality assumptions
contained in the Contract, regardless of the actual mortality experience
among the Variable Annuitants. In exchange for these undertakings, a charge
of 1.002% of net asset value on an annual basis is made daily against the
Fund (consisting of 0.900% for The Franklin's assurances of annuity rates or
mortality factors and 0.102% for The Franklin's assurances of expense
factors). A charge of 0.438% of net asset value on an annual basis is also
made daily against the Fund for investment management services by The
Franklin. The charges for annuity rate assurances, expense assurances and
investment management services thus aggregate 1.440% of net asset value on an
annual basis. See "Mortality and Expense Risk Charge," and "Investment
Management Service Charge," below.
MINIMUM PERMITTED INVESTMENT
The minimum single Stipulated Payment is $2,500. The minimum Periodic
Stipulated Payment Contract sold is one under which the annual payments are
currently $120 and each periodic Stipulated Payment (after an initial $20
payment) is currently $10. 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 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 federal
income tax withholding, if applicable. 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," "Transfers to and from Other
Contracts," "Settlement Options, "The Contracts," and "Federal Income Tax
Status," below.
TERMINATION BY THE FRANKLIN
The Franklin currently reserves the right to terminate Contracts the Cash
Value of which has been less than $500 for three years if the Stipulated
Payments in the amount of $120 have not been made in each of the three
contract years of such period, but The Franklin has agreed not to exercise
this right in certain cirumstances. See "Termination by The Franklin," below.
8
<PAGE>
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 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 $ 1.777 $ 2.043 $ 1.569 $ 1.305 $ 1.120 $ 1.197 $ 1.303 $ 1.271 $ 1.102
Expenses 1.169 .935 .850 .841 .766 .691 .595 .541 .463
-----------------------------------------------------------------------------------------------
Net Investment income .608 1.108 .719 .464 .354 .506 .708 .730 .639
Net realized and
unrealized gain
(loss) on securities 13.251 14.278 (.943) 1.697 1.236 13.776 (1.871) 7.822 .016
-----------------------------------------------------------------------------------------------
Net change in
accumulation unit
value 13.859 15.386 (.224) 2.161 1.590 14.282 (1.163) 8.552 .655
Accumulation unit
value:
Beginning of year 73.016 57.630 57.854 55.693 54.103 39.821 40.984 32.432 31.777
-----------------------------------------------------------------------------------------------
End of year $86.875 $73.016 $57.630 $57.854 $55.693 $54.103 $39.821 $40.984 $32.432
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Ratio of expenses to
average net
assets 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44% 1.44%
Ratio of net
investment
income to
average net
assets .75% 1.71% 1.22% .80% .67% 1.05% 1.71% 1.94% 1.99%
Portfolio turnover rate 3.35% 22.26% 82.18% 61.50% 60.64% 24.18% 28.41% 64.08% 81.20%
Number of
accumulation
units outstanding
at end of year 18,648 21,059 23,165 26,542 29,973 31,205 48,192 53,877 61,038
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</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 VARIABLE ANNUITY FUND B
INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY
THE FRANKLIN LIFE INSURANCE COMPANY
The Contracts offered by this Prospectus are designed primarily to assist
in retirement planning for individuals. They are not designed for use in
connection with employer-related plans or qualified plans and trusts
(including Individual Retirement Annuities) accorded special tax treatment
under the Code. 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 Life Insurance Company ("The Franklin") under Illinois insurance
law. For the primary investment objective of the Fund, see "Investment
Policies and Restrictions of the Fund," below.
Pursuant to this Prospectus, The Franklin offers two types of 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.
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 Contract Owner may elect to have a portion of the Stipulated Payment or
Payments applied by The Franklin for the purchase of a Fixed-Dollar Annuity.
Fixed-Dollar Annuity Contracts do not, however, participate in the Fund and
the Contracts are transferred to the general account of The Franklin. In
cases where both a Fixed-Dollar and a Variable Annuity are provided under the
same Contract, either annuity may be terminated and the Cash Value obtained
or other Settlement Option elected by the Contract Owner, at any time prior
to commencement of annuity instalments by The Franklin; under these
circumstances, the other annuity may be continued in effect, provided that
the annual Stipulated Payment allocated to the other annuity satisfies The
Franklin's usual underwriting practices. These practices presently require
that each periodic Stipulated Payment (other than the first payment, which
must be at least $20) which purchases the Variable Annuity be at least $10.
See generally "Redemption," and "Settlement Options," below.
Unless otherwise indicated in this Prospectus, the discussion of the
Contracts herein refers to Variable Annuity Contracts, or to the Variable
Annuity portion in cases where both a Variable and a Fixed-Dollar Annuity are
provided in the same Contract, and not to any Fixed-Dollar Annuity.
Provisions relating to a Fixed-Dollar Annuity and a Variable Annuity are
separate, and neither is dependent upon the other in its operations.
10
<PAGE>
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.
DESCRIPTION OF THE SEPARATE ACCOUNT
The Fund was established as a separate account on April 1, 1970 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. SALES AND ADMINISTRATION DEDUCTIONS
Deductions will be made as follows for sales expenses with respect to the
Contracts and administrative expenses with respect to the Contracts and the
Fund:
(1) Under Single Stipulated Payment Contracts, a deduction of $100 is
made from the single payment for administrative expenses. In addition, a
sales expense deduction of 5% of the total payment is made from the single
Stipulated Payment. In the case of the minimum Single Stipulated Payment
Contract sold (which is $2,500), the combined deductions for administrative
expenses and sales expenses amount to 9.89% of the net amount invested (5.49%
for sales expenses and 4.40% for administrative expenses) assuming no premium
taxes are applicable.
(2) Under Periodic Stipulated Payment Contracts, a sales and
administration deduction is made from each Stipulated Payment. The amount of
the deduction varies depending upon the length of the stipulated payment
period agreed upon in the Contract and the Contract Year with respect to
which a payment is scheduled to be made. The deductions are applied whether
the Stipulated Payment is made on time or in arrears. Prepayments will not be
accepted. The following tables indicate the deductions made:
11
<PAGE>
<TABLE>
<CAPTION>
STIPULATED PAYMENT PERIOD OF 12 OR MORE YEARS
- -----------------------------------------------------------------------------------------------------------------
AS PERCENTAGE OF AS PERCENTAGE OF
NET AMOUNT INVESTED: TOTAL STIPULATED PAYMENT:
-------------------- -------------------------
SALES ADMINISTRATION TOTAL SALES ADMINISTRATION TOTAL
CONTRACT YEAR DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 17.65% 0.00% 17.65% 15% 0% 15%
2 TO 4 5.88% 11.76% 17.65% 5% 10% 15%
5 5.56% 5.56% 11.11% 5% 5% 10%
6 TO 10 3.19% 3.19% 6.38% 3% 3% 6%
11 OR SUBSEQUENT 1.04% 3.13% 4.17% 1% 3% 4%
AGGREGATE OVER ALL
YEARS FOR A
12-YEAR CONTRACT: 4.76% 5.13% 9.89% 4.33% 4.67% 9%
</TABLE>
<TABLE>
<CAPTION>
STIPULATED PAYMENT PERIOD OF 9-11 YEARS
- -----------------------------------------------------------------------------------------------------------------
AS PERCENTAGE OF AS PERCENTAGE OF
NET AMOUNT INVESTED: TOTAL STIPULATED PAYMENT:
-------------------- -------------------------
SALES ADMINISTRATION TOTAL SALES ADMINISTRATION TOTAL
CONTRACT YEAR DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 11.78% 5.88% 17.65% 10% 5% 15%
2 5.88% 11.76% 17.65% 5% 10% 15%
3 TO 4 5.56% 5.56% 11.11% 5% 5% 10%
5 TO 11 3.19% 3.19% 6.38% 3% 3% 6%
AGGREGATE OVER ALL
YEARS FOR A
9-YEAR CONTRACT: 4.88% 4.88% 9.76% 4.44% 4.44% 8.89%
</TABLE>
<TABLE>
<CAPTION>
STIPULATED PAYMENT PERIOD OF 6-8 YEARS
- -----------------------------------------------------------------------------------------------------------------
AS PERCENTAGE OF AS PERCENTAGE OF
NET AMOUNT INVESTED: TOTAL STIPULATED PAYMENT:
-------------------- -------------------------
SALES ADMINISTRATION TOTAL SALES ADMINISTRATION TOTAL
CONTRACT YEAR DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 6.74% 5.62% 12.36% 6% 5% 11%
2 5.62% 6.74% 12.36% 5% 6% 11%
3 TO 4 5.56% 5.56% 11.11% 5% 5% 10%
5 OR SUBSEQUENT 3.19% 3.19% 6.38% 3% 3% 6%
AGGREGATE OVER ALL
YEARS FOR A
6-YEAR CONTRACT: 4.95% 4.95% 9.89% 4.50% 4.50% 9%
</TABLE>
<TABLE>
<CAPTION>
STIPULATED PAYMENT PERIOD OF 2-5 YEARS
- -----------------------------------------------------------------------------------------------------------------
AS PERCENTAGE OF AS PERCENTAGE OF
NET AMOUNT INVESTED: TOTAL STIPULATED PAYMENT:
-------------------- -------------------------
SALES ADMINISTRATION TOTAL SALES ADMINISTRATION TOTAL
CONTRACT YEAR DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION DEDUCTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 TO 4 4.40% 5.49% 9.89% 4% 5% 9%
5 3.19% 3.19% 6.38% 3% 3% 6%
AGGREGATE OVER ALL
YEARS FOR A
2-YEAR CONTRACT: 4.40% 5.49% 9.89% 4% 5% 9%
</TABLE>
12
<PAGE>
NOTE: The foregoing tables assume that no premium taxes are payable in the
jurisdiction in question. See discussion under "Premium Taxes,"
below. Percentage figures may not add due to rounding.
Deductions for sales expenses are made pursuant to a Sales Agreement
with Franklin Financial Services Corporation ("Franklin Financial"). See
"Distribution of the Contracts," below, and in the Statement of Additional
Information. Deductions for administrative expenses, and for mortality and
expense risk assurances discussed under "Mortality and Expense Risk Charge,"
below, are made pursuant to an Administration Agreement dated March 23, 1972
between the Fund and The Franklin. The Administration Agreement is described
under "Investment Advisory and Other Services" in the Statement of Additional
Information.
The Franklin will not accept more than the stipulated dollar amounts of
payments on any Contract except in the case of a Contract having a Stipulated
Payment period of 12 or more years. In the case of monthly Stipulated Payment
Contracts, where the Stipulated Payment per month (subsequent to the initial
payment) is less than $20, the initial monthly payment must be at least $20,
and the total payments to be received during the first Contract Year will be
twelve times the amount of the Stipulated Payment per month (subsequent to
the initial payment). This will be done either by ending the first Contract
Year earlier than twelve months after the receipt of the initial Stipulated
Payment or by omitting certain monthly payments which otherwise would follow
the initial payment. The purpose of this procedure is to prevent the
imposition of total deductions over the life of the contract in an amount in
excess of the amounts set forth in the tables above opposite the items
"Aggregate over all years" for sample Contracts.
The table below illustrates, in the case of assumed Contracts for 10
years and for 15 years providing for stipulated monthly payments amounting to
$50 per month, the allocation of the cumulative payments and deductions at
the end of certain specified periods of time. In Contracts for less than nine
years, the amounts deducted from the earlier Stipulated Payments are less
than those deducted from the Stipulated Payments in the earlier periods for
the Contracts illustrated in the table, and, accordingly, in those Contracts
proportionately more of the total Stipulated Payments would be invested at
the end of one, two and five years than in the case of the illustrations
given.
10 YEAR CONTRACT
<TABLE>
<CAPTION>
AT THE END OF . . . . . 10 YEARS 1 YEAR 2 YEARS 5 YEARS
(120 PAYMENTS) (13 PAYMENTS) (25 PAYMENTS) (61 PAYMENTS)
- ---------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL PAYMENTS . . . . . $6,000.00 100.00% $650.00 100.00% $1,250.00 100.00% $3,050.00 100.00%
DEDUCT:
SALES EXPENSE DEDUCTION 258.00 4.30% 62.50 9.61% 92.50 7.40% 169.50 5.555%
ADMINISTRATION DEDUCTION 258.00 4.30% 35.00 5.39% 92.50 7.40% 169.50 5.555%
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS . . . $ 516.00 8.60% $ 97.50 15.00% $ 185.00 14.80% $ 339.00 11.110%
NET AMOUNT INVESTED. . . $5,484.00 91.40% $552.50 85.00% $1,065.00 85.20% $2,711.00 88.890%
</TABLE>
15 YEAR CONTRACT
<TABLE>
<CAPTION>
AT THE END OF . . . . . 15 YEARS 1 YEAR 2 YEARS 5 YEARS
(180 PAYMENTS) (13 PAYMENTS) (25 PAYMENTS) (61 PAYMENTS)
- ---------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL PAYMENTS . . . . . $9,000.00 100.00% $650.00 100.00% $1,250.00 100.00% $3,050.00 100.00%
DEDUCT:
SALES EXPENSE DEDUCTION 330.00 3.67% 92.50 14.23% 122.50 9.80% 211.50 6.935%
ADMINISTRATION DEDUCTION 390.00 4.33% 5.00 0.77% 65.00 5.20% 211.50 6.935%
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS . . . $ 720.00 8.00% $ 97.50 15.00% $ 187.50 15.00% $ 423.00 13.870%
NET AMOUNT INVESTED. . . $8,280.00 92.00% $552.50 85.00% $1,062.50 85.00% $2,627.00 86.130%
</TABLE>
13
<PAGE>
NOTE: The foregoing table assumes that no premium taxes are payable in the
jurisdiction in question. See the discussion under "Premium Taxes,"
below. The percentages shown are percentages of the total payments made.
The total deductions made in respect of sales expenses of Franklin
Financial in 1995, 1996 and 1997 were $825, $370 and $___________,
respectively, and all such amounts were retained on behalf of Franklin
Financial.
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 $1,316, $632 and $_____________, respectively.
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 combined annual rate of 1.002% (.002745% on a daily basis), of which
.900% is for annuity rate and mortality assurances and .102% 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 $14,273,
$15,752 and $____________, respectively, by reason of these charges. Such
charges during 1997 were equal to 1.002% 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 Fund at the annual rate of 0.438% of
the Fund's assets, computed by imposing a daily charge of 0.0012% against the
value of the Accumulation Unit and of the Annuity Unit in determining those
values. 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 $6,240,
$6,886 and $___________, respectively, under the Investment Management
Agreement then in effect.
14
<PAGE>
E. TRANSFERS TO OTHER CONTRACTS
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 Money Market Variable Annuity Fund C, other separate
accounts of The Franklin funding Variable Annuity contracts, no longer issue
new Variable Annuity contracts.
It is not clear whether gain or loss will be recognized for federal
income tax purposes upon the redemption of a 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
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. Contract Owners who are not natural persons should also consider
whether such a redemption would cause them to lose certain advantages
applicable to stipulated payments made on or before February 28, 1986. See
"Federal Income Tax Status-The Contracts," below.
F. MISCELLANEOUS
The Fund's total expenses for 1997 were $_____________, or 1.440% 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, which reflects the age and sex of the Variable
Annuitant and the type of Settlement Option selected, and (ii) the investment
performance of the Fund. In the case of Deferred Variable Annuities, the annuity
rate table is set forth in the Contract. 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.
15
<PAGE>
2. DECREASE BY CONTRACT OWNER IN AMOUNT OF PERIODIC STIPULATED PAYMENTS;
INCREASE BY CONTRACT OWNER IN 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.
Subject to the limitations described under "Purchase Limits," below, the
amount of a periodic Stipulated Payment may be decreased by the Contract
Owner on any date a Stipulated Payment is due. Submission of a Stipulated
Payment in an amount less than that of the previous Stipulated Payment,
subject to the aforesaid purchase limits, will constitute notice of the
election of the Contract Owner to make such change. After such a decrease,
the Contract Owner is permitted to increase his periodic Stipulated Payments
up to, but not in excess of, the amount originally provided in the Contract.
Unless otherwise agreed to by The Franklin, the mode of Stipulated Payment
may be changed only on a Contract Anniversary.
In the case of Contracts having a Stipulated Payment period of 12 years
or more, the Contract Owner may continue making Stipulated Payments after the
agreed amount of Stipulated Payments has been made, subject to the limitation
that no more than twice the amount of Stipulated Payments specified in the
Contract will be received by The Franklin, and The Franklin reserves the
right not to accept the Stipulated Payments after age 75. The deductions for
sales and administrative expenses from these additional Stipulated Payments
will be that applicable to Stipulated Payments in the final agreed year for
Stipulated Payments as set forth in the table as to Stipulated Payment
periods of 12 or more years under "Sales and Administration Deductions,"
above. No similar privilege is available with respect to Contracts having a
Stipulated Payment period of less than 12 years.
3. ASSIGNMENT OR PLEDGE
A Contract may be assigned by the Contract Owner or pledged by him or her
as collateral security as provided in the Contract. The Franklin will make
Contract loans only as provided under "Contract Loans," below. Assignments or
pledges of the Contract and Contract loans will be treated as distributions
that may be taxable. Moreover, in certain instances, pledges or assignments
of the Contract and Contract Loans may result in the imposition of certain
tax penalties. See "Federal Income Tax Status-The Contracts," below.
Persons contemplating the assignment or pledge of a Contract are advised
to consult a qualified tax advisor concerning the federal income tax
consequences thereof.
4. PURCHASE LIMITS
No single Stipulated Payment may be less than $2,500. Currently, no
annual Stipulated Payment may be less than $120; no semiannual Stipulated
Payment may be less than $60; no quarterly Stipulated Payment may be less
than $30; and, in the case of monthly Stipulated Payment contracts, the
initial payment must be at least $20 and each subsequent monthly payment at
least $10. Under the terms of the Contract, The Franklin may increase the
minimum periodic Stipulated Payment to $20 per month ($240 per year).
5. TERMINATION BY THE FRANKLIN
The Franklin currently reserves the right to terminate any Contract if
total Stipulated Payments paid are less than $120 in each of three
consecutive Contract Years (excluding the first Contract Year) and if the
Cash Value is less than $500 at the end of such three-year period. Under the
terms of the Contract, The Franklin may terminate such Contract if total
Stipulated Payments paid are less than $240 in each of such three consecutive
Contract Years and if the Cash Value 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.
Upon termination as described above, The Franklin will pay to the
Contract Owner the Cash Value of the Contract, less federal income tax
withholding and any indebtedness, if applicable. For certain tax consequences
upon such payment, see "Federal Income Tax Status," below.
16
<PAGE>
6. WITHDRAWAL BY THE CONTRACT OWNER
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.
In addition, with respect to any Periodic Stipulated Payment Contract
having a Stipulated Payment period of more than five years, The Franklin will
send to the Contract Owner of such Contract, within 60 days after the Date of
Issue, a statement of charges to be deducted from the Stipulated Payments and
a notice of the right to withdraw from the Contract, which may be exercised
by surrendering the Contract within 45 days after the mailing of the notice.
In the case of such surrender, the Contract Owner will be entitled to the
Cash Value of the Contract, plus an amount, payable by The Franklin or by
Franklin Financial Services Corporation, distributor of the Contracts, equal
to the difference between the gross payments made on the Contract and the net
amount invested. The Franklin has guaranteed the obligations of Franklin
Financial Services Corporation in this respect and accordingly, in connection
with The Franklin's ability to meet these obligations, the financial
statements of The Franklin contained herein should be considered. Payments
upon such surrender may be subject to federal income tax withholding and
federal tax penalties. See "Income Tax Withholding," below and "Federal
Income Tax Status-The Contracts," below.
Any request for revocation or withdrawal must be made by mailing or
hand-delivering the Contract and a written request for revocation or
withdrawal within the applicable time 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; DEDUCTIONS FOR SALES AND ADMINISTRATIVE
EXPENSES
During the accumulation period-the period before the initial Annuity
Payment Date-deductions from Stipulated Payments for sales and 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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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, 1971.
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. 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
In determining the value of the assets of the Fund, each security traded
on a national securities exchange is valued at the last reported sale price
on the Valuation Date. If there has been no sale on such day, then the value
of such security is taken to be the current bid price at the time as of which
the value is being ascertained. Any security not traded on a securities
exchange but traded in the over-the-counter market is valued at the current
bid price on the Valuation Date. Any securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Managers.
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<PAGE>
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 redeem the Contract in whole, or in part, 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.
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 the limited circumstances described 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.
Where the Contract Owner has both a Variable Annuity and a Fixed-Dollar
Annuity, a request for partial redemption, if no other indication is obtained
from the Contract Owner, will be treated as a pro rata request for partial
redemption of the Variable Annuity and the Fixed-Dollar Annuity.
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.
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. For the method of
valuation of Accumulation Units, see "Crediting Accumulation Units;
Deductions for Sales and Administration Expenses," above.
The Code imposes certain distribution requirements which affect the
payment of death benefits. See "Settlement Options," below. Subject to these
requirements, 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. 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.
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<PAGE>
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.
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.
Under a single stipulated payment deferred contract, the Contract Owner
may terminate his Contract and exercise any of the Settlement Options
described below at any time prior to the initial Annuity Payment Date.
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. Following reinstatement, the
Contract Owner may exercise any of the options upon failure to make
Stipulated Payments or Settlement Options described herein. Sales and
administration deductions from Stipulated Payments made upon or after
reinstatement will be equivalent to those that would have been made if the
payments had been made at the time originally stipulated.
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.
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.
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<PAGE>
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. 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.
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.
In general, certain distribution requirements are imposed by the Code in
the case of annuity contracts issued after January 18, 1985 in order for the
contracts to qualify as "annuity contracts" under the Code. Certain questions
exist about the application of these rules to distributions from the
Contracts and their effect on Settlement Option availability thereunder.
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<PAGE>
Under these distribution requirements, if the Contract Owner of a
Contract issued after January 18, 1985 dies on or after the date Annuity
Payments commence but before the entire interest in the Contract has been
distributed, then the remaining portion of such interest must be distributed
at least as rapidly as under the method of distribution being used as of the
date of his or her death. Also, if the Contract Owner of such a Contract dies
before the commencement of Annuity Payments, then the entire interest in the
Contract must be distributed within five years after the date of death. Under
a special exception, this 5-year distribution rule is deemed satisfied if (i)
any portion of the Contract Owner's interest is payable to a designated
beneficiary, (ii) that interest is distributed to the designated beneficiary
over the life of such beneficiary (or over a period not extending beyond the
beneficiary's life expectancy) and (iii) such distributions begin not later
than one year after the death of the Contract Owner. If the designated
beneficiary is the surviving spouse of the Contract Owner and such surviving
spouse dies before Annuity Payments to the spouse commence, the surviving
spouse will be treated as the Contract Owner for purposes of these
distribution rules. Also, if the Contract Owner is not an individual, then
the Variable Annuitant shall be treated as the Contract Owner in applying
these distribution requirements and a change in the Variable Annuitant shall
be treated as the death of the Contract Owner.
The effect of the distribution requirements described above is that, in
the case of Contracts issued after January 18, 1985, Settlement Option
availability will be limited as necessary to comply with the applicable
distribution rules. For example, under these rules, it appears that the First
Option (Life Annuity) would not be available to a designated beneficiary
under such a Contract unless distributions to the beneficiary begin not later
than one year after the date of the Contract Owner's death. Other Settlement
Options may be restricted or unavailable as well under the distribution
rules. All Settlement Options under Contracts issued after January 18, 1985
are offered subject to the limitations of the distribution rules. 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.
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.
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>
$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>
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<PAGE>
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 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, immediately
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.
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.
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<PAGE>
11. TRANSFER OF FIXED-DOLLAR ANNUITY VALUES TO ACQUIRE VARIABLE ANNUITY
ACCUMULATION UNITS
Where a Deferred Variable Annuity and a Fixed-Dollar Annuity have been
issued on the same Contract, on any Contract Anniversary during the
accumulation period of the Contract, the Contract Owner may have the unloaned
cash value of his Fixed-Dollar Annuity transferred in whole or in part to his
Variable Annuity to purchase Variable Annuity Accumulation Units at net asset
value, without any sales or administrative deductions. However, any such
partial transfer of cash value must be at least $500. (A similar privilege,
but available four times in one contract year, permits transfer of Variable
Annuity Accumulation Unit values to establish values under a Fixed-Dollar
Annuity issued on the same Contract.)
12. CONTRACT LOANS
While the Contract is in force, prior to the initial Annuity Payment Date
or the death of the Variable Annuitant, The Franklin will make a contract
loan on the sole security of the Contract.
Upon receiving a request for a contract loan, The Franklin will convert
Accumulation Units under the Contract to a fixed-dollar contract loan account
in an amount necessary to provide a sufficient "loan value" for the proposed
loan. The maximum amount which may be borrowed on a Contract (the "loan
value") is that amount which, when added to any existing contract loan and
interest on the total contract loan to the next Contract Anniversary, will
equal what the Cash Value of the contract loan account would be on such
anniversary. The Contract, except to the extent so converted, has no loan
value and The Franklin will not make loans or arrange for the making of
loans thereon.
The Accumulation Units in the contract loan account do not participate in
the investment experience of the Fund, but receive interest credits at the
rate then paid by The Franklin upon Fixed-Dollar Annuity accumulations. At
the current time, that rate is 4-1/2% per annum during the first five
contract years, 4% per annum for the sixth through tenth contract years, and
3-1/2% per annum thereafter.
Where the Contract Owner has both a Variable Annuity and a Fixed-Dollar
Annuity under the same Contract, unless he otherwise indicates, a contract
loan request will be considered a request for a loan on each annuity and
will be allocated pro rata according to the loan values available under each
annuity.
Whenever the total contract loan is equal to or exceeds the Cash Value,
the Contract shall terminate, but in no event shall such termination take
effect until 31 days after notice shall have been mailed to the last known
address of the Contract Owner and any known assignee.
On Contracts currently being issued in South Carolina the interest rate
on the principal of the contract loan is 7.4% per annum payable in advance
to the end of the current Contract Year, and annually in advance thereafter.
In all other states the rate is adjustable. This means that the rate may be
changed each policy year, effective on the Contract Anniversary. The
adjustable loan interest rate will be reflective of the rates then available
to The Franklin for corporate bonds as indicated by the "Moody's Corporate
Bond Yield Average." Interest not paid when due will be added to the
principal of the loan and bear the same rate of interest. Upon a repayment of
the contract loan prior to the date through which interest has been paid in
advance, the Contract Owner will receive a pro rata credit for the unearned
interest.
It should be noted that the annual rate of interest charged on contract
loans is in excess of the interest credited by The Franklin upon the contract
loan account; thus, there is, in effect, a continuing net charge against the
Contract Owner of the difference between the two rates while the contract
loan is outstanding.
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<PAGE>
The whole or any part of the contract loan may be repaid at any time
while the Contract is in force prior to its maturity. Where variable
Accumulation Units have been converted into a contract loan account prior to
the making of a contract loan, repayments of the loan will result in the
conversion of accumulation units under the contract loan account to variable
Accumulation Units at net asset value without any sales or administration
deduction, unless the Contract Owner elects that such conversion shall not
take place. The Contract Owner has the power to designate whether a payment
made by him or her is to be applied as a Stipulated Payment (within the
limitations on Stipulated Payments set forth under "Annuity Payments," above,
"Decrease by Contract Owner in Amount of Periodic Stipulated Payments;
Increase by Contract Owner in Number of Periodic Stipulated Payments," above)
or as a repayment in the contract loan account. In the case of payments by a
Contract Owner having a contract loan outstanding which are not identified,
The Franklin will make inquiry as to the intention of the Contract Owner.
Contract loans will be treated as distributions that may be taxable. See
"Federal Income Tax Status," below. Any Contract Owner contemplating obtaining
a contract loan is advised to consult a qualified tax advisor concerning the
possibly unfavorable federal income tax treatment of contract loan proceeds and
interest payments with respect thereto.
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. 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. 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 value of the Annuity Unit as of July 1, 1971 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.
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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.
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.)
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)
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The number of Annuity Units credited to a Contract on the initial Annuity
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 sales and administrative expenses and premium taxes) by the
applicable annuity factor from the annuity 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 date of issue 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 Date of Issue 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 Date of Issue in excess of 70 years for male Variable Annuitants and
in excess of 75 years for female Variable Annuitants).
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 following are the fundamental investment policies of the Fund:
(1) The primary objective of the Fund in making investments is long-term
appreciation of capital. Occasional investment for the purpose of seeking
short-term capital appreciation may also be made.
(2) Realization of current investment return is a secondary objective,
subordinate to the primary objective.
(3) Any investment income and realized capital gains (net of any capital
gains tax) will be retained and reinvested.
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(4) The Fund's policy is to be substantially fully invested. Generally,
the Fund's investments will consist of equity securities, mainly common
stocks. The purchase of common stocks may be made both in rising and
declining markets. When it is determined, however, that investments of other
types may be advantageous in reaching the Fund's objectives, on the basis of
combined considerations of risk, income and appreciation, investments may be
made in bonds, debentures, notes or other evidences of indebtedness, issued
publicly or placed privately, of a type customarily purchased for investment
by institutional investors, including United States Government securities, in
corporate preferred stock or in certificates of deposit, or funds may be
retained in cash. Such debt securities may, or may not, be convertible into
stock or be accompanied by stock purchase options or warrants.
(5) Temporary investments may be made in United States Government
securities, certificates of deposit, short-term corporate debt securities
(subject to fundamental restriction (3), below) and other similar securities,
pending investment in the above mentioned securities.
While The Franklin is obligated to make Annuity Payments in accordance
with selected Settlement Options, the amount of the Annuity Payments is not
guaranteed but is a variable amount. Since, historically, the value of a
diversified portfolio of common stocks held for an extended period of time
has tended to rise during periods of inflation and growth in the economy, the
Annuity Payments under a Variable Annuity should tend to conform more closely
to changes in the cost of living and the level of the economy than payments
under a Fixed-Dollar Annuity would do. However, there is no assurance that
this objective can be attained. There have been times when the cost of living
has increased while securities prices have decreased and times when the cost
of living and the level of the economy have gone up or down with no direct
correlation to the value of securities in general or to any particular type
or class of securities. The value of investments held in the Fund will
fluctuate daily and is subject to the risk of changing economic conditions as
well as the risks inherent in the ability of management to anticipate changes
in those conditions. The value of investments in common stock has
historically fluctuated more greatly than the value of investments in
securities such as bonds, debentures, notes, other evidences of indebtedness,
preferred stock and certificates of deposit, and hence investments in common
stocks offer greater opportunities for appreciation and greater risk of
depreciation. There is no assurance that the Cash Value of the Contract
during the years prior to the Variable Annuitant's retirement or the
aggregate amount received during the years following the initial Annuity
Payment Date will equal or exceed the Stipulated Payments on the Contract.
The investment policies of the Fund include a provision that investments
may be made in securities other than common stocks if they are advantageous
in reaching the Fund's objectives, on the basis of combined considerations of
risk, income and appreciation. No assurance can be given, however, that
investment in such other securities will accomplish such objectives.
Investments may be made in bonds, debentures, notes or other evidences of
indebtedness, issued publicly or placed privately, of a type customarily
purchased for investment by institutional investors, including United States
Government securities, and may also be made in corporate preferred stock or
in certificates of deposit, or funds may be retained in cash. Such debt
securities may, or may not, be convertible into stock or be accompanied by
stock purchase options or warrants. Funds may also be temporarily invested in
United States Government securities, certificates of deposit, short-term
corporate debt securities (subject to certain restrictions) and other similar
securities, pending long-term investment. Although debt securities and
preferred stocks of the type in which the Fund would invest are generally
considered to present less risk than common stocks, the value of such
securities is subject to market fluctuations as a result of money market
rates, the demand for such securities and factors relating to the individual
issuers of such securities. In the event the Fund invests in such securities,
such factors may limit the ability of the Fund to convert such securities to
cash and reinvest in other types of securities. Historically, the Fund has
not invested significant amounts in debt securities or preferred stocks
except for short-term investments in debt securities pending ultimate
long-term application of funds for investment purposes.
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 will be invested in any one industry or group of related industries.
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(2) The Fund will not issue senior securities, except that the Fund may
borrow money as set forth in paragraph (3) immediately below.
(3) The Fund will not borrow money except for temporary or emergency
purposes from banks, 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.
(4) 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.
(5) 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
readily marketable interests in real estate investment trusts or similar
securities, which may be deemed to represent indirect interests in real
estate.
(6) The Fund will not engage in the making of loans to other persons,
except that the Fund may acquire privately placed corporate debt securities
of a type customarily purchased by institutional investors. Such securities,
if required to be registered under the Securities Act of 1933 prior to public
distribution, will be included in the 10% limitation specified in fundamental
restriction (4), above. The foregoing does not restrict the purchase by the
Fund of a portion of an issue of publicly distributed bonds, debentures or
other securities, whether or not the purchase is made upon the original
issuance of such securities.
(7) The Fund will not engage in the purchase or sale of commodities or
commodity contracts.
(8) 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.
(9) 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, 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 fundamental investment policies 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
policies 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:
(10) 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.
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(11) The Fund will not invest in companies for the purpose of exercising
control or management.
(12) The Fund will not invest in the securities of other investment
companies.
(13) The Fund will not purchase securities on margin, except for such
short-term credits as are necessary for the clearance of transactions.
(14) The Fund will not make short sales of securities.
(15) The Fund will not invest in corporate debt (other than commercial
paper) or preferred stock that is rated lower than one of the three top
grades by Moody's Investors Services, Inc. or Standard & Poor's Corporation
and the Fund will not invest in commercial paper rated lower than one of the
two top grades by such rating agencies.
FEDERAL INCOME TAX STATUS
INTRODUCTION
The Contracts are designed for retirement planning for individuals. 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 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
Payments received under a Contract are subject to tax under Code Section
72. Under the Code, an increase in the value of the Contract Owner's Contract
ordinarily is not taxable to the Contract Owner until received by him or her
as annuity payments, a lump sum or a partial redemption. A special rule,
however, applies to certain annuity contracts held by a person (such as a
corporation or partnership) who is not a natural person. With respect to
contributions (i.e., Stipulated Payments) made after February 28, 1986 to a
Contract held by a non-natural person, the Contract is not treated as an
"annuity contract" for certain federal income tax purposes and
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the income on the Contract for any taxable year allocable to such
contributions is treated as ordinary income taxable to the Contract Owner
during such year. This special rule, however, does not apply to any annuity
contract which, among other exceptions: (1) is an immediate annuity that is
purchased with a single premium or annuity consideration, that has an annuity
starting date commencing no later than one year from the date of the purchase
of the Contract and which provides for a series of substantially equal
periodic payments (to be made not less frequently than annually) during the
annuity period; (2) is acquired by the estate of a decedent by reason of the
decedent's death; or (3) is held by a trust or other entity as an agent for a
natural person. Non-natural persons now holding or contemplating the future
purchase of a Contract are advised to consult a qualified tax advisor
concerning the tax consequences of such holding or purchase.
If payments under a Contract 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 part. Also, if
prior to the initial Annuity Payment Date, (i) an annuity contract is
assigned or pledged, (ii) a contract loan is obtained or (iii) a Contract
issued after April 22, 1987 is transferred without adequate consideration,
then the amount assigned, pledged, borrowed 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, contract loan or contract transfer.
In addition, under a provision of federal tax law effective for annuity
contracts entered into after October 21, 1988, all annuity contracts (other
than contracts held in connection with certain qualified plans and trusts
(including Individual Retirement Annuities) accorded special treatment under
the Code) 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 the purpose 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 Annuities or
"split" annuity arrangements. Accordingly, a qualified tax advisor should be
consulted about the application and effect of this rule.
Further, in general, in the case of a payment received under a 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 Contract Owner (or
when the Contract Owner is not an individual, the death of the Variable
Annuitant); (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.
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A 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 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.
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.
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 the Contracts to the extent the distributions are taxable
and are not otherwise subject to withholding as wages ("Distributions"). See
"The Contracts" immediately above, regarding the taxation of Distributions.
However, except in the case of certain payments delivered outside the United
States or any possession of the United States, no withholding is required
from any Distribution if the payee properly elects, in accordance with
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 depends on the type of payment
being made. Generally, in the case of periodic payments, the amount to be
withheld from each 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
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most other Distributions, including partial redemptions and lump sum payments,
the amount to be withheld is equal to 10% of the amount of the Distribution.
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, a separate account of The Franklin
having investment objectives similar to the Fund but the assets of which are
held solely with respect to Variable Annuity Contracts used in accordance
with certain qualified plans and trusts or individual retirement annuities
accorded special tax treatment under the Code, and of Franklin Life Money
Market Variable Annuity Fund C, a separate account of The Franklin having
investments in money market securities.
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 fundamental investment policies 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.
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.
33
<PAGE>
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 ("Franklin Financial") Corporation 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 4% 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.
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 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.
34
<PAGE>
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
Money Market Variable Annuity Fund C ("Fund C"), 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 C 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 C 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 that 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.
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.
35
<PAGE>
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
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.
36
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE IN STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<S> <C>
General Information . . . . . . . . . . . . . . . . . 2
Investment Objectives. . . . . . . . . . . . . . . . . 2
Management . . . . . . . . . . . . . . . . . . . . . . 3
Investment Advisory and Other Services . . . . . . . . 4
Distribution of The Contracts. . . . . . . . . . . . . 6
Portfolio Turnover and Brokerage . . . . . . . . . . . 7
Safekeeper of Securities . . . . . . . . . . . . . . . 7
Legal Matters. . . . . . . . . . . . . . . . . . . . . 8
Experts. . . . . . . . . . . . . . . . . . . . . . . . 8
Index to Financial Statements. . . . . . . . . . . . . F-1
</TABLE>
37
<PAGE>
PROSPECTUS
FRANKLIN LIFE
VARIABLE ANNUITY FUND B
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
(NOT FOR USE IN CONNECTION WITH
QUALIFIED TRUSTS OR PLANS)
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 Variable Annuity Fund B.
- --------------------------------------------------------------------------------
(Name)
- --------------------------------------------------------------------------------
(Street)
- --------------------------------------------------------------------------------
(City (State) (Zip Code)
- --------------------------------------------------------------------------------
<PAGE>
INDIVIDUAL VARIABLE ANNUITY
CONTRACTS
(NOT FOR USE IN CONNECTION WITH
QUALIFIED
TRUSTS OR PLANS)
FRANKLIN LIFE VARIABLE ANNUITY
ISSUED BY
FUND B
THE FRANKLIN LIFE INSURANCE COMPANY
#1 FRANKLIN SQUARE
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 designed for retirement
planning by individuals. Such annuities are not designed for use in
connection with certain qualified plans and trust accorded special tax
treatment. 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 . . . . . . . . . . . . . . . . . . . . 2
Investment Objectives . . . . . . . . . . . . . . . . . . . 2
Management. . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Advisory and Other Services. . . . . . . . . . . 4
Distribution of The Contracts . . . . . . . . . . . . . . . 6
Portfolio Turnover and Brokerage. . . . . . . . . . . . . . 7
Safekeeper of Securities. . . . . . . . . . . . . . . . . . 7
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . 8
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Index to Financial Statements . . . . . . . . . . . . . . . F-1
</TABLE>
1
<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
Variable Annuity Fund B (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.
2
<PAGE>
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.)
NAME AND ADDRESS PRINCIPAL OCCUPATIONS POSITIONS HELD
DURING PAST 5 YEARS WITH THE FUND
ROBERT G. SPENCER* Officer of The Franklin; Chairman and Member,
#1 Franklin Square currently,Vice President Board of Managers
Springfield, Illinois of The Franklin; prior to
62713 1996, also Treasurer of
The Franklin and Treasurer
and Assistant Secretary of
Franklin Financial
Services Corporation.
ELIZABETH E. ARTHUR* Officer of The Franklin; Secretary, Board of
#1 Franklin Square currently, Vice President, Managers
Springfield, Illinois Assistant Secretary and
62713 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 Member, Board of
2303 South Third Government, Montana State Managers
Avenue Bozeman, University, since 1992;
Montana 59715 Professor of Government
and Public Affairs,
Sangamon State University,
prior thereto.
JAMES W. VOTH Chairman, Resource Member, Board of
50738 Meadow Green International Corp., South Managers
Court Granger, Indiana Bend, Indiana (marketing,
46530 manufacturing and
engineering service to
industry); prior to 1993,
also President of Resource
International Corp.
CLIFFORD L. GREENWALT Director, President and Member, Board of
607 East Adams Street Chief Executive Officer, Managers
Springfield, Illinois CIPSCO Incorporated, since
62739 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).
*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.
3
<PAGE>
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.
Name of Person, Position Aggregate Compensation Total Compensation
Relating to Fund Relating to Fund and
Fund Complex Paid to
Each Member
Each member of the Board
of Managers (except $1,400(1) $4,200 (1) (2)
Robert G. Spencer)
- --------------------------------------------------------------------------------
(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
Money Market Variable Annuity Fund C.
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.
4
<PAGE>
(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.
The Administration Agreement discussed under "Deductions and Charges
Under the Contracts--Sales and 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.
5
<PAGE>
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 June 30, 1971 and amended on May
15, 1975, 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. Sales deductions from
Stipulated Payments are paid to Franklin Financial as a means to recover
sales expenses. Sales deductions are not necessarily related to Franklin
Financial's actual sales expenses in any particular year. To the extent sales
expenses are not covered by sales deductions, 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 to bear the cost of
preparation of prospectuses and other disclosure materials. Commissions and
other remuneration and the cost of disclosure materials will be paid by The
Franklin from its General Account.
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.
6
<PAGE>
PORTFOLIO TURNOVER AND BROKERAGE
A. PORTFOLIO TURNOVER
The Fund will purchase securities, in general, for long-term appreciation
of capital and income and does not place emphasis on obtaining short-term
trading profits. See "Investment Policies and Restrictions of the Fund" in
the Prospectus. Accordingly, the Fund expects to have an annual rate of
portfolio turnover which is at, or below, the industry average. (The
"portfolio turnover" rate means (a) the lesser of the dollar amount of the
purchases or of the sales of portfolio securities (other than short-term
securities, that is, those with a maturity of one year or less at the time of
purchase) by the Fund for the period in question, divided by (b) the monthly
average of the value of the Fund's portfolio securities (excluding short-term
securities).) However, the rate of portfolio turnover is not a limiting
factor when changes in the portfolio are deemed appropriate, and in any given
year conditions could result in a higher rate, which would not in and of
itself indicate a variation from stated investment objectives. The degree of
portfolio activity affects the brokerage costs of the Fund. See "Brokerage,"
immediately below.
For 1996, the portfolio turnover rate was 3.35%; for 1997 the rate was
_______%.
B. BROKERAGE
Decisions to buy and 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. 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 in
negotiating commissions. During 1995, 1996 and 1997, a total of $759, $139
and $_____________, respectively, in brokerage commissions was paid; none of
such brokerage business of the Fund was allocated to Franklin Financial
Services Corporation or to brokers who furnished statistical data and
research to The Franklin. No officer or director of The Franklin or Franklin
Financial Services Corporation (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
Services Corporation).
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.
7
<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.
8
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN LIFE VARIABLE ANNUITY FUND B
INDIVIDUAL VARIABLE ANNUITY CONTRACTS (NOT FOR USE IN CONNECTION WITH QUALIFIED
TRUST OR PLANS)
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 Variable Annuity Fund B:
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 Variable Annuity Fund B:
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:
1 - Resolution of The Franklin Life Insurance Company's Board of
Directors creating Franklin Life Variable Annuity Fund B is
incorporated herein by reference to Exhibit 1.1 of Registrant's
Registration Statement on Form S-5, filed September 29, 1970
(File No. 2-38502).
2 - Rules and Regulations adopted by Registrant are incorporated
herein by reference to Exhibit 1.2 of Registrant's Registration
Statement Amendment No. 1 on Form S-5, filed September 23, 1971
(File No. 2-38502).
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. 38 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. 37 on Form N-3, filed March 2,
1995.
5 (a) - Sales Agreement among Franklin Financial Services Corporation,
The Franklin Life Insurance Company and Registrant dated
January 31, 1995 is incorporated herein by reference to Exhibit
5(a) of Registrant's Post-Effective Amendment No. 37 on Form
N-3, filed March 2, 1995.
(b) - Form of Agreement among The Franklin Life Insurance Company,
Franklin Financial Services Corporation and agents is
incorporated herein by reference to Exhibit 1.6(b) to
Registrant's Registration Statement Amendment No. 2 on Form
S-5, filed March 23, 1972 (File No. 2-38502).
C-1
<PAGE>
6 (a) - Revised specimen copy of Form 1180, deferred periodic payment
variable annuity contract, is incorporated herein by reference
to Exhibit 1.4(a)(i) of Registrant's Registration Statement
Amendment No. 2 on Form S-5, filed March 23, 1972 (File No.
2-38502).
(b) - Waiver of minimum payment provision of Form 1180 is
incorporated herein by reference to Exhibit 1.4(a)(i) of
Registrant's Registration Statement Post-Effective Amendment
No. 2 on Form S-5, filed March 29, 1973 (File No. 2-38502).
(c) - Revised specimen copy of Form 1181, single payment deferred
variable annuity contract, is incorporated herein by reference
to Exhibit 1.4(a)(ii) of Registrant's Registration Statement
Amendment No. 2 on Form S-5, filed March 23, 1972 (File No.
2-38502).
(d) - Revised specimen copy of Form 1182, single payment immediate
life variable annuity contract, is incorporated herein by
reference to Exhibit 1.4(a)(iii) of Registrant's Registration
Statement Amendment No. 1 on Form S-5, filed September 23, 1971
(File No. 2-38502).
(e) - Revised specimen copy of Form 1183, single payment immediate
life variable annuity contract with guaranteed period, is
incorporated herein by reference to Exhibit 1.4(a)(iv) of
Registrant's Registration Statement Amendment No. 1 on Form
S-5, filed September 23, 1971 (File No. 2-38502).
(f) - Revised specimen copy of Form 1184, single payment immediate
joint and last survivor life variable annuity contract, is
incorporated herein by reference to Exhibit 1.4(a)(v) of
Registrant's Registration Statement Amendment No.1 on Form S-5,
filed September 23, 1971 (File No. 2-38502).
(g) - Specimen copy of endorsement to Forms 1180, 1181, 1182, 1183
and 1184 when such contracts are issued to variable annuitants
in the State of Texas is incorporated herein by reference to
Exhibit 6 (g) to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-3, filed March 1,
1990 (File No. 2-38502).
7 - The applications for Forms 1180, 1181, 1182, 1183 and 1184 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. 32 to Registrant's Registration
Statement on Form N-3, filed March 1, 1990 (File No. 2-38502).
(b) - By-Laws of The Franklin Life Insurance Company are incorporated
herein by reference to Exhibit 8(b) to Post-Effective Amendment
No. 39 to Registrant's Registration Statement on Form N-3,
filed April 30, 1997 (File No. 2-38502).
9 - Not applicable.
10 - Not applicable.
11 (a) - Administration Agreement between Registrant and The Franklin
Life Insurance Company, dated March 23, 1972, is incorporated
herein by reference to Exhibit 9(a) of Registrant's
Registration Statement Amendment No. 1 on Form N-8B-1, filed
May 18, 1972 (File No. 811-2110).
(b) - Agreement between The Franklin Life Insurance Company and
Franklin Financial Services Corporation, dated June 30, 1971,
is incorporated herein by reference to Exhibit 9(b) of
Registrant's Registration Statement Amendment No. 1 on Form
N-8B-1, filed July 15, 1971 (File No. 811-2110).
(c) - Amendment to Agreement between The Franklin Life Insurance
Company and Franklin Financial Services Corporation, dated May
15, 1975, is incorporated herein by reference to Exhibit
1.9(b)(i) of Registrant's Registration Statement Amendment No.
7 on Form S-5, filed November 5, 1975 (File No. 2-38502).
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. 27 on Form N-1, filed April 29, 1986 (File No.
2-38502).
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.
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<PAGE>
15 - Not applicable.
16 - Not applicable.
17 - Power of Attorney.
27 - Financial Data Schedule meeting the requirements of Rule 483.
(To be filed by amendment.)
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, American General Corporation 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>
Name Jurisdiction of
- ---- 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
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
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of
---- Incorporation Insurer
--------------- -------
<S> <C> <C>
VALIC Trust Company Texas No
Astro Acquisition Corp. Delaware No
The Franklin Life Insurance Company Illinois Yes
The American Franklin Life Insurance Illinois Yes
Company
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, Delaware No
Inc.(9)
The National Life and Accident Texas Yes
Insurance Company
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 California No
Company*
Thrift, Incorporated* Indiana No
American General Independent Producer Division Co. Delaware No
American General Investment Advisory Services, Inc.* Texas No
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of
---- Incorporation Insurer
--------------- -------
<S> <C> <C>
American General Investment Holding Corporation(10) Delaware No
American General Investment Management Delaware No
Corporation(10)
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
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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of
- ---- Incorporation Insurer
------------- -------
<S> <C> <C>
1149 Investment Corp. Delaware No
American General Life Insurance Company of Pennsylvania Yes
Pennsylvania
New D Corporation* Iowa No
The Old Line Life Insurance Company of America Wisconsin Yes
The United States Life Insurance Company in the New York Yes
City of New York
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 Yes
Arizona
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, California No
Inc.
USLIFE Insurance Services Corporation Texas No
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
C-6
<PAGE>
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:
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:
C-7
<PAGE>
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.
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> <C>
</TABLE>
Accumulation Units Under
Variable Annuity Contracts
Item 32. Indemnification.
The information called for by this item has not changed from that provided in
Registrant's Post-Effective Amendment No. 20 on Form N-1 (File No. 2-38502)
filed with the Commission on April 6, 1982.
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
Money Market Variable Annuity Fund C. 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
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
- ------------------------------ ------------------------------
<S> <C>
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.
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.
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
- ------------------------------ ------------------------------
<S> <C>
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
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
Willliam 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(1) (2)
Name Business or Employment
- ------------------------------ ------------------------------
<S> <C>
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 Money Market Variable
Annuity Fund C, 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 interests 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.
(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)
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Elizabeth E. Arthur Assistant Secretary Secretary to the Board of Managers
Earl W. Baucom Treasurer and Director None
Bruce R. Baker Assistant Vice President and None
665 North Newbridge Road Marketing Officer
Levittown, NY 11756
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
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
James L. Gleaves Assistant Treasurer None
2929 Allen Parkway
Houston, TX 77019
Karen Kunz Chief Financial Officer and Director None
of Compliance & Administration
Deanna Osmonson Vice President None
and Assistant Secretary
Gary D. Osmonson President and Director None
Gary D. Reddick Vice Chairman and Director None
William A. Simpson Chairman of the Board None
Dan E. Trudan Vice President and Assistant Secretary None
</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:
<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-
</TABLE>
Item 35. Location of Accounts and Records.
The information called for by this item has not changed from that provided in
Registrant's Post-Effective Amendment No. 15 on Form N-1 (File No. 2-38502)
filed with the Commission on November 1, 1979.
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.
C-12
<PAGE>
(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 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 Variable Annuity
Fund B 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 VARIABLE ANNUITY FUND B
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/ Elizabeth E. Arthur Secretary, Board February 23, 1998
- ------------------------------- of Managers
(Elizabeth E. Arthur)
/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
- -------------------------------
*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 February 23, 1998
- ------------------------------------------ and Director
(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 Variable
Annuity Fund B is incorporated herein by reference to
Exhibit 1.1 of Registrant's Registration Statement on
Form S-5, filed September 29, 1970 (File No. 2-38502).
2 - Rules and Regulations adopted by Registrant are
incorporated herein by reference to Exhibit 1.2 of
Registrant's Registration Statement Amendment No. 1 on
Form S-5, filed September 23, 1971 (File No. 2-38502).
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. 38 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. 37 on
Form N-3, filed March 2, 1995.
5 (a) - Sales Agreement among Franklin Financial Services
Corporation, The Franklin Life Insurance Company and
Registrant dated January 31, 1995 is incorporated
herein by reference to Exhibit 5(a) of Registrant's
Post-Effective Amendment No. 37 on Form N-3, filed
March 2, 1995.
(b) - Form of Agreement among The Franklin Life Insurance
Company, Franklin Financial Services Corporation and
agents is incorporated herein by reference to Exhibit
1.6(b) to Registrant's Registration Statement
Amendment No. 2 on Form S-5, filed March 23, 1972
(File No. 2-38502).
6 (a) - Revised specimen copy of Form 1180, deferred periodic
payment variable annuity contract, is incorporated
herein by reference to Exhibit 1.4(a)(i) of
Registrant's Registration Statement Amendment No. 2 on
Form S-5, filed March 23, 1972 (File No. 2-38502).
(b) - Waiver of minimum payment provision of Form 1180 is
incorporated herein by reference to Exhibit 1.4(a)(i)
of Registrant's Registration Statement Post-Effective
Amendment No. 2 on Form S-5, filed March 29, 1973
(File No. 2-38502).
(c) - Revised specimen copy of Form 1181, single payment
deferred variable annuity contract, is incorporated
herein by reference to Exhibit 1.4(a)(ii) of
Registrant's Registration Statement Amendment No. 2 on
Form S-5, filed March 23, 1972 (File No. 2-38502).
(d) - Revised specimen copy of Form 1182, single payment
immediate life variable annuity contract, is
incorporated herein by reference to Exhibit
1.4(a)(iii) of Registrant's Registration Statement
Amendment No. 1 on Form S-5, filed September 23, 1971
(File No. 2-38502).
(e) - Revised specimen copy of Form 1183, single payment
immediate life variable annuity contract with
guaranteed period, is incorporated herein by reference
to Exhibit 1.4(a)(iv) of Registrant's Registration
Statement Amendment No. 1 on Form S-5, filed September
23, 1971 (File No. 2-38502).
(f) - Revised specimen copy of Form 1184, single payment
immediate joint and last survivor life variable
annuity contract, is incorporated herein by reference
to Exhibit 1.4(a)(v) of Registrant's Registration
Statement Amendment No.1 on Form S-5, filed September
23, 1971 (File No. 2-38502).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(g) - Specimen copy of endorsement to Forms 1180, 1181,
1182, 1183 and 1184 when such contracts are issued to
variable annuitants in the State of Texas is
incorporated herein by reference to Exhibit 6 (g) to
Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-3, filed March 1,
1990 (File No. 2-38502).
7 - The applications for Forms 1180, 1181, 1182, 1183 and
1184 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. 32 to
Registrant's Registration Statement on Form N-3, filed
March 1, 1990 (File No. 2-38502).
8 (b) - By-Laws of The Franklin Life Insurance Company are
incorporated herein by reference to Exhibit 8(b) to
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-3, filed April 30,
1997 (File No. 2-38502).
9 - Not applicable.
10 - Not applicable.
11 (a) - Administration Agreement between Registrant and The
Franklin Life Insurance Company, dated March 23, 1972,
is incorporated herein by reference to Exhibit 9(a) of
Registrant's Registration Statement Amendment No. 1 on
Form N-8B-1, filed May 18, 1972 (File No. 811-2110).
(b) - Agreement between The Franklin Life Insurance Company
and Franklin Financial Services Corporation, dated
June 30, 1971, is incorporated herein by reference to
Exhibit 9(b) of Registrant's Registration Statement
Amendment No. 1 on Form N-8B-1, filed July 15, 1971
(File No. 811-2110).
(c) - Amendment to Agreement between The Franklin Life
Insurance Company and Franklin Financial Services
Corporation, dated May 15, 1975, is incorporated
herein by reference to Exhibit 1.9(b)(i) of
Registrant's Registration Statement Amendment No. 7 on
Form S-5, filed November 5, 1975 (File No. 2-38502).
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. 27
on Form N-1, filed April 29, 1986 (File No. 2-38502).
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
15 - Not applicable.
16 - Not applicable.
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. 40 to the Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and Amendment No. 20 to the Registration
Statement under the Investment Company Act of 1940, as amended (the "1940
Act"), on Form N-3 (1933 Act File No. 2-38502 and 1940 Act File No. 811-2110)
of Franklin Life Variable Annuity Fund B 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 February 13, 1998
of the Fund
/s/ Earl W. Baucom
- --------------------------
Earl W. Baucom Senior Vice President, Chief January 13, 1998
Financial Officer, Treasurer
(principal financial officer
and principal accounting
officer) and Director of The
Franklin
/s/ Robert M. Beuerlein
- --------------------------
Robert M. Beuerlein Senior Vice President -- January 14, 1998
Actuarial and Director of The
Franklin
/s/ Brady W. Creel
- --------------------------
Brady W. Creel Senior Vice President and January 14, 1998
Chief Marketing Officer and
Director of The Franklin
- --------------------------
James S. D'Agostino Vice Chairman and Director of ________, 1998
The Franklin
- --------------------------
Robert M. Devlin Senior Chairman and Director ________, 1998
of The Franklin
/s/ Ross D. Friend
- --------------------------
Ross D. Friend Senior Vice President, General January 19, 1998
Counsel and 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 January 22, 1998
- -------------------------- the Fund
Clifford L. Greenwalt
- --------------------------
Rodney O. Martin, Jr. Director of The Franlin ______, 1998
- --------------------------
Jon P. Newton Vice Chairman and Director of ______, 1998
The Franklin
/s/ Gary D. Reddick
- --------------------------
Gary D. Reddick Vice Chairman and Director of January 23, 1998
The Franklin
/s/ William A. Simpson
- --------------------------
William A. Simpson Chairman of the Board, Chief January 19, 1998
Executive Officer and President
(principal executive officer)
of The Franklin
/s/ Robert C. Spencer
- --------------------------
Robert C. Spencer Member, Board of Managers of January 19, 1998
the Fund
/s/ Robert G. Spencer
- --------------------------
Robert G. Spencer Chairman, Board of Managers of January 19, 1998
the Fund
/s/ Peter V. Tuters
- --------------------------
Peter V. Tuters Vice President, Chief February 9, 1998
Investment Officer and Director
of The Franklin
/s/ James W. Voth
- --------------------------
James W. Voth Member, Board of Managers of January 19, 1998
the Fund
</TABLE>
2
