-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pp1vOJWPvp9pUHuDmFSUHOmoJBikJM96rGSu7IGZoG4BcNEV7RtZ/+4yJN2/WaVb gaSeRZN42Y8Exd5D455A/g== 0001047469-99-017369.txt : 19990503 0001047469-99-017369.hdr.sgml : 19990503 ACCESSION NUMBER: 0001047469-99-017369 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19990430 EFFECTIVENESS DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN LIFE VARIABLE ANNUITY FUND A CENTRAL INDEX KEY: 0000038748 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 370281650 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-36394 FILM NUMBER: 99606812 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-01990 FILM NUMBER: 99606813 BUSINESS ADDRESS: STREET 1: FRANKLIN SQ CITY: SPRINGFIELD STATE: IL ZIP: 62713 BUSINESS PHONE: 2175282011 MAIL ADDRESS: STREET 1: FRANKLIN SQUARE CITY: SPRINGFIELD STATE: IL ZIP: 62713-0001 485BPOS 1 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999 File No. 2-36394 File No. 811-1990 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Pre-Effective Amendment No. / / ---- Post-Effective Amendment No. 47 /X/ ---- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 23 /X/ ---- FRANKLIN LIFE VARIABLE ANNUITY FUND (formerly Franklin Life Variable Annuity Fund A) (EXACT NAME OF REGISTRANT) THE FRANKLIN LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) #1 Franklin Square Springfield, Illinois 62713 (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 528-2011 Elizabeth E. Arthur, Esq. 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, DC 20004-2415 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the effective date of the registration statement. It is proposed that this filing will become effective (check appropriate box): /X/ Immediately upon filing pursuant to paragraph (b) of Rule 485 / / On April 30, 1999, pursuant to paragraph (b) of Rule 485 / / 60 days after filing pursuant to paragraph (a)(1) of Rule 485 / / On (date) pursuant to paragraph (a)(1) of Rule 485 TITLE OF SECURITIES BEING REGISTERED: Individual Variable Annuity Contracts FRANKLIN LIFE VARIABLE ANNUITY FUND PROSPECTUS -- INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY THE FRANKLIN LIFE INSURANCE COMPANY #1 Franklin Square Springfield, Illinois 62713 1-800-528-2011 This prospectus describes three individual variable annuity contracts issued by The Franklin Life Insurance Company through the Franklin Life Variable Annuity Fund. The Franklin Life Insurance Company no longer sells the variable annuity contracts although owners of existing contracts may continue to make payments on those contracts. Each variable annuity contract provides annuity payments that may vary with the investment performance of one of three subaccounts of the Franklin Life Variable Annuity Fund. The Franklin Life Insurance Company invests assets of each subaccount exclusively in shares of either the Stock Index Fund or the Money Market Fund of American General Series Portfolio Company, an open-end mutual fund. The Franklin Life Insurance Company does not guarantee any minimum value for amounts allocated to the subaccounts. This prospectus sets forth the information that a contract owner should know before investing. Contract owners should keep this prospectus for future reference. A current prospectus for the designated investment portfolios of American General Series Portfolio Company must accompany this prospectus. Please read this prospectus in conjunction with the current prospectus for the American General Series Portfolio Company. The Franklin Life Insurance Company has filed a statement of additional information having the same date as this prospectus with the Securities and Exchange Commission. The statement of additional information further describes the variable annuity contracts and the Franklin Life Variable Annuity Fund and is incorporated herein by reference. To obtain a free copy of this document, write or call The Franklin Life Insurance Company at its administrative office - - - FLIC Annuity Service Center, 2727-A Allen Parkway (3-50), Houston, Texas 77019-2191; or P.O. Box 4799, Houston, Texas 77210-4799, (800) 231-0105 or (713) 831-3505. AN INVESTMENT IN A VARIABLE ANNUITY CONTRACT DESCRIBED IN THIS PROSPECTUS IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR IS A VARIABLE ANNUITY CONTRACT INSURED BY THE UNITED STATES GOVERNMENT. INVESTING IN A VARIABLE ANNUITY CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE RISK OF LOSS OF PAYMENTS (PRINCIPAL). - -------------------------------------------------------------------------------- THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- April 30, 1999 TABLE OF CONTENTS SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Contract A Fee Table and Example. . . . . . . . . . . . . . . . . . . 6 Contract B Fee Table and Example. . . . . . . . . . . . . . . . . . . 8 Contract C Fee Table and Example. . . . . . . . . . . . . . . . . . . 10 SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 General Description . . . . . . . . . . . . . . . . . . . . . . . . . 12 The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Charges Under the Contracts . . . . . . . . . . . . . . . . . . . . . 13 Minimum Investment. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Settlement Options. . . . . . . . . . . . . . . . . . . . . . . . . . 15 Termination by The Franklin . . . . . . . . . . . . . . . . . . . . . 15 Inquiries and Written Notices . . . . . . . . . . . . . . . . . . . . 15 CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . 16 THE FRANKLIN, THE FUND, AND THE PORTFOLIOS . . . . . . . . . . . . . . . . 17 The Franklin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Portfolios. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 DESCRIPTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 19 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . 21 Changing Periodic Stipulated Payments. . . . . . . . . . . . . . 21 Assignment or Pledge . . . . . . . . . . . . . . . . . . . . . . 22 Purchase Limits. . . . . . . . . . . . . . . . . . . . . . . . . 22 Termination by the Franklin. . . . . . . . . . . . . . . . . . . 23 Right to Revocation of Contract. . . . . . . . . . . . . . . . . 23 Transfers to Other Contracts . . . . . . . . . . . . . . . . . . 23 Deductions and Charges Under the Contracts . . . . . . . . . . . 24 Deferred Variable Annuity Accumulation Period . . . . . . . . . . . . 25 Crediting Accumulation Units . . . . . . . . . . . . . . . . . . 25 Valuation of a Contract Owner's Contract . . . . . . . . . . . . 25 Value of the Accumulation Unit . . . . . . . . . . . . . . . . . 26 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Payment of Accumulated Value at Time of Death. . . . . . . . . . 27 Options upon Failure to Make Stipulated Payments . . . . . . . . 28 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . 28 Change of Beneficiary or Mode of Payment of Proceeds; Death of Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 28 Settlement Options . . . . . . . . . . . . . . . . . . . . . . . 29 2 Transfer of Fixed-Dollar Annuity Values to Acquire Variable Annuity Accumulation Units. . . . . . . . . . . . . . . . . . 32 Loans under Contract B . . . . . . . . . . . . . . . . . . . . . 32 Annuity Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Electing Annuity Payments and Settlement Option; Commencement of Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . 34 The Annuity Unit . . . . . . . . . . . . . . . . . . . . . . . . 34 Determination of Amount of First Monthly Annuity Payment (Deferred Variable Annuity Contracts) . . . . . . . . . . . . 35 Amount of Second and Subsequent Monthly Annuity Payments (Deferred Variable Annuity Contracts) . . . . . . . . . . . . 36 Determination of Amount of Annuity Payments (Immediate Variable Annuity Contracts). . . . . . . . . . . . . . . . . . . . . . 36 Assumed Net Investment Rate. . . . . . . . . . . . . . . . . . . 36 FEDERAL INCOME TAX STATUS. . . . . . . . . . . . . . . . . . . . . . . . . 37 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 The Franklin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 The Contracts: Qualified Plans. . . . . . . . . . . . . . . . . . . . 37 The Contracts: Non-Qualified Plans. . . . . . . . . . . . . . . . . . 40 Aggregation of Contracts. . . . . . . . . . . . . . . . . . . . . . . 41 Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . 42 VOTING PRIVILEGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SERVICES UNDER THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 44 STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 REPORTS TO OWNERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 EFFECT OF NON-QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 44 YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 45 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . 45 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE. THE FRANKLIN LIFE INSURANCE COMPANY AND FRANKLIN LIFE VARIABLE ANNUITY FUND HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN ANY AUTHORIZED SUPPLEMENTAL SALES MATERIAL. 3 SPECIAL TERMS ACCUMULATION UNIT - A unit of measure used to determine the value of a Contract Owner's interest in a Subaccount prior to the initial Annuity Payment Date. ADMINISTRATIVE OFFICE - The Administrative Office is the FLIC Annuity Service Center, 2727-A Allen Parkway (3-50), Houston, Texas 77019-2191. The mailing address and telephone number are P.O. Box 4799, Houston, Texas 77210-4799, (800) 231-0105 or (713) 831-3505. ANNUITY PAYMENT DATE - The date The Franklin makes the first monthly Annuity Payment 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, The Franklin may pay Annuity Payments to a Beneficiary after the death of a Variable Annuitant. ANNUITY UNIT - A unit of 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 - One of the three individual variable annuity contracts issued by The Franklin Life Insurance Company through Franklin Life Variable Annuity Fund that is offered by this Prospectus ("Contract A," "Contract B," and "Contract C.") CONTRACT ANNIVERSARY - An anniversary of the Effective Date of a Contract. CONTRACT OWNER - Generally, the Contract Owner is the individual Variable Annuitant to whom The Franklin issues a Contract, or another person if the application for a Contract designates an owner other than the Variable Annuitant. In cases where a Contract is issued to a trustee of a qualified employees' trust or pursuant to a qualified annuity plan (Contract A or Contract C only), the Contract Owner will be the trustee or the employer establishing such trust or plan, and the employee named as the Variable Annuitant of such Contract is referred to herein as the employee. When the term "Contract Owner" is used in the context of voting rights, it includes the owners of all Contracts which depend in whole or in part on the investment performance of a Subaccount. CONTRACT YEAR - Each twelve-month period starting with the Effective Date and each Contract Anniversary thereafter. DEFERRED VARIABLE ANNUITY - An annuity contract that 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 a Contract as the date the first Contract Year begins. FIXED-DOLLAR ANNUITY - An annuity contract that provides for Annuity Payments which remain fixed as to dollar amount throughout the Annuity Payment period. THE FRANKLIN - The Franklin Life Insurance Company. FUND - Franklin Life Variable Annuity Fund. HOME OFFICE - The Home Office of The Franklin located at #1 Franklin Square, Springfield, Illinois 62713. IMMEDIATE VARIABLE ANNUITY - An annuity contract that provides for Annuity Payments to commence immediately rather than at some future date. INDIVIDUAL RETIREMENT ANNUITY - An annuity contract described in Section 408(b) of the Code. Individual Retirement Annuities may also qualify as Simplified Employee Pensions. NON-QUALIFIED CONTRACTS - Contracts (either Contract B or Contract C) issued under Non-Qualified Plans. NON-QUALIFIED PLANS - Retirement or deferred compensation plans or arrangements that do not receive favorable tax treatment under the Code. PERIODIC STIPULATED PAYMENT CONTRACT - An annuity contract which provides that payments made to purchase the contract will be made in periodic instalments rather than in a single sum. PORTFOLIO - A series of American General Series Portfolio Company, an open-end management investment company in which the Fund invests. QUALIFIED CONTRACTS - Contracts (either Contract A or Contract C) issued under Qualified Plans. 4 QUALIFIED PLANS - Retirement plans that receive favorable tax treatment under the Code. ROLLOVER CONTRIBUTION - A transfer pursuant to Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code. SEC - Securities and Exchange Commission. SETTLEMENT OPTION OR OPTIONS - Alternative terms under which payment of the amounts due in settlement of the Contracts may be received. SIMPLIFIED EMPLOYEE PENSION - An Individual Retirement Annuity that meets the additional requirements of Section 408(k) of the Code. SINGLE STIPULATED PAYMENT CONTRACT - An annuity contract which provides that the total payment to purchase the contract will be made in a single sum rather than in periodic instalments. Included are single payment immediate contracts and single payment deferred contracts. STIPULATED PAYMENTS - The payment or payments to be made to The Franklin under a Contract. SUBACCOUNT - A subdivision of the Fund, whose assets are invested in a corresponding Portfolio. VALUATION DATE - The Valuation Date is each day on which both the New York Stock Exchange and the Administrative Office are open for business except for a day that a Subaccount's corresponding Portfolio does not value its shares. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day; Reverend Dr. Martin Luther King, Jr. Holiday; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas 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 The Franklin has issued a Contract 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. 5 FEE TABLES The following pages present separate Fee Tables for each of the three Contracts. Each Fee Table assists Contract Owners in understanding the various fees and expenses that they bear directly or indirectly. Each table reflects expenses of the Fund as well as the Portfolios. Although the Contracts provide for certain administration fees, sales loads, or surrender or deferred sales charges, effective October 1998, The Franklin waived the imposition and receipt of all sales loads, surrender or deferred sales charges, and administration fees specified in the Contracts. The Franklin may make deductions from Stipulated Payments for any premium taxes payable by The Franklin on the amounts received from the sale of the Contracts. See "Premium Taxes." See "Charges under the Contracts" for a more detailed description of fees and expenses for each Contract. CONTRACT A FEE TABLE AND EXAMPLE CONTRACT A - OWNER TRANSACTIONS EXPENSES (waived since October 1998) Sales Load Imposed on Purchases (as a percentage of purchase payments) None (1) Administration Fee (as a percentage of purchase payments) None (2) SUBACCOUNT A - ANNUAL EXPENSES (as a percentage of average net assets) Mortality Fees 0.90% Expense Risk Fees 0.10% Total Subaccount A Annual Expenses 1.00% PORTFOLIO (STOCK INDEX FUND) - ANNUAL EXPENSES (as a percentage of average net assets) Management Fees 0.27% Other Expenses (after expense limitations or reimbursements) 0.04% Total Portfolio Annual Expenses (after expense limitations or reimbursements) 0.31% Total Subaccount A and Portfolio Annual Expenses 1.31%(3)
- ----------------------- (1) Reflects waiver of the specified Contract charge. Contract A provides that: (1) in the case of a Single Stipulated Payment Contract, a deduction equal to 5% of the total single payment would be made for sales expenses; and (2) in the case of Periodic Stipulated Payment Contracts, a deduction equal to 6% of each periodic payment would be made for sales expenses. (2) Reflects waiver of the specified Contract charge. Contract A provides that: (1) in the case of a Single Stipulated Payment Contract, a deduction equal to 4% (with a maximum of $100) of the total single payment would be made for administrative expenses; and (2) in the case of Periodic Stipulated Payment Contracts, a deduction equal to 3% of each periodic payment would be made for administrative expenses. (3)The Franklin has implemented an expense limitation whereby the Subaccount's total annual expenses (as a percentage of average net assets), will not exceed 1.44%, which was the total annual expenses (as a percentage of average net assets) for the year ended December 31, 1998 of the separate account that issued Contract A. 6 EXAMPLE Whether or not you surrender your Contract A at the end of the applicable time period, you would pay the following expenses (based on expenses for the year ended December 31, 1998) on a $1,000 investment, assuming a 5% annual return on assets:
1 year 3 years 5 years 10 years Single Stipulated Payment Contract $13 $41 $71 $157 Periodic Stipulated Payment Contract $13 $41 $71 $157
PLEASE DO NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 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 Subaccount 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. 7 CONTRACT B FEE TABLE AND EXAMPLE CONTRACT B - OWNER TRANSACTIONS EXPENSES (waived since October 1998) Sales Load Imposed on Purchases (as a percentage of purchase payments) None (4) Administration Fee (as a percentage of purchase payments) None (4) SUBACCOUNT B - ANNUAL EXPENSES (as a percentage of average net assets) Mortality Fees 0.90% Expense Risk Fees 0.10% Total Subaccount B Annual Expenses 1.00% PORTFOLIO (STOCK INDEX FUND) - ANNUAL EXPENSES (as a percentage of average net assets) Management Fees 0.27% Other Expenses (after expense limitations and reimbursements) 0.04% Total Portfolio Annual Expenses (after expense limitations and reimbursements) 0.31% Total Subaccount B and Portfolio Annual Expenses 1.31%(5)
- --------------------- (4) Reflects waiver of the specified Contract charge. Contract B provides for separate sales and administrative expenses to be deducted in the case of Single Stipulated Payment Contracts and Periodic Stipulated Payment Contracts. For Single Stipulated Payment Contracts, the maximum sales load is 5% of the total single payment, and the maximum administration fee is $100. Over the entire life of a 12-year Periodic Stipulated Payment Contract, total deductions equal to 9% of all periodic payments would be made (4.33% for sales expenses, 4.67% for administrative expenses.) (5)The Franklin has implemented an expense limitation whereby the Subaccount's total annual expenses (as a percentage of average net assets), will not exceed 1.44%, which was the total annual expenses (as a percentage of average net assets) for the year ended December 31, 1998 of the separate account that previously issued Contract B. 8 EXAMPLE Whether or not you surrender your Contract B at the end of the applicable time period, you would pay the following expenses (based on expenses for the year ended December 31, 1998) on a $1,000 investment, assuming a 5% annual return on assets:
1 year 3 years 5 years 10 years Single Stipulated Payment Contract $13 $41 $71 $157 Periodic Stipulated Payment Contract $13 $41 $71 $157
PLEASE DO NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 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 Subaccount 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. 9 CONTRACT C FEE TABLE AND EXAMPLE CONTRACT C - OWNER TRANSACTIONS EXPENSES (waived since October 1998) Sales Load (as a percentage of purchase payments) None (6) Administration Fee (as a charge against purchase payments) None (7) SUBACCOUNT C - ANNUAL EXPENSES (as a percentage of average net assets) Mortality Fees 0.90% Expense Risk Fees 0.16% Total Subaccount C Annual Expenses 1.06% PORTFOLIO (MONEY MARKET FUND) - ANNUAL EXPENSES (as a percentage of average net assets) Management Fees 0.50% Other Expenses (after expense limitations and reimbursements) 0.05% Total Portfolio Annual Expenses (after expense limitations and reimbursements) 0.55% Total Subaccount C and Portfolio Annual Expenses (after expense limitations)(8) 1.44%
- ---------------------- (6) Reflects waiver of the specified Contract charge. Contract C provides that a contingent deferred sales charge, applied against the lesser of the Cash Value or Stipulated Payments made during the immediately preceding 72 months, would be deducted in the event of certain redemptions. In the case of Periodic Stipulated Payment Contracts, such charges for total redemptions would start at 8% for the first three Contract Years and then decline by 2% increments per year through the sixth Contract Year, with no such charge being imposed after the end of the sixth Contract Year. In the case of Single Stipulated Payment Contracts, such charges for total redemptions would start at 6% for the first two Contract Years and then decline by 2% increments per year through the fourth Contract Year, with no such charge being imposed after the end of the fourth Contract Year. (7) Reflects waiver of the specified Contract charge. Under Contract C, a deduction of $20 per Contract Year (subject to increase by The Franklin to a maximum of $30 per Contract Year) and a transaction fee of $1.00 per Stipulated Payment ($.50 if by Bank Draft or by employer or military preauthorized automatic deduction from compensation) in the case of Periodic Stipulated Payment Contracts, and a one-time deduction of $100 in the case of Single Stipulated Payment Contracts, would be made from Stipulated Payments for administrative expenses. (8) The Franklin implemented an expense limitation whereby the Subaccount's total annual expenses (as a percentage of average net assets), will not exceed 1.44%, which was the total annual expenses (as a percentage of average net assets) for the year ended December 31, 1998 of the separate account that previously issued Contract C (Franklin Life Money Market Variable Annuity Fund C). Absent this expense limitation, the total Subaccount C and Portfolio annual expenses (as a percentage of average net assets) would have been 1.615%. See "Summary -- Charges Under the Contracts." 10 EXAMPLE Whether or not you surrender your Contract C at the end of the applicable time period, you would pay the following expenses (based on expenses for the year ended December 31, 1998) on a $1,000 investment, assuming a 5% annual return on assets:
1 year 3 years 5 years 10 years Single Stipulated Payment Contract $15 $45 $78 $171 Periodic Stipulated Payment Contract $15 $45 $78 $171
PLEASE DO NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 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 Subaccount 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. 11 SUMMARY GENERAL DESCRIPTION This prospectus provides Contract Owners with information regarding the three separate variable annuity contracts that The Franklin offers through this prospectus. Each Contract is a variable annuity contract issued through the Fund by The Franklin that is designed to assist in retirement planning for individuals: - Contract A is used in connection with certain qualified plans and trusts accorded special tax treatment or as individual retirement annuities under the Code. - Contract B is designed for retirement planning for individuals, and is NOT for use in connection with employer-related plans or qualified plans and trusts (including individual retirement annuities) accorded special tax treatment under the Code. - Contract C is used as an individual retirement annuity or in connection with trusts and retirement or deferred compensation plans that may or may not qualify for special federal tax treatment under the Code. See "Federal Income Tax Status," below. THE FRANKLIN NO LONGER ISSUES NEW CONTRACTS ALTHOUGH PAYMENTS ARE STILL ACCEPTED ON EXISTING CONTRACTS. Because the Contracts are similar in many respects, this prospectus includes one description of provisions that apply to each of the Contracts once. The prospectus includes separate descriptions for provisions that differ among the Contracts. This summary provides a concise description of the more significant aspects of each Contract. This prospectus, the related Statement of Additional Information, and each Contract provide further detail. Separate prospectuses describe the Portfolios. Please contact the Administrative Office for further information. The Franklin offered two types of each Contract: - Immediate Variable Annuities, where Annuity Payments to the Variable Annuitant commence immediately, and - Deferred Variable Annuities, where Annuity Payments to the Variable Annuitant commence in the future. Immediate Variable Annuities could only be purchased with a single Stipulated Payment, and Deferred Variable Annuities could be purchased either with periodic Stipulated Payments or with a single Stipulated Payment. The basic purpose of each Contract is to provide Annuity Payments that will commence on the initial Annuity Payment Date selected by the Contract Owner and may vary with the investment performance of a designated Subaccount of Franklin Life Variable Annuity Fund. The Franklin is the issuer of the Contracts and the obligations under the Contracts are The Franklin's obligations. The Franklin does not guarantee any minimum value for amounts allocated to the Subaccounts. 12 THE FUND The Fund is a unit investment trust that currently has three Subaccounts: - Subaccount A, which holds payments by owners of Contract A and values with respect to Contract A; - Subaccount B, which holds payments by owners of Contract B and values with respect to Contract B; and - Subaccount C, which holds payments by owners of Contract C and values with respect to Contract C. Prior to April 30, 1999, each Contract was issued through a different management company separate account established by The Franklin: Contract A was issued through Franklin Life Variable Annuity Fund A (the predecessor to the Fund), Contract B was issued through Franklin Life Variable Annuity Fund B, and Contract C was issued through Franklin Life Money Market Variable Annuity Fund C. However, pursuant to a set of transactions approved by Contract Owners in April of 1999, Franklin Life Variable Annuity Fund A: (1) was renamed "Franklin Life Variable Annuity Fund"; (2) was consolidated with Franklin Life Variable Annuity Fund B and Franklin Life Money Market Variable Annuity Fund C; and (3) was converted from a management investment company into a unit investment trust having separate Subaccounts corresponding to each of the three Contracts. Each Subaccount invests exclusively in shares of a certain Portfolio of American General Series Portfolio Company, an open-end management investment company as follows: - assets of Subaccount A and Subaccount B are invested in the Stock Index Fund of American General Series Portfolio Company; and - assets of Subaccount C are invested in the Money Market Fund of American General Series Portfolio Company. The Cash Value of payments allocated to the Franklin Life Variable Annuity Fund will vary with the investment performance of the Subaccounts and The Franklin does not guarantee the Cash Value. CHARGES UNDER THE CONTRACTS The separate Fee Tables that appear immediately before this summary illustrate the charges applicable to each Contract. These charges also are described below under "Deductions and Charges Under the Contracts." Although the Contracts provide for certain administration fees, sales loads, or surrender or deferred sales charges, beginning in October 1998, The Franklin waived the imposition and receipt of all sales loads, surrender or deferred sales charges, and administration fees specified in the Contracts. The Franklin will not reimpose these waived charges and fees. In addition, The Franklin implemented an expense limitation whereby each Subaccount's total annual expenses (as a percentage of average net assets), will not exceed the total annual expenses (as a percentage of average net assets) for the year ended December 31, 1998 of the separate account that previously issued the Contract. The following is a summary of the remaining charges associated with each Contract. 13 - MORTALITY AND EXPENSE RISK CHARGES. For Contract A and Contract B, The Franklin assesses a daily charge of 1.002% of net asset value on an annual basis against Subaccount A and Subaccount B (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). The charges for annuity rate, mortality assurances and expense assurances associated with Contract C total 1.065% on an annual basis and are made daily against the net asset value of Subaccount C (0.900% for The Franklin's assurance of annuity rates or mortality factors and 0.165% for The Franklin's assurances of expense factors). See "Mortality and Expense Risk Charge," below. - PORTFOLIO EXPENSES. The investment experience of each Subaccount reflects that of the Portfolio whose shares it holds. The investment experience of each Portfolio reflects its fees and other operating expenses. Please read the prospectuses of the Portfolios for details. - PREMIUM TAXES. The various jurisdictions in which The Franklin is transacting business regarding the Contracts charge premium taxes ranging up to 5% of the premiums received by The Franklin from the sale of the Contracts. The Franklin deducts the amount of such taxes from the Stipulated Payments at the time any premium taxes are payable. MINIMUM INVESTMENT Subject to limited exceptions, the minimum single Stipulated Payment is $2,500. The minimum Periodic Stipulated Payment Contract sold is one under which the annual payments are currently $120 (for Contract A and Contract B) or $360 (for Contract C), and the minimum of each monthly Stipulated Payment is currently $10 (for Contract A and Contract B) or $30 (for Contract C). See "Purchase Limits," below. REDEMPTION Prior to the death of the Variable Annuitant and prior to the Contract's initial Annuity Payment Date, a Contract Owner under a Deferred Variable Annuity Contract may redeem all or part of the Contract and receive the Cash Value less federal income tax withholding, if applicable. The Cash Value is equal to the number of Accumulation Units credited to the part of the Contract redeemed multiplied by the value of an Accumulation Unit at the end of the Valuation Period in which The Franklin receives the redemption request. Under Contract A and Contract C, any redemption will be subject to any limitations on early settlement contained in an applicable Qualified Plan and subject to limitations on early withdrawals imposed in connection with Section 403(b) annuity purchase plans (see "Federal Income Tax Status," below). Partial redemptions under Contract C must be in amounts of at least $500. For information as to Accumulation Units, see "Value of the Accumulation Unit," below. Subject to certain limitations, a 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. Redemptions may have adverse income tax consequences including possible Federal tax penalties. See "Redemption," "Transfers to Other Contracts," "Settlement Options," and "Federal Income Tax Status," below. 14 DEATH BENEFITS The Franklin will pay death benefits to the surviving Beneficiary if a Variable Annuitant dies before the initial Annuity Payment Date. The death benefits payable will be the Cash Value of a Contract determined as of the Valuation Date on which The Franklin receives written notice of death. See "Payment of Accumulated Value at Time of Death," below. SETTLEMENT OPTIONS At any time prior to the initial Annuity Payment Date and during the Variable Annuitant's lifetime, the Contract Owner may elect to have all or a portion of the amount due in settlement of a Contract applied under any of the available Settlement Options. A Contract Owner may select available Settlement Options on a fixed or variable basis or a combination thereof. Certain Settlement Options are subject to satisfactory proof of age of the person or persons to whom the Annuity Payments are to be made. See "Settlement Options," below. TERMINATION BY THE FRANKLIN The Franklin currently reserves the right to terminate Contracts if Stipulated Payments are less than $120 (for Contract A and Contract B) or $360 (for Contract C) 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. For Contract A and Contract C, different termination provisions apply in the case of Individual Retirement Annuities. See "Termination by The Franklin," below. INQUIRIES AND WRITTEN NOTICES Please contact the Administrative Office with any inquiry regarding a Contract, procedures or other matters, and any written notice or request. All inquiries and requests should include the Contract number, the Contract Owner's name and signature, and the Variable Annuitant's name. 15 CONDENSED FINANCIAL INFORMATION The following condensed financial information shows the value of an Accumulation Unit and how it has changed during the past 10 years. The information is derived from the financial statements for Franklin Life Variable Annuity Fund A (the separate account that held values with respect to Contract A during the past 10 years), Franklin Life Variable Annuity Fund B (the separate account that held values with respect to Contract B during the past 10 years), and Franklin Life Money Market Variable Annuity Fund C (the separate account that held values with respect to Contract C during the past 10 years). Please read the information in conjunction with the financial statements, related notes and other financial information in the Statement of Additional Information.
YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 SUBACCOUNT A Accumulation Unit value at beginning of year $98.429 $81.485 $69.200 $53.988 $53.593 Accumulation Unit value at end of year $123.031 $98.429 $81.485 $69.200 $53.988 Number of Accumulation Units outstanding at end of year 109,896 124,714 139,945 150,474 172,507 SUBACCOUNT B Accumulation Unit value at beginning of year $110.589 $86.875 $73.016 $57.630 $57.854 Accumulation Unit value at end of year $147.176 $110.589 $86.875 $73.016 $57.630 Number of Accumulation Units outstanding at end of year 13,839 16,323 18,648 21,059 23,165 SUBACCOUNT C Accumulation Unit value at beginning of year $23.733 $22.866 $22.030 $21.136 $20.593 Accumulation Unit value at end of year $24.594 $23.733 $22.866 $22.030 $21.136 Number of Accumulation Units outstanding at end of year 62,851 80,944 87,386 104,641 132,646 YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989 SUBACCOUNT A Accumulation Unit value at beginning of year $53.023 $51.912 $37.134 $39.664 $31.828 Accumulation Unit value at end of year $53.593 $53.023 $51.912 $37.134 $39.664 Number of Accumulation Units outstanding at end of year 198,763 217,948 229,368 256,831 277,735 SUBACCOUNT B Accumulation Unit value at beginning of year $55.693 $54.103 $39.821 $40.984 $32.432 Accumulation Unit value at end of year $57.854 $55.693 $54.103 $39.821 $40.984 Number of Accumulation Units outstanding at end of year 26,542 29,973 31,205 48,192 53,877 SUBACCOUNT C Accumulation Unit value at beginning of year $20.270 $19.819 $18.948 $17.712 $16.414 Accumulation Unit value at end of year $20.593 $20.270 $19.810 $18.948 $17.712 Number of Accumulation Units outstanding at end of year 159,929 210,310 247,150 270,271 307,850
FINANCIAL STATEMENTS - The Statement of Additional Information includes financial statements for the Fund and The Franklin and the reports of the independent auditors for the Fund and The Franklin. 16 THE FRANKLIN, THE FUND, AND THE PORTFOLIOS THE FRANKLIN The Franklin Life Insurance Company: - is a legal reserve stock life insurance company located at #1 Franklin Square, Springfield, Illinois 62713 - was organized under the laws of the state of Illinois in 1884 as Franklin Life Association (an assessment association) - reincorporated as a mutual company under its present name in 1898, and converted to a stock company in 1910 - 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 - is licensed in the District of Columbia, Puerto Rico, the Virgin Islands, and all states except New York - is an indirect wholly owned subsidiary of American General Corporation, a financial services organization located at 2929 Allen Parkway, Houston, Texas 77019 THE FUND By resolution of the Board of Directors of The Franklin pursuant to the provisions of the Illinois Insurance Code, The Franklin established Franklin Life Variable Annuity Fund A (the immediate predecessor to the Fund) as a separate investment account of The Franklin on November 5, 1969. Franklin Life Variable Annuity Fund A was established as an open-end diversified management investment company. In April of 1999, The Franklin effected a set of transactions whereby Franklin Life Variable Annuity Fund A was renamed Franklin Life Variable Annuity Fund (the "Fund"), converted into a unit investment trust, and consolidated with Franklin Life Variable Annuity Fund B and Franklin Life Money Market Variable Annuity Fund C. As a unit investment trust, the Fund consists of three Subaccounts that each invest exclusively in shares of a specified Portfolio. The Fund is registered with the SEC under the Investment Company Act of 1940 (the "1940 Act") and meets the definition of a "separate account" under the federal securities laws. Such registration does not involve supervision of the management of the Fund or of The Franklin by the SEC. The Fund also is governed by the laws of Illinois, The Franklin's state of domicile, and may also be governed by laws of other states in which The Franklin does business. Under the provisions of the Illinois Insurance Code: (1) 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 (2) 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. The Franklin holds these assets with 17 relation to the Contracts described in this prospectus and such other variable annuity contracts as The Franklin may issue and designate 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 Fund's operations are considered separately from The Franklin's other operations 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 Fund's operations are treated separately from The Franklin's other operations for accounting and financial statement purposes. Under existing law, The Franklin pays no federal income tax on investment income and realized capital gains of the Fund. See "Federal Income Tax Status," below. THE PORTFOLIOS The Subaccounts of the Fund will invest exclusively in shares of American General Series Portfolio Company's Stock Index Fund and Money Market Fund. American General Series Portfolio Company is registered with the SEC as an open-end management investment company -- a type of company commonly known as a "mutual fund." The Stock Index Fund and Money Market Fund offer their respective shares of common stock exclusively to variable annuity and variable life insurance separate accounts of insurance companies. As a "series" type of investment company, American General Series Portfolio Company issues distinct series of shares, each of which represents an interest in a separate diversified portfolio or "pool" of investments. Both the Stock Index Fund and Money Market Fund are similar to a separate mutual fund issuing a separate series of shares. Additional information about the Stock Index Fund and the Money Market Fund is contained in American General Series Portfolio Company's prospectus and in the statement of additional information referred to in that prospectus. Each issued and outstanding share of a Portfolio is entitled to participate equally in dividends and distributions from such Portfolio and in the net assets of such Portfolio (i.e., the assets remaining after satisfaction of outstanding liabilities) upon a liquidation or dissolution. Portfolio shares entitle their holders to one vote per share; however, separate votes will be taken by each series on matters affecting an individual series. Shares have noncumulative voting rights and no preemptive or subscription rights. The Portfolios are not required to hold shareholder meetings annually, although shareholder meetings may be called for purposes such as electing or removing directors, changing fundamental policies or approving an investment management contract. The Variable Annuity Life Insurance Company ("VALIC"), an investment adviser registered with the SEC under the Investment Advisers Act of 1940, serves as the investment adviser to each to the Stock Index Fund and the Money Market Fund. VALIC has engaged Bankers Trust Company as the investment sub-adviser for the Stock Index Fund. The investment objectives of the Stock Index Fund and the Money Market Fund are as follows: 18 - The Stock Index Fund seeks long-term capital growth through investment in common stocks that, as a group, are expected to provide investment results closely corresponding to the performance of the Standard & Poor's 500 Stock Index-Registered Trademark- ("S&P 500")(9). - The Money Market Fund seeks liquidity, protection of capital and current income through investments in short-term money market instruments. THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE. THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE AMERICAN GENERAL SERIES PORTFOLIO COMPANY CONTAINS MORE DETAILED INFORMATION CONCERNING THE INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE PORTFOLIOS, THE EXPENSES OF THE PORTFOLIOS, THE RISKS ATTENDANT TO INVESTING IN THE PORTFOLIOS AND OTHER ASPECTS OF THEIR OPERATIONS. PLEASE READ THE PORTFOLIOS' PROSPECTUS CAREFULLY BEFORE MAKING ANY DECISION CONCERNING INVESTMENTS IN THE CONTRACTS. The Franklin cannot guarantee that each Portfolio will always be available for its variable annuity contracts, but in the unlikely event that a Portfolio is not available, The Franklin will take reasonable steps to secure the availability of a comparable portfolio. The Fund purchases and redeems shares of each Portfolio at net asset value, without a sales charge. American General Series Portfolio Company sells shares of the Portfolios to separate accounts of insurance companies other than The Franklin, a practice known as "shared funding." Shares of the Portfolios are also sold to separate accounts to serve as the underlying investment for both variable annuity contracts and variable life insurance contracts, a practice known as "mixed funding." As a result, there is a possibility that a material conflict may arise between the interests of Contract Owners, and of owners of other contracts whose contract values are allocated to one or more other separate accounts investing in any one of the Portfolios. In the event of any such material conflicts, The Franklin will consider what action may be appropriate, including removing the Portfolio from the Fund or replacing the Portfolio with another portfolio. DESCRIPTION OF THE CONTRACTS GENERAL The description of the Contracts contained in this prospectus is qualified in its entirety by reference to the respective Contract, a copy of which is available upon request from the Administrative Office. 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 Annuity 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 operation. - ------------------ (9) Standard & Poor's-Registered Trademark-, S&P-Registered Trademark-, S&P 500-Registered Trademark-, and Standard & Poor's 500-Registered Trademark- are trademarks of The McGraw-Hill Companies, Inc. The Stock Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the Stock Index Fund. 19 The Franklin designed the three Contracts offered by this prospectus primarily to assist in retirement planning for individuals. The Contracts provide Annuity Payments for life commencing on a selected Annuity Payment Date, but other Settlement Options are available. The amount of the Annuity Payments may vary with the investment performance of the specified Subaccount of the Fund. For each of the three Contracts, The Franklin offers two types of Contracts pursuant to this prospectus: 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 could be purchased either with periodic Stipulated Payments or with a single Stipulated Payment, while Immediate Variable Annuities could only be purchased with a single Stipulated Payment. 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 subject to the terms of any plan pursuant to which a Contract is issued. Fixed-Dollar Annuity contracts do not, however, participate in the Fund and the amounts associated with Fixed-Dollar Annuity contracts are held in The Franklin's general account. 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 attributable thereto obtained or other Settlement Option elected by the Contract Owner, at any time prior to commencement of Annuity Payments 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 which purchases the Variable Annuity be at least $10 for Contracts A and B, and $30 for Contract C. See generally "Redemption," "Settlement Options," and "Federal Income Tax Status-Individual Retirement Annuities," below. The discussion of Contract terms herein in many cases summarizes those terms. Reference is made to the full text of the separate Contract forms, which are filed with the SEC as exhibits to the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940, and are available upon request to the Administrative Office. For Contract A and Contract C, the exercise of certain of the Contract rights herein described may be subject to the terms and conditions of any Qualified Plan under which such Contract may be purchased. This prospectus contains no information concerning any such Qualified Plan. Further information relating to some Qualified Plans may be obtained from the disclosure documents required to be distributed to employees under the Employee Retirement Income Security Act of 1974. The Qualified Contracts described in this Prospectus were not knowingly sold other than for use: (1) in connection with qualified employee pension and profit-sharing trusts described in Section 401(a) and tax-exempt under Section 501(a) of the Code, and qualified annuity plans described in Section 403(a) of the Code; (2) in connection with qualified pension, profit-sharing and annuity plans established by self-employed persons ("H.R. 10 Plans"); (3) in connection with annuity purchase plans adopted by public school systems and certain tax-exempt organizations pursuant to Section 403(b) of the Code; or 20 (4) as Individual Retirement Annuities described in Section 408(b) of the Code, including Simplified Employee Pensions described in Section 408(k) of the Code. The sections below discuss other provisions of the Contracts and administrative practices of The Franklin with respect to the Contracts. ANNUITY PAYMENTS The Franklin determines Variable Annuity Payments on the basis of (1) an annuity rate table specified in the Contract, and (2) the investment performance of the Subaccount. In the case of Deferred Variable Annuity Contracts, 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. Mortality experience adverse to The Franklin or 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 will not affect the amount of the Annuity Payments. 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. Certain of the Contracts described in this prospectus incorporate annuity rate tables which reflect the age and sex of the Variable Annuitant and the Settlement Option selected. Such sex-distinct tables are appropriate for use, for example, under Contracts which are not purchased in connection with certain "employer-related" plans (such as individual retirement annuities not sponsored by an employer). However, The Franklin will provide "unisex" annuity rate tables for use under Contracts purchased in connection with "employer-related" plans. CHANGING PERIODIC STIPULATED PAYMENTS Contract Owners can pay Stipulated Payments on an annual, semi-annual or quarterly schedule or, with The Franklin's consent, monthly. The first Stipulated Payment was 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. A Contract Owner (of Contract A or Contract C) may increase the amount of a Stipulated Payment on an annualized basis under a Periodic Stipulated Payment Contract (except in the case of an Individual Retirement Annuity, which cannot be increased above the amounts described under "Purchase Limits," below) up to an amount on an annualized basis equal to twice (or ten times in the case of Contract C) the amount of the first Stipulated Payment on an annualized basis. For all Contracts, the amount of a periodic Stipulated Payment may be decreased by the Contract Owner on any date a Stipulated Payment is due (subject to the limitations described under "Purchase Limits" below). After such a decrease under Contract B, 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 Contract Owner can change the mode of Stipulated Payment only on a Contract Anniversary. 21 For Contracts A and C, the Contract Owner may continue making Stipulated Payments after the agreed number of Stipulated Payments has been made, but The Franklin will not accept Stipulated Payments after age 75. Submission of a Stipulated Payment in an amount different from that of the previous payment, subject to the aforesaid limits, will constitute notice of the election of the Contract Owner to make such change. A Contract Owner of Contract B having a Stipulated Payment period of 12 years or more 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 Stipulated Payments after age 75. ASSIGNMENT OR PLEDGE A Contract Owner may not assign a Qualified Contract unless it was issued to a trustee in connection with certain types of plans designed to qualify under Section 401 of the Code or when made pursuant to a qualified domestic relations order rendered by a state court in satisfaction of family support obligations. In general, a pledge or assignment made with respect to certain Qualified Contracts may, depending on such factors as the amount pledged or assigned, be treated as a taxable distribution. See "Individual Retirement Annuities," below, for special rules applicable thereto. Moreover, in certain instances, pledges or assignments of a Qualified Contract may result in the imposition of certain tax penalties. See "The Contracts: Qualified Plans," below. A Contract Owner may assign a Non-Qualified Contract or pledge a Non-Qualified Contract as collateral security as provided in the Non-Qualified Contract. Assignments or pledges of a Non-Qualified Contract will generally be treated as distributions that may be taxable. Moreover, in certain instances, pledges or assignments of a Non-Qualified Contract may result in the imposition of certain tax penalties. See "The Contracts: Non-Qualified Plans," below. Persons contemplating the assignment or pledge of a Qualified Contract or a Non-Qualified Contract should consult a qualified tax advisor concerning the federal income tax consequences. PURCHASE LIMITS The Contracts have different provisions regarding purchase limits as described below. CONTRACT A AND CONTRACT C - Currently, no periodic Stipulated Payment may be less than $10 ($120 on an annual basis) for Contract A, or $30 ($360 on an annual basis) for Contract C. Under the terms of Contract A, The Franklin may increase the minimum periodic Stipulated Payment to $20 ($240 on an annual basis). No single Stipulated Payment may be less than $2,500, except that in the case of a deferred Single Stipulated Payment Contract to be used as an Individual Retirement Annuity funded with a Rollover Contribution, the total Stipulated Payment applicable to the Variable Annuity must be at least $1,000 unless, with consent of The Franklin, a smaller single Stipulated Payment is permitted. In the case of a Qualified Contract issued for use as an Individual Retirement Annuity, annual premium payments may not, in general, exceed $2,000. However, if the Individual Retirement Annuity is a Simplified Employee Pension, annual premium payments may not exceed $24,500. Single Stipulated Payment Contracts are not available as Individual Retirement Annuities except for those funded with Rollover Contributions and except for those to be used as Simplified Employee Pensions. 22 CONTRACT B - No single Stipulated Payment may be less than $2,500. Currently, no Stipulated Payment may be less than $10 ($120 on an annual basis). Under the terms of Contract B, The Franklin may increase the minimum periodic Stipulated Payment to $20 ($240 on an annual basis). TERMINATION BY THE FRANKLIN The Franklin currently reserves the right to terminate any Contract, other than a Contract issued for use as an Individual Retirement Annuity, if total Stipulated Payments paid are less than $120 (for Contract A and Contract B) or $360 (for Contract C) 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 Contract A and Contract B, The Franklin may terminate such Contracts 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. For each Contract, The Franklin must give 31 days' notice by mail to the Contract Owner of such termination. For Contract A and Contract C, The Franklin reserves the right to terminate any Contract issued for use as an Individual Retirement Annuity if no Stipulated Payments have been received for any two Contract Years and if the first monthly Annuity Payment, determined at the initial Annuity Payment Date, arising from the Stipulated Payments received prior to such two-year period would be less than $20. Upon termination as described above, The Franklin will pay to the Contract Owner the Cash Value of the Contract, less federal income tax withholding, if applicable. For certain tax consequences upon such payment, see "Federal Income Tax Status," below. RIGHT TO REVOCATION OF CONTRACT No new Contracts are being sold, but the following revocation right will apply if The Franklin decides to sell any new Contracts. A Contract Owner has the right to revoke the purchase of a Contract within 10 days after receipt of the Contract, and upon such revocation will be entitled to a return of the entire amount paid. The request for revocation must be made by mailing or hand-delivering the Contract and a written request for its revocation within such 10-day period either to the Administrative Office, 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. 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. For Contracts issued in connection with a Qualified Plan, redemptions will be subject to any limitations in the Qualified Plan. 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 a 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 23 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) should to consult a qualified tax advisor prior to the time of redemption. DEDUCTIONS AND CHARGES UNDER THE CONTRACTS The Contracts provide for certain administration fees, sales loads, or surrender or deferred sales charges. However, beginning in October 1998, The Franklin waived the imposition and receipt of all sales loads, surrender or deferred sales charges, and administration fees specified in the Contracts. The Franklin will not reimpose these waived charges and fees. See "Fee Tables" above, or contact the Administrative Office for more information. SALES, SURRENDER AND ADMINISTRATION DEDUCTIONS. Prior to October of 1998, The Franklin applied all sales loads, surrender or deferred sales charges, and administration fees specified in the Contracts. During that time: (1) The Franklin made deductions for sales expenses of Contract A and Contract B from Stipulated Payments pursuant to Sales Agreements with Franklin Financial Services Corporation ("Franklin Financial"); (2) for Contract C, The Franklin made no deductions from Stipulated Payments, but The Franklin paid commissions on the sales of Contracts C to agents of Franklin Financial pursuant to an agreement, and contingent deferred sales charges were applied upon redemption of a Contract; and (3) for all Contracts, The Franklin made deductions for administrative expenses pursuant to Administration Agreements with The Franklin. MORTALITY AND EXPENSE RISK CHARGE. While Annuity Payments will reflect the investment performance of the Subaccounts, they will not be affected by adverse mortality experience or by the actual expenses of the Contracts and the Fund. 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. The Franklin assumes these risks for the duration of the Contracts and the annuity rate, mortality and expense risk deductions and charges set forth herein will not be increased (beyond the maximum stated below, in the case of Contract C) 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.) For Contract A and Contract B, these charges are at the current combined annual rate of 1.002% (.002745% on a daily basis), of which .900% is for annuity rate and mortality risks and .102% is for expense risks. For Contract C, these charges are at the current combined annual rate of 1.065% (.002918% on a daily basis), of which .900% is for annuity rate and mortality risks and .165% (subject to increase at any time by The Franklin up to a maximum of .850%) is for expense risks. 24 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% are charged by various jurisdictions in which The Franklin is transacting business. PORTFOLIO EXPENSES. The investment performance of each Portfolio reflects the management fee that it pays to its investment manager or adviser as well as other operating expenses that it incurs. Investment management fees are generally daily fees computed as a percent of a Portfolio's average daily net assets at an annual rate. Please read the prospectus for each Portfolio for complete details. CHARGE FOR THE FRANKLIN'S TAXES. At the present time, The Franklin makes no charge to the Fund for any federal, state, or local taxes that The Franklin incurs which may be attributable to the Fund or the Contracts. The Franklin, however, reserves the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that it determines to be properly attributable to the Subaccounts or to the Contracts. DEFERRED VARIABLE ANNUITY ACCUMULATION PERIOD CREDITING ACCUMULATION UNITS During the accumulation period (the period before the initial Annuity Payment Date) and after October 1998, The Franklin makes no deductions from Stipulated Payments for sales or administrative expenses. See "Deductions and Charges Under the Contracts," above. However, The Franklin deducts any applicable premium taxes, as specified above under that caption, from the Stipulated Payments. The Franklin credits the balance of each Stipulated Payment to the Contract Owner in the form of Accumulation Units. The Franklin determines the number of a Contract Owner's Accumulation Units 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 Franklin receives the Stipulated Payment. The Franklin will not change the number of Accumulation Units so determined based on 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 Subaccounts. VALUATION OF A CONTRACT OWNER'S CONTRACT A Contract Owner can determine the Cash Value of a Contract at any time prior to the initial Annuity Payment Date 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 Administrative Office information as to the current value of an Accumulation Unit and the number of Accumulation Units credited to his or her Contract. 25 VALUE OF THE ACCUMULATION UNIT The value of an Accumulation Unit was set at $10 effective July 1, 1971 for Contracts A and B, and effective July 1, 1981 for Contract C. The Franklin values Accumulation Units for each Subaccount currently on each Valuation Date. 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. For each Subaccount, 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. The Net Investment Factor is an index used to measure the investment performance of a Subaccount from one Valuation Period to the next. For any Valuation Period, the Net Investment Factor for any Subaccount reflects the change in the net asset value per share of the Portfolio held in the Subaccount from one Valuation Period to the next, adjusted for the daily deduction of the mortality and expense risk charge from assets in the Subaccount. If any "ex-dividend" date occurs during the Valuation Period, the per share amount of any dividend or capital gain distribution is taken into account. Also, if any taxes need to be reserved, a per share charge or credit for any taxes reserved for, which is determined by The Franklin to have resulted from the operations of the Subaccount, is taken into account. The Franklin calculates the Net Investment Factor by dividing (1) by (2) and subtracting (3) from the result, where: (1) is the result of: a. the net asset value per share of the Portfolio held in the Subaccount, determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain distributions made by the Portfolio held in the Subaccount, if the "ex-dividend" date occurs during the current Valuation Period; plus or minus c. a per share charge or credit for any taxes reserved for, which The Franklin determines to have resulted from the Subaccount's operations. (2) is the net asset value per share of the Portfolio held in the Subaccount, determined at the end of the last prior Valuation Period. (3) is a daily factor representing the mortality and expense risk charge deducted from the Subaccount, adjusted for the number of days in the Valuation Period. REDEMPTION Prior to the death of the Variable Annuitant and prior to the initial Annuity Payment Date, a Contract Owner under a Deferred Variable Annuity Contract may redeem the Contract, in whole or in part (at least $500 for any Contract C), by submitting the Contract and a written request for its redemption to the Administrative Office. Upon redemption, the Contract Owner will receive the Cash Value of the part of the Contract redeemed. For Qualified Contracts, redemption will be subject to any limitations on early settlement contained in an applicable Qualified Plan. Early withdrawal of certain amounts attributable to Contracts issued pursuant to an annuity purchase plan meeting the requirements of Code Section 403(b) 26 may be prohibited. See "Federal Income Tax Status," below. The Cash Value of a Contract or part thereof redeemed prior to the initial Annuity Payment Date is the number of Accumulation Units credited to the Contract (or that part so redeemed) multiplied by the value of an Accumulation Unit at the end of the Valuation Period in which the request for redemption is received. Except in limited circumstances discussed below, The Franklin will pay the Cash Value within seven days after the date The Franklin receives at the Administrative Office a properly completed and documented request for redemption. 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 each Subaccount's Portfolio normally utilizes is restricted, or an emergency exists as determined by the SEC so that disposal of the Portfolio's investments or determination of its net asset value is not reasonably practicable; or for such other periods as the SEC 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 and federal tax penalties. See "Federal Income Tax Status," below. 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, The Franklin will pay death benefits to the surviving beneficiary within seven days after The Franklin receives 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 Franklin will make the determination 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 payment of death proceeds in the event no Beneficiary is surviving at the death of the Variable Annuitant, see "Change of Beneficiary or Mode of Payment of Proceeds; Death of Beneficiaries," below. The Code imposes certain requirements concerning payment of death benefits payable before the initial Annuity Payment Date in the case of Qualified Contracts issued in connection with qualified pension and profit-sharing plans under Section 401(a) of the Code. Under those Contracts, death benefits will be paid as required by the Code and as specified in the governing plan documents. Consult the terms of such documents to determine the death benefits and any limitations the plan may impose. You should consult your legal counsel and tax advisor regarding these requirements. Subject to the foregoing, at any time prior to the initial Annuity Payment Date the Contract Owner may elect that all or any portion of such death proceeds be paid to the Beneficiary under any one of the available Settlement Options. See "Settlement Options," below. If the Contract Owner has not made 27 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, The Franklin will make payment to the Beneficiary in a single sum. Death proceeds may be applied to provide variable payments, fixed-dollar payments or a combination of both. The payment of death proceeds may be subject to federal income tax. See "Federal Income Tax Status" and "Income Tax Withholding," below. In the event of the death of the Variable Annuitant after the initial Annuity Payment Date, The Franklin will make payments under a Contract as described in "Settlement Options," below. 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 Franklin's right 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: (1) to exercise any of the available Settlement Options described under "Settlement Options," below, or redeem the Contract as described under "Redemption," above; or (2) 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 the Contract Owner does not elect an option within 31 days after failure to make a Stipulated Payment, the Contract will automatically be continued under the paid-up annuity option. REINSTATEMENT By making one Stipulated Payment, a Contract Owner 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. Contact The Franklin for further information. CHANGE OF BENEFICIARY OR MODE OF PAYMENT OF PROCEEDS; DEATH OF BENEFICIARIES While a Contract is in force the Contract Owner may (by filing a written request at the Administrative Office of The Franklin) change the Beneficiary or Settlement Option, or, if agreed to by The Franklin, change to a mode of payment different from one of the Settlement Options, subject to applicable limitations under the Code and any governing Qualified Plan. If any Beneficiary predeceases the Variable Annuitant, the interest of such Beneficiary will pass to the surviving Beneficiaries, if any, unless otherwise provided by endorsement. If no Beneficiary survives the Variable Annuitant and no other provision has been made, then, upon the death of the Variable Annuitant, 28 The Franklin will pay the proceeds 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. SETTLEMENT OPTIONS In the case of Deferred Variable Annuity Contracts, 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 a 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 made pursuant to 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 according to the Settlement Option elected will be continued to the Beneficiary or, if elected by the Contract Owner (or, if elected by the Beneficiary when so designated by the Contract Owner), 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. Contract Owners may select available Settlement Options 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 that is paid on a fixed basis, there is no sharing in the investment experience of the Subaccount and, upon commencement of payments, participation in the Subaccount terminates (the subject Contract will be transferred to the general account of The Franklin). Settlement under the First, Second, Third, Fourth or Fifth Option below is subject to satisfactory proof of age of the person or persons to whom the Annuity Payments are to be made. The minimum amount of proceeds which may be applied under any Settlement Option for any person is $2,000 and proceeds of a smaller amount may be paid in a single sum in the discretion of The Franklin, except in the case of a deferred Single Stipulated Payment Contract funded with a Rollover Contribution not in excess of $2,000. See "Purchase Limits," above. Further, if at any time payments under a Settlement Option become less than $25 per payment, The Franklin has the right to change the frequency of payment to such intervals as will result in payments of at least $25. In the case of Immediate Variable Annuity Contracts, the only Settlement Options offered are the life annuity, the life annuity with 120, 180 or 240 monthly payments certain, or the joint and last survivor life 29 annuity. See "First Option," "Second Option" and "Fourth Option," below, and "Immediate Variable Annuity Contracts," below. The distribution rules which Qualified Plans must satisfy in order to be tax-qualified under the Code may limit the utilization of certain Settlement Options, or may make certain Settlement Options unavailable, in the case of Qualified Contracts issued in connection therewith. Similarly, the distribution rules which Non-Qualified Contracts must satisfy in order to qualify as "annuity contracts" under the Code may also limit available Settlement Options under Non-Qualified Contracts. These distribution rules could affect such factors as the commencement of distributions and the period of time over which distributions may be made. All Settlement Options are offered subject to the limitations of these distribution rules. The Statement of Additional Information describes certain limitations on Settlement Options based on The Franklin's current understanding of the distribution rules generally applicable to Non-Qualified Contracts upon the death of a Contract Owner and to Qualified Contracts purchased under this prospectus for use as Individual Retirement Annuities or issued in connection with Section 403(b) annuity purchase plans. See "Limitations on Settlement Options" in the Statement of Additional Information. Contract Owners contemplating election of a Settlement Option are urged to obtain and read the Statement of Additional Information. Various questions exist, however, about the application of the distribution rules to distributions from the Contracts and their effect on Settlement Option availability thereunder. Contract Owners should consult a qualified tax advisor concerning the effect of the distribution rules on the Settlement Option or Options he or she is contemplating. Neither this prospectus nor the Statement of Additional Information, however, describes limitations on Settlement Options based on applicable distribution rules in the case of Qualified Contracts issued in connection with qualified pension and profit-sharing plans under Section 401(a) of the Code and annuity plans under Section 403(a) of the Code. Under those Contracts, available Settlement Options are limited to those Options specified in the governing plan documents. The terms of such documents should be consulted to determine Settlement Option availability and any other limitations the plan may impose on early redemption of the Qualified Contract, payment in settlement thereof, or similar matters. Generally, limitations comparable to those described in the Statement of Additional Information for Individual Retirement Annuities and Section 403(b) annuity purchase plans also apply with respect to such qualified pension, profit-sharing and annuity plans (including H.R. 10 Plans). Persons contemplating election of the Fifth, Sixth or Seventh Option should consult a qualified tax advisor to determine whether the continuing right of redemption under any such Option might be deemed for tax purposes to result in the "constructive receipt" of the Cash Value of the Contract or proceeds remaining on deposit with The Franklin. FIRST OPTION - LIFE ANNUITY. An annuity payable monthly during the lifetime of the Variable Annuitant, ceasing with the last Annuity Payment due prior to the death of the Variable Annuitant. This Option offers the maximum level of monthly Annuity Payments since there is no guarantee of a minimum number of Annuity Payments or provision for any continued payments to a Beneficiary upon the death of the Variable Annuitant. It would be possible under this Option for the Variable Annuitant to receive only one Annuity Payment if he or she died before the second Annuity Payment Date, or to receive only two Annuity Payments if he or she died after the second Annuity Payment Date but before the third Annuity Payment Date, and so forth. 30 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: ($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
FOURTH OPTION - JOINT AND LAST SURVIVOR LIFE ANNUITY. An annuity payable monthly during the joint lifetime of the Variable Annuitant and a secondary variable annuitant, and thereafter during the remaining lifetime of the survivor, ceasing with the last Annuity Payment due prior to the death of the survivor. Since there is no minimum number of guaranteed payments under this Option, it would be possible under this Option to receive only one Annuity Payment if both the Variable Annuitant and the secondary variable annuitant died before the second Annuity Payment Date, or to receive only two Annuity Payments if both the Variable Annuitant and the secondary variable annuitant died after the second Annuity Payment Date but before the third Annuity Payment Date, and so forth. FIFTH OPTION - PAYMENTS FOR A DESIGNATED PERIOD. An amount payable monthly to the Variable Annuitant for a number of years which may be from one to 30 (as selected by the Contract Owner in electing this Option). At the death of the Variable Annuitant, payments will be continued to the Beneficiary for the remaining period. The cash value under this Settlement Option is the then present value of the current dollar amount of any unpaid Annuity Payments certain. A Contract under which Annuity Payments are being made under this Settlement Option may be redeemed in whole or in part (but, if in part for Contract C, not less than $500) at any time by the Contract Owner for the aforesaid cash value of the part of the Contract redeemed. See "Redemption," above. It should be noted that, while this Option does not involve a life contingency, charges for annuity rate assurances, which include a factor for mortality risks, are included in the computation of Annuity Payments due under this Option. Further, although not contractually required to do so, The Franklin currently follows a practice, which may be discontinued at any time, of permitting persons receiving Annuity Payments under this Option to elect to convert such payments to a Variable Annuity involving a 31 life contingency under the First, Second, Third or Fourth Options above if, and to the extent, such other Options are otherwise available to such person. SIXTH OPTION - PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. The amount due will be paid to the Variable Annuitant in equal annual, semiannual, quarterly or monthly Annuity Payments of a designated dollar amount (not less than $75 a year per $1,000 of the original amount due) until the remaining balance (adjusted each Valuation Period by the Net Investment Factor for the period) is less than the amount of one Annuity Payment, at which time such balance will be paid and will be the final Annuity Payment under this Option. Upon the death of the Variable Annuitant, payments will be continued to the Beneficiary until such remaining balance is paid. The cash value under this Settlement Option is the amount of proceeds then remaining with The Franklin. A Contract under which Annuity Payments are being made under this Settlement Option may be redeemed at any time by the Contract Owner for the aforesaid cash value. Annuity Payments made under the Sixth Option may, under certain circumstances, be converted into a Variable Annuity involving a life contingency. See the last paragraph under the Fifth Option, above, which applies in its entirety to the Sixth Option as well. SEVENTH OPTION - INVESTMENT INCOME. The amount due may be left on deposit with The Franklin in its general account and a sum will be paid annually, semiannually, quarterly or monthly, as selected by the Contract Owner in electing this Option, which shall be equal to the net investment rate of 3% stipulated as payable upon fixed-dollar amounts for the period multiplied by the amount remaining on deposit. Upon the death of the Variable Annuitant, the aforesaid payments will be continued to the Beneficiary. The sums left on deposit with The Franklin may be withdrawn at any time. 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. TRANSFER OF FIXED-DOLLAR ANNUITY VALUES TO ACQUIRE VARIABLE ANNUITY ACCUMULATION UNITS Under Contract A and Contract B, 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 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. 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.) LOANS UNDER CONTRACT B While Contract B is in force, prior to the initial Annuity Payment Date or the death of the Variable Annuitant, The Franklin will make a loan using the Contract as security for the loan. 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 any Contract B (the "loan value") is that amount 32 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 Subaccount B, 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 any Contract B 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 Contract 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 B 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. 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, 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, "Changing 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. 33 ANNUITY PERIOD ELECTING ANNUITY PAYMENTS AND SETTLEMENT OPTION; COMMENCEMENT OF ANNUITY PAYMENTS For Deferred Variable Annuity Contracts, a Contract Owner selects a Settlement Option and an initial Annuity Payment Date prior to the issuance of the Deferred Variable Annuity Contract, except that Qualified Contracts issued in connection with qualified pension and profit-sharing plans (including H.R. 10 Plans) under Section 401(a) of the Code and annuity plans (including H.R. 10 Plans) under Section 403(a) of the Code provide for Annuity Payments to commence at the date and under the Settlement Option specified in the plan. The Contract Owner may defer the initial Annuity Payment Date and continue the Contract to a date not later than the Contract Anniversary on which the attained age of the Variable Annuitant is 75 unless the provisions of the Code or any governing Qualified Plan require Annuity Payments to commence at an earlier date. See "Limitations on Settlement Options" in the Statement of Additional Information. The Franklin will require satisfactory proof of age of the Variable Annuitant prior to the initial Annuity Payment Date. The Franklin offered 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 Immediate Variable Annuity Contracts, 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). THE ANNUITY UNIT The Annuity Unit is a measure used to value the First Option (including the automatic life annuity) and the Second, Third, Fourth and Fifth Options, if elected on a variable basis. The value of the Annuity Unit was fixed at $1.00 as of July 1, 1971 for Contract A and Contract B, and as of July 1, 1981 for Contract C. For each day thereafter, the value of the Annuity Unit is determined by multiplying the value of the Annuity Unit on the preceding day by the "Annuity Change Factor" for the Valuation Period ending on the tenth preceding day or by 1.0 if no Valuation Period ended on the tenth preceding day. The "Annuity Change Factor" for any Valuation Period is equal to the amount determined by dividing the Net Investment Factor for that Valuation Period by a number equal to 1.0 plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3 1/2%. The division by 1.0 plus an interest factor of 3 1/2% in calculating the Annuity Change Factor is effected in order to cancel out the assumed net investment rate of 3 1/2% per year which is built into the annuity tables specified in the Contract. See "Determination of Amount of First Monthly Annuity Payment (Deferred Variable Annuity Contracts)," 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. 34 DETERMINATION OF AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT (DEFERRED VARIABLE ANNUITY CONTRACTS) 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 Contracts use tables indicating the dollar amount of the first monthly Annuity Payment under each Settlement Option for each $1,000 of Cash Value of the Contract. The first monthly Annuity Payment varies according to the Settlement Option selected (see "Settlement Options," above) and the "adjusted age" of the Variable Annuitant. The first monthly Annuity Payment may also vary according to the sex of the Variable Annuitant. See "Annuity Payments," above. (The Contracts provide for age adjustment based on the year of birth of the Variable Annuitant and any joint Variable Annuitant; a person's actual age when Annuity Payments commence may not be the same as the "adjusted age" used in determining the amount of the first Annuity Payment.) For Contracts using sex-distinct annuity tables, the tables for the First, Second, Third and Fourth Options are determined from the Progressive Annuity Table assuming births in the year 1900 and a net investment rate of 3 1/2% a year. The tables for the Fifth Option are based on a net investment rate of 3% for the General Account and 3 1/2% for the Fund. 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 a Portfolio 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 account 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 value of a Portfolio approximately 10 days prior to the initial Annuity Payment Date even though changes in the net asset value 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)," 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. 35 AMOUNT OF SECOND AND SUBSEQUENT MONTHLY ANNUITY PAYMENTS (DEFERRED VARIABLE ANNUITY CONTRACTS) The number of Annuity Units credited to a Contract on the initial Payment Date remains fixed during the annuity period, and as of each subsequent Annuity Payment Date the dollar amount of the Annuity Payment is determined by multiplying this fixed number of Annuity Units by the value of an Annuity Unit. DETERMINATION OF AMOUNT OF ANNUITY PAYMENTS (IMMEDIATE VARIABLE ANNUITY CONTRACTS) 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 any deductions for 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 Effective Date of the Contract, pursuant to the procedure discussed under "The Annuity Unit," above. Thus, the number of Annuity Units (and hence the amount of the Annuity Payments) will be affected by the net asset value of a Portfolio approximately 10 days prior to the Effective Date of the Contract, even though changes in the net asset value have occurred during that 10-day period. As of the date of this prospectus, The Franklin was using, in connection with the determination of the number of Annuity Units per month purchased under Immediate Variable Annuity Contracts, the 1955 American Annuity Table with assumed 4 1/2% interest, the purchase rates in such table being increased by 0.5% (which percentage is decreased 0.2% for each year of age at the Effective Date in excess of 70 years for male Variable Annuitants and in excess of 75 years for female Variable Annuitants). However, in lieu of such table, The Franklin will provide "unisex" annuity rate tables for use under Contracts purchased in connection with certain employer-related plans. See "Annuity Payments," above. The Annuity Change Factors used by The Franklin for Immediate Variable Annuity Contracts assume a net investment rate of 3 1/2%. 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. 36 FEDERAL INCOME TAX STATUS INTRODUCTION The Contracts are designed for use by individuals in connection with Qualified Plans (Contract A and Contract C) or Non-Qualified Plans (Contract B and Contract C) under the Code. The federal income tax treatment of the Contracts and payments received thereunder depends on various factors, including, among other factors, the tax status of The Franklin, the type of retirement plan or program in connection with which the Contracts are used and the form in which payments are received. The discussion of federal income taxes contained in this prospectus, which focuses on rules applicable to Contracts purchased under this prospectus, is general in nature and is based on existing federal income tax law, which is subject to change. The tax discussion is not intended as tax advice. The applicable federal income tax law is complex and contains many special rules and exceptions in addition to the general rules summarized herein. For these reasons, various questions about the applicable rules exist. Accordingly, each person contemplating the purchase of a Contract is advised to consult with a qualified tax advisor concerning federal income taxes and any other federal, state or local taxes that may be applicable. THE FRANKLIN The Franklin is taxed as a "life insurance company" under the Code. Since the operations of the Fund are part of the overall operations of The Franklin, the Fund is subject to tax as part of The Franklin for federal income tax purposes. Thus, the Fund is not taxed separately as a "regulated investment company" under the Code. Under the Code a life insurance company like The Franklin is generally taxed at regular corporate rates, under a single-phase system, on its specially-computed life insurance company taxable income. Some special rules continue to apply, however, in the case of segregated asset accounts like the Fund. Investment income and realized capital gains on the assets of the Fund are reinvested by The Franklin for the benefit of the Contract Owners 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. THE CONTRACTS: QUALIFIED PLANS The manner in which payments received under a Contract are taxed for federal income tax purposes depends on the form of payment. If payments are received in the form of an annuity, then, in general, under Section 72 of the Code, such payment is taxable to the recipient as ordinary income to the extent that such payment exceeds the portion, if any, of the cost basis of the Contract that is allocable to that payment. A payment received on account of partial redemption of an annuity contract generally is taxable in whole or part. The taxation of a partial redemption is governed by complex rules and a qualified tax advisor should be consulted prior to a proposed partial redemption. If the Variable Annuitant's life span exceeds his or her life expectancy, the Variable Annuitant's cost basis will eventually be recovered, and any payments made after that point will be fully taxable. If, however, the Annuity Payments cease after the initial Annuity Payment Date by reason of the death of the Variable Annuitant, the amount of any unrecovered cost basis in the Qualified Contract will generally be allowed as a deduction to the Variable Annuitant for his or her last taxable year. 37 Generally, payment of the proceeds of a Qualified Contract in a lump sum instead of in the form of an annuity, either at or before maturity, also is taxable as ordinary income to the extent the lump sum exceeds the cost basis of the Qualified Contract. Taxation may be deferred, however, to the extent, if any, that "rollover" treatment is available and elected for a particular distribution. The Qualified Contracts are designed for use in connection with several types of Qualified Plans, as described generally below. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law. QUALIFIED PENSION, PROFIT-SHARING AND ANNUITY PLANS Under pension and profit-sharing plans that qualify under Section 401(a) of the Code and annuity purchase plans that qualify under Section 403(a) of the Code (collectively "Corporate Qualified Plans"), amounts contributed by an employer to the Corporate Qualified Plan on behalf of an employee and any gains thereon are not, in general, taxable to the employee until distribution. Generally, the cost basis of an employee under a Corporate Qualified Plan will equal the amount of non-deductible contributions, if any, that the employee made to the Corporate Qualified Plan. These retirement plans may permit the purchase of the Contracts to accumulate retirement savings under the plans. Adverse tax consequences to the plan, to the participant, or both may result if this Contract is assigned or transferred to any individual as a means to provide benefit payments, unless the plan complies with all the requirements applicable to such benefits prior to transferring the Contract. The Code imposes an additional tax of 10% on the taxable portion of any early withdrawal from a Corporate Qualified Plan made by a Variable Annuitant before age 59 1/2, death, or disability. The additional income tax on early withdrawals will not apply however to certain distributions including, but not limited to, (a) distributions beginning after separation from service that are part of a series of substantially equal periodic payments made at least annually for the life of the Variable Annuitant or the joint lives of the Variable Annuitant and his or her Beneficiary, and (b) distributions made to Variable Annuitants after attaining age 55 and after separating from service. Further, additional penalties may apply to distributions made on behalf of a "5-percent owner" (as defined by Section 416(i)(1)(B) of the Code). If a lump sum payment of the proceeds of a Contract qualifies as a "lump sum distribution" under the Code, special tax rules (including limited capital gain and income averaging treatment in some circumstances) may apply. H.R. 10 PLANS (SELF-EMPLOYED INDIVIDUALS) Self-employed persons (including members of partnerships) are permitted to establish and participate in Corporate Qualified Plans under Sections 401(a) and 403(a) of the Code. Corporate Qualified Plans in which self-employed persons participate are commonly referred to as "H.R. 10 Plans." The tax treatment of annuity payments and lump sum payments received in connection with an H.R. 10 Plan is, in general, subject to the same rules described in "Qualified Pension, Profit-Sharing and Annuity Plans," immediately above. Some special rules apply, however, in the case of self-employed persons which, for example, affect certain "lump sum distribution" and "rollover" rules. 38 SECTION 403(b) ANNUITIES Section 403(b) of the Code permits public schools and other tax-exempt organizations described in Section 501(c)(3) of the Code to purchase annuity contracts for their employees subject to special tax rules. If the requirements of Section 403(b) are satisfied, amounts contributed by the employer to purchase an annuity contract for an employee, and any gains thereon, are not, subject to certain limitations, taxable to the employee until distributed to the employee. However, these payments may be subject to FICA (Social Security) taxes. Generally, the cost basis of an employee under a Section 403(b) annuity contract will equal the amount of any non-deductible contributions the employee made toward the contract plus any employer contributions that were taxable to the employee because they exceeded excludable amounts. Federal tax law imposes limitations on distributions from Section 403(b) annuity contracts. Withdrawals of amounts attributable to contributions made pursuant to a salary reduction agreement in connection with a Section 403(b) annuity contract will be permitted only (1) when an employee attains age 59 1/2, separates from service, dies or becomes totally and permanently disabled or (2) in the case of hardship. A withdrawal made in the case of hardship may not include income attributable to the contributions. However, contributions made prior to January 1, 1989, and earnings on such contributions through December 31, 1988, are not subject to the limitations on distributions for financial hardship. In addition, the limitations on distributions for financial hardship do not apply to contributions made other than by a salary reduction agreement beginning after December 31, 1988. A number of questions exist concerning the application of these rules. Anyone considering a withdrawal from a Contract issued in connection with a Section 403(b) annuity plan should consult a qualified tax advisor. The 10% penalty tax on early withdrawals described under "Qualified Pension, Profit-Sharing and Annuity Plans," above, also applies to Section 403(b) annuity contracts. INDIVIDUAL RETIREMENT ANNUITIES SECTION 408(b) INDIVIDUAL RETIREMENT ANNUITIES Under Sections 408(b) and 219 of the Code, special tax rules apply to Individual Retirement Annuities. As described below, certain contributions to such annuities (other than Rollover Contributions) are deductible within certain limits and the gains on contributions (including Rollover Contributions) are not taxable until distributed. Generally, the cost basis in an Individual Retirement Annuity will equal the amount of non-deductible contributions, if any, made to the Individual Retirement Annuity. Under special rules, all individual retirement plans will be treated as one plan for purposes of these rules. Section 408(b) sets forth various requirements that an annuity contract must satisfy before it will be treated as an Individual Retirement Annuity. Although final regulations that interpret some of these requirements have been adopted, other regulations have been proposed that interpret the additional requirement that, under a Section 408(b) Individual Retirement Annuity, the premiums may not be fixed. These proposed regulations, which contain certain ambiguities, may, of course, be changed before they are issued in final form. ACCORDINGLY, WHILE THE FRANKLIN BELIEVES THAT THE CONTRACTS OFFERED BY THIS PROSPECTUS MEET THE REQUIREMENTS OF SECTION 408(b), THE FINAL REGULATIONS AND THE CURRENTLY PROPOSED REGULATIONS THEREUNDER, THERE CAN BE NO ASSURANCE THAT THE CONTRACTS QUALIFY AS INDIVIDUAL RETIREMENT ANNUITIES UNDER SECTION 408(b) PENDING THE ISSUANCE OF COMPLETE FINAL REGULATIONS UNDER THAT CODE SECTION. 39 Individuals who are not "active participants" in an employer-related retirement plan described in Section 219(g) of the Code will, in general, be allowed to contribute to an Individual Retirement Annuity and to deduct a maximum of $2,000 annually (or 100% of the individual's compensation if less). In addition, for 1999, this deduction will be allowed for individuals who are active participants in Qualified Plans with annual adjusted gross income that is not above $31,000 ($51,000 for married individuals filing a joint return). This deduction will be phased out for individuals who are active participants in Qualified Plans with annual adjusted gross income between $31,000 and $41,000 ($51,000 and $61,000 for married individuals filing a joint return), and will not be allowed for such active participants with annual adjusted gross income above $41,000 ($61,000 for married individuals filing a joint return). The active participant status of both spouses is taken into account in determining the deductible limit. In addition, an individual will not be considered married for a year in which the individual and the individual's spouse (1) file separate returns or (2) did not live together at any time during the year. Individuals who may not make deductible contributions to an Individual Retirement Annuity may, instead, make non-deductible contributions (up to the applicable maximum described above) on which earnings will accumulate on a tax-deferred basis. If the Individual Retirement Annuity includes non-deductible contributions, distributions will be divided on a pro rata basis between taxable and non-taxable amounts. Special rules apply if an individual contributes to an Individual Retirement Annuity for his or her own benefit and to another Individual Retirement Annuity for the benefit of his or her non-working spouse. Individual Retirement Annuities are subject to limitations on the time when distributions must commence. In addition, the 10% penalty tax on early withdrawals described under "Qualified Pension, Profit-Sharing and Annuity Plans," above, also applies to Individual Retirement Annuities, except that the circumstances in which the penalty tax will not apply are different in certain respects. Further, for any year in which a Contract Owner borrows any money under or by use of the Individual Retirement Annuity, the Contract ceases to qualify under Section 408(b), and an amount equal to the fair market value of the Contract as of the first day of such year will be includible in the Contract Owner's gross income for such year. SECTION 408(k) SIMPLIFIED EMPLOYEE PENSIONS An Individual Retirement Annuity described in Section 408(b) of the Code that also meets the special requirements of Section 408(k) qualifies as a Simplified Employee Pension. Under a Simplified Employee Pension, eligible employers described in Section 408(p)(2)(C) may contribute to the Individual Retirement Annuities of their employees subject to the limitation in Section 408(j). An employee may exclude the employer's contribution on his or her behalf to a Simplified Employee Pension from gross income subject to certain limitations. Elective deferrals under a Simplified Employee Pension are to be treated like elective deferrals under a cash or deferred arrangement under Section 401(k) of the Code and are subject to a $6,000 limitation, adjusted for inflation. In general, except as stated in this section, the rules discussed in "Section 408(b) Individual Retirement Annuities," above, apply to a Simplified Employee Pension. THE CONTRACTS: NON-QUALIFIED PLANS NON-NATURAL PERSON If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified Contract, the taxpayer generally must include in income any increase in the excess of the account value over the investment in the Contract (generally, the premiums or other consideration paid for the contract) during the taxable year for contributions made after February 28, 1986. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax advisor. The following discussion generally applies to Contracts owned by natural persons. In the case of Non-Qualified Contracts issued in connection with retirement or deferred compensation plans which are Non-Qualified Plans, the provisions of the Plan determine the tax treatment of Plan participants. 40 For example, contributions to, or deferred compensation in connection with, Non-Qualified Plans may or may not be currently taxable to participants. ANNUITY DISTRIBUTIONS Payments received under a Non-Qualified Contract are subject to tax under Section 72 of the Code. If payments are received in the form of an annuity, then, in general, each payment is taxable as ordinary income to the extent that such payment exceeds the portion of the cost basis of the annuity contract that is allocable to that payment. Payment of the proceeds of an annuity contract in a lump sum either before or at maturity is taxable as ordinary income to the extent the lump sum exceeds the cost basis of the annuity contract. If the Variable Annuitant's life span exceeds his or her life expectancy, the Variable Annuitant's cost basis will eventually be recovered, and any payments made after that point will be fully taxable. If, however, the Annuity Payments cease after the initial Annuity Payment Date by reason of the death of the Variable Annuitant, the amount of any unrecovered cost basis in the Contract will generally be allowed as a deduction to the Variable Annuitant for his or her last taxable year. REDEMPTIONS A payment received on account of a complete or partial redemption of an annuity contract may also be taxable as ordinary income in whole or in part. When a partial redemption from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the account value immediately before the distribution over the Owner's investment in the Contract (generally, the premiums or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. In the case of a complete redemption (or surrender) under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the Owner's investment in the Contract. In addition, if prior to the initial Annuity Payment Date, (i) an annuity contract is assigned or pledged, or (ii) a Contract issued after April 22, 1987 is transferred without adequate consideration, then the amount assigned, pledged or transferred may similarly be taxable. Special rules may apply with respect to investments in a Contract made before August 14, 1982. Because the applicable tax treatment is complex, a qualified tax advisor should be consulted prior to a redemption, partial withdrawal, assignment, pledge, or contract transfer. PENALTY TAX ON CERTAIN WITHDRAWALS In the case of a distribution received under a Non-Qualified Contract, a penalty may be imposed equal to 10% of the taxable portion of the payment. However, the 10% penalty does not apply in various circumstances. For example, the penalty is generally inapplicable to payments that are: (i) made on or after age 59 1/2; (ii) allocable to investments in the Contract before August 14, 1982, (iii) made on or after the death of the holder; (iv) made incident to disability; (v) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or the life expectancy) of the Variable Annuitant or the joint lives (or joint life expectancies) of the Variable Annuitant and his or her beneficiary; or (vi) made under a Contract purchased with a single premium and which has an annuity starting date commencing no later than one year from the purchase date of the annuity and which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period. DIVERSIFICATION A Non-Qualified Contract will not be treated as an annuity contract for purposes of certain Code sections, including Section 72, for any period (and any subsequent period) for which the investments made by the Fund attributable to such Non-Qualified Contract are not, in accordance with Treasury regulations, 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. OWNER CONTROL In certain circumstances, owners of variable annuity contracts have been considered for Federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of our Contracts have not been explicitly addressed in published rulings. While we believe that the Contracts do not give Contract Owners investment control over separate account assets, we reserve the right to modify the Contracts as necessary to prevent an Owner from being treated as the Owner of the separate account assets supporting the Contract. AGGREGATION OF CONTRACTS Under a provision of the federal tax law effective for non-qualified deferred annuity contracts entered into after October 21, 1988, all annuity contracts (other than contracts held in connection with Qualified Plans) issued by the same company (or affiliates) to the same contract owner during any calendar year will generally be treated as one annuity contract for 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 41 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. Accordingly, a qualified tax advisor should be consulted about the application and effect of this rule. INCOME TAX WITHHOLDING Withholding of federal income tax is generally required from distributions from Qualified Plans and Non-Qualified Plans, or Contracts issued in connection therewith, to the extent the distributions are taxable and are not otherwise subject to withholding as wages ("Distributions"). See "The Contracts: Qualified Plans," above, and "The Contracts: Non-Qualified Plans," above, regarding the taxation of Distributions. Federal income tax is generally required to be withheld from all or any portion of a Distribution that constitutes an "eligible rollover distribution." An "eligible rollover distribution" generally includes any distribution from a qualified trust described in Section 401(a) of the Code, a qualified annuity plan described in Section 403(a) of the Code or a qualified annuity contract described in Section 403(b) of the Code except for (1) a distribution which is one of a series of substantially equal periodic instalments payable at least annually for the life (or over the life expectancy) of the Variable Annuitant or for the joint lives (or over the joint life expectancies) of the Variable Annuitant and his or her Beneficiary, or for a specified period of 10 years or more, or (2) a minimum distribution required pursuant to Section 401(a)(9) of the Code, and (3) an amount which is not includible in gross income (for example, the return of non-deductible contributions). Any eligible rollover distribution which is not rolled over directly from a Section 401(a) qualified trust, a Section 403(a) qualified annuity plan or a Section 403(b) qualified annuity contract to an "eligible retirement plan" is subject to mandatory federal income tax withholding in an amount equal to 20% of the eligible rollover distribution. An "eligible retirement plan" generally includes a qualified trust described in Section 401(a) of the Code, a qualified annuity plan described in Section 403(a) of the Code, an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code. Mandatory federal income tax withholding is required even if the Variable Annuitant receives an eligible rollover distribution and rolls it over within 60 days to an eligible retirement plan. Federal income tax is not required to be withheld from any eligible rollover distribution which is rolled over directly from a qualified trust described in Section 401(a) of the Code, a qualified annuity plan described in Section 403(a) of the Code or a qualified annuity contract described in Section 403(b) of the Code to an eligible retirement plan. Except with respect to certain payments delivered outside the United States or any possession of the United States, federal income tax is not required to be withheld from any Distribution which does not constitute an eligible rollover distribution, if the Variable Annuitant or Beneficiary properly elects in accordance with the prescribed procedures not to have withholding apply. In the absence of a proper election not to have withholding apply, the amount to be withheld from a Distribution which is not an eligible rollover distribution depends upon the type of payment being made. Generally, in the case of a periodic payment which is not an eligible rollover distribution, the amount to be withheld from such payment is the amount that would be withheld therefrom under specified wage withholding tables if the payment were a payment of wages for the appropriate payroll period. In the case of a non-periodic payment which is not an eligible rollover distribution, the amount to be withheld is generally equal to 10% of the amount of the Distribution. 42 The applicable federal law pertaining to income tax withholding from Distributions is complex and contains many special rules and exceptions in addition to the general rules summarized above. Special rules apply, for example, if the Distribution is made to the surviving spouse of a Variable Annuitant or if the Distribution is an eligible rollover distribution from a qualified annuity contract under Section 403(b) of the Code. Any Contract Owner, Variable Annuitant or Beneficiary considering a Distribution should consult a qualified tax advisor. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a tax advisor with respect to legislative developments and their effect on the Contract. We have the right to modify the contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contact and do not intend the above discussion as tax advice. VOTING PRIVILEGES In accordance with current interpretations of applicable law, The Franklin votes Portfolio shares held in the Fund at regular and special shareholder meetings of the Portfolios in accordance with instructions received from persons having voting interests in the corresponding Subaccounts. If, however, the 1940 Act or any regulation thereunder should be amended, or if the present interpretation thereof should change, or The Franklin otherwise determines that it is allowed to vote the shares in its own right, it may elect to do so. The number of votes that a Contract Owner or Variable Annuitant has the right to instruct is calculated separately for each Subaccount, and may include fractional votes. Prior to the Annuity Payment Date, the Contract Owner holds a voting interest in each Subaccount to which Contract value is allocated. After the Annuity Payment Date, the Variable Annuitant has a voting interest in each Subaccount from which Variable Annuity payments are made. For each Contract Owner, the number of votes attributable to a Subaccount will be determined by dividing the Contract Owner's value in the Subaccount by the Net Asset Value Per Share of the Portfolio in which that Subaccount invests. For each Variable Annuitant, the number of votes attributable to a Subaccount is determined by dividing the liability for future Variable Annuity payments to be paid from that Subaccount by the Net Asset Value Per Share of the Portfolio in which that Subaccount invests. This liability for future payments is calculated on the basis of the mortality assumptions, the selected rate of return and the Annuity Unit value of that Subaccount on the date that the number of votes is determined. As Variable Annuity payments are made, the liability for future payments decreases as does the number of votes. The number of votes available to an Contract Owner or Variable Annuitant is determined as of the date coinciding with the date established by the Portfolio for determining shareholders eligible to vote at the relevant meeting of the Portfolio's shareholders. Voting instructions are solicited by written communication prior to such meeting in accordance with procedures established for the Portfolio. Each Contract Owner or Variable Annuitant having a voting interest in a Subaccount will receive proxy materials and reports relating to any meeting of shareholders of the Portfolio in which that Subaccount invests. Portfolio shares as to which no timely instructions are received and shares held by The Franklin in a Subaccount as to which no Contract Owner or Variable Annuitant has a beneficial interest are voted in proportion to the voting instructions that are received with respect to all Contracts participating in that Subaccount. Under the 1940 Act, certain actions affecting the Subaccounts may require Contract Owner approval. In any such case, a Contract Owner will be entitled to vote in proportion to the value of his Contract. 43 SERVICES UNDER THE CONTRACTS Franklin Financial Services Corporation ("Franklin Financial") serves as "principal underwriter" (as that term is defined in the 1940 Act) for the Contracts pursuant to Sales Agreements with the Fund. The Sales Agreements are 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. However, commissions are paid to registered representatives of Franklin Financial with respect to Stipulated Payments received by The Franklin under outstanding Contracts to a maximum of 5% of such Stipulated Payments for Contract A, 4% of such Stipulated Payments for Contract B, and 2% of such Stipulated Payments for Contract C. Beginning in October 1998, administrative services under the Contracts are provided by American General Life Insurance Company pursuant to a services agreement. 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. REPORTS TO OWNERS The Franklin will mail Contract Owners (or persons receiving payments following the Annuity Payment Date), at their last known address of record, any reports and communications required by applicable law or regulation. Therefore, prompt written notice of any address change should be given to The Franklin at its Administrative Office. EFFECT OF NON-QUALIFICATION In the event that a plan intended to qualify as a Qualified Plan under the Code fails to meet the applicable qualification requirements under the Code (including Section 818(a)) or in the event that a Qualified Plan ceases to qualify thereunder, The Franklin shall have the right, upon receiving notice of such non-qualification, to treat any such Contract issued in connection with such a plan as a Non-Qualified Contract participating in the Fund. YIELD INFORMATION In accordance with regulations adopted by the SEC, the Fund has computed an annualized yield and an effective yield for a seven-day period for Subaccount C that does not take into consideration any realized or unrealized gains or losses on shares of the Money Market Fund or on its portfolio securities. This current annualized yield is computed by determining the net change (exclusive of realized gains and losses from the sale of securities and unrealized appreciation and depreciation on investments) in the 44 value of a hypothetical pre-existing account having a balance of one Accumulation Unit of Subaccount C at the beginning of such seven-day period, dividing the net change in account value by the value of the account at the beginning of the seven-day period (the "base period return") and multiplying this result by 365/7 to obtain an annualized yield. The annualized yield for the seven calendar day period ended December 31, 1998 was 3.30%. The effective yield is computed by compounding the base period return by adding one, raising the sum to a power equal to 365 divided by 7, and subtracting one from the result. The effective yield for the seven calendar day period ended December 31, 1998 was 3.35%. The effective yield is higher because it represents a compound yield, i.e., it assumes that the increase in account value represented by the base period return is reinvested. Yield as determined with respect to a portfolio composed primarily of money market securities normally will fluctuate on a daily basis and is affected by changes in interest rates on money market securities, average portfolio maturities, the type and quality of portfolio securities held and the expenses of the Money Market Fund. Therefore, the yield for any given past period should not be considered as a representation of the yield for any future period. In addition, although yield information may be useful in reviewing Subaccount C's performance and in providing a basis for comparison with other investment alternatives, it should be kept in mind that Subaccount C's yield cannot be compared to the yield on bank deposits and other investments which pay fixed yields for a stated period of time and that other investment companies may calculate yield on additional bases. When comparing the yields of investment companies, consideration should be given to the quality and maturity of the portfolio of securities of each company as well as to the type of expenses incurred. In this connection, it should be noted that the accrued expenses of Subaccount C differ from those incurred under conventional money market funds that do not offer variable annuity contracts in that additional charges are made against Subaccount C relating to The Franklin's assumption of mortality and expense risks under the Contract. See "Mortality and Expense Risk Charge," above. In addition, unlike investments in conventional money market funds which may be held on a non-qualified basis by the investor, investment income earned by Subaccount C during the accumulation period is not currently taxable to holders of Contracts. See "Federal Income Tax Status," above. REGISTRATION STATEMENT The Franklin and the Fund have filed a Registration Statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the 1940 Act 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. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitations on Settlement Options. . . . . . . . . . . . . . . . . . . . . . . . Distribution of the Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 45 STATEMENT OF ADDITIONAL INFORMATION FRANKLIN LIFE VARIABLE ANNUITY FUND Individual Variable Annuity Contracts Issued by The Franklin Life Insurance Company #1 Franklin Square Springfield, Illinois 62713 1-800-528-2011 This Statement of Additional Information, dated April 30, 1999, is not a prospectus and should be read in conjunction with the Prospectus dated April 30, 1999 for the individual variable annuity contracts which are referred to herein. This Statement of Additional Information should be retained for future reference. The Prospectus sets forth information that a person should know before investing in the Contracts. For a copy of the Prospectus, write or call The Franklin at FLIC Annuity Service Center, 2727-A Allen Parkway (3-50), Houston, Texas 77019-2191; or P.O. Box 4799, Houston, Texas 77210-4799, (800) 231-0105 or (713) 831-3505. TABLE OF CONTENTS General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Limitations on Settlement Options. . . . . . . . . . . . . . . . . . . . . 1 Distribution of the Contracts. . . . . . . . . . . . . . . . . . . . . . . 3 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 4 GENERAL INFORMATION The individual variable annuity contracts offered by the prospectus (the "Prospectus" ) are designed primarily to provide annuity payments which may vary with the investment performance of a Subaccount of Franklin Life Variable Annuity Fund (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. REQUIRED DISTRIBUTIONS In order to be treated as an annuity contract for Federal income tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract issued after January 18, 1985, to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of an owner of the Contract. Specifically, section 72(s) requires that (a) if any owner dies on or after the annuity starting date, but prior to the time the entire interest in the contract has been distributed, the entire interest in the contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such owner's death; and (b) if any owner dies prior to the annuity starting date, the entire interest in the contract will be distributed within five years after the date of such owner's death. These requirements will be considered satisfied as to any portion of an owner's interest which is payable to or for the benefit of a designated beneficiary and which is distributed over the life of such designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the deceased owner's death. The designated beneficiary refers to a natural person designated by the owner as a beneficiary and to whom ownership of the contract passes by reason of the owner's death. However, if the designated beneficiary is the surviving spouse of the deceased owner, the contract may be continued with the surviving spouse as the new owner. The Non-Qualified Contracts subject to these distribution requirements contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other required distribution rules may apply to Qualified Contracts. For qualified plans under Section 401(a), 403(a) and 403(b) of the Code, the Code requires that distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the Contract Owner (or plan participant) (1) reaches age 70 1/2 or (2) retires, and must be made in a specified form and manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than April 1 of the calendar year following the calendar year in which the Owner (or plan participant) reaches age 70 1/2. For IRAs, distributions generally must commence no later than April 1 of the calendar year following the calendar year in which the Contract Owner (or plan participant) reaches age 70 1/2. LIMITATIONS ON SETTLEMENT OPTIONS LIMITATIONS ON CHOICE OF SETTLEMENT OPTION. Described below are certain limitations on Settlement Options based on The Franklin's current understanding of the distribution rules generally applicable to Contracts purchased for use as Individual Retirement Annuities or issued in connection with Section 403(b) annuity purchase plans. Various questions exist, however, about the application of the distribution rules to distributions from the Contracts and their effect on Settlement Option availability thereunder. The Internal Revenue Service has proposed regulations relating to required distributions from qualified plans, individual retirement plans, and annuity contracts under Section 403(b) of the Code. These proposed regulations may limit the availability of the Settlement Options in Contracts purchased for use as Individual Retirement Annuities or issued in connection with Section 403(b) annuity purchase plans. The proposed regulations are generally effective for calendar years after 1984. A person should consult a qualified tax advisor concerning the effect of the proposed regulations on the Settlement Option or Options the person is contemplating. FIRST OPTION - LIFE ANNUITY. Under Contracts issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans, if the Variable Annuitant dies before Annuity Payments have commenced, this Option is not available to a Beneficiary unless distributions to the Beneficiary begin not later than one year after the date of the Variable Annuitant's death (except that distributions to a Beneficiary who is the surviving spouse of the Variable Annuitant need not commence earlier than the date on which the Variable Annuitant would have attained age 70 1/2). If the surviving spouse of the Variable Annuitant is the Beneficiary and such surviving spouse dies before Annuity Payments to such spouse have commenced, the surviving spouse will be treated as the Variable Annuitant for purposes of the preceding rule. SECOND OPTION - LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS CERTAIN. Under Contracts issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans, this Option is not available unless the selected period does not extend beyond the life expectancy of the Variable Annuitant (or the life expectancy of the Variable Annuitant and his or her Beneficiary). Further, if the Variable Annuitant dies before Annuity Payments have commenced, this Option is not available to a Beneficiary unless (1) the selected period does not extend beyond the life expectancy of the 1 Beneficiary, and (2) the distribution to the Beneficiary commences not later than one year after the date of the Variable Annuitant's death (except that distributions to a Beneficiary who is the surviving spouse of the Variable Annuitant need not commence earlier than the date on which the Variable Annuitant would have attained age 70 1/2). If the surviving spouse of the Variable Annuitant is the Beneficiary and the surviving spouse dies before Annuity Payments to such spouse have commenced, the surviving spouse will be treated as the Variable Annuitant for purposes of the preceding sentence. This Option is also not available under Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans unless certain minimum distribution incidental benefit requirements of the proposed regulations are met. THIRD OPTION - UNIT REFUND LIFE ANNUITY. This Option is not available under Contracts issued for use as Individual Retirement Annuities. Also, under Qualified Contracts issued in connection with Section 403(b) annuity purchase plans, if the Variable Annuitant dies before Annuity Payments have commenced, this Option is not available to a Beneficiary unless distributions to the Beneficiary begin not later than one year after the date of the Variable Annuitant's death (except that distributions to a Beneficiary who is the surviving spouse of the Variable Annuitant need not commence earlier than the date on which the Variable Annuitant would have attained age 70 1/2). If the surviving spouse of the Variable Annuitant is the Beneficiary and such surviving spouse dies before Annuity Payments to such spouse have commenced, the surviving spouse will be treated as the Variable Annuitant for purposes of the preceding rule. This Option is also not available in connection with Section 403(b) annuity purchase plans unless certain minimum distribution incidental benefit requirements of the proposed regulations are met. FOURTH OPTION - JOINT AND LAST SURVIVOR LIFE ANNUITY. Under Contracts issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans, this Option is not available unless the secondary variable annuitant is the spouse of the Variable Annuitant or unless certain minimum distribution incidental benefit requirements of the proposed regulations are met. Further, if the Variable Annuitant dies before Annuity Payments have commenced, this Option is not available to a Beneficiary under a Contract issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans. FIFTH OPTION - PAYMENTS FOR A DESIGNATED PERIOD. Under Contracts issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans, this Option is not available unless the limitations described in the Second Option, above, applicable to such Qualified Contracts, are satisfied, except that this Option is otherwise available to a Beneficiary where the Variable Annuitant dies before Annuity Payments have commenced if the designated period does not exceed a period that terminates five years after the death of the Variable Annuitant or the substituted surviving spouse, as the case may be. In addition, this Option is not available if the number of years in the selected period over which Annuity Payments would otherwise be paid plus the attained age of the Variable Annuitant at the initial Annuity Payment Date would exceed 95. SIXTH OPTION - PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. This Option is not available under Contracts issued for use as Individual Retirement Annuities or in connection with Section 403(b) annuity purchase plans. SEVENTH OPTION - INVESTMENT OPTION. This Option is not available under Qualified Contracts issued in connection with any Qualified Plan. LIMITATIONS ON COMMENCEMENT OF ANNUITY PAYMENTS. The Contract Owner may defer the initial Annuity Payment Date and continue the Contract to a date not later than age 75 unless the provisions of the Code or any governing Qualified Plan require Annuity Payments to commence at an earlier date. For example, under Qualified Contracts, other than those issued for use as Individual Retirement Annuities, 2 the Contract Owner may not defer the initial Annuity Payment Date beyond April 1 of the calendar year following the later of the calendar year in which the Variable Annuitant (1) attains age 70 1/2, or (2) retires, and must be made in a specified form or manner. In addition, if the plan participant is a "5-percent owner" (as defined in the Code), or if the Contract is issued for use as an Individual Retirement Annuity, distributions generally must begin no later than the date described in (1). The Franklin will require satisfactory proof of age of the Variable Annuitant prior to the initial Annuity Payment Date. 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 Sales Agreements between Franklin Financial and the Fund. 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 were 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 between Franklin Financial and The Franklin, 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. 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. During 1996, 1997, and 1998: (1) a total of $16,396, $10,820 and $8,382, respectively, were paid in commissions on behalf of Contract A; (2) a total of $456, $1,046 and $258, respectively, were paid in commissions on behalf of Contract B; and (3) a total of $22, $48 and $26, respectively, were paid in commissions on behalf of Contract C. 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. 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, 1998 and the related statement of operations for the year then ended and the statements of changes in Contract Owners' equity for each of the two years in the period then ended and the table of per-unit income and changes in accumulation unit value for each of the four years in the period then ended 3 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 financial statements of The Franklin at December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998 appearing herein, have been audited by Ernst & Young LLP, independent auditors, 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 firm as experts in accounting and auditing. 4 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Franklin Life Variable Annuity Fund (formerly Franklin Life Variable Annuity Fund A): Report of Independent Auditors 6 Financial Statements: Statement of Assets and Liabilities, December 31, 1998 8 Statement of Operations for the year ended December 31, 1998 8 Statement of Changes in Contract Owners' Equity for the years ended December 31, 1998 and 1997 8 Portfolio of Investments, December 31, 1998 9 Notes to Financial Statements 10 Supplementary Information - Per-Unit Income and Changes in Accumulation Unit value for the five years ended December 31, 1998 12 The Franklin Life Insurance Company and Subsidiaries:* Report of Independent Auditors 13 Financial Statements: Consolidated Statement of Income for the three years ended December 31, 1998 14 Consolidated Balance Sheet, December 31, 1998 and 1997 15 Consolidated Statement of Shareholders' Equity for the three years ended December 31, 1998 17 Consolidated Statement of Cash Flows for the three years ended December 31, 1998 18 Notes to Consolidated Financial Statements 19 *The consolidated financial statements of The Franklin contained herein should be considered only as bearing upon the ability of The Franklin to meet its obligations under the Contracts.
5 REPORT OF INDEPENDENT AUDITORS Board of Managers and Contract Owners Franklin Life Variable Annuity Fund A We have audited the accompanying statement of assets and liabilities of Franklin Life Variable Annuity Fund A, including the portfolio of investments, as of December 31, 1998, the related statement of operations for the year then ended and the statements of changes in contract owners' equity for each of the two years then ended, and the table of per-unit income and changes in accumulation unit value for each of the four years then ended. These financial statements and the table of per-unit income and changes in accumulation unit value are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the table of per-unit income and changes in accumulation unit value based on our audits. The table of per-unit income and changes in accumulation unit value for the year ended December 31, 1994 was audited by other auditors whose report dated February 1, 1995, expressed an unqualified opinion on that table. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the table of per-unit income and changes in accumulation unit value are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments held by the custodian as of December 31, 1998. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the 1998, 1997, 1996, and 1995 table of per-unit income and changes in accumulation unit value referred to above present fairly, in all material respects, the financial position of Franklin Life Variable Annuity Fund A at December 31, 1998, and the results of its operations for the year then ended, and the changes in its contract owners' equity for each of the two years then ended, and per-unit income and changes in accumulation unit value for each of the four years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois January 29, 1999 6 [Letterhead of The Franklin Life Insurance Company] Dear Contract Owner: We are pleased to provide this 1998 annual report which shows the status of and balances in your Franklin Life Variable Annuity Fund A contract. INVESTMENT POSITION
December 31, 1998 June 30, 1998 December 31, 1997 ----------------- ------------- ----------------- Variable Portion: ----------------- Accumulation Unit Value $123.03 $108.49 $98.43 ------- ------- ------ ------- ------- ------ Percentage Change From: December 31, 1997 +24.99% ------- ------- June 30, 1998 +13.40% ------- -------
The accumulation unit value is based on the market price of the investments held by the Fund. A listing of the investments held at December 31, 1998 appears on page 3. FIXED PORTION: Additional units in the fixed rate portion of your annuity arising from contributions credited during the contract year ending in 1998 were based on a 6.25% interest rate, less a contract expense charge. If your contract anniversary is in the first half of 1999, the interest rate for the fixed portion of your annuity applicable to contributions made during the contract year ending in 1999 is anticipated to be 5.00%, less a contract expense charge. Amounts selected for investment in the fixed rather than the variable portion of your annuity do not participate in the investment experience of the Fund. Contract units resulting from interest added or contributions made prior to the contract year ending in 1998 continue to be credited with additional interest based on investment yields which reflect the years during which such units were purchased. Crediting rates are not guaranteed for future years. The United States economy continued its strong growth in 1998, as measured by the Gross Domestic Product (GDP), increasing at an annual rate of 3.9%. GDP is expected to slow in 1999, with growth being 2.0% to 2.5%. Employment finished strong in 1998, with the December unemployment rate at 4.3% and the average unemployment rate for all of 1998 at 4.5%. New jobs continued to be created during the year, especially in the service sector. The Federal Reserve Board lowered the Federal Funds rate by a total of 75 basis points, over three months in late 1998, to the current level of 4.75%. The stock market had another excellent year, the fourth year in a row. The Standard & Poor's 500 Index was up 26.69% in 1998. The stock market had a correction in the third quarter, but with the short term interest rate reduction in the fourth quarter, the stock market rebounded in the fourth quarter to close at or near record levels. Stocks of U.S. corporations continue to carry very high price/earnings ratios and corporate earnings could slow if the economy slows as indicated above. Inflation, as measured by the Gross Domestic Product deflator, was a very acceptable 1.7% in 1997, declining to 1.0% by the third quarter of 1998. The Consumer Price Index increased by 1.7% in 1997 and a slightly lower +1.6% for 1998. The Producers Price Index declined 0.2% in November, but increased 0.4% in December in light of higher tobacco prices. A decline was recorded in six of the twelve months of 1998, producing a decline in wholesale prices of 0.1% in 1998, against a decline in 1997 of 1.2%. The Producers Price Index indicates that inflation should remain under control for several more months. For stocks to continue to move higher, corporate earnings will need to improve, interest rates decline and investors willing to accept higher price/earnings ratios for stocks. 1999 will be a very challenging year for investors in the stock market. In today's fast-paced world, products, markets, client's needs, and individual risk tolerance all change. In this environment, you may want to take some extra time and review how well this product continues to meet your retirement investment objectives. A Franklin Life representative would be happy to review your financial situation with you and suggest the most appropriate mix of products to provide financial security consistent with your risk tolerance. Cordially yours, William A. Simpson Chairman and Chief Executive Officer 7
FRANKLIN LIFE VARIABLE ANNUITY FUND A STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 Assets Investments-at fair value (cost-$5,825,740) Common stocks $ 11,653,302 Short-term notes 1,843,112 --------------- 13,496,414 Cash on deposit 49,523 Dividends and interest receivable 19,458 --------------- Total Assets 13,565,395 Liability -due to The Franklin Life Insurance Company 23,895 --------------- Contract owners' equity Annuity reserves $ 20,793 Value of 109,896.4574 accumulation units outstanding, equivalent to $123.03132938 per unit $13,541,500 ----------- 13,520,707 --------------- --------------- STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 Investment income Dividends $ 130,455 Interest 69,792 ------------ Total Income $ 200,247 Expenses Mortality and expense charges $ 124,538 Investment management services 54,443 Miscellaneous expense 8 ------------ Total expenses 178,989 --------------- Net investment income 21,258 Realized and unrealized gain on investments: Net realized gain from investment transactions (excluding short-term investments): Proceeds from sales $ 1,626,314 Cost of investments sold (identified cost method) 1,197,859 ------------ Net realized gain 428,455 Net unrealized appreciation of investments Beginning of year $ 5,298,442 End of year 7,670,674 ------------ Net unrealized appreciation 2,372,232 --------------- Net gain on investments 2,800,687 --------------- Net increase in contract owners' equity resulting from operations $ 2,821,945 --------------- ---------------
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY YEAR ENDED DECEMBER 31 1998 1997 -------------------------------- Net investment income $ 21,258 $ 78,567 Net realized gain from investment transactions 428,455 452,962 Net unrealized appreciation of investments 2,372,232 1,714,372 -------------------------------- Net increase in contract owners' equity resulting from 2,821,945 2,245,901 operations Net contract purchase payments 133,181 268,272 Reimbursement for contract guarantees - 172 Annuity payments (4,788) (4,568) Withdrawals of funds on terminated contracts (1,725,151) (1,636,104) Transfers from (to) fixed account 21,424 - -------------------------------- Net increase in contract owners' equity 1,246,611 873,673 Contract owners' equity at beginning of year 12,294,889 11,421,216 -------------------------------- Contract owners' equity at end of year $13,541,500 $12,294,889 -------------------------------- --------------------------------
SEE NOTES TO FINANCIAL STATEMENTS 8 FRANKLIN LIFE VARIABLE ANNUITY FUND A PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
NUMBER OF FAIR SHARES VALUE - --------------- ------------ COMMON STOCKS (86.06%) BANKING (4.56%) 12,862 SLM Holding Corporation $ 617,376 BEVERAGES (1.33%) 4,400 PepsiCo, Incorporated 180,125 BUSINESS SERVICES (1.41%) 5,600 Equifax Inc. 191,450 CHEMICALS (1.81%) 2,700 Dow Chemical 245,531 COMPUTER SERVICES (4.18%) 8,100 Ceridian Corporation* 565,481 COSMETICS & HOUSEHOLD PRODUCTS (2.85%) 8,000 Gillette Company 386,500 DRUGS & HEALTH CARE (29.89%) 8,000 Eli Lilly and Company 711,000 4,300 Merck & Company, Inc. 635,056 4,200 Pfizer, Incorporated 526,838 6,450 St. Jude Medical, Inc.* 178,584 13,200 Schering-Plough Corporation 729,300 6,000 Stryker Corporation 330,375 16,000 Walgreen Company 937,000 ------------- 4,048,153 ELECTRONICS & INSTRUMENTATIONS (2.93%) 5,800 Hewlett-Packard Company 396,213 FOOD - RETAIL (2.68%) 5,700 Albertson's, Inc. 363,019 FOOD - WHOLESALE ( 2.72%) 13,400 Sysco Corporation 367,662 HOUSEHOLD PRODUCTS (1.13%) 3,700 Newell Co. 152,625 OFFICE EQUIPMENT & SERVICES (11.21%) 15,055 Compaq Computers Corporation 631,369 4,800 International Business Machines Corporation 886,800 ------------- 1,518,169 OIL SERVICES & DRILLING (1.36%) 6,200 Halliburton Company $ 183,675 PACKAGING - CONTAINERS (2.80%) 8,400 Avery-Dennison Corporation 378,525 PHOTOGRAPHY (2.18%) 4,100 Eastman Kodak Company 295,200 RETAIL-SPECIALTY (2.16%) 7,200 NIKE, Inc. 292,050 TECHNOLOGY (7.18%) 4,361 AMP, Incorporated 227,045 4,950 Diebold, Incorporated 176,653 4,800 Intel Corporation 569,100 ------------- 972,798 UTILITIES - TELEPHONE (3.68%) 10,000 BellSouth Corporation 498,750 ------------- TOTAL COMMON STOCKS (COST-$3,982,628) 11,653,302 PRINCIPAL AMOUNT - -------- SHORT-TERM NOTES (13.61%) $1,855,000 United States Treasury Bill 4.12%, due 1/7/99 (cost-$1,843,112) 1,843,112 ------------- TOTAL INVESTMENTS (99.67%) (COST-$5,825,740) 13,496,414 CASH AND RECEIVABLES, LESS LIABILITY (.33 %) 45,086 ------------- TOTAL CONTRACT OWNERS' EQUITY (100.0%) $13,541,500 ------------- -------------
*NON-INCOME PRODUCING INVESTMENT IN 1998. SEE NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- This report has been prepared for the information of Franklin Life Variable Annuity Fund A contract owners. It is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. 9 FRANKLIN LIFE VARIABLE ANNUITY FUND A NOTES TO FINANCIAL STATEMENTS NOTE A-SIGNIFICANT ACCOUNTING POLICIES Franklin Life Variable Annuity Fund A (the Fund) is a segregated investment account of The Franklin Life Insurance Company (The Franklin) and is registered as an open-end diversified management investment company under the Investment Company Act of 1940, as amended. The Fund no longer issues new contracts. Significant accounting policies of the Fund are as follows: VALUATION OF INVESTMENTS: Investments in common stocks listed on national stock exchanges are valued at closing sales prices. Unlisted common stocks are valued at the most recent bid prices, as supplied by broker-dealers. Short-term notes are valued at cost, which approximates fair value. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. FEDERAL INCOME TAXES: Operations of the Fund form a part of, and are taxed with those of, The Franklin which is taxed as a "life insurance company" under the Internal Revenue Code. Under current law, no federal income taxes are payable with respect to the Fund. ANNUITY RESERVES: Reserves on contracts, all involving life contingencies, are calculated using the Progressive Annuity Table with an assumed investment rate of 3-1/2%. NOTE B-INVESTMENTS Exclusive of short-term investments, the cost of investments purchased and the proceeds from investments sold during 1998 aggregated $153,637 and $1,626,314, respectively. NOTE C-EXPENSES Amounts are paid to The Franklin for investment management services at the rate of .0012% of the current value of the Fund per day (.438% on an annual basis) and for mortality and expense risk assurances at the rate of .002745% of the current value of the Fund per day (1.002% on an annual basis). NOTE D-SALES AND ADMINISTRATIVE CHARGES Sales and administrative charges aggregating $10,036 and $16,926 were deducted from the proceeds of the sales of accumulation units and retained by Franklin Financial Services Corporation and The Franklin during 1998 and 1997, respectively. Franklin Financial Services Corporation is a wholly-owned subsidiary of The Franklin and principal underwriter for the Fund. Beginning in October 1998, The Franklin began waiving all sales and administrative charges specified in each Contract in anticipation of the Funds' proposed reorganization (See Note H-Subsequent Event). NOTE E-SUMMARY OF CHANGES IN ACCUMULATION UNITS
YEAR ENDED YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------------------------------- UNITS AMOUNT UNITS AMOUNT ------- ------ ----- ------ Balance at beginning of year 124,714 $12,275,509 139,945 $11,403,341 Purchases and transfers 1,559 154,605 2,945 268,272 Net investment income* - 21,210 - 78,354 Net realized gain from investment transactions* - 427,513 - 451,738 Net unrealized appreciation of investments* - 2,367,021 - 1,709,736 Withdrawals (16,377) (1,725,151) (18,176) (1,636,104) Reimbursement for contract guarantees* - - - 172 -------------------------------------------- Balance at end of year 109,896 $13,520,707 124,714 $12,275,509 -------------------------------------------- --------------------------------------------
*Excludes portion allocated to annuity reserves on a pro rata basis. NOTE F-REMUNERATION OF MANAGEMENT No person receives any remuneration from the Fund because The Franklin pays the fees of members of the Board of Managers and officers and employees of the Fund pursuant to expense assurances. Certain members of the Board of Managers and officers of the Fund are also directors, officers or employees of The Franklin or Franklin Financial Services Corporation. Amounts paid by the Fund to The Franklin and to Franklin Financial Services Corporation are disclosed in this report. NOTE G-NET UNREALIZED APPRECIATION OF INVESTMENTS Net unrealized appreciation of investments was as follows:
DECEMBER 31 1998 1997 ----------------------------- Gross unrealized appreciation $7,670,674 $5,387,633 Gross unrealized depreciation - 89,191 ----------------------------- Net unrealized appreciation of $7,670,674 $5,298,442 investments ----------------------------- -----------------------------
10 NOTE H-SUBSEQUENT EVENT The Fund's Board of Managers has approved resolutions whereby Contract Owners will be asked during 1999 to approve a reorganization under which the Fund, together with Franklin Life Variable Annuity Fund B and Franklin Life Money Market Variable Annuity Fund C, will be restructured into a unit investment trust investing exclusively in shares of specified mutual fund portfolios. Contract Owners will be provided with a proxy statement describing the reorganization in detail. NOTE I-YEAR 2000 (UNAUDITED) INTERNAL SYSTEMS. The Franklin's ultimate parent, American General Corporation (AGC), has numerous technology systems that are managed on a decentralized basis. AGC's Year 2000 readiness efforts are therefore being undertaken by its key business units with centralized oversight. Each business unit, including The Franklin, has developed and is implementing a plan to minimize the risk of a significant negative impact on its operations. While the specifics of the plans vary, the plans include the following activities: (1) perform an inventory of The Franklin's information technology and non-information technology systems; (2) assess which items in the inventory may expose The Franklin to business interruptions due to Year 2000 issues; (3) reprogram or replace systems that are not Year 2000 ready; (4) test systems to prove that they will function into the next century as they do currently; and (5) return the systems to operations. As of December 31, 1998, substantially all of The Franklin's critical systems are Year 2000 ready and have been returned to operations. However, activities (3) through (5) for certain systems are ongoing, with vendor upgrades expected to be received during the first half of 1999. THIRD PARTY RELATIONSHIPS. The Franklin has relationships with various third parties who must also be Year 2000 ready. These third parties provide (or receive) resources and services to (or from) The Franklin and include organizations with which The Franklin exchanges information. Third parties include vendors of hardware, software, and information services; providers of infrastructure services such as voice and data communications and utilities for office facilities; investors; customers; distribution channels; and joint venture partners. Third parties differ from internal systems in that The Franklin exercises less, or no, control over Year 2000 readiness. The Franklin has developed a plan to assess and attempt to mitigate the risks associated with the potential failure of third parties to achieve Year 2000 readiness. The plan includes the following activities: (1) identify and classify third party dependencies; (2) research, analyze, and document Year 2000 readiness for critical third parties; and (3) test critical hardware and software products and electronic interfaces. As of December 31, 1998, AGC has identified and assessed approximately 700 critical third party dependencies, including those relating to The Franklin. A more detailed evaluation will be completed during first quarter 1999 as part of The Franklin's contingency planning efforts. Due to the various stages of third parties' Year 2000 readiness, The Franklin's testing activities will extend through 1999. CONTINGENCY PLANS. The Franklin has commenced contingency planning to reduce the risk of Year 2000-related business failures. The contingency plans, which address both internal systems and third party relationships, include the following activities: (1) evaluate the consequences of failure of business processes with significant exposure to Year 2000 risk; (2) determine the probability of a Year 2000-related failure for those processes that have a high consequence of failure; (3) develop an action plan to complete contingency plans for those processes that rank high in consequence and probability of failure; and (4) complete the applicable action plans. The Franklin is currently developing contingency plans and expects to substantially complete all contingency planning activities by April 30, 1999. RISKS AND UNCERTAINTIES. Based on its plans to make internal systems ready for Year 2000, to deal with third party relationships, and to develop contingency actions, The Franklin believes that it will experience at most isolated and minor disruptions of business processes following the turn of the century. Such disruptions are not expected to have a material effect on The Franklin's future results of operations, liquidity, or financial condition. However, due to the magnitude and complexity of this project, risks and uncertainties exist and The Franklin is not able to predict a most reasonably likely worst case scenario. If conversion of The Franklin's internal systems is not completed on a timely basis (due to non-performance by significant third party-vendors, lack of qualified personnel to perform the Year 2000 work, or other unforeseen circumstances in completing The Franklin's plans), or if critical third parties fail to achieve Year 2000 readiness on a timely basis, the Year 2000 issues could have a material adverse impact on The Franklin's operations following the turn of the century. COSTS. Through December 31, 1998, The Franklin has incurred, and anticipates that it will continue to incur, costs for internal staff, third party vendors, and other expenses to achieve Year 2000 readiness. These costs are not passed to the Fund. The cost of activities related to Year 2000 readiness has not had a material adverse effect on The Franklin's results of operations or financial condition. In addition, The Franklin has elected to accelerate the planned replacement of certain systems as part of the Year 2000 plans. Costs of the replacement systems are being capitalized and amortized over their useful lives, in accordance with The Franklin's normal accounting policies. 11 FRANKLIN LIFE VARIABLE ANNUITY FUND A SUPPLEMENTARY INFORMATION PER-UNIT INCOME AND CHANGES IN ACCUMULATION UNIT VALUE (SELECTED DATA AND RATIOS FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH YEAR)
YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 ------------------------------------------------------------- Investment income $1.720 $1.910 $1.685 $1.948 $1.408 Expenses 1.537 1.312 1.090 .875 .773 ------------------------------------------------------------- Net investment income 0.183 .598 .595 1.073 .635 Net realized and unrealized gain (loss) on 24.419 16.346 11.690 14.139 (.240) investments ------------------------------------------------------------- Net increase in accumulation unit value 24.602 16.944 12.285 15.212 .395 Accumulation unit value: Beginning of year 98.429 81.485 69.200 53.988 53.593 ------------------------------------------------------------- End of year $123.031 $98.429 $81.485 $69.200 $53.988 ------------------------------------------------------------- ------------------------------------------------------------- Ratio of expenses to average net assets 1.44% 1.44% 1.44% 1.44% 1.44% Ratio of net investment income to average net assets .17% .66% .79% 1.76% 1.18% Portfolio turnover rate 1.42% .70% 4.77% 14.66% 88.99% Number of accumulation units outstanding at end of 109,896 124,714 139,945 150,474 172,507 year - -------------------------------------------------------------------------------------------------------------------
MATTERS SUBMITTED TO VOTE OF CONTRACT OWNERS An annual meeting of Contract Owners of the Fund was held on April 20, 1998. At the meeting, the individuals named below were elected as Members of the Board of Managers of the Fund, and Ernst & Young LLP was ratified as the Fund's independent auditors for the ensuing fiscal year. The number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, if applicable, as to each matter is set forth in the table below.
Matter Votes: - -------------------- ------------------------------------------ For Against Abstain ------- -------- ------- Election of Robert G. Spencer as Member, Board of Managers 52,846 683 0 Election of Dr. Robert C. Spencer as Member, Board of Managers 52,751 778 0 Election of James W. Voth as Member, Board of Managers 52,846 683 0 Election of Clifford L. Greenwalt as Member, Board of Managers 52,846 683 0 Ratification of Selection of Ernst & Young LLP as independent auditors 52,200 573 756
12 REPORT OF INDEPENDENT AUDITORS ------------------------- Board of Directors and Shareholder The Franklin Life Insurance Company We have audited the accompanying consolidated balance sheets of The Franklin Life Insurance Company (an indirect wholly-owned subsidiary of American General Corporation) (the Company) as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholder's equity, cash flows, and comprehensive income for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Franklin Life Insurance Company at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois February 16, 1999 13 THE FRANKLIN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF INCOME (In millions)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996 -------------------------------------------------------- Revenues Premiums and other considerations $ 344.1 $ 370.2 $ 418.6 Net investment income 545.0 518.6 521.5 Realized investment gains (losses) (2.7) 12.8 2.5 Other 99.4 75.8 68.3 -------------------------------------------------------- Total revenues 985.8 977.4 1,010.9 Benefits and expenses Insurance and annuity benefits Death claims and other policy benefits 259.0 255.3 252.6 Investment-type contracts 159.8 169.4 173.3 Dividends to policyholders 85.3 86.3 81.9 Change in policy reserves 28.7 54.6 95.9 Operating costs and expenses 23.8 33.5 35.7 Commissions 120.2 106.5 110.2 Amortization of deferred policy acquisition costs 22.0 11.5 10.7 Change in cost of insurance purchased 60.4 45.3 51.1 Litigation settlement 71.1 - - -------------------------------------------------------- Total benefits and expenses 830.3 762.4 811.4 -------------------------------------------------------- Income before income tax expense 155.5 215.0 199.5 Income tax expense Current 72.3 74.8 94.7 Deferred benefit (18.7) (0.4) (25.3) -------------------------------------------------------- Total income tax expense 53.6 74.4 69.4 -------------------------------------------------------- Net income $ 101.9 $ 140.6 $ 130.1 -------------------------------------------------------- --------------------------------------------------------
See Notes to Consolidated Financial Statements. 14 THE FRANKLIN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET (In millions)
AT DECEMBER 31 ASSETS 1998 1997 ------------------------------------------ Investments Fixed maturity securities(amortized cost: $4,999.8; $5,157.7) $ 5,484.9 $ 5,615.2 Mortgage loans on real estate 528.8 621.6 Equity securities (cost: $0.0, $1.1) 2.3 4.4 Policy loans 340.9 332.7 Other long-term investments 57.4 46.3 Short-term investments 74.6 25.9 ------------------------------------------ Total investments 6,488.9 6,646.1 Cash 26.6 13.6 Accrued investment income 93.1 100.3 Intercompany receivable 117.0 116.4 Preferred stock of affiliates, at cost 8.5 8.5 Receivable from brokers 12.7 26.5 Receivable from agents, less allowance ($4.3; $4.3) 14.4 14.4 Amounts recoverable from reinsurers 30.5 41.5 Deferred policy acquisition costs 143.0 111.7 Cost of insurance purchased 228.5 303.9 Property and equipment, at cost, less accumulated depreciation ($10.9; $10.2) 30.1 23.4 Other assets 28.3 27.4 Assets held in Separate Accounts 460.0 239.6 ------------------------------------------ Total assets $ 7,681.6 $ 7,673.3 ------------------------------------------ ------------------------------------------
See Notes to Consolidated Financial Statements. 15 THE FRANKLIN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET (CONTINUED) (In millions, except share data)
AT DECEMBER 31 LIABILITIES 1998 1997 ------------------------------------------ Insurance and annuity liabilities Life, annuity and accident and health reserves $ 2,903.9 $ 2,882.8 Policy and contract claims 29.7 34.4 Investment-type contract deposits and dividend accumulations 2,740.0 2,907.6 Participating policyholders' interests 210.3 211.4 Other 52.7 50.7 Income taxes Current (5.8) 2.2 Deferred (12.2) 4.5 Intercompany payables 34.2 0.5 Accrued expenses and other liabilities 107.8 109.6 Liabilities related to Separate Accounts 460.0 239.6 ------------------------------------------ Total liabilities 6,520.6 6,443.3 SHAREHOLDER'S EQUITY Common stock ($2 par value; 30,000,000 shares authorized, 21,002,000 shares issued and outstanding) 42.0 42.0 Paid-in capital 923.1 886.1 Accumulated other comprehensive income 157.9 150.8 Retained earnings 38.0 151.1 ------------------------------------------ Total shareholder's equity 1,161.0 1,230.0 ------------------------------------------ Total liabilities and shareholder's equity $ 7,681.6 $ 7,673.3 ------------------------------------------ ------------------------------------------
See Notes to Consolidated Financial Statements. 16 THE FRANKLIN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (In millions)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996 -------------------------------------------------------- Common stock, balance at beginning and end of year $ 42.0 $ 42.0 $ 42.0 -------------------------------------------------------- Paid-in capital Balance at beginning of year 886.1 886.1 884.3 Capital contribution 40.1 - - Expenses paid by Franklin on behalf of AGC (3.1) - - Paid in during the year - - 1.8 -------------------------------------------------------- Balance at end of year 923.1 886.1 886.1 -------------------------------------------------------- Retained earnings Balance at beginning of year 151.1 78.5 48.4 Net income 101.9 140.6 130.1 Dividends paid to parent (215.0) (68.0) (100.0) -------------------------------------------------------- Balance at end of year 38.0 151.1 78.5 -------------------------------------------------------- Accumulated other comprehensive income Balance at beginning of year 150.8 106.6 187.5 Change in net unrealized gains (losses) on securities 7.1 44.2 (80.9) -------------------------------------------------------- Balance at end of year 157.9 150.8 106.6 -------------------------------------------------------- Total shareholder's equity at end of year $ 1,161.0 $ 1,230.0 $ 1,113.2 -------------------------------------------------------- --------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In millions)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996 --------------------------------------------------------- Net income $ 101.9 $ 140.6 $ 130.1 Other comprehensive income Gross change in unrealized gains (losses) on securities (pretax: $8.3; $73.7; $(118.9)) 5.4 47.9 (77.3) Less: gains (losses) realized in net income (pretax: $(2.6); $5.7; $5.6) (1.7) 3.7 3.6 --------------------------------------------------------- Change in net unrealized gains (losses) on securities (pretax: $10.7; $68.1; $(124.5)) 7.1 44.2 (80.9) --------------------------------------------------------- Comprehensive income $ 109.0 $ 184.8 $ 49.2 --------------------------------------------------------- ---------------------------------------------------------
See Notes to Consolidated Financial Statements. 17 THE FRANKLIN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996 ------------------------------------------------------- Operating activities Net income $ 101.9 $ 140.6 $ 130.1 Reconciling adjustments Insurance liabilities 25.4 33.4 121.5 Deferred policy acquisition costs (34.4) (40.4) (45.5) Investment (gains) losses 7.2 (6.1) (4.7) Investment write-downs and change in reserves (4.5) (6.7) 2.2 Cost of insurance purchased and intangibles 60.4 45.3 51.1 Interest credited, net of charges on investment contract deposits 76.9 92.5 103.2 Other, net (7.4) (5.4) (107.9) ------------------------------------------------------- Net cash provided by operating activities 225.5 253.2 250.0 ------------------------------------------------------- Investing activities Investment purchases Available-for-sale (639.8) (891.8) (5,479.1) Other investments (90.7) (125.2) (122.6) Investment calls, maturities and sales Available-for-sale 918.5 978.0 5,526.3 Other investments 127.8 70.7 65.1 Net increase in short-term investments (48.7) (17.4) (8.5) Net additions to property and equipment (10.0) (6.7) (4.6) ------------------------------------------------------- Net cash provided by (used for) investing activities 257.1 7.6 (23.4) ------------------------------------------------------- Financing activities Policyholder account deposits 257.3 194.5 165.3 Policyholder account withdrawals (508.8) (389.8) (297.1) Expenses paid by Franklin on behalf of AGC (3.1) - - Additional capital contribution - - 1.8 Proceeds from intercompany borrowings 75.8 230.4 62.0 Repayments of intercompany borrowings (75.8) (230.4) (62.1) Dividend payments (215.0) (68.0) (100.0) ------------------------------------------------------- Net cash used for financing activities (469.6) (263.3) (230.1) ------------------------------------------------------- Net increase (decrease) in cash 13.0 (2.5) (3.5) Cash at beginning of year 13.6 16.1 19.6 ------------------------------------------------------- Cash at end of year $ 26.6 $ 13.6 $ 16.1 ------------------------------------------------------- -------------------------------------------------------
See Notes to Consolidated Financial Statements. 18 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES 1.1 NATURE OF OPERATIONS The Franklin Life Insurance Company (Franklin) and its subsidiaries, headquartered in Springfield, Illinois, provide life insurance and annuity products to middle-income customers throughout the United States. Franklin serves this customer base through 2,900 agents. 1.2 PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) and include the accounts of Franklin, and its subsidiaries, The American Franklin Life Insurance Company (AMFLIC) and Franklin Financial Services Corporation (FFSC), a broker dealer. Franklin is an indirect, wholly-owned subsidiary of American General Corporation (AGC). All material intercompany transactions have been eliminated in consolidation. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and disclosures of contingent assets and liabilities. Ultimate results could differ from these estimates. 1.3 INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity securities were classified as available-for-sale and recorded at fair value at December 31, 1998 and 1997. After adjusting related balance sheet accounts as if unrealized gains (losses) had been realized, the net adjustment is recorded in accumulated other comprehensive income within shareholder's equity. If the fair value of a security classified as available-for-sale declines below its cost and this decline is considered to be other than temporary, the security's amortized cost is reduced to its fair value, and the reduction is recorded as a realized loss. MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of an allowance for losses. The allowance for losses covers all loans for which management has a concern, based on management's assessment of risk factors, such as potential non-payment or non-monetary default. The allowance is based on a loan-specific review and a formula that reflects past results and current trends. Loans for which Franklin determines that collection of all amounts due under the contractual terms is not probable are considered to be impaired. Franklin generally looks to the underlying collateral for repayment of impaired loans. Therefore, impaired loans are considered to be collateral dependent and are reported at the lower of amortized cost or fair value of the underlying collateral, less estimated cost to sell. POLICY LOANS. Policy loans are reported at unpaid principal balance. INVESTMENT INCOME. Interest on fixed maturity securities, policy loans and performing and restructured mortgage loans is recorded as income when earned and is adjusted for any amortization of premium or discount. Interest on delinquent mortgage loans is recorded as income when received. Dividends are recorded as income on ex-dividend dates. Income on mortgage-backed securities is recognized using a constant effective yield based on estimated prepayments of the underlying mortgages. If actual prepayments differ from estimated prepayments, a new effective yield is calculated and the net investment in the security is adjusted accordingly. The adjustment is recognized in net investment income. 19 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1.3 INVESTMENTS (CONTINUED) OTHER LONG TERM INVESTMENTS. Other long term investments represent investments in joint ventures and limited partnerships and are reported on the equity method. REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses) are recognized using the specific identification method. 1.4 SEPARATE ACCOUNTS Separate Accounts are assets and liabilities associated with certain life and annuity contracts for which the investment risk lies predominantly with the contract holder. Therefore, Franklin's liability for these accounts equals the value of the account assets. Investment income, realized investment gains (losses), and policyholder account deposits and withdrawals related to Separate Accounts are excluded from the consolidated statement of income. Assets held in Separate Accounts are primarily shares in mutual funds, which are carried at fair value, based on the quoted net asset value per share. Franklin administers three Separate Accounts for variable annuity contracts. AMFLIC administers three Separate Accounts in connection with the issuance of its variable universal life and variable annuity products. 1.5 DEFERRED POLICY ACQUISITION COSTS (DPAC) Certain costs of writing an insurance policy, including commissions, underwriting, and marketing expenses, are deferred and reported as DPAC. DPAC associated with interest-sensitive life contracts, insurance investment contracts, and participating life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. The interest assumption used to compute estimated gross profits with respect to participating life insurance contracts was 7.75% at December 31, 1998, 1997 and 1996, respectively. DPAC associated with all other insurance contracts is charged to expense over the premium-paying period or as the premiums are earned over the life of the contract. DPAC is adjusted for the impact on estimated future gross profits as if net unrealized gains (losses) on securities had been realized at the balance sheet date. The impact of this adjustment is included in accumulated other comprehensive income within shareholder's equity. Franklin reviews the carrying amount of DPAC on at least an annual basis. Management considers estimated future gross profits or future premiums, expected mortality, interest earned and credited rates, persistency, and expenses in determining whether the carrying amount is recoverable. 1.6 COST OF INSURANCE PURCHASED (CIP) The cost assigned to certain insurance contracts in force at January 31, 1995, the date of AGC's acquisition of Franklin, is reported as CIP. Interest is accreted on the unamortized balance of CIP at rates of 7.0% to 8.5%. The amortization of CIP is charged to expense and CIP is also adjusted for the impact of net unrealized gains (losses) on securities in the same manner as DPAC. Franklin reviews the carrying amount of CIP on at least an annual basis using the same methods used to evaluate DPAC. 1.7 INSURANCE AND ANNUITY LIABILITIES Substantially all of Franklin's insurance and annuity liabilities relate to long-duration contracts. The contracts normally cannot be changed or canceled by Franklin during the contract period. 20 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1.7 INSURANCE AND ANNUITY LIABILITIES (CONTINUED) For interest-sensitive life insurance and insurance investment contracts, reserves equal the sum of the policy account balances and deferred revenue charges. Reserves for non-participating long-duration life insurance contracts are calculated using the net level premium method based on estimates of the cost of future policy benefits to be paid as a result of present and future claims due to death, disability, surrender of a policy, or payment of an endowment. Interest assumptions used to compute reserves for non-participating long-duration contracts ranged from 2.0% to 8.5% at December 31, 1998. Reserves for participating long-duration life insurance contracts are calculated using the net level premium method using the nonforfeiture interest rate and mortality table of the applicable insurance contracts. 1.8 PREMIUM RECOGNITION Receipts for annuities and interest-sensitive life insurance contracts are classified as deposits instead of revenues. Revenues for these contracts consist of mortality, expense, and surrender charges. Policy charges that are designed to compensate Franklin for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DPAC. For limited-payment contracts, net premiums are recorded as revenue, and the difference between the gross premium received and the net premium is deferred and recognized in income in a constant relationship to insurance in force. For all other long-duration contracts, premiums are recognized when due. 1.9 PARTICIPATING LIFE INSURANCE Participating life insurance contracts contain dividend payment provisions that entitle the policyholders to participate in the earnings of the contracts. Participating life insurance accounted for 44% and 46% of life insurance in force at December 31, 1998 and 1997, respectively, and 76%, 70%, and 62% of premiums and other considerations for the years ended December 31, 1998, 1997, and 1996, respectively. The portion of earnings allocated to participating policyholders that cannot be expected to inure to Franklin's shareholder is excluded from net income and shareholder's equity. Dividends to be paid on participating life insurance contracts are determined annually based on estimates of the contracts' earnings. 1.10 REINSURANCE Franklin limits its exposure to loss on any single insured to $2.1 million by ceding additional risks through reinsurance contracts with other insurers. Franklin diversifies its risk of reinsurance loss by using a number of reinsurers that have strong financial strength ratings. If a reinsurer could not meet its obligations, Franklin remains liable. The likelihood of a material reinsurance liability not being met by a reinsurer is considered to be remote. A receivable is recorded for the portion of benefits paid and insurance liabilities that have been reinsured. Reinsurance recoveries on ceded reinsurance contracts were $16.4 million, $41.5 million, and $67.3 million for the years ended December 31, 1998, 1997 and 1996, respectively. The amount of reinsurance receivable (payable) on paid and unpaid losses was $2.2 million and ($0.5) million at December 31, 1998 and 1997, respectively. The cost of reinsurance is recognized over the life of the reinsured policies using assumptions consistent with those used to account for the underlying policies. 21 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1.10 REINSURANCE (CONTINUED) Reinsurance premiums included/(excluded) from premiums and other considerations were as follows for the years ended December 31:
In millions 1998 1997 1996 -------------------------------------------------------------------------------------------------------------------- Direct premiums and other considerations $ 360.5 $ 415.3 $ 491.5 Reinsurance assumed 12.5 8.3 15.9 Reinsurance ceded (28.9) (53.4) (88.8) --------------------------------------------------------------------- Premiums and other considerations $ 344.1 $ 370.2 $ 418.6 --------------------------------------------------------------------- ---------------------------------------------------------------------
1.11 INCOME TAXES Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, at the enacted tax rates expected to be in effect when the temporary differences reverse. The effect of a tax rate change is recognized in income in the period of enactment. State income taxes are included in income tax expense. A valuation allowance for deferred tax assets is provided if it is more likely than not that some portion of the deferred tax asset will not be realized. An increase or decrease in a valuation allowance that results from a change in circumstances that causes a change in judgement about the realizability of the related deferred tax asset is included in net income. A change in deferred taxes related to fluctuations in the fair value of available-for-sale securities is included in accumulated other comprehensive income within shareholder's equity. 1.12 RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the 1998 presentation. 1.13 ACCOUNTING CHANGES COMPREHENSIVE INCOME. During 1998, Franklin adopted Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. Franklin elected to report comprehensive income and its components in a separate statement of comprehensive income. Adoption of this statement did not change recognition or measurement of net income and, therefore, did not impact the consolidated results of operations or financial position. DERIVATIVES. In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which requires all derivative instruments to be recognized at fair value as either assets or liabilities in the balance sheet. Changes in the fair value of a derivative instrument are to be reported as income or other comprehensive income, depending upon the intended use of the derivative instrument. This statement is effective for years beginning after June 15, 1999. Adoption of SFAS 133 is not expected to have a material impact on Franklin's consolidated results of operations or financial position. 22 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENTS 2.1 FIXED MATURITY AND EQUITY SECURITIES VALUATION. Amortized cost and fair value of fixed maturity and equity securities were as follows:
DECEMBER 31, 1998 --------------------------------------------------------------------- Cost or Gross Gross Amortized Unrealized Unrealized Fair In millions Cost Gains Losses Value ------------------------------------------------------------------------------------------------------------------ Fixed maturity securities Corporate bonds Investment grade $ 2,769.4 $ 254.0 $ 6.1 $ 3,017.3 Below investment grade 323.9 14.2 5.6 332.5 Public utilities 868.1 131.5 - 999.6 Mortgage-backed 768.8 68.9 - 837.7 Foreign governments 77.4 13.8 0.2 91.0 U.S. government 179.9 13.9 - 193.8 States/political subdivisions 12.3 0.7 - 13.0 ---------------------------------------------------------------------------- Total fixed maturity securities $ 4,999.8 $ 497.0 $ 11.9 $ 5,484.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Equity securities $ 0.0 $ 2.3 $ - $ 2.3 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
DECEMBER 31, 1997 ---------------------------------------------------------------------------- Cost or Gross Gross Amortized Unrealized Unrealized Fair In millions Cost Gains Losses Value ----------------------------------------------------------------------------------------------------------------------- Fixed maturity securities Corporate bonds Investment grade $ 2,845.2 $ 228.9 $ 0.3 $ 3,073.8 Below investment grade 307.8 13.7 1.1 320.4 Public utilities 972.3 116.1 - 1,088.4 Mortgage-backed 750.7 67.4 0.1 818.0 Foreign governments 90.0 15.4 0.4 105.0 U.S. government 186.7 17.7 - 204.4 States/political subdivisions 4.8 0.2 - 5.0 Redeemable preferred stocks 0.2 - - 0.2 ---------------------------------------------------------------------------- Total fixed maturity securities $ 5,157.7 $ 459.4 $ 1.9 $ 5,615.2 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Equity securities $ 1.1 $ 3.3 $ - $ 4.4 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
23 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2.1 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED) NET UNREALIZED GAINS ON SECURITIES. Net unrealized gains on fixed maturity and equity securities included in accumulated other comprehensive income at December 31 were as follows:
In millions 1998 1997 -------------------------------------------------------------------------------------------------------- Gross unrealized gains $ 499.3 $ 462.7 Gross unrealized losses (11.9) (1.9) DPAC fair value adjustment (13.0) (10.4) CIP fair value adjustment (228.6) (215.7) Participating policyholders' interest (2.9) (2.5) Deferred federal income taxes (85.0) (81.4) ------------------------------------------------------ Net unrealized gains on securities $ 157.9 $ 150.8 ------------------------------------------------------ ------------------------------------------------------
MATURITIES. The contractual maturities of fixed maturity securities at December 31, 1998 were as follows:
Amortized Fair In millions Cost Value ---------------------------------------------------------------------------------------------------------- Fixed maturity securities, excluding mortgage-backed securities, due In one year or less $ 138.7 $ 140.4 In years two through five 924.8 991.5 In years six through ten 1,864.4 2,011.6 After ten years 1,303.1 1,503.7 Mortgage-backed securities 768.8 837.7 ----------------------------------------- Total fixed maturity securities $ 4,999.8 $ 5,484.9 ----------------------------------------- -----------------------------------------
Actual maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations. Corporate requirements and investment strategies may result in the sale of investments before maturity. 24 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2.2 MORTGAGE LOANS ON REAL ESTATE DIVERSIFICATION. Diversification of the geographic location and type of property collateralizing mortgage loans reduces the concentration of credit risk. For new loans, Franklin requires loan-to-value ratios of 75% or less, based on management's credit assessment of the borrower. At December 31, the mortgage loan portfolio was distributed as follows:
In millions 1998 1997 ------------------------------------------------------------------------------------------------ Geographic distribution East North Central $ 109.2 $ 119.6 East South Central 30.0 36.2 Mid Atlantic 31.4 35.5 Mountain 45.3 53.5 New England 20.7 22.5 Pacific 83.0 99.5 South Atlantic 137.5 175.2 West North Central 30.7 34.3 West South Central 44.7 53.5 Allowance for losses (3.7) (8.2) --------------------------------------------------- Total $ 528.8 $ 621.6 --------------------------------------------------- --------------------------------------------------- Property type Retail $ 299.1 $ 333.5 Office 115.4 131.9 Industrial 59.7 996.7 Residential and other 58.3 67.7 Allowance for losses (3.7) (8.2) --------------------------------------------------- Total $ 528.8 $ 621.6 --------------------------------------------------- ---------------------------------------------------
ALLOWANCE. Activity in the allowance for mortgage loan losses was as follows:
In millions 1998 1997 1996 -------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 8.2 $ 14.9 $ 12.7 Net change in allowance * (4.5) (6.7) 2.2 ------------------------------------------------------------- Balance at end of year $ 3.7 $ 8.2 $ 14.9 ------------------------------------------------------------- -------------------------------------------------------------
* Charged to realized investment gains (losses). 25 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2.2 MORTGAGE LOANS ON REAL ESTATE (CONTINUED) IMPAIRED LOANS. The carrying value of impaired mortgage loans on real estate and related interest income were as follows as of and for the years ended December 31:
In millions 1998 1997 1996 ----------------------------------------------------------------------------------------------------- Impaired loans With allowance * $ 3.6 $ 8.0 $ 21.4 Without allowance .3 8.1 - ------------------------------------------------------------------ Total impaired loans $ 3.9 $ 16.1 $ 21.4 ------------------------------------------------------------------ ------------------------------------------------------------------ Average investment $ 10.0 $ 18.8 $ 22.3 ------------------------------------------------------------------ ------------------------------------------------------------------ Interest income earned $ 1.2 $ 0.8 $ 1.5 ------------------------------------------------------------------ ------------------------------------------------------------------
* Represents gross amounts before allowance for mortgage loan losses of $0.6 million, $3.0 million, and $4.9 million at December 31, 1998, 1997, and 1996, respectively. 2.3 INVESTMENT INCOME Income by type of investment was as follows:
In millions 1998 1997 1996 ------------------------------------------------------------------------------------------------------- Fixed maturity securities $ 458.3 $ 435.5 $ 434.6 Mortgage loans on real estate 56.7 58.3 58.8 Policy loans 20.2 19.3 18.9 Other investments 16.3 9.5 13.5 --------------------------------------------------------------- Gross investment income 551.5 522.6 525.8 Investment expense 6.5 4.0 4.3 --------------------------------------------------------------- Net investment income $ 545.0 $ 518.6 $ 521.5 --------------------------------------------------------------- ---------------------------------------------------------------
The carrying value of investments that produced no investment income during 1998 totaled $16.4 million, or less than 1% of total invested assets at December 31, 1998. The ultimate disposition of these assets is not expected to have a material effect on Franklin's consolidated results of operations or financial position. 2.4 REALIZED INVESTMENT GAINS (LOSSES) Realized investment gains (losses), net of DPAC and CIP amortization were as follows:
In millions 1998 1997 1996 ------------------------------------------------------------------------------------------------------------ Fixed maturity securities Gross gains $ 2.8 $ 15.4 $ 25.0 Gross losses (4.5) (6.2) (17.6) -------------------------------------------------------- Total fixed maturity securities (1.7) 9.2 7.4 -------------------------------------------------------- Equity securities Gross gains 0.5 1.0 1.8 -------------------------------------------------------- Total equity securities 0.5 1.0 1.8 -------------------------------------------------------- Other (1.5) 2.6 (6.7) -------------------------------------------------------- Realized investment gains (losses) $ (2.7) $ 12.8 $ 2.5 -------------------------------------------------------- --------------------------------------------------------
26 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2.4 REALIZED INVESTMENT GAINS (LOSSES) (CONTINUED) Voluntary sales of investments resulted in the following realized gains (losses):
Realized ------------------------------------ In millions Category Proceeds Gains Losses -------------------------------------------------------------------------------------------------------------- 1998 AVAILABLE-FOR-SALE $ 236.7 $ 2.6 $ 3.3 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- 1997 Available-for-sale $ 525.8 $ 6.0 $ 3.1 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- 1996 Available-for-sale $ 807.0 $ 21.8 $ 15.4 -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------
2.5 INVESTMENTS ON DEPOSIT At December 31, 1998 and 1997, bonds and other investments with a carrying value of $19.0 million and $19.3 million, respectively, were on deposit with regulatory authorities to comply with state insurance laws. 2.6 INVESTMENT RESTRICTIONS Franklin is restricted by the insurance laws of its domiciliary state as to the amount which it can invest in any entity. At December 31, 1998 and 1997, Franklin's largest investment in any one entity other than U.S. government obligations and related party amounts was $60.7 million and $62.8 million, respectively. 3. DEFERRED POLICY ACQUISITION COSTS (DPAC) Activity in DPAC was as follows:
In millions 1998 1997 1996 --------------------------------------------------------------------------------------------------------------------- Balance at January 1 $ 111.7 $ 82.0 $ 47.5 Deferrals 56.4 51.9 56.2 Amortization (22.0) (11.5) (10.7) Effect of unrealized (gains) losses on securities (2.6) (10.0) 11.3 Effect of realized investment gains (0.5) (0.7) (0.4) Other - - (21.9) ----------------------------------------------------------------- Balance at December 31 $ 143.0 $ 111.7 $ 82.0 ----------------------------------------------------------------- -----------------------------------------------------------------
4. COST OF INSURANCE PURCHASED (CIP) Activity in CIP was as follows:
In millions 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------ Balance at January 1 $ 303.9 $ 407.8 $ 353.0 Interest accretion 43.6 47.3 51.8 Additions 13.1 15.1 13.6 Amortization (117.1) (107.7) (116.5) Effect of unrealized (gains) losses on securities (12.9) (54.8) 109.1 Effect of realized investment gains (2.1) (3.8) (3.2) -------------------------------------------------------------- Balance at December 31 $ 228.5 $ 303.9 $ 407.8 -------------------------------------------------------------- --------------------------------------------------------------
CIP amortization, net of interest accretion and additions, expected to be recorded in each of the next five years is $40.4 million, $36.4 million, $32.9 million, $29.9 million and $27.2 million. 27 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES Franklin files a life/life consolidated return which includes Franklin and AMFLIC. FFSC, files a separate return. The method of allocation of tax expense is subject to a written agreement. Allocation is based upon separate return calculations with current credit for net losses and tax credits. Consolidated alternative minimum tax, excise tax or surtax, if any, is allocated separately. The tax liability of each subsidiary under this agreement shall not exceed the amount such subsidiary would have paid if it had filed on a separate return basis. Intercompany tax balances are to be settled no later than thirty (30) days after the date of filing the consolidated return. A reconciliation between the federal statutory income tax rate and the effective income tax rate follows:
1998 1997 1996 ----------------------------------------------------------- Federal income tax rate 35.0 % 35.0 % 35.0 % State taxes, net 1.8 0.9 0.3 Tax-exempt investment income (1.2) (0.5) (0.7) Other (1.1) (0.8) 0.2 ----------------------------------------------------------- Effective tax rate 34.5 % 34.6 % 34.8 % ----------------------------------------------------------- -----------------------------------------------------------
5.1 DEFERRED TAXES Components of deferred tax liabilities and assets at December 31, were as follows:
In millions 1998 1997 --------------------------------------------------------------------------------------------------- Deferred tax liabilities, applicable to: Basis differential of investments $ 143.6 $ 122.8 DPAC and CIP 80.7 98.6 Other 7.0 10.2 -------------------------------------------- Total deferred tax liabilities 231.3 231.6 Deferred tax assets, applicable to: Policy reserves (126.4) (124.5) Participating policyholders' interests (73.6) (74.0) Postretirement benefits (3.2) (3.4) Basis differential of investments (5.8) (7.5) Litigation settlement costs (23.8) - Other (10.7) (17.7) -------------------------------------------- Total deferred tax assets (243.5) (227.1) -------------------------------------------- Net deferred tax liability (asset) $ (12.2) $ 4.5 -------------------------------------------- --------------------------------------------
Franklin expects adequate future taxable income to realize the deferred tax assets. Accordingly, no valuation allowance is considered necessary. A portion of life insurance income earned prior to 1984 is not taxable unless it exceeds certain statutory limitations or is distributed as dividends. Such income, accumulated in policyholders' surplus accounts, totaled $200 million at December 31, 1998. At current corporate income tax rates, the maximum amount of tax on such income is approximately $70 million. Deferred income taxes on these accumulations are not required because no distributions are expected. 28 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5.2 TAXES PAID Federal income taxes paid for the years ended December 31, 1998, 1997 and 1996, were $76 million, $77 million, and $74 million, respectively. State income taxes paid for the years ended December 31, 1998, 1997 and 1996, were $4 million, $2 million, and $2 million, respectively. 6. BENEFIT PLANS 6.1 PENSION PLANS On January 1, 1996, Franklin's existing defined benefit pension plan (The Franklin Plan) was merged with the plan sponsored by AGC (the AGC Plan). The AGC Plan is a non-contributory defined benefit plan covering most Franklin employees. Pension benefits are based on the participant's compensation and length of credited service. At December 31, 1998, 66% of the AGC Plan assets were invested in equity securities and 32% were invested in fixed income mutual funds managed by a subsidiary of the company. Additionally, 1% of AGC Plan assets were invested in general investment accounts of AGC's subsidiaries through deposit administration insurance contracts. The benefit plans have purchased annuity contracts from AGC's subsidiaries to provide benefits for certain retirees. These contracts are expected to provide future annual benefits to retirees of approximately $52 million. The components of pension expense and underlying assumptions were as follows:
In millions 1998 1997 1996 --------------------------------------------------------------------------------------------------- Service cost $ 0.9 $ 0.7 $ 0.8 Interest cost 2.4 1.9 2.0 Expected return on plan assets (3.9) (8.4) (7.8) Amortization and deferred gain - 5.0 4.6 ----------------------------------------------- Pension income $ (0.6) $ (0.8) $ (0.4) ----------------------------------------------- Discount rate on benefit obligation 7.0 % 7.25 % 7.5 % Rate of increase in compensation levels 4.25 % 4.0 % 4.0 % Expected long-term rate of return on plan assets 10.25 % 10.0 % 10.0 %
AGC's funding policy is to contribute annually no more than the maximum deductible for Federal income tax purposes. The funded status of the plans and the prepaid pension expense included in other assets at December 31 were as follows:
In millions 1998 1997 1996 --------------------------------------------------------------------------------------------------------------- Projected benefit obligation (PBO) $ 35.7 $ 28.2 $ 27.2 Plan assets at fair value 49.0 43.8 35.5 ------------------------------------------------------------- Plan assets at fair value in excess of PBO 13.3 15.6 8.3 Other unrecognized items-net (0.7) (3.5) 3.0 ------------------------------------------------------------- Prepaid pension expense $ 12.6 $ 12.1 $ 11.3 ------------------------------------------------------------- -------------------------------------------------------------
29 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Under the AGC Voluntary Employee Benefit Account Plan (VEBA), Franklin has life, medical, supplemental major medical and dental plans for certain retired employees and agents. Most plans are contributory, with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. Franklin has reserved the right to change or eliminate these benefits at any time. The life plans are insured through December 31, 1999. The majority of the retiree medical and dental plan is unfunded and self-insured. The accrued liability for postretirement benefits was $9.3 million, $9.8 million, and $11.5 million at December 31, 1998, 1997, and 1996, respectively. These liabilities were discounted at the same rates used for the pension plans. Postretirement benefit expense was $0.6 million for the year ended December 31, 1998 and $0.8 million for the years ended December 31, 1997 and 1996. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and fair values for certain of Franklin's financial instruments at December 31 are presented below. Care should be exercised in drawing conclusions based on fair value, since (1) the fair values presented do not include the value associated with all of Franklin's assets and liabilities, and (2) the reporting of investments at fair value without a corresponding revaluation of related policyholder liabilities can be misinterpreted.
1998 1997 -------------------------------------------------------------------------- Carrying Fair Carrying Fair In millions Amount Value Amount Value --------------------------------------------------------------------------------------------------------------------- Assets Fixed maturity securities $ 5,484.9 $ 5,484.9 $ 5,615.2 $ 5,615.2 Mortgage loans on real estate 528.8 560.3 621.6 659.4 Equity securities 2.2 2.2 4.4 4.4 Liabilities Insurance investment contracts $ 1,724.9 $ 1,669.5 $ 1,881.4 $ 1,813.3 Dividend accumulations 796.2 796.2 780.1 780.1
The following methods and assumptions were used to estimate the fair value of financial instruments. FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity and equity securities were based on quoted market prices, where available. For investments not actively traded, fair values were estimated using values obtained from independent pricing services or, in the case of some private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of the investments. MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was estimated primarily using discounted cash flows, based on contractual maturities and risk-adjusted discount rates. POLICY LOANS. Policy loans have no stated maturity dates and are an integral part of the related insurance contract. Accordingly, it is not practicable to estimate a fair value. The weighted average interest rate on policy loans was 6% in 1998 and 1997. INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment contracts was estimated using cash flows discounted at market interest rates. DIVIDEND ACCUMULATIONS. Fair value disclosed for dividend accumulations equals the amount of dividends payable on demand at the reporting date. 30 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STATUTORY ACCOUNTING State insurance laws and regulations prescribe accounting practices for calculating statutory net income and equity for insurance companies. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. The use of such permitted practices did not have a material effect on Franklin's statutory equity at December 31, 1998. At December 31, 1998 and 1997, Franklin had statutory shareholder's equity of $390.5 million and $521.0 million, respectively. Statutory net income was $129.8 million, $129.7 million, and $123.2 million for the years ended December 31, 1998, 1997, and 1996, respectively. At December 31, 1998 and 1997, Franklin's subsidiaries statutory shareholder's equity was reported as $32.7 million and $17.7 million. The subsidiaries statutory net loss was $2.6 million, $0.6 million, and $1.9 million for the years ended December 31, 1998, 1997, and 1996, respectively. Generally, Franklin is restricted by the insurance laws of its domiciliary state as to amounts that can be transferred in the form of dividends, loans, or advances without the approval of the Illinois Insurance Department. Under these restrictions, during 1999, loans or advances in excess of $97.6 million and dividends in any twelve-month period aggregating in excess of $129.8 million will require the approval of the Illinois Insurance Department. 9. CONSOLIDATED STATEMENT OF CASH FLOWS In addition to the cash activities shown in the consolidated statement of cash flows, the following transactions, occurred:
In millions 1998 1997 1996 ----------------------------------------------------------------------------------------------------------------- Interest added to annuity and other financial products $ 159.8 $ 169.4 $ 173.3 ------------------------------------------------------------ ------------------------------------------------------------
10. RELATED PARTY TRANSACTIONS Franklin participates in a program of short-term borrowing with AGC to maintain its long-term commitments. Franklin borrowed $75.8 million and $230.4 million, and repaid $75.8 million and $230.4 million in 1998 and 1997, respectively. Interest was paid on the outstanding balances based on the rate as stipulated in the program. Franklin holds a 6.75% promissory note from AGCL for $116.0 million which matures in 2005. Franklin also holds $8.5 million of 8% non-voting preferred stock of American General Life Insurance Company. Franklin has entered into indefinite contracts with affiliates for the performance of all investment management services (American General Investment Management) as well as cost allocation agreements with the American General Shared Services Company. Total expenses under these agreements were $6.9 million, $2.5 million and $2.3 million for the years ended December 31, 1998, 1997 and 1996, respectively. 11. 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. Franklin and AMFLIC are defendants in such purported class action lawsuits. In December, 1998, AGC announced that certain of its life insurance subsidiaries had entered into agreements to resolve substantially all of the material pending market conduct class action lawsuits. The settlements are not final until approved by the courts and any appeals are resolved. If court approvals are obtained and appeals are not taken, it is expected the settlements will be final in the third quarter of 1999. 31 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. LEGAL PROCEEDINGS (CONTINUED) In conjunction with the proposed resolution, Franklin and AMFLIC recorded a charge of $71.1 million ($47.3 million after taxes) in the fourth quarter of 1998. The charge covers the cost of policyholder benefits and other anticipated expenses resulting from the proposed settlements, as well as other administrative and legal costs. Also in December, 1998, Franklin entered into an agreement with AGC whereby Franklin assigned, and AGC assumed, all of the liabilities of Franklin related to the proposed resolution. As consideration for the assumption of the liabilities, Franklin agreed to pay AGC an amount equal to the statutory liabilities recorded with respect to the proposed resolution of the litigation in the amount of $71.1 million. To offset the reduction in retained earnings resulting from the market conduct charge, Franklin received a capital contribution in the amount of $40.1 million from AGC (via Franklin's parent, AGC Life) at December 31, 1998. In addition to the charges recorded in 1998, Franklin will incur additional expenses for claim administration, outside counsel and actuarial services, and regulatory expenses, related to the resolution of the litigation, which will be recorded as incurred. The proposed settlements and related expenses are not expected to have a material adverse effect on Franklin's financial condition or business operations. 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 and Mississippi, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, 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 its 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 and Mississippi continues to create the potential for an unpredictable judgment in any given suit. 12. GUARANTY FUND ASSESSMENTS Information about state guaranty fund assessments was as follows:
In millions 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------- Expense, included in operating costs and expenses $ 1.9 $ 1.2 $ 0.7 Liability for anticipated assessments 1.4 3.6 7.5 Receivable for expected recoveries against future premium taxes 3.8 7.4 11.2
Changes in state laws could decrease the amount recoverable against future premium taxes. 13. YEAR 2000 (UNAUDITED) INTERNAL SYSTEMS. Franklin's ultimate parent, AGC, has numerous technology systems that are managed on a decentralized basis. AGC's Year 2000 readiness efforts are therefore being undertaken by its key business units with centralized oversight. Each business unit, including Franklin, has developed and is implementing a plan to minimize the risk of a significant negative impact on its operations. While the specifics of the plans vary, the plans include the following activities: (1) perform an inventory of Franklin's information technology and non-information technology systems; (2) assess which items in the inventory may expose Franklin to business interruptions due to Year 2000 issues; (3) reprogram or replace systems that are not Year 2000 ready; (4) test systems to prove that they will function into the next century as they do currently; and (5) return the systems to operations. As of December 31, 1998, substantially all of Franklin's critical systems are Year 2000 ready and have been returned to operations. However, activities (3) through (5) for certain systems are ongoing, with vendor upgrades expected to be received during the first half of 1999. Franklin will continue to test its systems throughout 1999 to maintain Year 2000 readiness. 32 THE FRANKLIN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. YEAR 2000 (UNAUDITED) (CONTINUED) THIRD PARTY RELATIONSHIPS. Franklin has relationships with various third parties who must also be Year 2000 ready. These third parties provide (or receive) resources and services to (or from) Franklin and include organizations with which Franklin exchanges information. Third parties include vendors of hardware, software, and information services; providers of infrastructure services such as voice and data communications and utilities for office facilities; investors; customers; distribution channels; and joint venture partners. Third parties differ from internal systems in that Franklin exercises less, or no, control over Year 2000 readiness. Franklin has developed a plan to assess and attempt to mitigate the risks associated with the potential failure of third parties to achieve Year 2000 readiness. The plan includes the following activities: (1) identify and classify third party dependencies; (2) research, analyze, and document Year 2000 readiness for critical third parties; and (3) test critical hardware and software products and electronic interfaces. As of December 31, 1998, AGC has identified and assessed approximately 700 critical third party dependencies, including those relating to Franklin. A more detailed evaluation has been completed during the first quarter of 1999 as part of Franklin's contingency planning efforts. Due to the various stages of third parties' Year 2000 readiness, Franklin's testing activities will extend through 1999. CONTINGENCY PLANS. Franklin and its affiliates have commenced contingency planning to reduce the risk of Year 2000-related business failures. The contingency plans, which address both internal systems and third party relationships, include the following activities: (1) evaluate the consequences of failure of business processes with significant exposure to Year 2000 risk; (2) determine the probability of a Year 2000-related failure for those processes that have a high consequence of failure; (3) develop an action plan to complete contingency plans for those processes that rank high in consequence and probability of failure; and (4) complete the applicable action plans. Franklin is currently developing contingency plans and expects to substantially complete all contingency planning activities by April 30, 1999. RISKS AND UNCERTAINTIES. Based on its plans to make internal systems ready for Year 2000, to deal with third party relationships, and to develop contingency actions, Franklin believes that it will experience at most isolated and minor disruptions of business processes following the turn of the century. Such disruptions are not expected to have a material effect on Franklin's future results of operations, liquidity, or financial condition. However, due to the magnitude and complexity of this project, risks and uncertainties exist and Franklin is not able to predict a most reasonably likely worst case scenario. If Year 2000 readiness is not achieved due to non-performance by significant third party vendors, Franklin's failure to maintain critical systems as Year 2000 ready, failure of critical third parties to achieve Year 2000 readiness on a timely basis, or other unforeseen circumstances in completing Franklin's plans, the Year 2000 issues could have a material adverse impact on Franklin's operations following the turn of the century. COSTS. Through December 31, 1998, AGC and certain of its subsidiaries have incurred, and will continue to incur, costs for internal staff, third party vendors, and other expenses to achieve Year 2000 readiness. The cost of activities related to Year 2000 readiness has not had a material adverse effect on AGC's or Franklin's results of operations or financial condition. 33 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements PART A: Per Unit Income and Changes in Accumulation Unit Value for the 10 years ended December 31, 1998. PART B: (1) Financial Statements of Franklin Life Variable Annuity Fund A (now Franklin Life Variable Annuity Fund) (the "Separate Account"): Report of Independent Auditors Audited Financial Statements: Statement of Assets and Liabilities, December 31, 1998 Statement of Operations for the year ended December 31, 1998 Statement of Changes in Net Assets for the two years ended December 31, 1998 Notes to Financial Statements (2) Financial Statements of The Franklin Life Insurance Company: Report of Independent Auditors Audited Financial Statements: Statement of Operations for the years ended December 31, 1998, 1997 and 1996 Balance Sheet, December 31, 1998 and 1997 Statement of Shareholder's Equity for the years ended December 31, 1998, 1997 and 1996 Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Financial Statements PART C: None (b) Exhibits 1(a) Resolutions of the Board of Directors of The Franklin Life Insurance Company establishing the Separate Account are incorporated herein by reference to Exhibit 1 to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (b) Resolutions of the Board of Directors of The Franklin Life Insurance Company renaming the Separate Account. 2. None 3. (a) Sales Agreement among The Franklin Life Insurance Company, Registrant and Franklin Financial Services Corporation dated January 31, 1995 is incorporated herein by reference to Exhibit 7(a) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (b) Form of Agreement among The Franklin Life Insurance Company, Franklin Financial Services Corporation and agents is incorporated herein by reference to Exhibit 7(b) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). 4. (a) Specimen copy of Form 1170, deferred periodic payment variable annuity contract is incorporated herein by reference to Exhibit 6(a) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (b) Specimen copy of Form 1171, single payment deferred variable annuity contract is incorporated herein by reference to Exhibit 6(b) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (c) Specimen copy of Form 1172, single payment immediate life variable annuity contract is incorporated herein by reference to Exhibit 6(c) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (d) Specimen copy of Form 1173, single payment immediate life variable annuity contract with guaranteed period is incorporated herein by reference to Exhibit 6(d) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (e) Specimen copy of Form 1174, single payment immediate joint and last survivor life variable annuity contract is incorporated herein by reference to Exhibit 6(e) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (f) Specimen copy of endorsement to Forms 1170, 1171, 1172, 1173 and 1174 when such contracts are issued to variable annuitants in the State of Texas is incorporated herein by reference to Exhibit 6(f) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (g) Specimen copy of Form 1180, deferred periodic payment variable annuity contract. (h) Waiver of Minimum Payment Provision in Form 1180. (i) Specimen copy of Form 1181, single payment deferred variable annuity contract. (j) Specimen copy of Form 1182, single payment immediate life variable annuity contract. (k) Specimen copy of Form 1183, single payment immediate life variable annuity contract with guaranteed period. (l) Specimen copy of Form 1184, single payment immediate joint and last survivor life variable annuity contract. (m) 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. (n) Specimen copy of Form 1175, periodic payment deferred variable annuity contract. (o) Specimen copy of Form 1176, single payment deferred variable annuity contract. (p) Specimen copy of Form 1177, single payment immediate life variable annuity contract. (q) Specimen copy of Form 1178, single payment immediate life variable annuity contract with guaranteed period. (r) Specimen copy of Form 1179, single payment immediate joint and last survivor life variable annuity contract. (s) Specimen copy of Form 4840 attached as endorsement to Forms 1175, 1176, 1177, 1178 and 1179. (t) Specimen copy of Form 6012 for use as endorsement to Form 1175. (u) Specimen copy of Form 6275-A attached as endorsement to Forms 1175, 1176, 1177, 1178 and 1179 when such contracts are issued to variable annuitants in the State of Texas. (v) Specimen copy of Form 6296 attached as endorsement to Forms 1175, 1176, 1177, 1178 and 1179 when such contracts are issued to variable annuitants in the State of New Jersey. 5. The applications for the various forms of variable annuity contracts set forth in Exhibit 4 are included as parts of the respective contract forms. 6. (a) Certificate of Incorporation of the Franklin Life Insurance Company (b) Bylaws of the Franklin Life Insurance Company are incorporated herein by reference to Exhibit 8(b) to Post-Effective Amendment No. 43 to the Registrant's Registration Statement on Form N-3, filed April 30, 1997 (File No. 2-36394). 7. Not applicable. 8. (a) Administration Agreement between Franklin Life Variable Annuity Fund A and The Franklin Life Insurance Company dated June 30, 1971 is incorporated herein by reference to Exhibit 13(a) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). (b) Agreement between The Franklin Life Insurance Company and Franklin Financial Services Corporation dated June 30, 1971 is incorporated herein by reference to Exhibit 13(b) to the Registrant's registration statement on Form N-14 filed with the Securities and Exchange Commission on January 20, 1999 (File No. 333-70813). 9. Opinion re legality of securities 10. (a) Consent of independent auditors (b) Consent of counsel 11. Not applicable 12. Not applicable 13. Not applicable 14. Not applicable 15. Power of Attorney with respect to the Registration Statement. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR Information as to the directors, executive officers of The Franklin Life Insurance Company is listed below.
(1) (2) Name and Principal Business Address Positions and Offices with Depositor ----------------------------------- ------------------------------------ Robert M. Beuerlein Director, Senior Vice President- Actuarial/Financial and Treasurer Pauletta P. Cohn** Secretary Brady W. Creel Director, Senior Vice President and Chief Marketing Officer Barbara Fossum Senior Vice President Ross D. Friend** Senior Vice President and Chief Compliance Officer Rodney O. Martin, Jr.** Director and Senior Chairman Jon P. Newton* Director and Vice Chairman Michael M. Nicholson Director and President Gary D. Reddick** Vice Chairman and Director Richard W. Scott* Vice President and Chief Investment Officer William A. Simpson Director and Chief Executive Officer T. Clayton Spires Director, Corporate Tax Christian D. Weiss Director-Controller Diane S. Workman Vice President-Administration
The principal business address of each individual with an asterisk next to his name is 2929 Allen Parkway, Houston, Texas 77019. The principal business address of each individual with two asterisks next to his name is 2727-A Allen Parkway, Houston, Texas 77019. The principal business address of each other individual is in care of The Franklin Life Insurance Company, #1 Franklin Square, Springfield, Illinois 62713. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT There is no person controlled by or under common control with Registrant. The Franklin Life Insurance Company is an indirect wholly owned subsidiary of American General Corporation ("AGC"). SUBSIDIARIES OF AMERICAN GENERAL CORPORATION(1),(2),(3),(4),(5) The following is a list of American General Corporation's subsidiaries as of December 31, 1998. 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 (*).
Jurisdiction of Name Incorporation - ------------------------------------------------------------------------ --------------- AGC Life Insurance Company. . . . . . . . . . . . . . . . . . . . . . . Missouri American General Life and Accident Insurance Company(6). . . . . . . Tennessee American General Exchange, Inc. . . . . . . . . . . . . . . . . . Tennessee Independent Fire Insurance Company. . . . . . . . . . . . . . . . Florida American General Property Insurance Company of Florida . . . . Florida American General Life Insurance Company(7) . . . . . . . . . . . . . Texas American General Annuity Service Corporation . . . . . . . . . . Texas American General Life Companies . . . . . . . . . . . . . . . . . Delaware American General Life Insurance Company of New York . . . . . . . New York The Winchester Agency Ltd. . . . . . . . . . . . . . . . . . . New York The Variable Annuity Life Insurance Company . . . . . . . . . . . Texas PESCO Plus, Inc(15). . . . . . . . . . . . . . . . . . . . . . Delaware American General Gateway Services, L.L.C(16) . . . . . . . . . Delaware The Variable Annuity Marketing Company . . . . . . . . . . . . Texas VALIC Investment Services Company . . . . . . . . . . . . . . Texas VALIC Retirement Services Company . . . . . . . . . . . . . . Texas VALIC Trust Company . . . . . . . . . . . . . . . . . . . . . Texas American General Property Insurance Company . . . . . . . . . . . . Tennessee The Franklin Life Insurance Company . . . . . . . . . . . . . . . . Illinois The American Franklin Life Insurance Company . . . . . . . . . . Illinois Franklin Financial Services Corporation . . . . . . . . . . . . . Delaware HBC Development Corporation . . . . . . . . . . . . . . . . . . . . Virginia Templeton American General Life of Bermuda, Ltd(14). . . . . . . . . Bermuda Western National Corporation . . . . . . . . . . . . . . . . . . . . Delaware WNL Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . Delaware American General Annuity Insurance Company(8). . . . . . . . . Texas American General Assignment Corporation. . . . . . . . . . . . Texas AGA Brokerage Services, Inc. . . . . . . . . . . . . . . . . . . . . Delaware AGA Investment Advisory Services, Inc. . . . . . . . . . . . . Delaware Independent Advantage Financial and Insurance Services, Inc. . . . . California American General Financial Institution Group, Inc. . . . . . . Delaware WNL Insurance Services, Inc. . . . . . . . . . . . . . . . . . Delaware American General Corporation* . . . . . . . . . . . . . . . . . . . . . Delaware American General Delaware Management Corporation1 . . . . . . . . . . . Delaware Jurisdiction of Name Incorporation - ------------------------------------------------------------------------ --------------- American General Finance, Inc. . . . . . . . . . . . . . . . . . . . . Indiana HSA Residential Mortgage Services of Texas, Inc. . . . . . . . . . . Delaware AGF Investment Corp. . . . . . . . . . . . . . . . . . . . . . . . . Indiana American General Auto Finance, Inc. . . . . . . . . . . . . . . . . Delaware American General Finance Corporation(9). . . . . . . . . . . . . . . Indiana American General Finance Group, Inc. . . . . . . . . . . . . . . Delaware American General Financial Services, Inc.(10). . . . . . . . . Delaware The National Life and Accident Insurance Company . . . . . Texas Merit Life Insurance Co. . . . . . . . . . . . . . . . . . . . . Indiana Yosemite Insurance Company . . . . . . . . . . . . . . . . . . . Indiana American General Finance, Inc. . . . . . . . . . . . . . . . . . . . Alabama American General Financial Center . . . . . . . . . . . . . . . . . Utah American General Financial Center, Inc.* . . . . . . . . . . . . . . Indiana American General Financial Center, Incorporated* . . . . . . . . . . Indiana American General Financial Center Thrift Company* . . . . . . . . . California Thrift, Incorporated* . . . . . . . . . . . . . . . . . . . . . . . Indiana American General Investment Advisory Services, Inc.* . . . . . . . . . Texas American General Investment Holding Corporation(11) . . . . . . . . . . Delaware American General Investment Management Corporation(11). . . . . . . . . Delaware American General Realty Advisors, Inc. . . . . . . . . . . . . . . . . Delaware American General Realty Investment Corporation . . . . . . . . . . . . Texas AGLL Corporation(12) . . . . . . . . . . . . . . . . . . . . . . . . Delaware American General Land Holding Company . . . . . . . . . . . . . . . Delaware AG Land Associates, LLC(12) . . . . . . . . . . . . . . . . . . . California GDI Holding, Inc.*(13) . . . . . . . . . . . . . . . . . . . . . . . California Pebble Creek Service Corporation . . . . . . . . . . . . . . . . . . Florida SR/HP/CM Corporation . . . . . . . . . . . . . . . . . . . . . . . . Texas Green Hills Corporation . . . . . . . . . . . . . . . . . . . . . . . . Delaware Knickerbocker Corporation . . . . . . . . . . . . . . . . . . . . . . . Texas American Athletic Club, Inc. . . . . . . . . . . . . . . . . . . . . Texas Pavilions Corporation . . . . . . . . . . . . . . . . . . . . . . . . . Delaware USLIFE Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware All American Life Insurance Company. . . . . . . . . . . . . . . . . Illinois American General Assurance Company . . . . . . . . . . . . . . . . . Illinois American General Indemnity Company. . . . . . . . . . . . . . . . Nebraska USLIFE Credit Life Insurance Company of Arizona . . . . . . . . . Arizona American General Life Insurance Company of Pennsylvania. . . . . . . Pennsylvania I.C. Cal*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . California The Old Line Life Insurance Company of America . . . . . . . . . . . Wisconsin The United States Life Insurance Company in the City of New York . . New York Jurisdiction of Name Incorporation - ------------------------------------------------------------------------ --------------- USLIFE Agency Services, Inc. . . . . . . . . . . . . . . . . . . . . Illinois USMRP, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . Turks & Caicos USLIFE Financial Institution Marketing Group, Inc. . . . . . . . . . California USLIFE Insurance Services Corporation. . . . . . . . . . . . . . . . Texas USLIFE Realty Corporation. . . . . . . . . . . . . . . . . . . . . . Texas USLIFE Real Estate Services Corporation. . . . . . . . . . . . Texas USLIFE Systems Corporation . . . . . . . . . . . . . . . . . . . . . Delaware
American General Finance Foundation, Inc. is not included on this list. It is a non-profit corporation. NOTES (1) The following limited liability companies were formed in the State of Delaware on March 28, 1995. The limited liability interests of each are jointly owned by AGC and AGDMC and the business and affairs of each are managed by AGDMC: American General Capital, L.L.C. American General Delaware, L.L.C. (2) On November 26, 1996, American General Institutional Capital A ("AG Cap Trust A"), a Delaware business trust, was created. On March 10, 1997, American General Institutional Capital B ("AG Cap Trust B"), also a Delaware business trust, was created. Both AG Cap Trust A's and AG Cap Trust B's business and affairs are conducted through their trustees: Bankers Trust Company and Bankers Trust (Delaware). Capital securities of each are held by non-affiliated third party investors and common securities of AG Cap Trust A and AG Cap Trust B are held by AGC. (3) On November 14, 1997, American General Capital I, American General Capital II, American General Capital III, and American General Capital IV (collectively, the "Trusts"), all Delaware business trusts, were created. Each of the Trusts' business and affairs are conducted through its trustees: Bankers Trust (Delaware) and James L. Gleaves (not in his individual capacity but solely as Trustee). (4) On July 10, 1997, the following insurance subsidiaries of AGC became the direct owners of the 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 their 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) Effective December 5, 1997, AGC and Grupo Nacional Provincial, S.A. ("GNP") completed the purchase by AGC of a 40% interest in Grupo Nacional Provincial Pensions S.A. de C.V., a new holding company formed by GNP, one of Mexico's largest financial services companies. (6) AGLA owns approximately 12% of Whirlpool Financial Corp. ("Whirlpool") preferred stock. AGLA's holdings in Whirlpool represents approximately 3% of the voting power of the capital stock of Whirlpool. The interests in Whirlpool (which is a corporation that is not associated with AGC) are held for investment purposes only. (7) AGL owns 100% of the common stock of American General Securities Incorporated ("AGSI"), a full-service NASD broker-dealer. AGSI, in turn, owns 100% of the stock of the following insurance agencies: American General Insurance Agency, Inc. (Missouri) American General Insurance Agency of Hawaii, Inc. (Hawaii) American General Insurance Agency of Massachusetts, Inc. (Massachusetts) In addition, the following agencies are indirectly related to AGSI, but not owned or controlled by AGSI: American General Insurance Agency of Ohio, Inc. (Ohio) American General Insurance Agency of Texas, Inc. (Texas) American General Insurance Agency of Oklahoma, Inc. (Oklahoma) Insurance Masters Agency, Inc. (Texas) AGSI and the foregoing agencies are not affiliates or subsidiaries of AGL under applicable holding company laws, but they are part of the AGC group of companies under other laws. (8) AGA Series Trust is a Massachusetts business trust, all of the shares of which are held in the separate account of AGA for the benefit of AGA variable annuity policyholders. (9) 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 10 below. (10) 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. (11) 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. (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. (13) AGRI owns only a 75% interest in GDI Holding, Inc. (14) AGCL owns 50% of the common stock of TAG Life. Franklin Resources, Inc., a Delaware business corporation and financial services holding company, through its subsidiary TGH Holdings, Ltd., a Bahamian business corporation, owns the remaining 50% of TAG Life. Franklin Resources, Inc. and TGH Holdings, Ltd. are not affiliated with AGC. (15) VALIC holds 900 (90%) of the outstanding common shares. The Florida Education Association/United, a Florida teachers union and unaffiliated third party, holds the remaining 100 (10%) of the outstanding common shares. (16) VALIC holds (90%) of the outstanding common shares. Gateway Investment Services, Inc., a California corporation and an unaffiliated third party, holds the remaining 10% of the outstanding common shares. Revised 1/1999 ITEM 27. NUMBER OF CONTRACT OWNERS As of March 31, 1999, there were 4,277 owners of Contracts of the class covered by this registration statement (3,949 Qualified Contracts and 328 Non-Qualified Contracts). ITEM 28. INDEMNIFICATION The Bylaws of the Franklin Life Insurance Company provide as follows: INDEMNIFICATION FOR OFFICERS AND DIRECTORS SECTION 1. The Company shall indemnify and hold harmless each person who shall serve at any time hereafter as a director or officer of the Company or who is serving at the request of the Company as a director or officer of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise from and against any and all claims and liabilities to which such person shall become subject by reason of his having heretofore or hereafter been a director or officer of the Company, or such other organization with respect to which such director or officer serves at the request of the Company, or by reason of any action alleged to have been heretofore or hereafter taken or omitted by him as such director or officer, and shall reimburse each such person for all legal and other expenses reasonably incurred by him in connection with any such claim or liability; provided, however, that no such person shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his own willful misconduct. ITEM 29. PRINCIPAL UNDERWRITERS (a) Registrant's principal underwriter, Franklin Financial Services Corporation, also acts as principal underwriter for 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. (b) The directors and principal officers of the principal underwriter are:
(1) (2) Positions and Offices Name with Underwriter ---- --------------------- Tony M. Carter Vice President Ross D. Friend Senior Vice President and Chief Compliance Officer John A. Kalbaugh* Vice President - Marketing Kathy Keith Treasurer and Associate Director E. Paul Kovach, Jr.* Chairman of the Board Karen Kunz Chief Financial Officer and Director of Compliance and Administration Gary D. Osmonson Director and President Robert M. Roth* Vice President - Administration and Compliance and Secretary William A. Simpson Director Daniel E. Trudan Vice President and Assistant Secretary
The principal business address of each individual with an asterisk next to his name is 2727 Allen Parkway, Houston, Texas 77019. The principal business address of each other individual except Tony M. Carter and Ross D. Friend is c/o Franklin Financial Services Corporation, #1 Franklin Square, Springfield, Illinois 62713. The principal business address of Tony M. Carter is 2900 Greenbrier Drive, Springfield, Illinois 62704. The principal business address of Ross D. Friend is 2727-A Allen Parkway, Houston, Texas 77019. (c) This information appears in the Statement of Additional Information under "Distribution of the Contracts." ITEM 30. LOCATION OF RECORDS All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-1 through 31a-3 thereunder, are maintained and in the custody of The Franklin Life Insurance Company at its principal executive office located at #1 Franklin Square, Springfield, Illinois 62713 or at The Franklin Life Insurance Company's Administrative Office - FLIC Annuity Service Center, 2727-A Allen Parkway (3-50), Houston, Texas 77019-2191; or P.O. Box 4799, Houston, Texas 77210-4799, (800) 231-0105 or (713) 831-3505. ITEM 31. MANAGEMENT SERVICES Registrant has no management-related service contract not discussed in Part A or Part B hereof. ITEM 32. UNDERTAKINGS AND REPRESENTATIONS The Registrant undertakes: (a) 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; (b) to include either (1) as part of any application to purchase a Contract offered by the Prospectus constituting part of this Registration Statement, a space that an applicant can check to request a Statement of Additional Information, or (2) a toll-free number or 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) to deliver any Statement of Additional Information and any financial statements required to be made available under Form N-4 promptly upon written or oral request; (d) that the Registrant is relying upon the "no-action" letter of the Securities and Exchange Commission dated November 28, 1988 in response to the American Council of Life Insurance with respect to restrictions on withdrawal of amounts from Contracts used in connection with annuity purchase plans meeting the requirements of Internal Revenue Code Section 403(b), which amounts are attributable to contributions made on or after January 1, 1989 pursuant to a salary reduction agreement or to income earned on or after January 1, 1989 with respect to contributions made pursuant to a salary reduction agreement and that the Registrant will comply with the requirement of numbered paragraphs (1) through (4) of such "no-action" letter; (e) that the Registrant is relying upon Rule 6c-7 under the 1940 Act with respect to the offer and sale of Contracts to participants in the Texas Optional Retirement Program and that the Registrant will comply with the provisions of paragraphs (a) - (d) of Rule 6c - 7. (f) The Franklin Life Insurance Company 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 in connection with the Contracts. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this registration statement and has caused this registration statement to be signed on its behalf, in the City of Springfield, and State of Illinois, on the 23rd day of April, 1999. Franklin Life Variable Annuity Fund (Registrant) The Franklin Life Insurance Company (Depositor) By: /s/ William A. Simpson -------------------------------- William A. Simpson Chairman of the Board of Directors and Chief Executive Officer Attest: /s/ Elizabeth E. Arthur - ----------------------- Elizabeth E. Arthur Assistant Secretary As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE * - ------------------------ Robert M. Beuerlein Director ----------------- * - ------------------------ Brady W. Creel Director ----------------- - ------------------------ Rodney O. Martin Jr. Director ----------------- - ------------------------ Jon P. Newton Director ----------------- * - ------------------------ Michael M. Nicholson Director ----------------- * Executive Vice President - ------------------------- and Chief Financial Philip K. Polkinghorn Officer (principal financial officer and principal accounting officer) ----------------- - ------------------------ Gary D. Reddick Director ----------------- Chairman of the Board and * Chief Executive Officer - ------------------------ (principal executive William A. Simpson officer) ----------------- /s/ Elizabeth E. Arthur Dated April 23, 1999 - ------------------------------- * By Elizabeth E. Arthur, Attorney-in-Fact EX-99.1(B) 2 EXHIBIT 99.1(B) EXHIBIT 1(b) RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE FRANKLIN LIFE INSURANCE COMPANY WHEREAS, on August 19, 1997, the Board of Directors of The Franklin Life Insurance Company ("The Franklin") adopted certain resolutions approving the proposed terms of an Agreement and Plan of Reorganization relating to Franklin Life Variable Annuity Fund A ("Fund A"), Franklin Life Variable Annuity Fund B, and Franklin Life Money Market Variable Annuity Fund C (together, the "Funds"); WHEREAS, said Agreement and Plan of Reorganization contemplated that the Funds would be reorganized as a unit investment trust which would invest exclusively in specified investment portfolios of Variable Insurance Products Fund and Variable Insurance Products Fund II of Fidelity Investments; WHEREAS, The Franklin desires to use certain investment portfolios of the American General Series Portfolio Company, in lieu of the Fidelity Investments portfolios; WHEREAS, said change in the investment portfolios to be used requires that a new Agreement and Plan of Reorganization be approved and executed by The Franklin; WHEREAS, the Board of Directors believes that the terms of the new Agreement and Plan of Reorganization (the "Agreement") substantially in the form attached hereto, including the consideration to be paid and received, are reasonable and fair, do not involve overreaching on the part of any person concerned, will not dilute the interests of any contract owner of any of the Funds, and are consistent with the general purposes of the Investment Company Act of 1940 (the "1940 Act"); NOW, THEREFORE, BE IT RESOLVED, that for the purpose of setting forth the terms and conditions of the proposed reorganization (the "Reorganization"), the method of carrying the same into effect, and such other details and provisions as may appear necessary or desirable, the Board of Directors hereby: (1) approves the proposed terms of the Agreement and the transactions contemplated thereby; (2) authorizes the execution of the Agreement in substantially the form attached hereto, together with such changes as may be approved by any of the President, an Executive Vice President, or a Senior Vice President of The Franklin (such approval to be evidenced by the execution thereof), subject to the approval or adoption of the Agreement by the Board of Managers of each of the Funds and the requisite vote 1 of the contract owners of each of the Funds; and (3) authorizes the appropriate officers of The Franklin to effect the Reorganization subject to the terms and conditions set forth in the Agreement; FURTHER RESOLVED, that upon the consummation of the Reorganization, the name of Fund A is hereby changed to "Franklin Life Variable Annuity Fund" (hereafter, the "Continuing Fund"), or such other name as is determined by the Board of Managers of Fund A prior to the consummation of the Reorganization; FURTHER RESOLVED, that the income, gains, and losses, realized or unrealized, from assets allocated to each investment division in the Continuing Fund shall be credited to or charged against such investment division, without regard to other income, gains or losses of any other investment division of the Continuing Fund; FURTHER RESOLVED, that The Franklin will assume all costs sustained in connection with effecting the Reorganization including, but not limited to, the costs associated with liquidating the Funds' assets; FURTHER RESOLVED, that as part of the consummation of the Reorganization, the appropriate officers of The Franklin are authorized to prepare or cause to be prepared, to execute, and to file with the SEC, a registration statement on Form N-4 for the Continuing Fund; FURTHER RESOLVED, that upon the consummation of the Reorganization, the separate Investment Management Agreements between The Franklin and each of the Funds will be terminated as provided in the Investment Management Agreements; FURTHER RESOLVED, that the appropriate officers of The Franklin are authorized to prepare, or cause to be prepared, to execute and to deliver such agreements and other documents, including any exemptive applications filed with the SEC under Section 17 of the 1940 Act, and to do such acts and things as they may deem necessary or desirable to carry out the foregoing resolutions and the intent and purpose thereof. 2 AGREEMENT AND PLAN OF REORGANIZATION FOR FRANKLIN LIFE VARIABLE ANNUITY FUND A FRANKLIN LIFE VARIABLE ANNUITY FUND B FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C OF THE FRANKLIN LIFE INSURANCE COMPANY This Agreement and Plan of Reorganization (the "Agreement"), is entered into as of the 5th day of January, 1999, by and among The Franklin Life Insurance Company ("The Franklin"), a stock life insurance company organized and existing under the laws of the State of Illinois, Franklin Life Variable Annuity Fund A ("Fund A"), Franklin Life Variable Annuity Fund B ("Fund B"), and Franklin Life Money Market Variable Annuity Fund C ("Fund C"). WHEREAS, each of Fund A, Fund B, and Fund C (collectively, the "Funds") is a managed separate account established and existing under the insurance laws of the State of Illinois, is registered with the Securities and Exchange Commission (the "Commission") as an open-end, diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and is the funding vehicle for certain variable annuity contracts issued by The Franklin (the "Contracts"); and WHEREAS, Fund A and Fund B each invest primarily in common stocks to achieve the investment objective of long-term appreciation of capital through investment appreciation and the retention and reinvestment of income, and Fund C invests in short-term money market securities to achieve the investment objective of long-term compounding of income through retention and reinvestment of income from investments in a diversified portfolio of short-term money market securities yielding a high level of current income to the extent consistent with the preservation of capital and the maintenance of liquidity; and WHEREAS, the American General Series Portfolio Company (the "Series Company") is a mutual fund that is currently comprised of several investment portfolios, including the Stock Index Fund and the Money Market Fund (each, a "Portfolio"), and is registered with the Commission as an open-end management investment company under the 1940 Act; and WHEREAS, the Stock Index Fund tracks the Standard & Poor's 500 Index-Registered Trademark- ("S&P 500") to achieve the investment objective of long-term capital growth through investment in common stocks that, as a group, are expected to provide investment results closely corresponding to the performance of the S&P 500; and the Money Market Fund seeks liquidity, protection of capital and current income through investments in short-term money market instruments; and WHEREAS, the Series Company serves as an investment vehicle for variable annuity contracts or variable life insurance policies issued by The Variable Annuity Life Insurance Company ("VALIC") or one of its affiliates, or employee thrift plans maintained by VALIC or American General Corporation; and WHEREAS the Boards of Managers of each Fund has considered and approved the actions contemplated by this Agreement and has authorized that Fund to enter into this Agreement; and WHEREAS, the Board of Directors of The Franklin has considered and approved the actions contemplated by this Agreement and has authorized The Franklin to enter into this Agreement; NOW THEREFORE, in consideration of the mutual promises made herein, the parties hereto agree as follows: 1 ARTICLE I: CLOSING DATE SECTION 1.01. The reorganization contemplated by this Agreement shall be effective on such date as may be mutually agreed upon in writing by all parties to this Agreement (the "Closing Date"). The time on the Closing Date as of which the reorganization is consummated is referred to hereinafter as the "Effective Time." SECTION 1.02. The parties agree to use their best efforts to obtain all regulatory approvals and approvals of persons entitled to vote with respect to each Fund ("Fund Voters"), and to perform all other acts necessary or desirable to complete the reorganization as of the Closing Date. ARTICLE II: TRANSACTIONS SECTION 2.01. Prior to the Effective Time, Fund A will be renamed as "Franklin Life Variable Annuity Fund" or such other name specified by the Board of Managers of Fund A (hereafter, the "Continuing Fund"), and will be reorganized into a single unit investment trust separate account comprising three investment divisions ("Subaccount A," "Subaccount B," and "Subaccount C"). SECTION 2.02. Prior to the Effective Time: (1) all of the assets (including securities and other investments held or in transit, receivables for sold investments, dividends, interest receivables and any other assets) of Fund A will be converted into cash and transferred to Subaccount A of the Continuing Fund; (2) all of the assets (including securities and other investments held or in transit, receivables for sold investments, dividends, interest receivables and any other assets) of Fund B will be converted into cash and transferred to Subaccount B of the Continuing Fund; and (3) all of the assets (including securities and other investments held or in transit, receivables for sold investments, dividends, interest receivables and any other assets) of Fund C will be converted into cash and transferred to Subaccount C of the Continuing Fund. SECTION 2.03. As of the Effective Time, The Franklin, on behalf of the Continuing Fund, will transfer all cash (except for a minimal amount needed to keep bank accounts open) of: (1) Subaccount A to the Stock Index Fund; (2) Subaccount B to the Stock Index Fund; and (3) Subaccount C to the Money Market Fund. SECTION 2.04. In return for the cash received on behalf of Subaccount A and Subaccount B of the Continuing Fund, The Franklin will receive from the Series Company, on behalf of each such Subaccount, shares in the Stock Index Fund. In return for the cash received on behalf of Subaccount C, The Franklin will receive from the Series Company, on behalf of such Subaccount, shares in the Money Market Fund. The number of shares in each Portfolio of the Series Company to be received shall be determined by dividing (1) the amount of cash transferred on behalf of each Subaccount of the Continuing Fund, by (2) the per share value of the corresponding Portfolio of the Series Company's shares (computed in the manner set forth in the currently effective registration statement for the Series Company) as of the Closing Date or such other date required by law. SECTION 2.05. As of the Effective Time, The Franklin shall cause the shares of the Series Company it receives pursuant to Section 2.04 of this Agreement to be duly and validly recorded and held on its records as assets of the Continuing Fund, such that the interest of each owner of a Contract ("Contract Owner") in each Subaccount of the Continuing Fund after the Closing Date will then be equivalent in value to that Contract Owner's former interest in each Fund. The Franklin shall take all action necessary to ensure that such interests in the Continuing Fund, immediately following the Effective Time, are duly and validly recorded on the Contract Owner's individual account records. SECTION 2.06. The Series Company's shares to be issued hereunder may, upon instructions from The Franklin, be issued in open account form by book entry without the issuance of certificates or may be represented by certificates. 2 SECTION 2.07. If, at any time after the Closing Date, the Continuing Fund or The Franklin shall determine that any further action is necessary or desirable to complete the reorganization contemplated by this Agreement, the appropriate entity or entities shall take all such actions which are considered reasonable and necessary to complete the reorganization. SECTION 2.08. Following the Closing Date: (1) The Franklin will not provide investment advisory services to the Continuing Fund and, therefore, will not charge the Continuing Fund for investment advisory services; and (2) The Franklin will continue to charge the Continuing Fund for mortality and expense risks assumed by The Franklin and for any premium taxes with respect to the Contracts. ARTICLE III: WARRANTIES AND CONDITIONS SECTION 3.01. The Franklin and the Funds, as appropriate, make the following representations and warranties, which shall survive the Closing Date and bind their respective successors and assigns (I.E., the Continuing Fund): (a) The Franklin and the Funds are validly organized and established, and in good standing under the laws of the State of Illinois, and are fully empowered and qualified to carry out their business in all jurisdictions where they do so, including to enter into this Agreement and to effect the reorganization contemplated hereby (provided that all necessary approvals referred to in Section 3.02 of this Agreement are obtained). (b) Each Fund is duly registered and in good standing as an investment company under the 1940 Act. (c) The Contracts are validly issued and non-assessable, and all of the Contracts issued through each Fund have been offered and sold in material compliance with applicable requirements of the federal securities laws. (d) All corporate and other proceedings necessary and required to be taken by or on the part of The Franklin and the Funds to authorize and carry out this Agreement and to effect the reorganization have been duly and properly taken. (e) There are no suits, actions, or proceedings pending or threatened against any party to this Agreement which, to its knowledge, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business, or its ability to carry out its obligations hereunder. (f) There are no investigations or administrative proceedings by the Commission or by any insurance or securities regulatory body of any state or territory or of the District of Columbia pending against any party to this Agreement which, to its knowledge, would lead to any suit, action, or proceeding that, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business, or its ability to carry out its obligations hereunder. (g) If any party to this Agreement becomes aware, prior to the Effective Time, of any suit, action, or proceeding, of the types described in paragraphs (e) or (f) above, instituted or commenced against it, such party shall immediately notify and advise all other parties to this Agreement. (h) Each party shall make available all information concerning itself which may be required in any application, registration statement, or other filing with a governmental body to be made by the parties to this Agreement, in connection with any of the transactions contemplated by this Agreement and shall join in all such applications or filings, subject to reasonable approval by its counsel. Each party represents and warrants that to its knowledge all of such information so furnished shall be correct in all material respects and that it shall not omit any material fact required to be stated therein or necessary in order to make the statements therein not misleading. 3 (i) From the date of this Agreement through the Closing Date, each of the Funds will conduct its business in accordance with such Fund's governing Rules and Regulations and in substantial compliance with the Illinois Insurance Laws and the terms of the Contracts issued through each Fund, and The Franklin will conduct its business in accordance with its Bylaws and in substantial compliance with the Illinois Insurance Laws. (j) Except with respect to contracts entered into in connection with the investment advisory services of the Funds which shall terminate on or prior to the Closing Date, no party is engaged currently, and the execution, delivery and performance of this Agreement by each party will not result, in a material violation of any such party's charter, by-laws, or any material agreement, indenture, instrument, contract, lease or other undertaking to which such party is bound, and to such party's knowledge, the execution, delivery and performance of this Agreement will not result in the acceleration of any obligation, or the imposition of any penalty, under any material agreement, indenture, instrument, contract, lease, judgment or decree to which any such party may be a party or to which it is bound. (k) This Agreement is a valid obligation of The Franklin and the Funds and is legally binding upon them in accordance with its terms. SECTION 3.02. The obligations of the parties hereunder shall be subject to satisfaction of each of the following conditions: (a) The representations contained herein shall be true as of and at the Effective Time with the same effect as though made at such time, and such parties shall have performed all obligations required by this Agreement to be performed by each of them prior to such time. (b) The Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the reorganization contemplated hereby. (c) The appropriate parties shall have received orders from the Commission providing such exemptions and approvals as they and their counsel reasonably deem necessary, including exemptions from Section 17(a) of the 1940 Act, and shall have made all necessary filings, if any, with, and received all necessary approvals from, state securities or insurance authorities. (d) Fund A shall have filed with the Commission a registration statement on Form N-14 under the Securities Act of 1933, as amended (the "1933 Act"), and such pre-effective amendments thereto as may be necessary or desirable to effect the purposes of the reorganization; and the appropriate parties shall have taken all actions necessary for such filings to become effective; and no reason shall be known by the parties which would prevent the filings from becoming effective in a timely manner. (e) At a meeting of Fund Voters called for such purpose (or any adjournments thereof), a majority of the outstanding voting securities (as defined in the 1940 Act and the rules thereunder) of each of the Funds, voting separately, shall have voted in favor of approving this Agreement and the reorganization contemplated hereby. (f) Each party shall have furnished, as reasonably requested by any other party, legal opinions, officers' certificates, certified copies of board and committee resolutions, certificates of good standing or "all fees paid" or similar certificates, and other closing documentation as may be appropriate for a transaction of this type. ARTICLE IV: COSTS SECTION 4.01. The Franklin shall bear all expenses incurred by it and by each of the Funds in connection with effecting the reorganization contemplated by this Agreement (including, without limitation, any expenses incurred by it and each of the Funds in connection with: actions taken pursuant to 4 Section 2.07 of this Agreement; preparation and filing of registration statements, applications, and amendments thereto on behalf of any and all parties hereto; all legal, accounting, and data processing services for The Franklin and each of the Funds necessary to effect the reorganization; and all expenses incurred in connection with liquidating the Funds' assets as described in Section 2.02). ARTICLE V: TERMINATION SECTION 5.01. This Agreement may be terminated and the reorganization abandoned at any time prior to the Effective Time, notwithstanding approval by Fund Voters: (a) by mutual consent of the parties hereto; or (b) by any of the parties if any condition set forth in Section 3.02 of this Agreement has not been fulfilled by the other parties. SECTION 5.02. At any time prior to the Effective Time, any of the terms or conditions of this Agreement may be waived by the party or parties entitled to the benefit thereof if such waiver will not have a material adverse effect on the interests of Contract Owners. ARTICLE VI: GENERAL SECTION 6.01. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. SECTION 6.02. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Illinois, without regard to its principles of conflicts of law. * * * IN WITNESS WHEREOF, as of the day and year first above written, each of the parties has caused this Agreement to be executed on its behalf by its Chairman, President, or Vice President and attested by its Secretary or Assistant Secretary, all thereunto duly authorized. THE FRANKLIN LIFE INSURANCE COMPANY Attest: /s/ Elizabeth E. Arthur By: /s/ William A. Simpson - ------------------------------ ------------------------------ Title: Assistant Secretary Title: Chairman and Chief Executive Officer FRANKLIN LIFE VARIABLE ANNUITY FUND A Attest: /s/ Elizabeth E. Arthur By: /s/ Robert G. Spencer - ------------------------------ ------------------------------ Title: Secretary, Title: Chairman, Board of Managers Board of Managers FRANKLIN LIFE VARIABLE ANNUITY FUND B Attest: /s/ Elizabeth E. Arthur By: /s/ Robert G. Spencer - ------------------------------ ------------------------------ Title: Secretary, Title: Chairman, Board of Managers 5 Board of Managers FRANKLIN LIFE MONEY MARKET VARIABLE ANNUITY FUND C Attest: /s/ Elizabeth E. Arthur By: /s/ Robert G. Spencer - ------------------------------ ------------------------------ Title: Secretary, Title: Chairman, Board of Managers Board of Managers EX-99.4(G) 3 EXHIBIT 99.4(G) Exhibit 4(g) THE FRANKLIN LIFE INSURANCE COMPANY Springfield, Illinois A Legal Reserve Stock Company Contract Number 1234567 Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1970 30 YEARS Stipulated Payment Period Maturity Date DECEMBER 1, 2000 Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay a life annuity consisting of a series of monthly income payments if the Annuitant is living on the Maturity Date. The first such payment will be made on the Maturity Date and subsequent payments will be made on the same day of each month thereafter so long as the Annuitant shall live. The dollar amount of such payments will be determined as provided in provisions 30, 31, 32 and 34 for the First Settlement Option. Upon receipt of due proof of the death of the Annuitant occurring before the Maturity Date, the Company agrees to pay to the Beneficiary the Cash Surrender Value at the Valuation Date coincident with or next following the date on which written notice of death is received by the Company. The Provisions on this and the following pages are part of the Contract. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for life, first payment at Maturity Date. Schedules of additional Benefits and Stipulated Payments appear on Page 2. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1180 POLICY DATA Date of Issue DECEMBER 1, 1970 MALE 35 Age and Sex Contract Number 1234567 Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1970 30 YEARS Stipulated Payment Period Maturity Date DECEMBER 1, 2000 Beneficiary DEBORAH FRANKLIN, WIFE
STIPULATED PAYMENT Stipulated Payment Interval ANNUAL Stipulated Payment $1,000.00 including the premium for any Additional Benefits described below. Later stipulated payments may be reduced as provided in any Additional Benefits Supplemental Agreement. Account allocation of Stipulated Payment excluding premium for Additional Benefits provided by Supplemental Agreement. Fixed Dollar Annuity 50.0% Separate Account 50.0% SCHEDULE OF ADDITIONAL BENEFITS (AS PROVIDED BY SUPPLEMENTAL AGREEMENT)
Form Annual Years Number Description of Benefits Premium Payable* --- NONE ---- ---
*Premiums are payable for the number of contract years stated or until prior death of the Annuitant. FORM 1170-1180 Page 2 GENERAL DEFINITIONS 1. DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Stipulated Payment" means an amount paid to the Company under this contract as a consideration for the benefits described herein, and includes the premium for any additional benefits provided by Supplemental Agreement; (d) "General Account" means all assets of the Company other than those in a Separate Account. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund B" established by the Company pursuant to Illinois law; (f) "Cash Surrender Value" means the value of the Accumulation Units credited to this contract determined on the basis set forth in the Valuation Provision; (g) "Valuation Date" means the date as of which the Accumulation Unit value is determined; (h) "Valuation Period" means the period, as determined by the Company, of not more than 7 calendar days beginning on the day after any Valuation Date and ending on the next Valuation Date; (i) "Accumulation Unit" means a unit used to measure the value of an Owner's fixed dollar annuity or interest in the Separate Account prior to the date on which annuity payments commence; (See provision 25 dealing with accumulation unit values.) (j) "Annuity Unit" means a unit used to determine the amount of each annuity payment after the first; (See provision 33 dealing with annuity unit values.) (k) "Attained Age" of the Annuitant at the end of any period (whether or not the Annuitant is then alive) means his nearest age on the date the first contract year begins plus the length of such period; (l) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. GENERAL PROVISIONS 2. THE CONTRACT Consideration-Entire Contract: This contract has been issued in consideration of the application and of the payment of stipulated payments as provided. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. Statements in Application: All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. Modification: Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract or to extend the time for paying any stipulated payment. 3. INCONTESTABILITY This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue, except for nonpayment of stipulated payments and except as to the terms of any provision for disability benefits or accidental death benefits. 4. SUICIDE If within 2 years from date of issue the Annuitant (whether sane or insane) shall die by suicide, this contract shall automatically terminate and the amount payable in lieu of all other benefits shall be limited to the Cash Surrender Value at the date of death plus the sum of the additional premiums paid prior to death for any Supplemental Agreement attached to this contract. 5. AGE AND SEX If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the stipulated payments paid would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 6. OWNERSHIP AND Owner: The Owner of this contract will be the Annuitant ASSIGNMENT unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. Change of Ownership: The Owner may designate a new Owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. Assignment: No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment.
FORM 1180 PAGE 3 7. BENEFICIARY Determination of Beneficiary: The Beneficiary to receive any death benefit will be designated on page 2 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided): (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries are living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries are living. If no Beneficiary be living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Change of Beneficiary: Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such Beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 8. SETTLEMENT Any death benefit becoming due is payable immediately upon receipt at the Home Office of the Company of due proof of death. If any settlement is not made by payment of a single sum, a Supplementary Contract will be issued by the Company which shall set forth the terms and conditions of payment. In any settlement of this contract, by reason of death, surrender or otherwise, any indebtedness to the Company on this contract will be deducted from the amount otherwise payable, and the Company may require return of this contract. 9. CASH SURRENDER The Owner may surrender this contract for its Cash Surrender VALUE Value, less any indebtedness hereon, by written request at any time before the commencement of annuity payments. On the due date of any Stipulated Payment, the portion of the contract in either Account may be surrendered, provided that portion of the total Stipulated Payment allocated to the other Account on the date of surrender was at least equal to the minimum amount required by the Company under its usual underwriting practices on that date. The Cash Surrender Value will be computed on the Valuation Date coincident with or next following the date on which written request for surrender is received by the Company at its Home Office, and any cash payment will be made within 7 days thereafter except as the Company may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request is received. 10. LOAN While this contract is in force, before the commencement of annuity payments or the death of the Annuitant, the Company will make a loan on the sole security of the contract. The loan may be for any amount which with interest to the end of the current contract year shall not exceed the Cash Surrender Value of the Fixed Dollar Annuity Accumulation Units on the date of the loan, valued at the end of such contract year, assuming that all Separate Account Accumulation Units are converted to Fixed Dollar Annuity Accumulation Units of equal value on the date of the loan. Loans will be made upon execution of a proper loan agreement and assignment of this contract and, if required by the Company, presentation of this contract for endorsement. Any existing indebtedness on this contract will be deducted from the proceeds of the loan. Upon making or increasing a loan, the Company will convert Separate Account Accumulation Units to Fixed Dollar Annuity Accumulation Units, which will no longer share in the investment experience of the Separate Account, and which will thereafter have the same value as Fixed Dollar Annuity Accumulation Units in the General Account of the Company, in an amount necessary (together with the value of any existing Fixed Dollar Annuity Accumulation Units) to provide sufficient value for such loan. Such conversion will be made on the basis of the Accumulation Unit value on the last day of the Valuation Period in which the loan or increase in loan is made. The value of the Separate Account Accumulation Units to be converted shall bear the same proportion to the loan proceeds as the cash value of the Separate Account Accumulation Units bears to the total Cash Surrender Value of the contract, less any indebtedness hereon, on the date of the loan, unless the Owner otherwise requests. Interest on the loan shall be at the rate of 5.7% a year payable in advance to the end of the current contract year and annually in advance thereafter, and if any interest is not paid when due, it shall be added to the existing loan and shall bear interest at the same rate. The whole or any part of the indebtedness may be repaid at any time while the contract is in force prior to its Maturity Date. Where Separate Account Accumulation Units in the Separate Account have been converted into Fixed Dollar Annuity Accumulation Units prior to the making of a loan, repayments of the loan will result in the conversion of Accumulation Units under the General Account (in an amount equal to the proceeds of the previous conversion of Separate Account Accumulation Units) to Separate Account Accumulation Units, unless the Contract Owner elects that such conversion shall not take place. Such conversion will be made on the basis of the Accumulation Unit value on the last day of the Valuation Period in which repayment is made. This contract shall terminate and have no further value if at any time the total indebtedness hereon equals or exceeds the Cash Surrender Value of this contract, provided at least 31 days prior notice shall have been mailed by the Company to the last known address of the Owner, and of any Assignee of record at the Home Office.
FORM 1180 PAGE 4 11. AUTOMATIC If this Provision is elected, the Company will PREMIUM LOAN automatically pay any premium on a Supplemental Agreement FOR ANY attached to this contract which is in default at the end of SUPPLEMENTAL the grace period and charge the amount so paid as a loan in AGREEMENT accordance with the Loan provision of this contract, provided such loan would not exceed the then loan value of this contract. This provision may be elected upon written request while no premium on any Supplemental Agreement is in default beyond the grace period. Once elected, the provision will continue in effect until cancelled by written request. 12. PAID-UP If within 31 days after the due date of the first unpaid ANNUITY Stipulated Payment the Annuitant fails to surrender the contract for its Cash Surrender Value, less any indebtedness hereon, this contract will be continued so that at the Maturity Date benefits provided by the then existing Accumulation Units may be received in accordance with the provisions of this contract. 13. TERMINATION If total Stipulated Payments paid are less than $240.00 in OF CONTRACT each of 3 consecutive contract years (excluding the first contract year), and if the Cash Surrender Value on the contract anniversary date at the end of such 3 year period is less than $500.00, the Company may terminate this contract but not until 31 days after the Company shall have mailed notice of termination to the last known address of the Owner or any Assignee of record. The Company will pay to the Owner the Cash Surrender Value, less any indebtedness hereon, if any, upon such termination of this contract. 14. PROOF OF The Company shall have the right to require evidence of the SURVIVAL survival of any Payee at the time any payment to such Payee is due. 15. NONPARTICI- This contract is nonparticipating and will not share in the PATING surplus earnings of the Company. 16. VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 17. OWNERSHIP OF The Company shall have exclusive and absolute ownership ASSETS AND and control of its assets, including all assets in the DETERMINATION Separate Account. Determination by the Company of the value OF VALUES of an Accumulation Unit and an Annuity Unit by the method described in this contract will be conclusive upon the Owner, Annuitant, and any Beneficiary. STIPULATED PAYMENTS 18. STIPULATED Stipulated Payments are payable in advance at intervals of PAYMENTS 12 months (annually), 6 months (semiannually), 3 months (quarterly) or, at the option of the Company, one month (monthly). The first Stipulated Payment is due as of the date of issue and each subsequent Stipulated Payment is due on the first day following the interval covered by the next preceding Stipulated Payment and on the same date each month as the Date of Issue. The amount of the Stipulated Payment on an annualized basis may be decreased on the date on which any Stipulated Payment is due. Receipt by the Company of a Stipulated Payment different on an annualized basis from the previous payment received will constitute notice of change in the amount of the Stipulated Payments. The mode of Stipulated Payment may be changed only on a Contract Anniversary unless otherwise agreed by the Company Company. No single Stipulated Payment allocated to the Separate Account or to the Fixed Dollar Annuity shall be less than $20. Stipulated Payments are payable to the Company, either at its Home Office or elsewhere, in exchange for the Company's receipt therefor, signed by the President or the Secretary. The payment of any Stipulated Payment shall not continue this contract in force beyond the date when the next Stipulated Payment is due, except as otherwise provided herein. Failure to pay a Stipulated Payment on or before the date on which it is due constitutes default in Stipulated Payments. As long as any Stipulated Payment remains unpaid, the date of default is the earliest date on which an unpaid Stipulated Payment was due. 19. GRACE PERIOD A grace period of 31 days will be allowed for the payment of every Stipulated Payment after the first, during which period this contract remains in force. Each Stipulated Payment received during the grace period will be applied in accordance with provision 18 and 22. 20. RESUMPTION OF If Stipulated Payments have been discontinued, and this STIPULATED contract has not been surrendered for its value, the Owner PAYMENTS may resume making Stipulated Payments, for the annuity at any time, subject to the requirements of the Stipulated Payment provision above, and subject to the payment or reinstatement of any indebtedness outstanding at the end of the grace period of the first unpaid Stipulated Payment with interest according to the Loan provision of this contract. If the first Stipulated Payment made on resumption is not accompanied by any notice to the contrary, it shall be treated as made on the same frequency of payment as the last payment made for determining the due date of the next Stipulated Payment, as if due on the monthly anniversary of the contract falling in the calendar month in which the payment is actually received by the Company at its Home Office. 21. REINSTATEMENT If this contract has not been surrendered for its value, any OF SUPPLEMENTAL Supplemental Agreement attached to this contract which has AGREEMENTS been terminated for nonpayment of premiums may be reinstated at any time within 5 years of termination, upon presentation of evidence of insurability of the Annuitant satisfactory to the Company, the payment of all premiums for such Supplemental Agreement in arrears with interest at 5.7% a year in advance, and the payment of a total Stipulated Payment at least equal to that shown on page 2 of the contract.
FORM 1180 PAGE 5 VALUATION PROVISIONS 22. NET STIPULATED The Net Stipulated Payment is equal to (a) a percentage PAYMENTS (depending on contract year) of the amount obtained by deducting from the Stipulated Payment any premium for additional benefits provided by Supplemental Agreement attached to this contract, less (b) any premium taxes on such Stipulated Payment. Such percentage will be determined from the following:
Stipulated Payment Period in Years (from page 2) 12 or more 9-11 6-8 2-5 ---------- ---- --- --- Percentage for Contract Years 1-2 85% 85% 89% 91% 3-4 85% 90% 90% 91% 5 90% 94% 94% 94% 6-10 94% 94% 94% 11 & later 96% 94%
When a Stipulated Payment is received in the Home Office of the Company, the Net Stipulated Payments for each Account (determined in accordance with the Account allocation percentages specified on page 2 of the (Contract), are applied separately to provide Accumulation Units. The number of Accumulation Units provided in each Account is determined by dividing the Net Stipulated Payment for that Account by the dollar value of one Accumulation Unit in that Account on the last day of the Valuation Period in which the Stipulated Payment is received at the Home Office. The number of Accumulation Units so determined will not be affected by any subsequent changes in the dollar value of Accumulation Units. The dollar value of the Accumulation Unit in the General Account will increase uniformly each Valuation Period; the value of the Accumulation Unit in the Separate Account may vary from period to period as set forth below. 23. ADDITIONAL Each month during the first 5 contract years, the Company FIXED DOLLAR will increase the number of Fixed Dollar Annuity ANNUITY Accumulation Units in the General Account by a number which ACCUMULATION is equivalent to a 1% a year additional net investment rate. UNITS Each month during the 6th to 10th contract years, inclusive, the Company will increase the number of Fixed Dollar Annuity Accumulation Units in the General Account by a number which is equivalent to a 1/2% a year additional net investment rate. By action of its Directors, the Company may credit additional Fixed Dollar Annuity Units at any time. 24. NET INVESTMENT (a) The net investment rate for any Valuation Period for the RATE AND NET General Account is guaranteed, and is equivalent to an INVESTMENT FACTOR investment rate of 3-1/2% compounded annually, except that, for benefits provided by the Fifth, Sixth, and Seventh Settlement Options it shall be 3% compounded annually. (b) The net investment rate for any Valuation Period for the Separate Account is equal to the gross investment rate for that Account for the period expressed in decimal form to 8 places less a deduction of .00003945 for each day of such Valuation Period. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of the assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. (c) The net investment factor for each Account is the sum of 1.00000000 plus the net investment rate for the Account. 25. ACCUMULATION The value of both the Fixed Dollar Annuity Accumulation Unit UNIT VALUE and the Separate Account Accumulation Unit was established at $10.00 as of July 1, 1971. The value of an Accumulation Unit of either type on the last day of any subsequent Valuation Period is determined by multiplying such value on the last day of the immediately preceding Valuation Period by the net investment factor for the current Valuation Period. The value of an Accumulation Unit as of any date other than a Valuation Date is equal to its value as of the immediately following Valuation Date. 26. REPORTS TO The Company will send the Owner at least once in each THE OWNER contract year after the first (a) a statement which reflects the investment results for the preceding year, and (b) a statement which reflects the value of the Accumulation Units credited to the contract in all cases where the contract provides for Cash Surrender Value. SETTLEMENT PROVISIONS 27. GENERAL Subject to these provisions, the whole or any part (but in CONDITIONS OF no case less than $2,000) of the proceeds due the Payee in SETTLEMENT settlement of this contract may be made payable in accordance with one of the following options, or in any other manner that may be agreed upon with the Company. Any election, or change or revocation thereof, must be filed with the Company at its Home Office before settlement has been made and shall be effective only when attached hereto or endorsed hereon or otherwise recorded as the Company may require. The Change of Beneficiary provision under this contract shall apply to any election or change of election of an option prior to settlement date. If no election is in effect on the settlement date, the Payee entitled to the proceeds may at that time make such election. No settlement option will be available without the consent of the Company if this contract is assigned, or if the Payee is a corporation, association, partnership, trustee or estate. The Payee under a settlement option operative on or after the death of the Annuitant shall be the Beneficiary during the lifetime of such Beneficiary. The Payee under a settlement option operative on or after surrender of this contract shall be the Annuitant during the lifetime of such Annuitant. Any settlement of this contract in accordance with the first paragraph on the face hereof, or under one of the first four settlement options in provision 29, shall be subject to satisfactory proof of age of any Payee. 28. DATE OF PAYMENT The right to interest will accrue under the Seventh Option in provision 29, and the first income payment will be made under any other option, as of the date when the proceeds of this contract would otherwise be payable.
FORM 1180 PAGE 6 29. SETTLEMENT FIRST OPTION--Life Annuity--An Annuity payable monthly OPTIONS during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee. SECOND OPTION--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed--An annuity payable monthly during the lifetime of the Payee including the guarantee that if, at the death of the Payee, payments have been made for less than 120 months, 180 months or 240 months (as selected), payments shall be continued during the remainder of the selected period. THIRD OPTION--Unit Refund Life Annuity--An annuity payable monthly during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee, provided that, at the death of the Payee, the Beneficiary will receive an additional 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 the option divided by the Annuity Unit value at the effective date of the first annuity payment and (b) is the number of Annuity Units represented by each payment multiplied by the number of payments made. FOURTH OPTION--Joint and Last Survivor Life Annuity--An annuity payable monthly during the joint lifetime of the Payee and a secondary Payee, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the death of the survivor. FIFTH OPTION--Payments for a Designated Period--An amount payable monthly for the number of years selected which may be from 1 to 30 years. SIXTH OPTION--Payments of a Specified Dollar Amount--The amount due may be paid in equal annual, semi-annual, quarterly or monthly installments of a designated dollar amount (not less than $75. a year per $1,000 of the original amount due) until the remaining balance is less than the amount of one installment. To determine the remaining balance in either Account at the end of any valuation period such balance at the end of the previous period is decreased by the amount of any installment paid during the period and the result multiplied by the net investment factor for the period. If the remaining balance at any time is less than the amount of one installment, such balance will be paid and will be the final payment under the option. SEVENTH OPTION--Investment Income--The amount due may be left on deposit with the Company in its General Account and a sum will be paid annually, semiannually, quarterly or monthly, as selected, which shall be equal to the net investment rate for the period multiplied by the amount remaining on deposit. 30. ALLOCATION At the time election of one of the first 5 settlement OF ANNUITY options is made, the person electing the option may further elect to have the Cash Surrender Value, less any indebtedness hereon, applied to provide a variable annuity, a fixed dollar annuity or a combination of both. Election of the Sixth Option may specify that the net investment factor for the Separate Account or the General Account is to apply or the amount due may be split between the two Accounts. If no election is made to the contrary, that portion of the amount due from the Separate Account shall be applied to provide a variable annuity and that portion of the amount due from the General Account shall be applied to provide a fixed dollar annuity. Election of the Seventh Option shall constitute election of fixed income. 31. VARIABLE After the first monthly payment for a variable annuity has ANNUITY been determined in accordance with provision 34 the number of Separate Account Units is determined by dividing that first monthly payment by the Separate Account Annuity Unit value at the effective date of the first annuity payment. Once variable annuity payments have begun, the number of annuity units remains fixed. The method of calculating the unit value is described in provision 33. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account Annuity Units by the Separate Account Annuity Unit Value, as described in provision 33, for the date on which the payment is due. The Company guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality experience of Payees from the mortality assumption as used in determining the first monthly payment. 32. FIXED DOLLAR After the first monthly payment for a fixed dollar annuity ANNUITY has been determined in accordance with provision 34, the number of Fixed Dollar Annuity Units is determined by dividing the first monthly payment by the Fixed Dollar Annuity Unit value. Such value will always equal $1.00. Once fixed dollar annuity payments have begun, the number of Annuity Units remain fixed. Although fixed dollar annuity payments may never be less than the first monthly payment, each payment certain after the first under the Second or Fifth Option and the net investment rate applied under the Sixth and Seventh Options may be increased as a result of excess credits declared by the Board of Directors of the Company. 33. ANNUITY UNIT The value of the Fixed Dollar Annuity Unit is fixed at VALUE $1.00. The value of the Separate Account Annuity Unit for July 1, 1971 was fixed at $1.00 and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 34. ANNUITY TABLES The Tables below show the dollar amount of the first monthly payment for each $1,000 applied under the first 5 settlement options. Under the First, Second or Third Options, the amount of each payment will depend upon the sex of the Payee and the Payee's adjusted age at the time the first payment is due. Under the
FORM 1180 PAGE 7 Fourth Option, the amount of each payment will depend upon the sex of both Payees and their adjusted ages at the time the first payment is due. Adjusted age is determined in accordance with the following table:
CALENDAR YEAR OF BIRTH ADJUSTED AGE Before 1990................. Actual Age increased by 1 1900-1919................... Actual Age 1920-1939................... Actual Age decreased by 1 1940-1959................... Actual Age decreased by 2 1960-1979................... Actual Age decreased by 3 After 1979.................. Actual Age decreased by 4 Actual age, as used in the table above shall mean age nearest birthday at the time the first payment is due.
If it would produce greater benefits, the Company agrees that the first monthly payment to the Annuitant will be 103% of the first monthly payment produced by a then currently issued immediate annuity of the same form with a single Stipulated Payment equal to the Cash Surrender Value, less any indebtedness hereon, which is being applied under the contract. 35. MINIMUM No election of any settlement option may be made under the PAYMENTS contract for any Payee unless such election would produce a first payment of at least $25. to that Payee and if a combination benefit is elected, no election may be made unless the first payment from each Account would be $25. to the Payee. If at any time, any payments to be made to any Payee from either Account are or become less than $25. each the Company shall have the right to change the frequency of payments to such interval as will result in the payment of at least $25. or if any payment would be less than $25. a year, the Company may make such other settlement as may be equitable to the Payee. 36. DESCRIPTION The tables for the First, Second, Third and Fourth Options OF TABLES in provision 29 are based on the Progressive An- nuity 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. 37. PAYMENT OF If any Payee dies while receiving payments under a GUARANTEED settlement option, the present values at the current dollar MONTHLY amount, on the date of death, of any remaining guaranteed PAYMENTS number of payments or any then remaining balance of proceeds under the Sixth or Seventh Options will be paid in one sum to the executor or administrators of the Payee unless other provision shall have been previously made and approved by the Company. Calculations for such present value of guaranteed payments remaining will assume a net investment rate of 3% a year in the General Account for the Fifth Option and 3-1/2% a year for all other General Account and all Separate Account options. 38. OPTION TO Upon written request by the Owner and any assignee and BEGIN MONTHLY irrevocable beneficiary, the commencement of monthly income NCOME LATER DATE may be deferred and this contract continued until any contract anniversary after the Maturity Date but not beyond the contract anniversary on which the attained age of the Annuitant is 75. Stipulated Payments may be continued on and after the Maturity Date in the manner specified in this contract or may cease on the Maturity Date, as elected in said request. In the event of the death of the Annuitant during the period during which monthly income is deferred, the Company will, upon receipt of due proof of such death, pay to the Beneficiary the Cash Surrender Value on the Valuation Date coincident with or next following the date written notice of death is received by the Company. 39. SURRENDER OF When the income provided on page 1 hereof becomes payable, CONTRACT FOR or when a settlement option shall become operative, this SUPPLEMENTARY contract must be surrendered to the Company in exchange for CONTRACT a supplementary contract which shall set forth the terms and conditions of payment of such income or under such settlement option.
FORM 1180 PAGE 8 AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 OF NET TERMINATION VALUE FIRST, SECOND AND THIRD OPTIONS--SINGLE LIFE ANNUITIES WITH:
Monthly Payments Monthly Payments Monthly Payments Adjusted Guaranteed Adjusted Guaranteed Adjusted Guaranteed Age of Payee ----------- Age of Payee ------------------- Unit Age of Payee ------------------- Unit Male Female 120 240 Male Female None 120 180 240 Refund Male Female None 120 180 240 Refund 20 24 $3.38 $3.37 40 44 $4.03 $3.98 60 64 $6.01 $5.79 $5.53 $5.13 $5.44 21 25 3.40 3.39 41 45 4.08 4.03 61 65 6.18 5.94 5.63 5.24 5.56 22 26 3.42 3.41 42 46 4.14 4.08 62 66 6.37 6.08 5.74 5.30 5.69 23 27 3.44 3.43 43 47 4.20 4.13 63 67 6.57 6.24 5.84 5.36 5.82 24 28 3.46 3.45 44 48 4.26 4.18 64 68 6.79 6.40 5.95 5.41 5.96 25 29 3.49 3.48 45 49 $4.34 4.32 $4.28 4.23 $4.21 65 69 7.02 6.57 6.05 5.46 6.11 26 30 3.51 3.50 46 50 4.42 4.39 4.35 4.28 4.27 66 70 7.27 6.74 6.15 5.51 6.27 27 31 3.54 3.53 47 51 4.49 4.46 4.41 4.34 4.33 67 71 7.54 6.91 6.26 5.55 6.43 28 32 3.57 3.55 48 52 4.57 4.53 4.48 4.40 4.39 68 72 7.83 7.10 6.35 5.59 6.60 29 33 3.60 3.58 49 53 4.65 4.61 4.55 4.46 4.46 69 73 8.14 7.28 6.45 5.62 6.80 30 34 3.63 3.61 50 54 4.74 4.69 4.62 4.52 4.53 70 74 8.48 7.47 6.54 5.65 6.98 31 35 3.66 3.64 51 55 4.84 4.78 4.70 4.58 4.60 71 75 8.84 7.66 6.62 5.68 7.20 32 36 3.69 3.67 52 56 4.94 4.87 4.78 4.65 4.67 72 76 9.23 7.85 6.70 5.70 7.43 33 37 3.73 3.71 53 57 5.04 4.97 4.87 4.71 4.76 73 77 9.65 8.04 6.77 5.71 7.65 34 38 3.77 3.74 54 58 5.16 5.07 4.95 4.78 4.84 74 78 10.11 8.23 6.83 5.72 7.90 35 39 3.80 3.78 55 59 5.28 5.18 5.04 4.85 4.93 75 79 10.61 8.41 6.88 5.72 8.18 36 40 3.84 3.82 56 60 5.40 5.29 5.13 4.91 5.02 76 80 8.58 37 41 3.89 3.85 57 61 5.54 5.41 5.23 4.98 5.12 38 42 3.93 3.90 58 62 5.69 5.53 5.33 5.05 5.22 39 43 3.98 3.94 59 63 5.84 5.66 5.43 5.11 5.33
FOURTH OPTION--JOINT AND LAST SURVIVOR ANNUITY
Adjusted Age of Payee Adjusted Age of --------------------- Secondary Payee Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male Female Female 49 Female 54 Female 59 Female 64 Female 69 Female 74 Male 75 36 40 $3.68 $3.73 $3.77 $3.80 $3.82 $3.83 $3.84 41 45 3.81 3.89 3.95 4.00 4.04 4.06 4.08 46 50 3.93 4.05 4.15 4.24 4.30 4.35 4.38 51 55 4.03 4.21 4.37 4.51 4.62 4.70 4.76 56 60 4.13 4.35 4.58 4.80 4.99 5.14 5.25 61 65 4.20 4.47 4.78 5.09 5.39 5.65 5.86 66 70 4.25 4.57 4.94 5.36 5.81 6.23 6.60 71 75 4.29 4.64 5.07 5.59 6.19 6.83 7.45 76 80 --- 4.68 5.15 5.75 6.50 7.37 8.33 81 85 --- 4.71 5.21 5.87 6.72 7.81 9.13 The monthly payment for any combination of ages not shown will be quoted upon request.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD
Amount of Amount of Amount of Years of Monthly Payment Years of Monthly Payment Years of Monthly payment Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. 1 $84.47 $84.65 11 $8.86 $9.09 21 $5.32 $5.56 2 42.86 43.05 12 8.24 8.46 22 5.15 5.39 3 28.99 29.19 13 7.71 7.94 23 4.99 5.24 4 22.06 22.27 14 7.26 7.49 24 4.84 5.09 5 17.91 18.12 15 6.87 7.10 25 4.71 4.96 6 15.14 15.35 16 6.53 6.76 26 4.59 4.84 7 13.16 13.38 17 6.23 6.47 27 4.47 4.73 8 11.68 11.90 18 5.96 6.20 28 4.37 4.63 9 10.53 10.75 19 5.73 5.97 29 4.27 4.53 10 9.61 9.83 20 5.51 5.75 30 4.18 4.45
FORM 1180 PAGE 9 THE FRANKLIN LIFE INSURANCE COMPANY A Brief Description of This Contract This is a Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. lncome is payable for life, first payment at Maturity Date. Schedules of additional Benefits and Stipulated Payments appear on Page 2. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1180 EX-99.4(H) 4 EHXIBIT 99.4(H) Exhibit 4(h) WAIVER OF MINIMUM PAYMENT PROVISION IN FORM 1180 The Franklin Life Insurance Company will accept any monthly payment (other than the initial monthly payment) on a variable annuity contract written on Form 1180 after the effective date of Post-Effective Amendment No. 1 to the Securities Act Registration Statement of Franklin Life Variable Annuity Fund B, notwithstanding the $20 minimum purchase amount provided for in paragraph 18 of Form 1180, provided that such payment is at least $10 in amount and is an amount as stipulated in the schedule of such contract. THE FRANKLIN LIFE INSURANCE COMPANY By__________________________ Arthur C. Cragoe Senior Vice President - Actuarial EX-99.4(I) 5 EXHIBIT 99.4(I) Exhibit 4(i) THE FRANKLIN LIFE INSURANCE COMPANY Springfield, Illinois A Legal Reserve Stock Company Contract Number 1234567 $10,000.00 Single Stipulated Payment Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1970 Maturity Date DECEMBER 1, 2000 Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay a life annuity consisting of a series of monthly income payments if the Annuitant is living on the Maturity Date. The first such payment will be made on the Maturity Date and subsequent payments will be made on the same day of each month thereafter so long as the Annuitant shall live. The dollar amount of such payments will be determined as provided in provisions 24, 25, 26 and 28 for the First Settlement Option. Upon receipt of due proof of the death of the Annuitant occurring before the Maturity Date, the Company agrees to pay to the Beneficiary the Cash Surrender Value at the Valuation Date coincident with or next following the date on which written notice of death is received by the Company. The Provisions on this and the following pages are part of the Contract. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for life, first payment at Maturity Date. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1181 POLICY DATA Date of Issue DECEMBER 1, 1970 MALE 35 Age and Sex Contract Number 1234567 $10,000.00 Single Stipulated Payment Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1970 Maturity Date DECEMBER 1, 2000 Beneficiary DEBORAH FRANKLIN, WIFE
STIPULATED PAYMENT Stipulated Payment $10,000.00 including the premium for any Additional Benefits described below. Account allocation of Stipulated Payment excluding premium for Additional Benefits provided by Supplemental Agreement. Fixed Dollar Annuity 50.0% Separate Account 50.0% SCHEDULE OF ADDITIONAL BENEFITS (AS PROVIDED BY SUPPLEMENTAL AGREEMENT)
Form Single Number Description of Benefits Premium --- NONE ---
FORM 1171-1181 Page 2 GENERAL DEFINITIONS 1. DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Stipulated Payment" means an amount paid to the Company under this contract as a consideration for the benefits described herein, and includes the premium for any additional benefits provided by Supplemental Agreement; (d) "General Account" means all assets of the Company other than those in a Separate Account. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund B" established by the Company pursuant to Illinois law; (f) "Cash Surrender Value" means the value of the Accumulation Units credited to this contract determined on the basis set forth in the Valuation Provision; (g) "Valuation Date" means the date as of which the Accumulation Unit value is determined; (h) "Valuation Period" means the period, as determined by the Company, of not more than 7 calendar days beginning on the day after any Valuation Date and ending on the next Valuation Date; (i) "Accumulation Unit" means a unit used to measure the value of an Owner's fixed dollar annuity or interest in the Separate Account prior to the date on which annuity payments commence; (See provision 19 dealing with accumulation unit values.) (j) "Annuity Unit" means a unit used to determine the amount of each annuity payment after the first; (See provision 27 dealing with annuity unit values.) (k) "Attained Age" of the Annuitant at the end of any period (whether or not the Annuitant is then alive) means his nearest age on the date the first contract year begins plus the length of such period; (l) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. GENERAL PROVISIONS 2. THE CONTRACT Consideration-Entire Contract: This contract has been issued in consideration of the application and of the payment of stipulated payments as provided. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. Statements in Application: All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. Modification: Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract or to extend the time for paying any stipulated payment. 3. INCONTESTABILITY This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue and except as to the terms of any provision for disability benefits or accidental death benefits. 4. SUICIDE If within 2 years from date of issue the Annuitant (whether sane or insane) shall die by suicide, this contract shall automatically terminate and the amount payable in lieu of all other benefits shall be limited to the Cash Surrender Value at the date of death plus the sum of the additional premiums paid prior to death for any Supplemental Agreement attached to this contract. 5. AGE AND SEX If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the stipulated payments paid would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 6. OWNERSHIP AND Owner: The Owner of this contract will be the Annuitant ASSIGNMENT unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. Change of Ownership: The Owner may designate a new Owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. Assignment: No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment.
FORM 1181 PAGE 3 7. BENEFICIARY Determination of Beneficiary: The Beneficiary to receive any death benefit will be designated on page 2 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided): (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries are living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries are living. If no Beneficiary be living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Change of Beneficiary: Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such Beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 8. SETTLEMENT Any death benefit becoming due is payable immediately upon receipt at the Home Office of the Company of due proof of death. If any settlement is not made by payment of a single sum, a Supplementary Contract will be issued by the Company which shall set forth the terms and conditions of payment. In any settlement of this contract, by reason of death, surrender or otherwise, any indebtedness to the Company on this contract will be deducted from the amount otherwise payable, and the Company may require return of this contract. 9. CASH SURRENDER The Owner may surrender this contract for its Cash Surrender VALUE Value, less any indebtedness hereon, by written request at any time before the commencement of annuity payments. The portion of the contract in either Account may be surrendered, provided that portion of the total Stipulated Payment allocated to the other Account on the date of surrender was at least equal to the minimum amount required by the Company under its usual underwriting practices on that date. The Cash Surrender Value will be computed on the Valuation Date coincident with or next following the date on which written request for surrender is received by the Company at the Home Office, and any cash payment will be made within 7 days thereafter except as the Company may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request is received. 10. LOAN While this contract is in force, before the commencement of annuity payments or the death of the Annuitant, the Company will make a loan on the sole security of the contract. The loan may be for any amount which with interest to the end of the current contract year shall not exceed the Cash Surrender Value of the Fixed Dollar Annuity Accumulation Units on the date of the loan, valued at the end of such contract year, assuming that all Separate Account Accumulation Units are converted to Fixed Dollar Annuity Accumulation Units of equal value on the date of the loan. Loans will be made upon execution of a proper loan agreement and assignment of this contract and, if required by the Company, presentation of this contract for endorsement. Any existing indebtedness on this contract will be deducted from the proceeds of the loan. Upon making or increasing a loan, the Company will convert Separate Account Accumulation Units to Fixed Dollar Annuity Accumulation Units, which will no longer share in the investment experience of the Separate Account, and which will thereafter have the same value as Fixed Dollar Annuity Accumulation Units in the General Account of the Company, in an amount necessary (together with the value of any existing Fixed Dollar Annuity Accumulation Units) to provide sufficient value for such loan. Such conversion will be made on the basis of the Accumulation Unit value on the last day of the Valuation Period in which the loan or increase in loan is made. The value of the Separate Account Accumulation Units to be converted shall bear the same proportion to the loan proceeds as the cash value of the Separate Account Accumulation Units bears to the total Cash Surrender Value of the contract, less any indebtedness hereon, on the date of the loan, unless the Owner otherwise requests. Interest on the loan shall be at the rate of 5.7% a year payable in advance to the end of the current contract year and annually in advance thereafter, and if any interest is not paid when due, it shall be added to the existing loan and shall bear interest at the same rate. The whole or any part of the indebtedness may be repaid at any time while the contract is in force prior to its Maturity Date. Where Separate Account Accumulation Units in the Separate Account have been converted into Fixed Dollar Annuity Accumulation Units prior to the making of a loan, repayments of the loan will result in the conversion of Accumulation Units under the General Account (in an amount equal to the proceeds of the previous conversion of Separate Account Accumulation Units) to Separate Account Accumulation Units, unless the Contract Owner elects that such conversion shall not take place. Such conversion will be made on the basis of the Accumulation Unit value on the last day of the Valuation Period in which repayment is made. This contract shall terminate and have no further value if at any time the total indebtedness hereon equals or exceeds the Cash Surrender Value of this contract, provided at least 31 days prior notice shall have been mailed by the Company to the last known address of the Owner, and of any Assignee of record at the Home Office.
FORM 1181 PAGE 4 11. PROOF OF The Company shall have the right to require evidence of SURVIVAL the survival of any Payee at the time any payment to such Payee is due. 12. NONPARTICI- This contract is nonparticipating and will not share in the PATING surplus earnings of the Company. 13. VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 14. OWNERSHIP OF The Company shall have exclusive and absolute ownership and ASSETS AND control of its assets, including all assets in the Separate DETERMINATION Account. Determination by the Company of the value of an OF VALUES Accumulation Unit and an Annuity Unit by the method described in this contract will be conclusive upon the Owner, Annuitant, and any Beneficiary. 15. STIPULATED The Stipulated Payment is due on the date of issue and is PAYMENT payable in advance. VALUATION PROVISIONS 16. NET STIPULATED The Net Stipulated Payment is equal to (a) 95% of the amount PAYMENTS obtained by deducting from the Stipulated Payment any premium for additional benefits provided by Supplemental Agreement attached to this contract, less (b) any premium taxes on such Stipulated Payment and a contract service charge of $100. 17. ADDITIONAL Each month during the first 5 contract years, the Company FIXED DOLLAR will increase the number of Fixed Dollar Annuity ANNUITY Accumulation Units in the General Account by a number which ACCUMULATION is equivalent to a 1% a year additional net investment rate. UNITS Each month during the 6th to 10th contract years, inclusive, the Company will increase the number of Fixed Dollar Annuity Accumulation Units in the General Account by a number which is equivalent to a 1/2% a year additional net investment rate. By action of its Directors, the Company may credit additional Fixed Dollar Annuity Units at any time. 18. NET INVESTMENT (a) The net investment rate for any Valuation Period for the RATE AND NET General Account is guaranteed, and is equivalent to an INVESTMENT FACTOR investment rate of 3-1/2% compounded annually, except that, for benefits provided by the Fifth, Sixth, and Seventh Settlement Options it shall be 3% compounded annually. (b) The net investment rate for any Valuation Period for the Separate Account is equal to the gross investment rate for that Account for the period expressed in decimal form to 8 places less a deduction of .00003945 for each day of such Valuation Period. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of the assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. (c) The net investment factor for each Account is the sum of 1.00000000 plus the net investment rate for the Account. 19. ACCUMULATION The value of both the Fixed Dollar Annuity Accumulation Unit UNIT VALUE and the Separate Account Accumulation Unit was established at $10.00 as of July 1, 1971. The value of an Accumulation Unit of either type on the last day of any subsequent Valuation Period is determined by multiplying such value on the last day of the immediately preceding Valuation Period by the net investment factor for the current Valuation Period. The value of an Accumulation Unit as of any date other than a Valuation Date is equal to its value as of the immediately following Valuation Date. 20. REPORTS TO The Company will send the Owner at least once in each THE OWNER contract year after the first (a) a statement which reflects the investment results for the preceding year, and (b) a statement which reflects the value of the Accumulation Units credited to the contract in all cases where the contract provides for Cash Surrender Value. SETTLEMENT PROVISIONS 21. GENERAL Subject to these provisions, the whole or any part (but in CONDITIONS OF no case less than $2,000) of the proceeds due the Payee in SETTLEMENT settlement of this contract may be made payable in accordance with one of the following options, or in any other manner that may be agreed upon with the Company. Any election, or change or revocation thereof, must be filed with the Company at its Home Office before settlement has been made and shall be effective only when attached hereto or endorsed hereon or otherwise recorded as the Company may require. The Change of Beneficiary provision under this contract shall apply to any election or change of election of an option prior to settlement date. If no election is in effect on the settlement date, the Payee entitled to the proceeds may at that time make such election. No settlement option will be available without the consent of the Company if this contract is assigned, or if the Payee is a corporation, association, partnership, trustee or estate. The Payee under a settlement option operative on or after the death of the Annuitant shall be the Beneficiary during the lifetime of such Beneficiary. The Payee under a settlement option operative on or after surrender of this contract shall be the Annuitant during the lifetime of such Annuitant. Any settlement of this contract in accordance with the first paragraph on the face hereof, or under one of the first four settlement options in provision 23, shall be subject to satisfactory proof of age of any Payee.
FORM 1181 PAGE 5 22. DATE OF The right to interest will accrue under the Seventh Option PAYMENT in provision 23, and the first income payment will be made under any other option as of the date when the proceeds of this contract would otherwise be payable 23. SETTLEMENT FIRST OPTION--Life Annuity--An Annuity payable monthly OPTIONS during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee. SECOND OPTION--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed--An annuity payable monthly during the lifetime of the Payee including the guarantee that if, at the death of the Payee, payments have been made for less than 120 months, 180 months or 240 months (as selected), payments shall be continued during the remainder of the selected period. THIRD OPTION--Unit Refund Life Annuity--An annuity payable monthly during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee; provided that, at the death of the Payee, the Beneficiary will receive an additional 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 the option divided by the Annuity Unit value at the effective date of the first annuity payment and (b) is the number of Annuity Units represented by each payment multiplied by the number of payments made. FOURTH OPTION--Joint and Last Survivor Life Annuity--An annuity payable monthly during the joint lifetime of the Payee and a secondary Payee, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the death of the survivor. FIFTH OPTION--Payments for a Designated Period--An amount payable monthly for the number of years selected which may be from 1 to 30 years. SIXTH OPTION--Payments of a Specified Dollar Amount--The amount due may be paid in equal annual, semiannual, quarterly or monthly installments of a designated dollar amount (not less than $75. a year per $1,000 of the original amount due) until the remaining balance is less than the amount of one installment. To determine the remaining balance in either Account at the end of any valuation period such balance at the end of the previous period is decreased by the amount of any installment paid during the period and the result multiplied by the net investment factor for the period. If the remaining balance at any time is less than the amount of one installment, such balance will be paid and will be the final payment under the option. SEVENTH OPTION--Investment Income--The amount due may be left on deposit with the Company in its General Account and a sum will be paid annually, semiannually, quarterly or monthly, as selected, which shall be equal to the net investment rate for the period multiplied by the amount remaining on deposit. 24. ALLOCATION At the time election of one of the first 5 settlement OF ANNUITY options is made, the person electing the option may further elect to have the Cash Surrender Value, less any indebtedness hereon, applied to provide a variable annuity, a fixed dollar annuity or a combination of both. Election of the Sixth Option may specify that the net investment factor for the Separate Account or the General Account is to apply or the amount due may be split between the two Accounts. If no election is made to the contrary, that portion of the amount due from the Separate Account shall be applied to provide a variable annuity and that portion of the amount due from the General Account shall be applied to provide a fixed dollar annuity. Election of the Seventh Option shall constitute election of fixed income. 25. VARIABLE After the first monthly payment for a variable annuity has ANNUITY been determined in accordance with provision 28 the number of Separate Account Units is determined by dividing that first monthly payment by the Separate Account Annuity Unit value at the effective date of the first annuity payment. Once variable annuity payments have begun, the number of annuity units remains fixed. The method of calculating the unit value is described in provision 27. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account Annuity Units by the Separate Account Annuity Unit Value, as described in provision 27, for the date on which the payment is due. The Company guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality experience of Payees from the mortality assumption as used in determining the first monthly payment. 26. FIXED DOLLAR After the first monthly payment for a fixed dollar annuity ANNUITY has been determined in accordance with provision 28, the number of Fixed Dollar Annuity Units is determined by dividing the first monthly payment by the Fixed Dollar Annuity Unit value. Such value will always equal $1.00. Once fixed dollar annuity payments have begun, the number of Annuity Units remain fixed. Although fixed dollar annuity payments may never be less than the first monthly payment, each payment certain after the first under the Second or Fifth Option and the net investment rate applied under the Sixth and Seventh Options may be increased as a result of excess credits declared by the Board of Directors of the Company. 27. ANNUITY UNIT The value of the Fixed Dollar Annuity Unit is fixed at VALUE $1.00. The value of the Separate Account Annuity Unit for July 1, 1971 was fixed at $1.00 and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%.
FORM 1181 PAGE 6 28. ANNUITY TABLES The Tables below show the dollar amount of the first monthly payment for each $1,000 applied under the first 5 settlement options. Under the First, Second or Third Options, the amount of each payment will depend upon the sex of the Payee and the Payee's adjusted age at the time the first payment is due. Under the Fourth Option, the amount of each payment will depend upon the sex of both Payees and their adjusted ages at the time the first payment is due. Adjusted age is determined in accordance with the following table: CALENDAR YEAR OF BIRTH ADJUSTED AGE Before 1990...................Actual Age increased by 1 1900-1919.....................Actual Age 1920-1939.....................Actual Age decreased by 1 1940-1959.....................Actual Age decreased by 2 1960-1979.....................Actual Age decreased by 3 After 1979....................Actual Age decreased by 4 Actual age, as used in the table above shall mean age nearest birthday at the time the first payment is due. If it would produce greater benefits, the Company agrees that the first monthly payment to the Annuitant will be 103% of the first monthly payment produced by a then currently issued immediate annuity of the same form with a single Stipulated Payment equal to the Cash Surrender Value, less any indebtedness hereon, which is being applied under the contract. 29. MINIMUM No election of any settlement option may be made under the PAYMENTS contract for any Payee unless such election would produce a first payment of at least $25. to that Payee and if a combination benefit is elected, no election may be made unless the first payment from each Account would be $25. to the Payee. If at any time, any payments to be made to any Payee from either Account are or become less than $25. each the Company shall have the right to change the frequency of payments to such interval as will result in the payment of at least $25. or if any payment would be less than $25. a year, the Company may make such other settlement as may be equitable to the Payee. 30. DESCRIPTION The tables for the First, Second, Third and Fourth Options OF TABLES in provision 23 are based on 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. 31. PAYMENT OF If any Payee dies while receiving payments under a GUARANTEED settlement option, the present values at the current dollar MONTHLY amount, on the date of death, of any remaining guaranteed PAYMENTS number of payments or any then remaining balance of proceeds under the Sixth or Seventh Options will be paid in one sum to the executor or administrators of the Payee unless other provision shall have been previously made and approved by the Company. Calculations for such present value of guaranteed payments remaining will assume a net investment rate of 3% a year in the General Account for the Fifth Option and 3-1/2% a year for all other General Account and all Separate Account options. 32. OPTION TO BEGIN Upon written request by the Owner and any assignee and MONTHLY INCOME irrevocable beneficiary, the commencement of monthly income AT LATER DATE may be deferred and this contract continued until any contract anniversary after the Maturity Date but not beyond the contract anniversary on which the attained age of the Annuitant is 75. In the event of the death of the Annuitant during the period during which monthly income is deferred, the Company will, upon receipt of due proof of such death, pay to the Beneficiary the Cash Surrender Value on the Valuation Date coincident with or next following the date written notice of death is received by the Company. 33. SURRENDER OF When the income provided on page 1 hereof becomes payable, CONTRACT FOR or when a settlement option shall become operative, this SUPPLEMENTARY contract must be surrendered to the Company in exchange for CONTRACT a supplementary contract which shall set forth the terms and conditions of payment of such income or under such settlement option.
FORM 1181 PAGE 7 AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 OF NET TERMINATION VALUE FIRST, SECOND AND THIRD OPTIONS--SINGLE LIFE ANNUITIES WITH:
Monthly Payments Monthly Payments Monthly Payments Adjusted Guaranteed Adjusted Guaranteed Adjusted Guaranteed Age of Payee ----------- Age of Payee ------------------- Unit Age of Payee ------------------- Unit Male Female 120 240 Male Female None 120 180 240 Refund Male Female None 120 180 240 Refund 20 24 $3.38 $3.37 40 44 $4.03 $3.98 60 64 $6.01 $5.79 $5.53 $5.13 $5.44 21 25 3.40 3.39 41 45 4.08 4.03 61 65 6.18 5.94 5.63 5.24 5.56 22 26 3.42 3.41 42 46 4.14 4.08 62 66 6.37 6.08 5.74 5.30 5.69 23 27 3.44 3.43 43 47 4.20 4.13 63 67 6.57 6.24 5.84 5.36 5.82 24 28 3.46 3.45 44 48 4.26 4.18 64 68 6.79 6.40 5.95 5.41 5.96 25 29 3.49 3.48 45 49 $4.34 4.32 $4.28 4.23 $4.21 65 69 7.02 6.57 6.05 5.46 6.11 26 30 3.51 3.50 46 50 4.42 4.39 4.35 4.28 4.27 66 70 7.27 6.74 6.15 5.51 6.27 27 31 3.54 3.53 47 51 4.49 4.46 4.41 4.34 4.33 67 71 7.54 6.91 6.26 5.55 6.43 28 32 3.57 3.55 48 52 4.57 4.53 4.48 4.40 4.39 68 72 7.83 7.10 6.35 5.59 6.60 29 33 3.60 3.58 49 53 4.65 4.61 4.55 4.46 4.46 69 73 8.14 7.28 6.45 5.62 6.80 30 34 3.63 3.61 50 54 4.74 4.69 4.62 4.52 4.53 70 74 8.48 7.47 6.54 5.65 6.98 31 35 3.66 3.64 51 55 4.84 4.78 4.70 4.58 4.60 71 75 8.84 7.66 6.62 5.68 7.20 32 36 3.69 3.67 52 56 4.94 4.87 4.78 4.65 4.67 72 76 9.23 7.85 6.70 5.70 7.43 33 37 3.73 3.71 53 57 5.04 4.97 4.87 4.71 4.76 73 77 9.65 8.04 6.77 5.71 7.65 34 38 3.77 3.74 54 58 5.16 5.07 4.95 4.78 4.84 74 78 10.11 8.23 6.83 5.72 7.90 35 39 3.80 3.78 55 59 5.28 5.18 5.04 4.85 4.93 75 79 10.61 8.41 6.88 5.72 8.18 36 40 3.84 3.82 56 60 5.40 5.29 5.13 4.91 5.02 76 80 8.58 5.72 37 41 3.89 3.85 57 61 5.54 5.41 5.23 4.98 5.12 38 42 3.93 3.90 58 62 5.69 5.53 5.33 5.05 5.22 39 43 3.98 3.94 59 63 5.84 5.66 5.43 5.11 5.33
FOURTH OPTION--JOINT AND LAST SURVIVOR ANNUITY
Adjusted Age of Payee Adjusted Age of --------------------- Secondary Payee Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male Female Female 49 Female 54 Female 59 Female 64 Female 69 Female 74 Male 75 36 40 $3.68 $3.73 $3.77 $3.80 $3.82 $3.83 $3.84 41 45 3.81 3.89 3.95 4.00 4.04 4.06 4.08 46 50 3.93 4.05 4.15 4.24 4.30 4.35 4.38 51 55 4.03 4.21 4.37 4.51 4.62 4.70 4.76 56 60 4.13 4.35 4.58 4.80 4.99 5.14 5.25 61 65 4.20 4.47 4.78 5.09 5.39 5.65 5.86 66 70 4.25 4.57 4.94 5.36 5.81 6.23 6.60 71 75 4.29 4.64 5.07 5.59 6.19 6.83 7.45 76 80 --- 4.68 5.15 5.75 6.50 7.37 8.33 81 85 --- 4.71 5.21 5.87 6.72 7.81 9.13 The monthly payment for any combination of ages not shown will be quoted upon request.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD
Amount of Amount of Amount of Years of Monthly Payment Years of Monthly Payment Years of Monthly payment Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. 1 $84.47 $84.65 11 $8.86 $9.09 21 $5.32 $5.56 2 42.86 43.05 12 8.24 8.46 22 5.15 5.39 3 28.99 29.19 13 7.71 7.94 23 4.99 5.24 4 22.06 22.27 14 7.26 7.49 24 4.84 5.09 5 17.91 18.12 15 6.87 7.10 25 4.71 4.96 6 15.14 15.35 16 6.53 6.76 26 4.59 4.84 7 13.16 13.38 17 6.23 6.47 27 4.47 4.73 8 11.68 11.90 18 5.96 6.20 28 4.37 4.63 9 10.53 10.75 19 5.73 5.97 29 4.27 4.53 10 9.61 9.83 20 5.51 5.75 30 4.18 4.45
FORM 1170-1171-1181 PAGE 8 THE FRANKLIN LIFE INSURANCE COMPANY A Brief Description of This Contract This is a Single Payment Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. lncome is payable for life, first payment at Maturity Date. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1181 EX-99.4(J) 6 EXHIBIT 99.4(J) Exhibit 4(j)
THE FRANKLIN LIFE INSURANCE COMPANY Springfield, Illinois A Legal Reserve Stock Company Contract Number 1234567 Date of Issue DECEMBER 1, 1970 Name of Annuitant BENJAMIN FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Payment $32.99 Number of Separate Account Annuity Units 32.994 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1971
The Franklin Life Insurance Company agrees to pay the Annuitant income payments with the frequency shown above, the first payment to be made on the date shown above if the Annuitant is then living, and to continue such payments so long as the Annuitant shall live. The dollar amount of each payment shall be determined as provided in provision 2. The provisions on this and the following pages are part of the Contract. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Life Annuity. Income is payable for the lifetime of the Annuitant. This contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1182 1. GENERAL DEFINITIONS--As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in a Separate Account. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund B" established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined; (g) "Valuation Period" means the period, as determined by the Company, of not more than 7 calendar days beginning on the day after any Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment. (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written Request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) Variable Annuity--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Account Annuity Unit value, determined as described in provision 4, for the date on which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) Fixed Dollar Annuity--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period. The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less a deduction of .00003945 for each day of such Valuation Period. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1971 was established at $1.00, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending, on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION--ENTIRE CONTRACT--This contract has been issued in consideration of the application and of the payment of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT--Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The Owner may designate a new Owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. 10. ASSIGNMENT--No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. FORM 1182 PAGE 2 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--On the death of the Annuitant, this contract shall immediately cease and become void. The annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for time elapsed since the due date of the last regular payment. 15. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 16. VOTING RIGHTS--The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 17. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Annuity Unit by the method described in this contract will be conclusive upon the Owner and the Annuitant. FORM 1172-1182 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A Brief Description of This Contract This is a SINGLE PAYMENT LIFE ANNUITY. Income is payable for the lifetime of the Annuitant. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1182 EX-99.4(K) 7 EXHIBIT 99.4(K) Exhibit 4(k)
THE FRANKLIN LIFE INSURANCE COMPANY Springfield, Illinois A Legal Reserve Stock Company Contract Number 1234567 Date of Issue DECEMBER 1, 1970 Name of Annuitant BENJAMIN FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Units $30.88 Number of Separate Account Annuity Units 30.879 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1971 Guaranteed Period 120 Months Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay the Annuitant income payments with the frequency shown above, the first payment to be made on the date shown above if the Annuitant is then living, and to continue such payments so long as the Annuitant shall live. The dollar amount of each payment shall be determined as provided in provision 2. Upon receipt at its Home Office of due proof of the death of the Annuitant occurring before the end of the Guaranteed Period, the Company further agrees to continue the income payments to the Beneficiary as they become due until the end of the Guaranteed Period. The provisions on this and the following pages are part of the contract. Signed for the Company at Springfield, Illinois. Secretary President A Brief Description of This Contract This is a Single Payment Life Annuity with a Guaranteed Period. Income is payable for the lifetime of the Annuitant. Cash values and death benefits are provided in the early contract years. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1183 1. GENERAL DEFINITIONS--As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in a Separate Account. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund B" established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined; (g) "Valuation Period" means the period, as determined by the Company, of not more than 7 calendar days beginning on the day after any Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment. (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written Request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) Variable Annuity--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Account Annuity Unit value, determined as described in provision 4, for the date on which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) Fixed Dollar Annuity--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period. The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less a deduction of .00003945 for each day of such Valuation Period. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1971 was established at $1.00, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending, on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION--ENTIRE CONTRACT--This contract has been issued in consideration of the application and of the payment of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT--Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The Owner may designate a new Owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. FORM 1183 PAGE 2 10. ASSIGNMENT--No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--If the death of the Annuitant shall occur before the end of the Guaranteed Period, this contract shall continue in force only until the remaining payments guaranteed shall have been paid to the Beneficiary, at which time it shall cease and become void. If the death of the Annuitant shall occur after the end of the Guaranteed Period, this contract shall immediately cease and become void, the annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for the time elapsed since the due date of the last regular payment. 15. DETERMINATION OF BENEFICIARY--The Beneficiary to receive any death benefit will be designated on page 1 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided): (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries are living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries are living. If no Beneficiary be living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 16. CHANGE OF BENEFICIARY--Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. 17. CASH VALUE--The Owner (or the Beneficiary after the death of the Annuitant) may terminate this contract and receive its cash value by written request at any time before the end of the Guaranteed Period. The cash value payable will be determined as the commuted value of the remaining Guaranteed Payments. The payment of cash value hereunder may be deferred by the Company for a period not exceeding 6 months from date request is received, subject to the provisions of the Investment Company Act of 1940, as in effect at the time such request is received. The term "commuted value" shall mean, for the Separate Account, the present value of the current dollar amount of remaining guaranteed payments computed at a net investment rate of 3-1/2% a year, and for the Fixed Dollar Annuity, the present value of remaining Guaranteed Payments computed at 4-1/2% a year compound interest. 18. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 19. VOTING RIGHTS--The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 20. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Annuity Unit by the method described in this contract will be conclusive upon the Owner, the Annuitant, and any Beneficiary. FORM 1173-1183 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A Brief Description of This Contract This is a Single Payment Life Annuity with a Guaranteed Period. Income is payable for the lifetime of the Annuitant. Cash values and death benefits are provided in the early contract years. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1183 EX-99.4(L) 8 EXHIBIT 99.4(L) Exhibit 4(l)
THE FRANKLIN LIFE INSURANCE COMPANY Springfield, Illinois A Legal Reserve Stock Company Contract Number 1234567 Date of Issue DECEMBER 1, 1970 Name of Annuitant BENJAMIN FRANKLIN 65 Age Name of Contingent Annuitant DEBORAH FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Payment $25.33 Number of Separate Account Annuity Units 25.333 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1971
The Franklin Life Insurance Company agrees to pay jointly to the Annuitants income payments with the frequency shown above, the first payment to be made on the date shown above if both of the Annuitants are then living, and to continue such payments so long as both of the Annuitants shall live. Upon the death of either of the Annuitants, payments representing 100% of the Separate Account Annuity Units and Fixed Dollar Annuity Payment in effect during the joint lifetime of the Annuitants shall be paid thereafter to the survivor for his or her lifetime. The dollar amount of each payment shall be determined as provided in provision 2. The provisions on this and the following pages are part of the Contract. Signed for the Company at Springfield, Illinois. Secretary President A Brief Description of This Contract This is a Single Payment Joint and Last Survivor Life Annuity. Income is payable for the lifetime of either of the Annuitants. The Contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1184 1. GENERAL DEFINITIONS--As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in a Separate Account. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund B" established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined; (g) "Valuation Period" means the period as determined by the Company, of not more than 7 calendar days beginning on the day after Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment. (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written Request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) Variable Annuity--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Account Annuity Unit value, determined as described provision 4, for the Valuation Period in which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) Fixed Dollar Annuity--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period. The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less a deduction of .00003945 for each day of such Valuation Period. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1971 was established at $1.00, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION-ENTIRE CONTRACT--This contract has been issued in consideration of the application and of the payment of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT--Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During either Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The Owner may designate a new Owner and may designate or change a Contingent Owner at any time during either Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not such Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during either Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. 10. ASSIGNMENT--No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. FORM 1184 PAGE 2 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of either Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of either of the Annuitants has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of such Annuitant. Any payments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--On the death of the survivor of the Annuitants, this contract shall immediately cease and become void. The Annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for time elapsed since the due date of the last regular payment. 15. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 16. VOTING RIGHTS--The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 17. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Annuity Unit by the method described in this contract will be conclusive upon the Owner and the Annuitant. FORM 1174-1184 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Joint and Last Survivor Life Annuity. Income is payable for the lifetime of either of the Annuitants. The Contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1184 EX-99.4(M) 9 EXHIBIT 99.4(M) Exhibit 4(m) VARIABLE ANNUITY ENDORSEMENT This Contract was modified prior to its execution by addition of the following: 1. This Contract is issued subject to the laws and regulations of the State of Texas, including the application of such laws and rules and requirements to the Contract and to the interpretation of its provisions, and is amended to conform therewith. 2. The Separate Account applicable to and identified with this Contract is divisible for various purposes in respect of regulation and compliance with law, including divisibility as it is applicable to any function arising from the provisions of the Contract or provisions of law and regulation. 3. The Company may effect the transfer of assets between the Separate Account and other accounts for the purposes of making adjustments necessitated by the Contract, including adjustment for any surplus or deficit which may arise in such Separate Account by virtue of mortality experience, or required by governmental authorities having jurisdiction over the Company. Such adjustments shall be made by cash transfer only, except as is authorized or required by regulatory authority. 4. This Contract is subject to endorsement from time to time as may be necessary to comply with valid and appropriate rules and regulations adopted by regulatory authorities, or as a court of final jurisdiction shall determine, and is executed subject to that condition. 5. This Contract is issued subject to the laws of the State where the Annuitant resides at the time of the making of the Contract and is subject also to the rules and regulations of the state administrative agency responsible for variable annuity regulation in such State, including the application of such laws and rules and requirements to the Contract and to the interpretation of its provisions; except, however, in the circumstance and only to the extent the application of this provision to any person or circumstance is expressly contrary to and excluded by superior law or valid statute having and determined to have supremacy in the circumstance. 6. The Company guarantees that the actual expense and actual mortality will not adversely affect the dollar amounts of Variable Annuity benefits or other contractual payments or values; and the Company will transfer such amounts of general corporate funds into the Separate Account as are necessary to carry out this guarantee. However, no transfer shall be made, and the Company does not obligate itself to make any transfer which would result in an impairment of the statutory reserves of the Company. and this guarantee is accordingly limited. 7. The Variable Annuity benefits of this Contract are funded solely from the assets of the Separate Account of which it is an obligation and except to the extent of such limited expense and mortality guarantees, shall have no claim against any other assets of the Company. 8. Variations in values or cost of accumulative units or the amount of premium or payments applied to the investment portfolio are or will be made to effect requirements of law or regulation. 9. The Company will mail to the Contract owner such reports and information periodically as the law and regulation of appropriate jurisdictions shall require (irrespective of any provision of this Contract which may be contrary to such law or regulation). 10. Monthly payments for ages not shown in the Table of Settlement Options will be provided by the Company upon request. Signed for The Franklin Life Insurance Company at Springfield, Illinois. Secretary Form 6275-A- Texas EX-99.4(N) 10 EXHIBIT 99.4(N) Exhibit 4(n) THE FRANKLIN LIFE INSURANCE COMPANY Franklin Square SPRINGFIELD, ILLINOIS 62713 A Stock Company
Contract Number 1234567 Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1981 30 YEARS Stipulated Payment Period Maturity Date DECEMBER 1, 2011 Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay a life annuity consisting of a series of monthly income payments if the Annuitant is living on the Maturity Date. The first such payment will be made on the Maturity Date and subsequent payments will be made on the same day of each month thereafter so long as the Annuitant shall live. The dollar amount of such payments will be determined as provided in provisions 30, 31, 32 and 34 for the First Settlement Option. Upon receipt of due proof of the death of the Annuitant occurring before the Maturity Date, the Company agrees to pay to the Beneficiary the Cash Surrender Value at the Valuation Date coincident with or next following the date on which written notice of death is received by the Company. The provisions on this and the following pages are part of the contract. NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT At any time within 10 days after its receipt by the Insured, this contract may be returned by delivering it or mailing it to the Company or to the agent through whom it was purchased. Immediately upon such delivery or mailing, the contract will be deemed void from the beginning, and any premium paid on it will be refunded. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for life, first payment at Maturity Date. Schedules of additional Benefits and Stipulated Payments appears on Page 2. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1175 ALPHABETIC GUIDE TO YOUR CONTRACT
Page Accumulation Unit Value 6 Age and Sex 2 Age and Sex Misstatement 3 Allocation of Annuity 7 Amount of First Monthly Payment 9 Annuity Tables 7 Annuity Unit Value 7 Application Last Page Assignment 4 Automatic Partial Surrender for any Supplement Agreement 4 Beneficiary 2 & 4 Brief Description of Contract 1 Cash Surrender Value 4 Change of Beneficiary 4 Change of Ownership 3 Claims of Creditors 4 Consideration - Entire Contract 3 Contract Number 2 Date of Issue 2 Date of Payment 6 Definitions 3 Description of Tables 7 First Contract Year Begins 2 Fixed Dollar Annuity 7 General Conditions of Settlement 6 Grace Period 5 Incontestability 3 Maturity Date 2 Minimum Payments 7 Page Modification 3 Name of Annuitant 2 Net Investment Rate and Net Investment Factor 6 Net Stipulated Payment 5 Nonparticipating 5 Nonqualification of Contract 4 Option to Begin Monthly Income at Later Date 8 Owner 3 Ownership of Assets and Determination of Values 5 Paid-up Annuity 4 Partial Cash Surrender Value 4 Payment of Guaranteed Monthly Payments 7 Proof of Survival 5 Reinstatement of Supplemental Agreements 5 Reports to the Owner 6 Resumption of Stipulated Payments 5 Right to Examine Contract 1 Schedule of Additional Benefits 2 Settlement 4 Settlement Options 6 Statements in Application 3 Stipulated Payment 2 & 5 Stipulated Payment Period 2 Suicide 3 Surrender of Contract for Supplementary Contract 8 Termination of Contract 4 Variable Annuity 7 Voting Rights 5
The additional benefits, if any, listed on page 2 are described in the additional benefit agreements that follow page 9. FORM 8433 CONTRACT DATA Date of Issue DECEMBER 1, 1981 MALE 35 Age and Sex Contract Number 1234567 Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1981 30 YEARS Stipulated Payment Period Maturity Date DECEMBER 1, 2011 Beneficiary DEBORAH FRANKLIN, WIFE STIPULATED PAYMENT Stipulated Payment Interval ANNUAL
Stipulated Payment $1,000.00 including the premium for any Additional Benefits described below. Later stipulated payments may be reduced as provided in any Additional Benefits Supplemental Agreement. SCHEDULE OF ADDITIONAL BENEFITS (AS PROVIDED BY SUPPLEMENTAL AGREEMENT)
Form Annual Years Number Description of Benefits Premium Payable* --- NONE --- ---
*Premiums are payable for the number of contract years stated or until prior death of the Annuitant. FORM 1175 PAGE 2 GENERAL DEFINITIONS
1. DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Stipulated Payment" means an amount paid to the Company under this contract as a consideration for the benefits described herein, and includes the premium for any additional benefits provided by Supplemental Agreement; (d) "General Account" means all assets of the Company other than those in the Separate Account or other separate accounts of the Company. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund C" established by the Company pursuant to Illinois law; (f) "Cash Surrender Value" means the value of the Accumulation Units credited to this contract determined on the basis set forth in the Valuation Provision less a surrender charge equal to: (a) a percentage surrender charge if surrender occurs in the first 3 contract years, equal to 8% of the lessor of such value and the total Stipulated Payments previously paid (excluding the premiums paid for any additional benefits provided by Supplemental Agreement); and (b) any unpaid year end contract service charge as described in provision 23. The percentage surrender charge reduces 2% for each completed contract year after the 3rd such year and is 0% after 6 contract years. No surrender charge is made if the contract is terminated by death; or if a Partial Cash Surrender is made; or if the entire Cash Surrender Value is permitted by the Company to be transferred to another variable annuity, a fixed annuity or a life insurance contract issued by the Company; (g) "Valuation Date" means the date as of which the Accumulation Unit value is determined. This value is determined on each day that the New York Stock Exchange is open, as of the close of trading on that day; (h) "Valuation Period" means the period, commencing on a Valuation Date and ending on the next Valuation Date; (i) "Accumulation Unit" means a unit used to measure the value of an Owner's interest in the Separate Account prior to the date on which annuity payments commence; (See provision 25 dealing with accumulation unit values.) (j) "Annuity Unit" means a unit used to determine the amount of each annuity payment after the first; (See provision 33 dealing with annuity unit values.) (k) "Attained Age" of the Annuitant at the end of any period (whether or not the Annuitant is then alive) means his nearest age on the date the first contract year begins plus the length of such period; (l) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. GENERAL PROVISIONS 2. THE CONTRACT Consideration--Entire Contract: This contract has been issued in consideration of the application and of the payment of stipulated payments as provided. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. Statements in Application: All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. Modification: Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract or to extend the time for paying any stipulated payment. 3. INCONTESTABILITY This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue, except for nonpayment of stipulated payments and except as to the terms of any provision for disability benefits or accidental death benefits. 4. SUICIDE If within 2 years from date of issue the Annuitant (whether sane or insane) shall die by suicide, this contract shall automatically terminate and the amount payable in lieu of all other benefits shall be limited to the Cash Surrender Value at the date of death plus the sum of the additional premiums paid prior to death for any Supplemental Agreement attached to this contract. 5. AGE AND SEX If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the stipulated payments paid would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment. Any adjustment shall include compound interest at 5.7% a year in advance. 6. OWNERSHIP AND Owner: The Owner of this contract will be the Annuitant ASSIGNMENT unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company.
FORM 1175 PAGE 3 Change of Ownership: The Owner may designate a new owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will be become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. Assignment: No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. 7. BENEFICIARY Determination of Beneficiary: The Beneficiary to receive any death benefit will be designated on page 2 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided): (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries is living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries is living. If no Beneficiary is living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Change of Beneficiary: Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such Beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 8. SETTLEMENT Any death benefit becoming due is payable immediately upon receipt at the Home Office of the Company of due proof of death. If any settlement is not made by payment of a single sum, a Supplementary Contract will be issued by the Company which shall set forth the terms and conditions of payment. In any settlement of this contract, by reason of death, surrender or otherwise, the Company may require return of this contract. 9. CASH SURRENDER The Owner may surrender this contract for its Cash Surrender VALUE Value by written request at any time before the commencement of annuity payments. The Cash Surrender Value will be computed on the Valuation Date coincident with or next following the date on which written request for surrender is received by the Company at its Home Office, and any cash payment will be made within 7 days thereafter except as the Company may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request is received. 10. PARTIAL CASH By written request, the Owner may make one partial cash SURRENDER surrender of this Contract in any month before the commencement of annuity payments. The proceeds of each such partial cash surrender may not exceed 10% of the then total Cash Surrender Value of the Contract nor be less than $500 except if used in accordance with Provision 11. The calculation method for determining the partial cash surrender value and the partial surrender of accumulation units will be the same as used in Provision 9. A partial cash surrender will not affect the coverage of any supplementary agreement attached to this contract except as may be elected under Provision 11. 11. AUTOMATIC If this provision is elected, the Company will automatically PARTIAL CASH pay any premium on a Supplemental Agreement attached to this SURRENDER FOR ANY contract which is in default at the end of the grace period SUPPLEMENTAL and charge the amount so paid as a partial cash surrender in AGREEMENT accordance with the Partial Cash Surrender Value provision of this contract, provided such partial cash surrender would not exceed the then Cash Surrender Value of this contract. 12. PAID-UP If within 31 days after the due date of the first unpaid ANNUITY Stipulated Payment the Annuitant fails to surrender the contract for its Cash Surrender Value, this contract will be continued so that at the Maturity Date benefits provided by the then existing Accumulation Units may be received in accordance with the provisions of this contract. 13. TERMINATION OF If total Stipulated Payments paid are less than $360 in CONTRACT each of 3 consecutive contract years (excluding the first contract year), and if the Cash Surrender Value on the contract anniversary date at the end of such 3 year period is less than $500, the Company may terminate this contract but not until 31 days after the Company shall have mailed notice of termination to the last known address of the Owner or any Assignee of record. The Company will pay to the Owner the Cash Surrender Value, if any, upon such termination of this contract.
FORM 1175 PAGE 4 14. NONQUALIFICA- In the event that this contract fails to qualify as a TION OF CONTRACT "qualified pension, profit sharing or annuity contract", the Franklin shall have the right, upon receiving notice of such fact, to thereafter treat the portion of this contract in the Separate Account as a variable annuity for non-qualified contracts, less a deduction for the appropriate part attributable to this contract of any Federal income tax payable by Franklin which would not have been payable if this contract had been at all times a "qualified pension, profit sharing or annuity contract." Thereafter, all Net Stipulated Payments will be considered as paid under a non-qualified contract. The Franklin reserves the right to require proof of this contract's qualification under the Internal Revenue Code prior to commencement of any variable annuity or variable installment benefit. "Qualified pension, profit sharing, or annuity contract" means any contract in this form which implements a plan or agreement which meets the requirements for qualification under Sections 401, 403(a), 408(b) or 408(k) of said Code or is being purchased under Section 403(b) for an employee by an organization described in Section 501(c)(3) and exempt from taxation under Section 501(a), or is being purchased under Section 403(b) for an employee by a public school described in Sections 403(b)(1)(A)(ii) and 151(e)(4). As used in this contract, all references to sections of the Internal Revenue Code mean said sections as now or hereafter amended, or any corresponding provisions of prior or subsequent United States Revenue laws. 15. PROOF OF The Company shall have the right to require evidence of the SURVIVAL survival of any Payee at the time any payment to such Payee is due. 16. NONPARTICI- This contract is nonparticipating and will not share in the PATING surplus earnings of the Company 17. VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 18. OWNERSHIP OF The Company shall have exclusive and absolute ownership and ASSETS AND control of its assets, including all assets in the Separate DETERMINATION Account. Determination by the Company of the value of an OF VALUES Accumulation Unit and an Annuity Unit by the method described in this contract will be conclusive upon the Owner, Annuitant, and any Beneficiary. STIPULATED PAYMENTS 19. STIPULATED Stipulated Payments are payable in advance at intervals of PAYMENTS 12 months (annually), 6 months (semiannually), 3 months (quarterly) or, at the option of the company, one month (monthly). The first Stipulated Payment is due as of the date of issue and each subsequent Stipulated Payment is due on the first day following the interval covered by the next preceding Stipulated Payment and on the same date each month as the Date of Issue. The amount of the Stipulated Payment on an annualized basis may be increased up to ten times the first Stipulated Payment on an annualized basis or decreased on the date on which any Stipulated Payment is due. Receipt by the Company of a Stipulated Payment different on an annualized basis from the previous payment received will constitute notice of change in the amount of the Stipulated Payments. The mode of Stipulated Payment may be changed only on a Contract Anniversary unless otherwise agreed by the Company. No single Stipulated Payment shall be less than $30. Stipulated Payments are payable to the Company, either at its Home Office or elsewhere, in exchange for the Company's receipt therefor, signed by the President or the Secretary. The payment of any Stipulated Payment shall not continue this contract in force beyond the date when the next Stipulated Payment is due, except as otherwise provided herein. Failure to pay a Stipulated Payment on or before the date on which it is due constitutes default in Stipulated Payments. As long as any Stipulated Payment remains unpaid, the date of default is the earliest date on which an unpaid Stipulated Payment was due. 20. GRACE PERIOD A grace period of 31 days will be allowed for the payment of every Stipulated Payment after the first, during which period this contract remains in force. Each Stipulated Payment received during the grace period will be applied in accordance with provisions 19 and 23. 21. RESUMPTION OF If Stipulated Payments have been discontinued, and this STIPULATED contract has not been surrendered for its value, the Owner PAYMENTS may resume making Stipulated Payments for the annuity at any time, subject to the requirements of the Stipulated Payment provision above. If the first Stipulated Payment made on resumption is not accompanied by any notice to the contrary, it shall be treated as made on the same frequency of payment as the last payment made and, for determining the due date of the next Stipulated Payment, as if due on the monthly anniversary of the contract falling in the calendar month in which the payment is actually received by the Company at its Home Office. 22. REINSTATEMENT If this contract has not been surrendered for its value, any OF SUPPLEMENTAL Supplemental Agreement attached to this contract which has AGREEMENTS been terminated for nonpayment of premiums may be reinstated at any time within 5 years of termination, upon presentation of evidence of insurability of the Annuitant satisfactory to the Company, the payment of all premiums for such Supplemental Agreement in arrears with interest at 5.7% a year in advance, and the payment of a total Stipulated Payment at least equal to that shown on page 2 of the contract. VALUATION PROVISIONS 23. NET STIPULATED The Net Stipulated Payment is equal to (a) 100% of the PAYMENTS amount obtained by deducting from the Stipulated Payment any premium for additional benefits provided by Supplemental Agreement attached to this contract, less (b) any premium taxes on such Stipulated Payment and a contract service charge. The contract service charge is $1 (50 cents if paid by Bank Draft) each time a Stipulated Payment is received plus $30 at the end of each contract year. Such contract service charge may be reduced by the Company.
FORM 1175 PAGE 5 When a Stipulated Payment is received in the Home Office of the Company, the Net Stipulated Payment is applied to provide Accumulation Units. The number of Accumulation Units provided is determined by dividing the Net Stipulated Payment by the dollar value of one Accumulation Unit on the last day of the Valuation Period in which the Stipulated Payment is received at the Home Office. The number of Accumulation Units so determined will not be affected by any subsequent changes in the dollar value of Accumulation Units. The dollar value of the Accumulation Unit in the Separate Account may vary from period to period as set forth below. 24. NET INVESTMENT (a) The net investment rate for any Valuation Period for the RATE AND NET General Account is guaranteed, and is equivalent to an INVESTMENT FACTOR investment rate of 3-1/2% compounded annually, except that for benefits provided by the Fifth, Sixth, and Seventh Settlement Options it shall be 3% compounded annually. (b) The net investment rate for any Valuation Period for the Separate Account is equal to the gross invest-ment rate for that Account for the period expressed in decimal form to 8 places less a deduction of not more than .00006164 for each day of such Valuation Period. The deduction may be reduced by the Company. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of the assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. (c) The net investment factor for each Account is the sum of 1.00000000 plus the net investment rate for the Account. 25. ACCUMULATION The value of the Separate Account Accumulation Unit was UNIT VALUE established at $10 as of July 1, 1981. The value of an Accumulation Unit on the last day of any subsequent Valuation Period is determined by multiplying such value on the last day of the immediately preceding Valuation Period by the net investment factor for the current Valuation Period. The value of an Accumulation Unit as of any date other than a Valuation Date is equal to its value as of the immediately following Valuation Date. 26. REPORTS TO The Company will send the Owner at least once in each THE OWNER contract year after the first (a) a statement which reflects the investment results for the preceding year, and (b) a statement which reflects the value of the Accumulation Units credited to the contract in all cases where the contract provides for Cash Surrender Value. SETTLEMENT PROVISIONS 27. GENERAL CONDI- Subject to these provisions, the whole or any part (but in TIONS OF no case less than $2,000) of the proceeds due the Payee in SETTLEMENT settlement of this contract may be made payable in accordance with one of the following options, or in any other manner that may be agreed upon with the Company. Any election, or change or revocation thereof, must be filed with the Company at its Home Office before settlement has been made and shall be effective only when attached hereto or endorsed hereon or otherwise recorded as the Company may require. The Change of Beneficiary provision under this contract shall apply to any election or change of election of an option prior to settlement date. If no election is in effect on the settlement date, the Payee entitled to the proceeds may at that time make such election. No settlement option will be available without the consent of the Company if this contract is assigned, or if the Payee is a corporation, association, partnership, trustee or estate. The Payee under a settlement option operative on or after the death of the Annuitant shall be the Beneficiary during the lifetime of such Beneficiary. The Payee under settlement option operative on or after surrender of this contract shall be the Annuitant during the lifetime of such Annuitant. Any settlement of this contract in accordance with the first paragraph on the face hereof, or under one of the first four settlement options in provision 29, shall be subject to satisfactory proof of age of any Payee. 28. DATE OF The right to interest will accrue under the Seventh Option PAYMENT in provision 29, and the first income payment will be made under any other option, as of the date when the proceeds of this contract would otherwise be payable. 29. SETTLEMENT First Option--Life Annuity--An annuity payable monthly OPTIONS during the lifetime of the Payee, ceasing with the last due prior to the death of the Payee. Second Option--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed--An annuity payable monthly during the lifetime of the Payee including the guarantee that if, at the death of the Payee, payments have been made for less than 120 months, 180 months or 240 months (as selected), payments shall be continued during the remainder of the selected period. Third Option--Unit Refund Life Annuity--An annuity Payable monthly during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee, provided that, at the death of the Payee, the Beneficiary will receive an additional 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 the option divided by the Annuity Unit value at the effective date of the first annuity payment and (b) is the number of Annuity Units represented by each payment multiplied by the number of payments made. Fourth Option--Joint and Last Survivor Life Annuity--An annuity payable monthly during the joint lifetime of the Payee and a secondary Payee, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the death of the survivor. Fifth Option--Payments for a Designated Period--An amount payable monthly for the number of years selected which may be from 1 to 30 years. Sixth Option--Payments of Specified Dollar Amount--The amount due may be paid in equal annual, semiannual, quarterly or monthly installments of a designated dollar amount (not less than $75 a year per $1,000 of the original amount due) until the remaining balance is less than the amount of one installment.
FORM 1175 PAGE 6 To determine the remaining balance in either Account at the end of any valuation period such balance at the end of the previous period is decreased by the amount of any installment paid during the period and the result multiplied by the net investment factor for the period. If the remaining balance at any time is less than the amount of one installment, such balance will be paid and will be the final payment under the option. Seventh Option--Investment Income--The amount due may be left on deposit with the Company in its General Account and a sum will be paid annually, semiannually, quarterly or monthly, as selected, which shall be equal to the net investment rate for the period multiplied by the amount remaining on deposit. 30. ALLOCATION At the time election of one of the first 5 settlement OF ANNUITY options is made, the person electing the option may further elect to have the Cash Surrender Value (amount due) applied to provide a Variable Annuity, a Fixed Dollar Annuity or a combination of both. Election of the Sixth Option may specify that the net investment factor for the Separate Account or the General Account is to apply or the amount due may be split between the two Accounts. Election of the Seventh Option shall constitute election of fixed income. 31. VARIABLE After the first monthly payment for a variable annuity has ANNUITY been determined in accordance with provision 34, the number of Separate Account Units is determined by dividing that first monthly payment by the Separate Account Annuity Unit value at the effective date of the first annuity payment. Once variable annuity payments have begun, the number of annuity units remains fixed. The method of calculating the unit value is described in provision 33. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account Annuity Units by the Separate Account Annuity Unit Value as described in provision 33, for the date on which the payment is due. The Company guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality experience of Payees from the mortality assumption as used in determining the first monthly payment. 32. FIXED DOLLAR After the first monthly payment for a Fixed Dollar Annuity ANNUITY has been determined in accordance with provision 34, the number of Fixed Dollar Annuity Units is determined by dividing the first monthly payment by the Fixed Dollar Annuity Unit value. Such value will always equal $1. Once fixed dollar annuity payments have begun, the number of Annuity Units remains fixed. Although fixed dollar annuity payments may never be less than the first monthly payment, each payment certain after the first under the Second or Fifth Option and the net investment rate applied under the Sixth and Seventh Options may be increased as a result of excess credits declared by the Board of Directors of the Company. 33. ANNUITY UNIT The value of the Fixed Dollar Annuity Unit is fixed at $1. VALUE The value of the Separate Account Annuity Unit for for July 1, 1981 was fixed at $l and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 34. ANNUITY TABLES The Tables below show the dollar amount of the first monthly payment for each $1,000 applied under the first 5 settlement options. Under the First, Second or Third Options, the amount of each payment will depend upon the sex of the Payee and the Payee's adjusted age at the time the first payment is due. Under the Fourth Option, the amount of each payment will depend upon the sex of both Payees and their adjusted ages at the time the first payment is due. Adjusted Age is determined in accordance with the following table: CALENDAR YEAR OF BIRTH ADJUSTED AGE Before 1900....................Actual Age increased by 1 1900-1919......................Actual Age 1920-1939......................Actual Age decreased by 1 1940-1959......................Actual Age decreased by 2 1960-1979......................Actual Age decreased by 3 After 1979.....................Actual Age decreased by 4 Actual age, as used in the table above shall mean age nearest birthday at the time the first payment is due. If it would produce greater benefits, the Company agrees that the first monthly payment to the Annuitant will be 103% of the first monthly payment produced by a then currently issued immediate annuity of the same form with a single Stipulated Payment equal to the Cash Surrender Value which is being applied under the contract. 35. MINIMUM No election of any settlement option may be made under the PAYMENTS contract for any Payee unless such election would produce a first payment of at least $25 to that Payee and if a combination benefit is elected, no election may be made unless the first payment from each Account would be $25 to the Payee. If at any time, any payments to be made to any Payee from either Account are or become less than $25 each, the Company shall have the right to change the frequency of payments to such interval as will result in the payment of at least $25 or if any payment would be less than $25 a year, the Company may make such other settlement as may be equitable to the Payee. 36. DESCRIPTION OF The tables for the First, Second, Third and Fourth Options TABLES in provision 29 are based on 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. 37. PAYMENT OF If any Payee dies while receiving payments under a GUARANTEED settlement option, the present values of the current dollar MONTHLY amount, on the date of death, of any remaining guaranteed PAYMENTS number of payments or any then remaining balance of proceeds under the Sixth or Seventh Options will be paid in one sum to the executor or administrators of the Payee unless other provision shall have been previously made and approved by the Company. Calculations for such present value of guaranteed payments remaining will assume a net invest-
FORM 1175 PAGE 7
ment rate of 3% a year in the General Account for the Fifth Option and 3-1/2% a year for all other General Account and all Separate Account options. 38. OPTION TO BEGIN Upon written request by the Owner and any assignee and MONTHLY INCOME irrevocable beneficiary, the commencement of monthly income AT LATER DATE may be deferred and this contract continued until any contract anniversary after the Maturity Date but not beyond the contract anniversary on which the attained age of the annuitant is 75. Stipulated Payments may be continued on and after the Maturity Date in the manner specified in this contract or may cease on the Maturity Date, as elected in said request. In the event of the death of the Annuitant during the period during which monthly income is deferred, the Company will, upon receipt of due proof of such death, pay to the Beneficiary the Cash Surrender Value on the Valuation Date coincident with or next following the date written notice of death is received by the Company. 39. SURRENDER OF When the income provided on page 1 hereof becomes payable, CONTRACT FOR or when a settlement option shall become operative, this SUPPLEMENTARY contract must be surrendered to the Company in exchange for CONTRACT a supplementary contract which shall set forth the terms and conditions of payment of such income or under such settlement option. 40. ALTERNATE If different terms and conditions under any of the foregoing TERMS AND provisions are required under the Internal Revenue Code in CONDITIONS order for this contract to qualify as a "qualified pension, profit-sharing or annuity contract", under said Code, the Company may, at its option, apply such different terms and conditions hereunder.
FORM 1175 PAGE 8 AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 OF NET TERMINATION VALUE
FIRST, SECOND AND THIRD OPTIONS--SINGLE LIFE ANNUITIES WITH: Monthly Payments Monthly Payments Monthly Payments Adjusted Guaranteed Adjusted Guaranteed Adjusted Guaranteed Age of Payee ---------- Age of Payee ---------- Unit Age of Payee ---------- Unit Male Female 120 240 Male Female None 120 180 240 Refund Male Female None 120 180 240 Refund 20 24 $3.38 $3.37 40 44 $4.03 $3.98 60 64 $6.01 $5.79 $5.53 $5.13 $5.44 21 25 3.40 3.39 41 45 4.08 4.03 61 65 6.18 5.94 5.63 5.24 5.56 22 26 3.42 3.41 42 46 4.14 4.08 62 66 6.37 6.08 5.74 5.30 5.69 23 27 3.44 3.43 43 47 4.20 4.13 63 67 6.57 6.24 5.84 5.36 5.82 24 28 3.46 3.45 44 48 4.26 4.18 64 68 6.79 6.40 5.95 5.41 5.96 25 29 3.49 3.48 45 49 $4.34 4.32 $4.28 4.23 $4.21 65 69 7.02 6.57 6.05 5.46 6.11 26 30 3.51 3.50 46 50 4.42 4.39 4.35 4.28 4.27 66 70 7.27 6.74 6.15 5.51 6.27 27 31 3.54 3.53 47 51 4.49 4.46 4.41 4.34 4.33 67 71 7.54 6.91 6.26 5.55 6.43 28 32 3.57 3.55 48 52 4.57 4.53 4.48 4.40 4.39 68 72 7.83 7.10 6.35 5.59 6.60 29 33 3.60 3.58 49 53 4.65 4.61 4.55 4.46 4.46 69 73 8.14 7.28 6.45 5.62 6.80 30 34 3.63 3.61 50 54 4.74 4.69 4.62 4.52 4.53 70 74 8.48 7.47 6.54 5.65 6.98 31 35 3.66 3.64 51 55 4.84 4.78 4.70 4.58 4.60 71 75 8.84 7.66 6.62 5.68 7.20 32 36 3.69 3.67 52 56 4.94 4.87 4.78 4.65 4.67 72 76 9.23 7.85 6.70 5.70 7.43 33 37 3.73 3.71 53 57 5.04 4.97 4.87 4.71 4.76 73 77 9.65 8.04 6.77 5.71 7.65 34 38 3.77 3.74 54 58 5.16 5.07 4.95 4.78 4.84 74 78 10.11 8.23 6.83 5.72 7.90 35 39 3.80 3.78 55 59 5.28 5.18 5.04 4.85 4.93 75 79 10.61 8.41 6.88 5.72 8.18 36 40 3.84 3.82 56 60 5.40 5.29 5.13 4.91 5.02 76 80 8.58 5.72 37 41 3.89 3.85 57 61 5.54 5.41 5.23 4.98 5.12 38 42 3.93 3.90 58 62 5.69 5.53 5.33 5.05 5.22 39 43 3.98 3.94 59 63 5.84 5.66 5.43 5.11 5.33
FOURTH OPTION--JOINT AND LAST SURVIVOR ANNUITY Adjusted Age of Payee Adjusted Age of --------------------- Secondary Payee Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male Female Female 49 Female 54 Female 59 Female 64 Female 69 Female 74 Male 75 36 40 $3.68 $3.73 $3.77 $3.80 $3.82 $3.83 $3.84 41 45 3.81 3.89 3.95 4.00 4.04 4.06 4.08 46 50 3.93 4.05 4.15 4.24 4.30 4.35 4.38 51 55 4.03 4.21 4.37 4.51 4.62 4.70 4.76 56 60 4.13 4.35 4.58 4.80 4.99 5.14 5.25 61 65 4.20 4.47 4.78 5.09 5.39 5.65 5.86 66 70 4.25 4.57 4.94 5.36 5.81 6.23 6.60 71 75 4.29 4.64 5.07 5.59 6.19 6.83 7.45 76 80 --- 4.68 5.15 5.75 6.50 7.37 8.33 81 85 --- 4.71 5.21 5.87 6.72 7.81 9.13
The monthly payment for any combination of ages not shown will be quoted upon request.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD Amount of Amount of Amount of Years of Monthly Payment Years of Monthly Payment Years of Monthly payment Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. 1 $84.47 $84.65 11 $8.86 $9.09 21 $5.32 $5.56 2 42.86 43.05 12 8.24 8.46 22 5.15 5.39 3 28.99 29.19 13 7.71 7.94 23 4.99 5.24 4 22.06 22.27 14 7.26 7.49 24 4.84 5.09 5 17.91 18.12 15 6.87 7.10 25 4.71 4.96 6 15.14 15.35 16 6.53 6.76 26 4.59 4.84 7 13.16 13.38 17 6.23 6.47 27 4.47 4.73 8 11.68 11.90 18 5.96 6.20 28 4.37 4.63 9 10.53 10.75 19 5.73 5.97 29 4.27 4.53 10 9.61 9.83 20 5.51 5.75 30 4.18 4.45
FORM 1175 PAGE 9 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for Iife, first payment at Maturity Date. Schedules of additional Benefits and Stipulated Payments appears on Page 2. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1175 EX-99.4(O) 11 EXHIBIT 99.4(O) Exhibit 4(o) THE FRANKLIN LIFE INSURANCE COMPANY Franklin Square SPRINGFIELD, ILLINOIS 62713 A Stock Company Contract Number 1234567 $10,000.00 Single Stipulated Payment Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1981 Maturity Date DECEMBER 1, 2011 Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay a life annuity consisting of a series of monthly income payments if the Annuitant is living on the Maturity Date. The first such payment will be made on the Maturity Date and subsequent payments will be made on the same day of each month thereafter so long as the Annuitant shall live. The dollar amount of such payments will be determined as provided in provisions 24, 25, 26 and 28 for the First Settlement Option. Upon receipt of due proof of the death of the Annuitant occurring before the Maturity Date, the Company agrees to pay to the Beneficiary the Cash Surrender Value at the Valuation Date coincident with or next following the date on which written notice of death is received by the Company. The provisions on this and the following pages are part of the contract. NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT At any time within 10 days after its receipt by the Insured, this contract may be returned by delivering it or mailing it to the Company or to the agent through whom it was purchased. Immediately upon such delivery or mailing, the contract will be deemed void from the beginning, and any premium paid on it will be refunded. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for life, first payment at Maturity Date. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1176
ALPHABETIC GUIDE TO YOUR CONTRACT Page Accumulation Unit Value 5 Age and Sex 2 Age and Sex Misstatement 3 Allocation of Annuity 6 Amount of First Monthly Payment 8 Annuity Tables 6 Annuity Unit Value 6 Application Last Page Assignment 4 Beneficiary 2 & 4 Brief Description of Contract 1 Cash Surrender Value 4 Change of Beneficiary 4 Change of Ownership 3 Claims of Creditors 4 Consideration - Entire Contract 3 Contract Number 2 Date of Issue 2 Date of Payment 5 Definitions 3 Description of Tables 7 First Contract Year Begins 2 Fixed Dollar Annuity 6 General Conditions of Settlement 5 Incontestability 3 Maturity Date 2 Page Minimum Payments 6 Modification 3 Name of Annuitant 2 Net Investment Rate and Net Investment Factor 5 Net Stipulated Payment 5 Nonparticipating 4 Nonqualification of Contract 4 Option to Begin Monthly Income at Later Date 7 Owner 3 Ownership of Assets and Determination of Values 5 Partial Cash Surrender Value 4 Payment of Guaranteed Monthly Payments 7 Proof of Survival 4 Reports to the Owner 5 Right to Examine Contract 1 Schedule of Additional Benefits 2 Settlement 4 Settlement Options 5 Single Stipulated Payment 2 Statements in Application 3 Stipulated Payment 2 & 5 Suicide 3 Surrender of Contract for Supplementary Contract 8 Variable Annuity 6 Voting Rights 4
The additional benefits, if any, listed on page 2 are described in the additional benefit agreements that follow page 8. FORM 8434 POLICY DATA Date of Issue DECEMBER 1, 1981 MALE 35 Age and Sex Contract Number 1234567 $10,000.00 Single Stipulated Payment Name of Annuitant BENJAMIN FRANKLIN First Contract Year Begins DECEMBER 1, 1981 Maturity Date DECEMBER 1, 2011 Beneficiary DEBORAH FRANKLIN, WIFE
STIPULATED PAYMENT Single Stipulated Payment $10,000.00 including the premium for any Additional Benefits described below. SCHEDULE OF ADDITIONAL BENEFITS (AS PROVIDED BY SUPPLEMENTAL AGREEMENT)
Form Single Number Description of Benefits Premium --- NONE ---
FORM 1176 PAGE 2 GENERAL DEFINITIONS 1. DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Stipulated Payment" means an amount paid to the Company under this contract as a consideration for the benefits described herein, and includes the premium for any additional benefits provided by Supplemental Agreement; (d) "General Account" means all assets of the Company other than those in the Separate Account or other separate accounts of the Company. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund C" established by the Company pursuant to Illinois law; (f) "Cash Surrender Value" means the value of the Accumulation Units credited to this contract determined on the basis set forth in the Valuation Provision less a surrender charge equal to 6% of the lessor of Cash Surrender Value or total stipulated payment if surrender occurs in the first 2 contract years. The surrender charge is 4% during the 3rd contract year; 2% during the 4th contract year and 0% after the 4th contract year. No surrender charge is made if the contract is terminated by death; or if a Partial Cash Surrender is made; or if the entire Cash Surrender Value is permitted by the Company to be transferred to another variable annuity, a fixed annuity or a life insurance contract issued by the Company; (g) "Valuation Date" means the date as of which the Accumulation Unit value is determined. This value is determined on each day that the New York Stock Exchange is open, as of the close of trading on that day; (h) "Valuation Period" means the period, commencing on a Valuation Date and ending on the next Valuation Date; (i) "Accumulation Unit" means a unit used to measure the value of an Owner's interest in the Separate Account prior to the date on which annuity payments commence; (See provision 19 dealing with accumulation unit values.) (j) "Annuity Unit" means a unit used to determine the amount of each annuity payment after the first; (See provision 27 dealing with annuity unit values.) (k) "Attained Age" of the Annuitant at the end of any period (whether or not the Annuitant is then alive) means his nearest age on the date the first contract year begins plus the length of such period; (l) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. GENERAL PROVISIONS 2. THE CONTRACT Consideration--Entire Contract: This contract has been issued in consideration of the application and of the payment of stipulated payments as provided. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. Statements in Application: All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. Modification: Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract or to extend the time for paying any stipulated payment. 3. INCONTESTABILITY This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue, and except as to the terms of any provision for accidental death benefits. 4. SUICIDE If within 2 years from date of issue the Annuitant (whether sane or insane) shall die by suicide, this contract shall automatically terminate and the amount payable in lieu of all other benefits shall be limited to the Cash Surrender Value at the date of death plus the sum of the additional premiums paid prior to death for any Supplemental Agreement attached to this contract. 5. AGE AND SEX If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the stipulated payments paid would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 6. OWNERSHIP AND Owner: The Owner of this contract will be the Annuitant ASSIGNMENT unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. Change of Ownership: The Owner may designate a new owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise
FORM 1176 PAGE 3 recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will be become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. Assignment: No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. 7. BENEFICIARY Determination of Beneficiary: The Beneficiary to receive any death benefit will be designated on page 2 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided): (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries is living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries is living. If no Beneficiary is living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Change of Beneficiary: Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such Beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 8. SETTLEMENT Any death benefit becoming due is payable immediately upon receipt at the Home Office of the Company of due proof of death. If any settlement is not made by payment of a single sum, a Supplementary Contract will be issued by the Company which shall set forth the terms and conditions of payment. In any settlement of this contract, by reason of death, surrender or otherwise, the Company may require return of this contract. 9. CASH SURRENDER The Owner may surrender this contract for its Cash Surrender VALUE Value by written request at any time before the commencement of annuity payments. The Cash Surrender Value will be computed on the Valuation Date coincident with or next following the date on which written request for surrender is received by the Company at its Home Office, and any cash payment will be made within 7 days thereafter except as the Company may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request is received. 10. PARTIAL CASH By written request, the Owner may make one partial cash SURRENDER surrender of this Contract in any month before the commencement of annuity payments. The proceeds of each such partial cash surrender may not exceed 10% of the then total Cash Surrender Value of the Contract nor be less than $500. The calculation method for determining the partial cash surrender value and the partial surrender of accumulation units will be the same as used in Provision 9. 11. NONQUALIFICA- In the event that this contract fails to qualify as a TION OF CONTRACT "qualified pension, profit sharing or annuity contract", the Franklin shall have the right, upon receiving notice of such fact, to thereafter treat the portion of this contract in the Separate Account as a variable annuity for non-qualified contracts, less a deduction for the appropriate part attributable to this contract of any Federal income tax payable by Franklin which would not have been payable if this contract had been at all times a "qualified pension, profit sharing or annuity contract." The Franklin reserves the right to require proof of this contract's qualification under the Internal Revenue Code prior to commencement of any variable annuity or variable installment benefit. "Qualified pension, profit sharing, or annuity contract" means any contract in this form which implements a plan or agreement which meets the requirements for qualification under Sections 401, 403(a), 408(b) or 408(k) of said Code or is being purchased under Section 403(b) for an employee by an organization described in Section 501(c)(3) and exempt from taxation under Section 501(a), or is being purchased under Section 403(b) for an employee by a public school described in Sections 403(b)(1)(A)(ii) and 151(e)(4). As used in this contract, all references to sections of the Internal Revenue Code mean said sections as now or hereafter amended, or any corresponding provisions of prior or subsequent United States Revenue laws. 12. PROOF OF The Company shall have the right to require evidence of the SURVIVAL survival of any Payee at the time any payment to such Payee is due. 13. NONPARTICI- This contract is nonparticipating and will not share in the PATING surplus earnings of the Company. 14. VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners.
FORM 1176 PAGE 4 Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 15. OWNERSHIP OF The Company shall have exclusive and absolute ownership and ASSETS AND control of its assets, including all assets in the Separate DETERMINATION Account. Determination by the Company of the value of an OF VALUES Accumulation Unit and an Annuity Unit by the method described in this contract will be conclusive upon the Owner, the Annuitant, and any Beneficiary. 16. STIPULATED The Stipulated Payments is due on the date of issue and is PAYMENTS payable in advance. 17. NET STIPULATED The Net Stipulated Payment is equal to (a) 100% of the PAYMENT amount obtained by deducting from the Stipulated Payment any premium for additional benefits provided by Supplemental Agreement attached to this contract, less (b) any premium taxes on such Stipulated Payment and a contract service charge of $ . VALUATION PROVISIONS 18. NET INVESTMENT (a) The net investment rate for any Valuation Period for the RATE AND NET General Account is guaranteed, and is equivalent to an INVESTMENT FACTOR investment rate of 3-1/2% compounded annually, except that, for benefits provided by the Fifth, Sixth, and Seventh Settlement Options it shall be 3% compounded annually. (b) The net investment rate for any Valuation Period for the Separate Account is equal to the gross investment rate for that Account for the period expressed in decimal form to 8 places less a deduction of not more than .00006164 for each day of such Valuation Period. The deduction may be reduced by the Company. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of the assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. (c) The net investment factor for each Account is the sum of 1.00000000 plus the net investment rate for the Account. 19. ACCUMULATION The value of the Separate Account Accumulation Unit was UNIT VALUE established at $10 as of July 1, 1981. The value of an Accumulation Unit on the last day of any subsequent Valuation Period is determined by multiplying such value on the last day of the immediately preceding Valuation Period by the net investment factor for the current Valuation Period. The value of an Accumulation Unit as of any date other than a Valuation Date is equal to its value as of the immediately following Valuation Date. 20. REPORTS TO The Company will send the Owner at least once in each THE OWNER contract year after the first (a) a statement which reflects the investment results for the preceding year, and (b) a statement which reflects the value of the Accumulation Units credited to the contract in all cases where the contract provides for Cash Surrender Value. SETTLEMENT PROVISIONS 21. GENERAL CONDI- Subject to these provisions, the whole or any part (but in TIONS OF no case less than $2,000) of the proceeds due the Payee in SETTLEMENT settlement of this contract may be made payable in accordance with one of the following options, or in any other manner that may be agreed upon with the Company. Any election, or change or revocation thereof, must be filed with the Company at its Home Office before settlement has been made and shall be effective only when attached hereto or endorsed hereon or otherwise recorded as the Company may require. The Change of Beneficiary provision under this contract shall apply to any election or change of election of an option prior to settlement date. If no election is in effect on the settlement date, the Payee entitled to the proceeds may at that time make such election. No settlement option will be available without the consent of the Company if this contract is assigned, or if the Payee is a corporation, association, partnership, trustee or estate. The Payee under a settlement option operative on or after the death of the Annuitant shall be the Beneficiary during the lifetime of such Beneficiary. The Payee under settlement option operative on or after surrender of this contract shall be the Annuitant during the lifetime of such Annuitant. Any settlement of this contract in accordance with the first paragraph on the face hereof, or under one of the first four settlement options in provision 23, shall be subject to satisfactory proof of age of any Payee. 22. DATE OF The right to interest will accrue under the Seventh Option PAYMENT in provision 23, and the first income payment will be made under any other option, as of the date when the proceeds of this contract would otherwise be payable. 23. SETTLEMENT First Option--Life Annuity--An annuity payable monthly OPTIONS during the lifetime of the Payee, ceasing with the last due prior to the death of the Payee. Second Option--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed--An annuity payable monthly during the lifetime of the Payee including the guarantee that if, at the death of the Payee, payments have been made for less than 120 months, 180 months or 240 months (as selected), payments shall be continued during the remainder of the selected period. Third Option--Unit Refund Life Annuity--An annuity payable monthly during the lifetime of the Payee, ceasing with the last payment due prior to the death of the Payee, provided that, at the death of the Payee, the Beneficiary will receive an additional 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 the option divided by the Annuity Unit value at the effective date of the first annuity payment and (b) is the number of Annuity Units represented by each payment multiplied by the number of payments made. Fourth Option--Joint and Last Survivor Life Annuity--An annuity payable monthly during the joint lifetime of the Payee and a secondary Payee, and thereafter during the remaining lifetime of the survivor, ceasing with
FORM 1176 PAGE 5 the last payment prior to the death of the survivor. Fifth Option--Payments for a Designated Period--An amount payable monthly for the number of years selected which may be from 1 to 30 years. Sixth Option--Payments of Specified Dollar Amount--The amount due may be paid in equal annual, semiannual, quarterly or monthly installments of a designated dollar amount (not less than $75 a year per $1,000 of the original amount due) until the remaining balance is less than the amount of one installment. To determine the remaining balance in either Account at the end of any valuation period such balance at the end of the previous period is decreased by the amount of any installment paid during the period and the result multiplied by the net investment factor for the period. If the remaining balance at any time is less than the amount of one installment, such balance will be paid and will be the final payment under the option. Seventh Option--Investment Income--The amount due may be left on deposit with the Company in its General Account and a sum will be paid annually, semiannually, quarterly or monthly, as selected, which shall be equal to the net investment rate for the period multiplied by the amount remaining on deposit. 24. ALLOCATION At the time election of one of the first 5 settlement OF ANNUITY options is made, the person electing the option may further elect to have the Cash Surrender Value (amount due) applied to provide a Variable Annuity, a Fixed Dollar Annuity or a combination of both. Election of the Sixth Option may specify that the net investment factor for the Separate Account or the General Account is to apply or the amount due may be split between the two Accounts. Election of the Seventh Option shall constitute election of fixed income. 25. VARIABLE After the first monthly payment for a variable annuity ANNUITY has been determined in accordance with provision 28, the number of Separate Account Units is determined by dividing that first monthly payment by the Separate Account Annuity Unit value at the effective date of the first annuity payment. Once variable annuity payments have begun, the number of annuity units remains fixed. The method of calculating the unit value is described in provision 27. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account Annuity Units by the Separate Account Annuity Unit Value as described in provision 27, for the date on which the payment is due. The Company guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality experience of Payees from the mortality assumption as used in determining the first monthly payment. 26. FIXED DOLLAR After the first monthly payment for a Fixed Dollar Annuity ANNUITY has been determined in accordance with provision 28, the number of Fixed Dollar Annuity Units is determined by dividing the first monthly payment by the Fixed Dollar Annuity Unit value. Such value will always equal $1. Once fixed dollar annuity payments have begun, the number of Annuity Units remains fixed. Although fixed dollar annuity payments may never be less than the first monthly payment, each payment certain after the first under the Second or Fifth Option and the net investment rate applied under the Sixth and Seventh Options may be increased as a result of excess credits declared by the Board of Directors of the Company. 27. ANNUITY UNIT The value of the Fixed Dollar Annuity Unit is fixed at $1. VALUE The value of the Separate Account Annuity Unit for for July 1, 1981 was fixed at $1 and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 28. ANNUITY TABLES The Tables below show the dollar amount of the first monthly payment for each $1,000 applied under the first 5 settlement options. Under the First, Second or Third Options, the amount of each payment will depend upon the sex of the Payee and the Payee's adjusted age at the time the first payment is due. Under the Fourth Option, the amount of each payment will depend upon the sex of both Payees and their adjusted ages at the time the first payment is due. Adjusted Age is determined in accordance with the following table: CALENDAR YEAR OF BIRTH ADJUSTED AGE Before 1900.....................Actual Age increased by 1 1900-1919.......................Actual Age 1920-1939.......................Actual Age decreased by 1 1940-1959.......................Actual Age decreased by 2 1960-1979.......................Actual Age decreased by 3 After 1979......................Actual Age decreased by 4 Actual age, as used in the table above shall mean age nearest birthday at the time the first payment is due. If it would produce greater benefits, the Company agrees that the first monthly payment to the Annuitant will be 103% of the first monthly payment produced by a then currently issued immediate annuity of the same form with a single Stipulated Payment equal to the Cash Surrender Value which is being applied under the contract. 29. MINIMUM No election of any settlement option may be made under the PAYMENTS contract for any Payee unless such election would produce a first payment of at least $25 to that Payee and if a combination benefit is elected, no election may be made unless the first payment from each Account would be $25 to the Payee. If at any time, any payments to be made to any Payee from either Account are or become less than $25 each, the Company shall have the right to change the frequency of payments to such interval as will result in the payment of at least $25 or if any payment would be less than $25 a year, the Company may make such other settlement as may be equitable to the Payee.
FORM 1176 PAGE 6 30. DESCRIPTION OF The tables for the First, Second, Third and Fourth TABLES Options in provision 23 are based on 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. 31. PAYMENT OF If any Payee dies while receiving payments under a GUARANTEED settlement option, the present values of the current dollar MONTHLY amount, on the date of death, of any remaining guaranteed PAYMENTS number of payments or any then remaining balance of proceeds under the Sixth or Seventh Options will be paid in one sum to the executor or administrator of the Payee unless other provision shall have been previously made and approved by the Company. Calculations for such present value of guaranteed payments remaining will assume a net investment rate of 3% a year in the General Account for the Fifth Option and 3-1/2% a year for all other General Account and all Separate Account options. 32. OPTION TO BEGIN Upon written request by the Owner and any assignee and MONTHLY INCOME irrevocable beneficiary, the commencement of monthly income AT LATER DATE may be deferred and this contract continued until any contract anniversary after the Maturity Date but not beyond the contract anniversary on which the attained age of the annuitant is 75. In the event of the death of the Annuitant during the period during which monthly income is deferred, the Company will, upon receipt of due proof of such death, pay to the Beneficiary the Cash Surrender Value on the Valuation Date coincident with or next following the date written notice of death is received by the Company. 39. SURRENDER OF When the income provided on page 1 hereof becomes payable, CONTRACT FOR or when a settlement option shall become operative, this SUPPLEMENTARY contract must be surrendered to the Company in exchange for CONTRACT a supplementary contract which shall set forth the terms and conditions of payment of such income or under such settlement option. 34. ALTERNATE If different terms and conditions are required under the TERMS AND Internal Revenue Code in order for this contract to qualify CONDITIONS as a "qualified pension, profit-sharing or annuity contract", under said Code, the Company may, at its option, apply such different terms and conditions hereunder.
FORM 1176 PAGE 7 AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 OF NET TERMINATION VALUE
FIRST, SECOND AND THIRD OPTIONS--SINGLE LIFE ANNUITIES WITH: Monthly Payments Monthly Payments Monthly Payments Adjusted Guaranteed Adjusted Guaranteed Adjusted Guaranteed Age of Payee ---------- Age of Payee ---------- Unit Age of Payee ---------- Unit Male Female 120 240 Male Female None 120 180 240 Refund Male Female None 120 180 240 Refund 20 24 $3.38 $3.37 40 44 $4.03 $3.98 60 64 $6.01 $5.79 $5.53 $5.13 $5.44 21 25 3.40 3.39 41 45 4.08 4.03 61 65 6.18 5.94 5.63 5.24 5.56 22 26 3.42 3.41 42 46 4.14 4.08 62 66 6.37 6.08 5.74 5.30 5.69 23 27 3.44 3.43 43 47 4.20 4.13 63 67 6.57 6.24 5.84 5.36 5.82 24 28 3.46 3.45 44 48 4.26 4.18 64 68 6.79 6.40 5.95 5.41 5.96 25 29 3.49 3.48 45 49 $4.34 4.32 $4.28 4.23 $4.21 65 69 7.02 6.57 6.05 5.46 6.11 26 30 3.51 3.50 46 50 4.42 4.39 4.35 4.28 4.27 66 70 7.27 6.74 6.15 5.51 6.27 27 31 3.54 3.53 47 51 4.49 4.46 4.41 4.34 4.33 67 71 7.54 6.91 6.26 5.55 6.43 28 32 3.57 3.55 48 52 4.57 4.53 4.48 4.40 4.39 68 72 7.83 7.10 6.35 5.59 6.60 29 33 3.60 3.58 49 53 4.65 4.61 4.55 4.46 4.46 69 73 8.14 7.28 6.45 5.62 6.80 30 34 3.63 3.61 50 54 4.74 4.69 4.62 4.52 4.53 70 74 8.48 7.47 6.54 5.65 6.98 31 35 3.66 3.64 51 55 4.84 4.78 4.70 4.58 4.60 71 75 8.84 7.66 6.62 5.68 7.20 32 36 3.69 3.67 52 56 4.94 4.87 4.78 4.65 4.67 72 76 9.23 7.85 6.70 5.70 7.43 33 37 3.73 3.71 53 57 5.04 4.97 4.87 4.71 4.76 73 77 9.65 8.04 6.77 5.71 7.65 34 38 3.77 3.74 54 58 5.16 5.07 4.95 4.78 4.84 74 78 10.11 8.23 6.83 5.72 7.90 35 39 3.80 3.78 55 59 5.28 5.18 5.04 4.85 4.93 75 79 10.61 8.41 6.88 5.72 8.18 36 40 3.84 3.82 56 60 5.40 5.29 5.13 4.91 5.02 76 80 8.58 5.72 37 41 3.89 3.85 57 61 5.54 5.41 5.23 4.98 5.12 38 42 3.93 3.90 58 62 5.69 5.53 5.33 5.05 5.22 39 43 3.98 3.94 59 63 5.84 5.66 5.43 5.11 5.33
FOURTH OPTION--JOINT AND LAST SURVIVOR ANNUITY Adjusted Age of Payee Adjusted Age of --------------------- Secondary Payee Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male Female Female 49 Female 54 Female 59 Female 64 Female 69 Female 74 Male 75 36 40 $3.68 $3.73 $3.77 $3.80 $3.82 $3.83 $3.84 41 45 3.81 3.89 3.95 4.00 4.04 4.06 4.08 46 50 3.93 4.05 4.15 4.24 4.30 4.35 4.38 51 55 4.03 4.21 4.37 4.51 4.62 4.70 4.76 56 60 4.13 4.35 4.58 4.80 4.99 5.14 5.25 61 65 4.20 4.47 4.78 5.09 5.39 5.65 5.86 66 70 4.25 4.57 4.94 5.36 5.81 6.23 6.60 71 75 4.29 4.64 5.07 5.59 6.19 6.83 7.45 76 80 --- 4.68 5.15 5.75 6.50 7.37 8.33 81 85 --- 4.71 5.21 5.87 6.72 7.81 9.13
The monthly payment for any combination of ages not shown will be quoted upon request.
FIFTH OPTION--PAYMENTS FOR A DESIGNATED PERIOD Amount of Amount of Amount of Years of Monthly Payment Years of Monthly Payment Years of Monthly payment Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. Payment Gen. Acct. Sep. Acct. 1 $84.47 $84.65 11 $8.86 $9.09 21 $5.32 $5.56 2 42.86 43.05 12 8.24 8.46 22 5.15 5.39 3 28.99 29.19 13 7.71 7.94 23 4.99 5.24 4 22.06 22.27 14 7.26 7.49 24 4.84 5.09 5 17.91 18.12 15 6.87 7.10 25 4.71 4.96 6 15.14 15.35 16 6.53 6.76 26 4.59 4.84 7 13.16 13.38 17 6.23 6.47 27 4.47 4.73 8 11.68 11.90 18 5.96 6.20 28 4.37 4.63 9 10.53 10.75 19 5.73 5.97 29 4.27 4.53 10 9.61 9.83 20 5.51 5.75 30 4.18 4.45
FORM 1176 PAGE 8 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Deferred Variable Annuity or Variable and Fixed Annuity Contract. A death benefit is payable before Maturity Date. Income is payable for Iife, first payment at Maturity Date. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1176 EX-99.4(P) 12 EXHIBIT 99.4(P) Exhibit 4(p) THE FRANKLIN LIFE INSURANCE COMPANY Franklin Square SPRINGFIELD, ILLINOIS 62713 A Stock Company Contract Number 1234567 Date of Issue DECEMBER 1, 1981 Name of Annuitant BENJAMIN FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Payment $43.25 Number of Separate Account Annuity Units 43.252 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1982
The Franklin Life Insurance Company agrees to pay the Annuitant income payments with the frequency shown above, the first payment to be made on the date shown above if the Annuitant is then living, and to continue such payments so long as the Annuitant shall live. The dollar amount of each payment shall be determined as provided in provision 2. The provisions on this and the following pages are part of the contract. NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT At any time within 10 days after its receipt by the Insured, this contract may be returned by delivering it or mailing it to the Company or to the agent through whom it was purchased. Immediately upon such delivery or mailing, the contract will be deemed void from the beginning, and any premium paid on it will be refunded. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Life Annuity. Income is payable for the lifetime of the Annuitant. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1177 ALPHABETIC GUIDE TO YOUR CONTRACT
Page Age 1 Age and Sex Misstatement 3 Amount of Fixed Dollar Annuity Payment 1 Application Last Page Assignment 2 Brief Description of Contract 1 Change of Ownership 2 Consideration - Entire Contract 2 Contract Number 1 Date of First Income Payment 1 Date of Issue 1 Determination of Amount of Income Payment 2 Evidence that Annuitant is Living 3 Frequency of Income Payments 1 General Definitions 2 Incontestability 3 Page Modification of Contract 2 Name of Annuitant 1 *Name of Contingent Annuitant 1 Nonparticipating 3 Number of Separate Account Annuity Units 1 Owner 2 Ownership of Assets and Determination of Values 3 Right to Examine Contract 1 Separate Account Annuity Unit Values 2 Separate Account Net Investment Rate and Net Investment Factor 2 Statements in Application 2 Termination of Contract 3 Total Purchase Price 1 Voting Rights 3
*This provision is not included in all contracts. FORM 8435 1. GENERAL DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in the Separate Account or any other separate accounts of the Company. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund C" established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined. This value is determined on each day that the New York Stock Exchange is open, as of the close of trading on that day; (g) "Valuation Period" means the period, commencing on a Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment; (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) Variable Annuity--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Account Annuity Unit value, determined is described in provision 4, for the date on which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) Fixed Dollar Annuity--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period. The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less a deduction of not more than .00006164 for each day of such Valuation Period. The deduction may be reduced by the Company. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1981 was established at $1, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION--ENTIRE CONTRACT: This contract has been issued in consideration of the application and of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT-- Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The Owner may designate a new owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will be become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. 10. ASSIGNMENT--No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. FORM 1177 PAGE 2 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--On the death of the Annuitant, this contract shall immediately cease and become void. The annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for time elapsed since the due date of the last regular payment. 15. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 16. VOTING RIGHTS--The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 17. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Unit by the method described in this contract will be conclusive upon the Owner and the Annuitant. FORM 1177 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Life Annuity. Income is payable for the Iifetime of the Annuitant. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1177 EX-99.4(Q) 13 EXHIBIT 99.4(Q) Exhibit 4(q) THE FRANKLIN LIFE INSURANCE COMPANY Franklin Square SPRINGFIELD, ILLINOIS 62713 A Stock Company
Contract Number 1234567 Date of Issue DECEMBER 1, 1981 Name of Annuitant BENJAMIN FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Payment $40.77 Number of Separate Account Annuity Units 40.771 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1982 Guaranteed Period 120 Months Beneficiary DEBORAH FRANKLIN, WIFE
The Franklin Life Insurance Company agrees to pay the Annuitant income payments with the frequency shown above, the first payment to be made on the date shown above if the Annuitant is then living, and to continue such payments so long as the Annuitant shall live. The dollar amount of each payment shall be determined as provided in provision 2. Upon receipt at its Home Office of due proof of the death of the Annuitant occurring before the end of the Guaranteed Period, the Company further agrees to continue the income payments to the Beneficiary as they become due until the end of the Guaranteed Period. The provisions on this and the following pages are part of the contract. NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT At any time within 10 days after its receipt by the Insured, this contract may be returned by delivering it or mailing it to the Company or to the agent through whom it was purchased. Immediately upon such delivery or mailing, the contract will be deemed void from the beginning, and any premium paid on it will be refunded. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Life Annuity with a Guaranteed Period. Income is payable for the lifetime of the Annuitant. Death Benefits are provided in the early contract years. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1178 ALPHABETIC GUIDE TO YOUR CONTRACT
Page Age 1 Age and Sex Misstatement 3 Amount of Fixed Dollar Annuity Payment 1 Application Last Page Assignment 2 Beneficiary 1 Brief Description of Contract 1 Change of Beneficiary 3 Change of Ownership 2 Consideration - Entire Contract 2 Contract Number 1 Date of First Income Payment 1 Date of Issue 1 Determination of Amount of Income Payment 2 Determination of Beneficiary 3 Evidence that Annuitant is Living 3 Frequency of Income Payments 1 General Definitions 2 Page Guaranteed Period _________ Months 1 Incontestability 3 Modification of Contract 2 Name of Annuitant 1 Nonparticipating 3 Number of Separate Account Annuity Units 1 Owner 2 Ownership of Assets and Determination of Values 3 Right to Examine Contract 1 Separate Account Annuity Unit Values 2 Separate Account Net Investment Rate and Net Investment Factor 2 Statements in Application 2 Termination of Contract 3 Total Purchase Price 1 Voting Rights 3
FORM 8436 1. GENERAL DEFINITIONS--As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in the Separate Account or other separate accounts of the Company. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund C established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined. This value is determined on each day that the New York Stock Exchange is open, as of the close of trading on that day; (g) "Valuation Period" means the period, commencing on a Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment; (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) VARIABLE ANNUITY--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Annuity Unit value, determined as described in provision 4, for the date on which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) FIXED DOLLAR ANNUITY--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less of a deduction of not more than .00006164 for each day of such Valuation Period. The deduction may be reduced by the Company. Such gross investment rate is equal to (i) the 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 Separate Account Iess a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1981 was established at $1, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION--ENTIRE CONTRACT--This contract has been issued in consideration of the application and of the payment of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT--Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During the Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include all the right to assign or surrender this contract and to exercise, receive and every enjoy other right, option, and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The owner may designate a new Owner and may designate or change a Contingent Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during the Annuitant's lifetime, the Contingent Owner, if any, will become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. FORM 1178 PAGE 2 10. ASSIGNMENT--No assignment of this contract wiII be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of the Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of the Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of the Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--If the death of the Annuitant shall occur before the end of the Guaranteed Period, this contract shall continue in force only until the remaining payments guaranteed shall have been paid to the Beneficiary, at which time it shall cease and become void. If the death of the Annuitant shall occur after the end of the Guaranteed Period, this contract shall immediately cease and become void, the annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for time elapsed since the due date of the last regular payment. 15. DETERMINATION OF BENEFICIARY--The Beneficiary to receive any death benefit will be designated on page 1 of this contract, unless otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Beneficiary is the relationship to the Annuitant, unless otherwise stated. When any benefit becomes due by reason of the Annuitant's death, the benefit will be paid equally to the Beneficiaries then living in the following order (unless otherwise provided); (1) the primary Beneficiaries; (2) the first contingent Beneficiaries, if any, provided none of the primary Beneficiaries is living; (3) the second contingent Beneficiaries, if any, provided none of the primary and first contingent Beneficiaries is living. If no Beneficiary is living at death of the Annuitant, the death benefit will be paid to the Owner or the executors or administrators of the Owner. Claims of Creditors: Any amount due any Beneficiary under this contract will be exempt from the claims of creditors of such Beneficiary to the extent permitted by law and may not be assigned or withdrawn before becoming payable unless otherwise agreed to by the Company. 16. CHANGE OF BENEFICIARY--Any Beneficiary may be changed by the Owner at any time during the Annuitant's lifetime by filing a written request at the Home Office of the Company. Such change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for change was received at the Home Office. 17. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 18. VOTING RIGHTS--The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 19. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Annuity Unit by the method described in this contract will be conclusive upon the Owner, the Annuitant, and any Beneficiary. FORM 1178 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Life Annuity with a Guaranteed Period. Income is payable for the Iifetime of the Annuitant. Death benefits are provided in the early contract years. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1178 EX-99.4(R) 14 EXHIBIT 99.4(R) Exhibit 4(r) THE FRANKLIN LIFE INSURANCE COMPANY Franklin Square SPRINGFIELD, ILLINOIS 62713 A Stock Company
Contract Number 1234567 Date of Issue DECEMBER 1, 1981 Name of Annuitant BENJAMIN FRANKLIN 65 Age Name of Contingent Annuitant DEBORAH FRANKLIN 65 Age Total Purchase Price $10,000.00 $5,000.00 For Fixed Dollar Annuity Payment $5,000.00 For Separate Account Annuity Units Amount of Fixed Dollar Annuity Payment $27.50 Number of Separate Account Annuity Units 27.500 Frequency of Income Payments MONTHLY Date of First Income Payment JANUARY 1, 1982
The Franklin Life Insurance Company agrees to pay jointly to the Annuitants income payments with the frequency shown above, the first payment to be made on the date shown above if both of the Annuitants are then living, and to continue such payments so long as both of the Annuitants shall live. Upon the death of either of the Annuitants, payments representing 100% of the Separate Account Annuity Units and Fixed Dollar Annuity Payments in effect during the joint lifetime of the Annuitants shall be paid thereafter to the survivor for his or her lifetime. The dollar amount of each payment shall be determined as provided in provision 2. The provisions on this and the following pages are part of the contract. NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT At any time within 10 days after its receipt by the Insured, this contract may be returned by delivering it or mailing it to the Company or to the agent through whom it was purchased. Immediately upon such delivery or mailing, the contract will be deemed void from the beginning, and any premium paid on it will be refunded. Signed for the Company at Springfield, Illinois. Secretary President A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Joint and Last Survivor Life Annuity. Income is payable for the lifetime of either of the Annuitants. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1179
ALPHABETIC GUIDE TO YOUR CONTRACT Page Age 1 Age and Sex Misstatement 3 Amount of Fixed Dollar Annuity Payment 1 Application Last Page Assignment 2 Brief Description of Contract 1 Change of Ownership 2 Consideration - Entire Contract 2 Contract Number 1 Date of First Income Payment 1 Date of Issue 1 Determination of Amount of Income Payment 2 Evidence that Annuitant is Living 3 Frequency of Income Payments 1 General Definitions 2 Incontestability 3 Page Modification of Contract 2 Name of Annuitant 1 *Name of Contingent Annuitant 1 Nonparticipating 3 Number of Separate Account Annuity Units 1 Owner 2 Ownership of Assets and Determination of Values 3 Right to Examine Contract 1 Separate Account Annuity Unit Values 2 Separate Account Net Investment Rate and Net Investment Factor 2 Statements in Application 2 Termination of Contract 3 Total Purchase Price 1 Voting Rights 3 *This provision is not included in all contracts.
FORM 8435 1. GENERAL DEFINITIONS As used in this contract, the terms: (a) "Variable Annuity" means an annuity with payments varying in amount in accordance with the net investment experience of the Separate Account; (b) "Fixed Dollar Annuity" means an annuity with payments which remain fixed as to dollar amount throughout the payment period; (c) "Income Payment" means the sum of the variable annuity payment and the fixed dollar annuity payment; (d) "General Account" means all assets of the Company other than those in the Separate Account or other separate accounts of the Company. Reserves for any fixed dollar benefits shall be maintained in the General Account; (e) "Separate Account" means those assets of the Company in a segregated investment account entitled "Franklin Life Variable Annuity Fund C" established by the Company pursuant to Illinois law; (f) "Valuation Date" means the date as of which the Separate Account Net Investment Rate is determined. This value is determined on each day that the New York Stock Exchange is open, as of the close of trading on that day; (g) "Valuation Period" means the period, commencing on a Valuation Date and ending on the next Valuation Date; (h) "Separate Account Annuity Unit" means a unit used to determine the amount of each variable annuity payment; (See provision 4 dealing with Separate Account Annuity Unit values.) (i) "Written request" means a written request satisfactory to the Company, filed at its Home Office in Springfield, Illinois. 2. DETERMINATION OF THE AMOUNT OF INCOME PAYMENT-- (a) VARIABLE ANNUITY--The dollar amount of the Variable Annuity Payment is not predetermined and may change from one payment to the next. The actual amount of any such payment is determined by multiplying the number of Separate Account Annuity Units shown on page 1 by the Separate Account Annuity Unit value, determined as described in provision 4, for the date on which the payment is due. The Company guarantees that the dollar amount of each payment shall not be affected by variations in mortality experience from mortality assumptions on which the first payment is based. (b) FIXED DOLLAR ANNUITY--Fixed Dollar Annuity payments remain fixed as to dollar amount throughout the payment period. The dollar amount is as stated on page 1. 3. SEPARATE ACCOUNT NET INVESTMENT RATE AND NET INVESTMENT FACTOR--The Separate Account net investment rate for any Valuation Period is equal to the gross investment rate expressed in decimal form to 8 places less a deduction of not more than .00006164 for each day of such Valuation Period. The reduction may be reduced by the Company. Such gross investment rate is equal to (i) the 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 Separate Account less a deduction for any applicable taxes arising from such income and realized and unrealized capital gains attributable to the assets of the Separate Account, divided by (ii) the value of assets in the Separate Account at the beginning of the Valuation Period. The gross investment rate may be positive or negative. The net investment factor for the Separate Account is 1.00000000 plus the Separate Account net investment rate for the period. 4. SEPARATE ACCOUNT ANNUITY UNIT VALUE--The value of a Separate Account Annuity Unit on July 1, 1981 was established at $1, and for each day thereafter is determined by multiplying the value of the Separate Account Annuity Unit on the preceding day by the Annuity Change Factor for the Valuation Period ending on the 10th preceding day or by 1.0 if no Valuation Period ended on the 10th preceding day. The Annuity Change Factor is equal to the amount determined by dividing the net investment factor for such Valuation Period by an amount equal to one (1) plus the interest rate for the number of calendar days in such Valuation Period at the effective annual rate of 3-1/2%. 5. CONSIDERATION--ENTIRE CONTRACT: This contract has been issued in consideration of the application and of the payment of the Purchase Price. This contract and the application, a copy of which is attached to and made a part of this contract, constitute the entire contract and shall be construed according to the laws of the jurisdiction where it is made. 6. STATEMENTS IN APPLICATION--All statements made in the application shall, in the absence of fraud, be deemed representations and not warranties. No statement shall be used in defense to a claim under this contract unless it is contained in the application and unless a copy of the application is attached to this contract when issued. 7. MODIFICATION OF CONTRACT-- Any change in this contract will be valid only when it is approved in writing by the President or Secretary of the Company, and the approval is endorsed on the contract or otherwise recorded as the Company may require. No agent or person other than the above has the authority to change, modify or waive any provision of this contract. 8. OWNER--The Owner of this of this contract will be the Annuitant unless otherwise designated in the application for this contract, or otherwise provided by endorsement at date of issue or unless subsequently changed as provided below. The relationship of the Owner is the relationship to the Annuitant, unless otherwise stated. During either Annuitant's lifetime, all rights under this contract belong exclusively to the Owner unless the Owner provides otherwise by written request. Such rights include the right to assign or surrender this contract and to exercise, receive and enjoy every other right, option and privilege conferred by this contract or allowed by the Company. 9. CHANGE OF OWNERSHIP--The Owner may designate a new owner and may designate or change a Contingent Owner at any time during either Annuitant's lifetime by filing a written request at the Home Office of the Company. Such designation or change will take effect only when endorsed upon this contract or otherwise recorded as the Company may require, but upon endorsement or recording the change will relate back to, and take effect as of, the date said written request was signed whether or not the Annuitant be living at the time of such endorsement or recording, subject to the rights of any Assignee of record with the Company and subject to any payment made or action taken by the Company before the written request for designation or change was received at the Home Office. At the death of the Owner during either Annuitant's lifetime, the Contingent Owner, if any, will be become the Owner, but if no Contingent Owner is then living, ownership will pass to the estate of the Owner. 10. ASSIGNMENT--No assignment of this contract will be binding on the Company unless the assignment is in writing and filed at the Home Office. The Company is not responsible for the validity of any assignment. FORM 1179 PAGE 2 11. INCONTESTABILITY--This contract will be incontestable after it has been in force during the lifetime of either Annuitant for 2 years from its date of issue. 12. AGE AND SEX--If the age or sex of either Annuitant has been misstated, the amounts payable and any benefits accruing hereunder shall be such as the Purchase Price would have purchased at the correct age and sex of such Annuitant. Any underpayments already made by the Company shall be made up immediately and any overpayments made by the Company shall be charged against the benefits falling due after adjustment, with compound interest at 5.7% a year in advance. 13. EVIDENCE THAT ANNUITANT IS LIVING--The Company shall as a condition of each payment to the Annuitant have the right to require satisfactory evidence that the Annuitant is living on the due date of such income payment. 14. TERMINATION OF CONTRACT--On the death of the survivor of the Annuitants, this contract shall immediately cease and become void. The Annuity herein provided shall terminate with the last regular payment preceding said death, and there shall be no payment due for time elapsed since the due date of the last regular payment. 15. NONPARTICIPATING--This contract is nonparticipating and will not share in the surplus earnings of the Company. 16. VOTING RIGHTS-- The Owner shall have the right to vote only at the meetings of the Separate Account Contract Owners. Ownership of this contract shall not entitle any person to vote at any meeting of shareholders of the Company. Votes attributable to the contract shall be cast in conformity with the provisions of the Rules and Regulations of the Separate Account. 17. OWNERSHIP OF ASSETS AND DETERMINATION OF VALUES--The Company shall have exclusive and absolute ownership and control of its assets, including all assets in the Separate Account. Determination by the Company of the value of a Separate Account Unit by the method described in this contract will be conclusive upon the Owner and the Annuitant. FORM 1179 PAGE 3 THE FRANKLIN LIFE INSURANCE COMPANY A BRIEF DESCRIPTION OF THIS CONTRACT This is a Single Payment Joint and Last Survivor Life Annuity. Income is payable for the Iifetime of either of the Annuitants. The contract is nonparticipating. ALL INCOME PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. FORM 1179 EX-99.4(S) 15 EXHIBIT 99.4(S) Exhibit 4(s) ENDORSEMENT TO MAKE CONTRACT NONTRANSFERABLE Notwithstanding any other provision of this Contract, the Owner may not transfer any portion of his interest in this Contract to any person other than the Company. Signed for The Franklin Life Insurance Company at Springfield, Illinois. Secretary Form 4840 EX-99.4(T) 16 EXHIBIT 99.4(T) Exhibit 4(t) WAIVER OF STIPULATED PAYMENT DISABILITY BENEFIT Supplemental Agreement forming a part of the contract to which it is attached. IF DUE PROOF shall be furnished to The Franklin Life Insurance Company at its Home Office that, after the payment of the first premium for this Agreement, and before default in payment of any subsequent premium, and before the contract anniversary nearest the Annuitant's 60th birthday, the Annuitant has become totally disabled, as the result of bodily injury or disease occurring after the issuance of the contract, so that the Annuitant is and will be continuously and wholly prevented thereby from performing any work or transacting any business for compensation or profit and that such disability has already continued uninterruptedly for a period of at least six months, the Company will during the continuance of such disability grant the following benefit: WAIVER OF STIPULATED PAYMENT: The Company agrees to waive the payment of each stipulated payment becoming due under the contract after the commencement of such disability, provided however, that no stipulated payment shall be waived, the due date of which is more than one year prior to the date of receipt at the Home Office of the Company of written notice of claim, and provided that the stipulated payment waived, on an annualized basis, will not be greater than the first stipulated payment, on an annualized basis, as shown on page 2. Any stipulated payments so waived shall not be deducted from the sum payable in any settlement of the contract. Cash Surrender, Loan and Paid-up Annuity values, if any, shall be the same as if the waived stipulated payments had been duly paid. During the continuance of disability the frequency of stipulated payment may not be changed. RECOGNIZED DISABILITIES: It is further agreed that the entire loss of sight of both eyes, or the entire loss by accident or disease of the use of both hands, or of both feet, or of one hand and one foot, will be deemed total disability for so long as such entire loss may continue. REQUIREMENTS FOR DUE PROOF: In case any stipulated payment under the contract is in default before receipt at the Home Office of the Company of written notice of claim, waiver of stipulated payment hereunder shall be made only if such notice is received within one year of the due date of the first stipulated payment in default, and either (a) the total disability for which claim is made commenced prior to the due date of the first stipulated payment in default, or (b) the total disability for which claim is made commenced subsequent to the due date of the first stipulated payment in default, but within the grace period allowed by the contract for payment of such stipulated payment, in which case, however, the Annuitant shall be liable to the Company for such stipulated payment in default with interest at 5.7% a year in advance, which amount may be deducted from any payments due under the policy. Written notice of claim and proof of total disability must be received at the Home Office of the Company (a) during the lifetime of the Annuitant and (b) during the continuance of total disability, otherwise the claim shall be invalid. Failure to give such timely notice and proof will not invalidate any claim if it is shown that notice and proof were given as soon as was reasonably possible. RECOVERY FROM DISABILITY: Notwithstanding that proof of disability may have been accepted by the Company as satisfactory, the Company may from time to time demand due proof of the continuance of such disability and shall be permitted, as often as it may require, to have a physical examination of the Annuitant made with respect to such disability by a medical examiner designated by it. After such disability has continued for two full years the Company will not demand such proof more often than once a year. If such proof shall not be furnished or such physical examination shall not be permitted when required, or if the Annuitant shall become able to perform any work or engage in any business or occupation whatsoever for compensation or profit, waiver of stipulated payment shall immediately cease and all stipulated payments thereafter falling due shall be payable according to the terms of the contract. RISKS NOT COVERED: The benefit herein provided shall not be granted if disability: (1) shall result from intentional self-inflicted injury, or (2) shall result from the special hazards incident to service in the military, naval or air forces of any country, combination of countries, or international organization at war, whether such war be declared or undeclared, or (3) shall result from an act of war or act attributable to war whether such war be declared or undeclared, or (4) shall result from bodily injury or disease occurring before the date of issue of the contract if the contract was issued in exchange for any other contract or contracts, or (5) begins while the contract is not in force. TERMINATION: This Agreement will immediately terminate upon the earliest of: (1) default beyond the grace period in payment of the premium for this Agreement; (2) the exchange, termination, maturity or expiry of the contract; (3) the contract anniversary nearest the Annuitant's 60th birthday. Upon written request by the Owner, accompanied by the contract, this Agreement may be discontinued on the due date of the next premium. PREMIUMS: The extra annual premium for this Agreement is included in the Stipulated Payment on page 2 of the contract. Any stipulated payment payable after this Agreement has been terminated will be reduced by the amount of said extra premium. Signed for the Company at Springfield, Illinois. Secretary President Form 6012 Variable Annuity EX-99.4(U) 17 EXHIBIT 99.4(U) Exhibit 4(u) VARIABLE ANNUITY ENDORSEMENT This Contract was modified prior to its execution by addition of the following; 1. This Contract is issued subject to the laws and regulations of the State of Texas, including the application of such laws and rules and requirements to the Contract and to the interpretation of its provisions, and is amended to conform therewith. 2. The Separate Account applicable to and identified with this Contract is divisible for various purposes in respect of regulation and compliance with law, including divisibility as it is applicable to any function arising from the provisions of the Contract or provisions of law and regulation. 3. The Company may effect the transfer of assets between the Separate Account and other accounts for the purposes of making adjustments necessitated by the Contract, including adjustment for any surplus or deficit which may arise in such Separate Account by virtue of mortality experience, or required by governmental authorities having jurisdiction over the Company. Such adjustments shall be made by cash transfer only, except as is authorized or required by regulatory authority. 4. This Contract is subject to endorsement from time to time as may be necessary to comply with valid and appropriate rules and regulations adopted by regulatory authorities, or as a court of final jurisdiction shall determine, and is executed subject to that condition. 5. This Contract is issued subject to the laws of the State where the Annuitant resides at the time of the making of the Contract and is subject also to the rules and regulations of the state administrative agency responsible for variable annuity regulation in such State, including the application of such laws and rules and requirements to the Contract and to the interpretation of its provisions; except, however, in the circumstance and only to the extent the application of this provision to any person or circumstance is expressly contrary to and excluded by superior law or valid statute having and determined to have supremacy in the circumstance. 6. The Company guarantees that the actual expense and actual mortality will not adversely affect the dollar amounts of Variable Annuity benefits or other contractual payments or values; and the Company will transfer such amounts of general corporate funds into the Separate Account as are necessary to carry out this guarantee. However, no transfer shall be made, and the Company does not obligate itself to make any transfer which would result in an impairment of the statutory reserves of the Company, and this guarantee is accordingly limited. 7. The Variable Annuity benefits of this Contract are funded solely from the assets of the Separate account of which it is an obligation and except to the extent of such limited expense and mortality guarantees, shall have no claim against any other assets of the Company. 8. Variations in values or cost of accumulative units or the amount of premium or payments applied to the investment portfolio are or will be made to effect requirements of law or regulation. 9. The Company will mail to the Contract owner such reports and information periodically as the law and regulation of appropriate jurisdictions shall require (irrespective of any provision of this Contract which may be contrary to such law or regulation). 10. Monthly payments for ages not shown in the Table of Settlement Options will be provided by the Company upon request. Signed for The Franklin Life Insurance Company at Springfield, Illinois. Secretary Form 6275-A-Texas EX-99.4(V) 18 EXHIBIT 99.4(V) Exhibit 4(v) AMENDMENTS TO THIS CONTRACT I. The "Accumulation Unit Value" paragraph (paragraph 24 in Form 1170 or paragraph 19 in Form 1171) is amended by adding the sentence "The value of the Separate Account Accumulation Unit may decrease or increase at the end of each valuation period." II. The "Separate Account Annuity Unit Value" paragraph (paragraph 4 in Forms 1172, 1173 and 1174) is amended by adding the sentence "The value of the Separate Account Annuity Unit may decrease or increase during any valuation period." III. The "Reports to Owner" paragraph (paragraph 25 in Form 1170 or paragraph 20 in Form 1171) is replaced by the following paragraph and a new paragraph is added to Form 1172 (paragraph 18), to Form 1173 (paragraph 21) and to Form 1174 (paragraph 18) which reads: "The Company will mail to the Owner of this contract at least once in each contract year after the first, at his last address known to the Company, a report in a form approved by the Commissioner of Insurance of New Jersey, which shall include a statement of the number of units credited to this contract and the dollar value of a unit as of a date not more than two months previous to the date of mailing and a statement in a form and of a date approved by said Commissioner of the investments held in the Separate Account designated in this contract." Signed for The Franklin Life Insurance Company at Springfield, Illinois. Secretary Form 6296-New Jersey EX-99.6(A) 19 EXHIBIT 99.6(A) Exhibit 6(a) Amended Articles of Incorporation of THE FRANKLIN LIFE INSURANCE COMPANY (April 3, 1968) C H A R T E R ARTICLE I The name of this corporation shall be The Franklin Life Insurance Company. A R T I C L E I I The principal office of this corporation shall be located at Springfield, in the County of Sangamon, and State of Illinois. A R T I C L E I I I SECTION 1. The corporate powers of this corporation shall be vested in and exercised by a Board of not less than three (3) nor more than twenty-one (21) Directors (as may be determined by the Bylaws of the Company), a majority of whom shall be citizens of the State of Illinois at the time of their election and by such officers, agents, and employees as such Board of Directors may from time to time elect or appoint and empower. SECTION 2. Vacancies in the Board of Directors may be filled for the unexpired term by the stockholders at a duly convened meeting thereof. A R T I C L E I V SECTION 1. The capital of this corporation shall be $60,000,000 divided into 30,000,000 shares of the par value of Two Dollars ($2.00) each, consisting of 19,098,048 shares of the par value of Two Dollars ($2.00) each, in the amount of $38,196.096 issued and outstanding and 10,901,952 shares of the par value of Two Dollars ($2.00) each, in the amount of $21,803,904 to be issued at such times and in such amounts as the Board of Directors shall determine and received authority of the Director of Insurance of the State of Illinois so to do, pursuant to the provisions of Section 32, Article II, of the Illinois Insurance Code, as amended by an act approved July 17, 1959. There shall be no preemptive rights to subscribe to a proportionate interest in the authorized but unissued shares of the capital stock of this corporation authorized by the Board of Directors to be issued for the purpose of acquiring capital stock of other corporations and also for the purpose of acquiring assets of other corporations. SECTION 2. Any surplus arising from participating policies issued prior to July 5, 1929, shall be ascertained from time to time and be retained by the Company for the use and benefit of such policies according to their terms. A R T I C L E V The Board of Directors shall adopt Bylaws for the Government of this corporation and may amend, alter, or repeal the same from time to time as may be deemed necessary or expedient. A R T I C L E V I The objects and purposes of this corporation are (a) to make insurance upon the lives of persons and every insurance appertaining thereto or connected therewith, and to grant, purchase, or dispose of annuities, and (b) to make insurance against bodily injury, disablement or death by accident and against disablement resulting form sickness or old age and every insurance appertaining thereto, pursuant to the provisions of the laws of the State of Illinois, and to issue policies therefor upon the participating or non-participating plan or both, upon such terms and conditions as the Board of Directors may from time to time authorize. A R T I C L E V I I The manner of conducting this corporation shall be upon the stock plan and in all stockholders' meetings each stockholder may cast one vote in person or by proxy for each share of stock owned by him on all matters coming before any such meeting. A R T I C L E V I I I The Charter of this corporation shall be perpetual. George E. Hatmaker, President, and Henry J. Merriam, Secretary, respectively, of The Franklin Life Insurance Company, of Springfield, Illinois hereby certify that the foregoing is a true copy of the Articles of Incorporation of said Company, as amended by the stockholders of said Company, on April 3, 1968. WITNESS our hands and seal of said Company this 3rd day of April, 1968. (SEAL) /S/ George E. Hatmaker ---------------------- President /s/ Henry J. Merriam -------------------- Secretary EX-99.9 20 EXHIBIT 99.9 EXHIBIT 9 [Letterhead of The Franklin Life Insurance Company] April 22, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Franklin Life Variable Annuity Fund (File No. 2-36394) Commissioners: With reference to the registration statement on Form N-4 filed with the Securities and Exchange Commission by Franklin Life Variable Annuity Fund (the "Account"), a separate account established by The Franklin Life Insurance Company (the "Company") covering certain variable annuity contracts, I have examined such documents and such law as I considered necessary and appropriate, and, on the basis of such examinations, it is my opinion that: 1. The Company and the Account are duly organized and validly existing under the laws of the State of Illinois. 2. The variable annuity contracts, when issued as contemplated by the aforementioned Form N-4 registration statement will constitute legal, validly issued and binding obligations of The Franklin Life Insurance Company. I hereby consent to the filing of this opinion as an exhibit to the Form N-4 registration statement. In giving this consent, I am not admitting that I am in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Sincerely, /s/ Elizabeth E. Arthur Elizabeth E. Arthur Associate General Counsel The Franklin Life Insurance Company EX-99.10(A) 21 EXHIBIT 99.10(A) EXHIBIT 10(a) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 29, 1999, with respect to the statement of assets and liabilities, including the portfolio of investments, as of December 31, 1998 and the related statement of operations for the year then ended and the statements of changes in contract owners' equity for each of the two years in the period then ended and the table of per-unit income and changes in accumulation unit value for each of the four years in the period then ended of Franklin Life Variable Annuity Fund A, and our report dated February 16, 1999, with respect to the consolidated financial statements of The Franklin Life Insurance Company as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, in this Post-Effective Amendment No. 47 to the Registration Statement on Form N-4 (No. 2-36394) under the Securities Act of 1933 and Registration Statement (No. 811-1990) under the Investment Company Act of 1940 and related Prospectus and Statement of Additional Information of Franklin Life Variable Annuity Fund. /s/ Ernst & Young LLP ERNST & YOUNG LLP Chicago, Illinois April 28, 1999 EX-99.10(B) 22 EX-99.10(B) Exhibit 10(b) Letterhead of Sutherland Asbill & Brennan LLP April 28, 1999 The Franklin Life Insurance Company #1 Franklin Square Springfield, Illinois 62713 RE: CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP Gentlemen: We hereby consent to the reference to our name under the caption "Legal Matters" in the statement of additional information filed as part of the registration statement on Form N-4 for Franklin Life Variable Annuity Fund (formerly Franklin Life Variable Annuity Fund A) (File No. 2-36394). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Sincerely, SUTHERLAND ASBILL & BRENNAN LLP By: /s/ Stephen E. Roth ------------------------ Stephen E. Roth, Esq. EX-99.15 23 EXHIBIT 99.15 EXHIBIT 15 POWER OF ATTORNEY The undersigned, acting in the capacity or capacities stated opposite their respective names below on behalf of Franklin Life Variable Annuity Fund A, a separate account established by The Franklin Life Insurance Company under the laws of the State of Illinois, hereby make, constitute, and appoint WAYNE A. ROBINSON and ELIZABETH E. ARTHUR, and each of them, singularly, as his true and lawful attorney-in-fact with full power: (1) to sign and cause to be filed with the Securities and Exchange Commission, a registration statement on Form N-4 under the Securities Act of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as amended, on behalf of Franklin Life Variable Annuity Fund (formerly Franklin Life Variable Annuity Fund A) (File Nos. 2-36394; 811-1990); (2) to sign and cause to be filed with the Securities and Exchange Commission any and all amendments to such Form N-4 registration statement including post-effective amendments pursuant to Rule 485 under the 1933 Act; and (3) to take any and all other actions of whatever kind or nature in connection with such registration statements which said attorneys-in-fact may deem advisable, including providing any certifications or exhibits, and making any requests for acceleration.
SIGNATURE TITLE DATE /s/ Robert M. Beuerlein Director February 10, 1999 - --------------------------------- Robert M. Beuerlein /s/ Brady W. Creel Director February 10, 1999 - --------------------------------- Brady W. Creel Director ___________, 1999 - --------------------------------- Rodney O. Martin, Jr. Director ___________, 1999 - --------------------------------- Jon P. Newton /s/ Michael M. Nicholson - --------------------------------- Director February 16, 1999 Michael M. Nicholson /s/ Philip K. Polkinghorn Executive Vice President and February 12, 1999 - --------------------------------- Chief Financial Officer Philip K. Polkinghorn (principal financial officer and principal accounting officer) Director ___________, 1999 - --------------------------------- Gary D. Reddick /s/ William A. Simpson Chairman of the Board and Chief February 16, 1999 - --------------------------------- Executive Officer (principal executive William A. Simpson officer)
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