Sales of Franklin Resources' variable annuity will top $3 billion this year, more than double last year's $1.2 billion level, company officials said.

Higher taxes and a lack of alternative ways of sheltering income from taxes have combined to spur sales of the Valuemark variable annuity, executives at the San Mateo, Calif.-based mutual fund company said.

Many of those sales are being made in Franklin's bank network, the most extensive in the business, with 850 broker-dealer selling agreements, not including third-party marketing arrangements.

Higher Taxes, Few Choices

Although banks account for a third of the $100 billion Franklin-Templeton funds, the company has been slow in making Valuemark available in banks.

This year, about 24% of the Valuemark sales have been through banks. But banks should account for a third of all sales when the product is made available throughout the network, said insurance products vice president Phil Kearns.

Mr. Kearns cited higher taxes, a lack of alternatives, and the fact that people who buy Franklin's annuity can get 30% of their money back after two years if they desire, with no penalty other from the Internal Revenue Service.

|Tremendous Appetite'

But he said he couldn't say why the variable annuity is gaining on conventional individual retirement accounts and mutual funds.

"I can't answer that. I just know that there's a tremendous appetite for it," Mr. Kearns said. "We have just one product, a variable annuity. That's what's amazing about this."

Variable annuities are a tax-deferred vehicle for investing in securities such as mutual funds. As with a mutual-fund investment, a specific return is not guaranteed.

Mr. Kearns said the typical Valuemark customer is in his or her 50s. The average sale is $43,000 and the average extra investment the customer makes after opening an account is $17,000.

Large Commission

The total expense ratio on Valuemark averages about 2% per year. There is a 5% back-end load that expires after five years. Franklin pays brokers a hefty 6% commission, forcing the company to borrow to pay brokers up front and regain the commission through the yearly fee and management fee.

The Valuemark annuity has a $30 add-on fee, but Mr. Kearns said that will be done away with early next year. Two more investment choices -- two Templeton funds -- will also be added in January to the 18 fund choices already available to Valuemark customers.

Debra Carter, a Dallas-based assistant vice president with Franklin who provides wholesale support to banks, said variable annuities provide tax control, liquidity, and safety. However, most bank customers have become accustomed to fixed annuities, which pay a set yield.

Easier to Sell Outright

"It's more of a challenge to get the bank customer into an equity product. Sometimes that's been a little harder," Ms. Carter said.

It's easier to sell a mutual fund outright. she added. For example, bank employees can't sell the variable annuity without a discussion about the technical aspects of the instrument.

"Costs are pretty much the same as load funds. Six years ago, the brokerage community was at ground zero from a variable annuity standpoint," she said.

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