<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
DECEMBER 31, 1997
ANNUAL REPORT
SEPARATE ACCOUNT VA-1 FUNDING
THE CHAIRMAN-TM-
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
PRINCIPAL OFFICE LOCATED AT:
#1 Franklin Square
Springfield, Illinois 62713
ANNUAL REPORT DATED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DECEMBER 31, 1997
ANNUAL REPORTS
VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
PRINCIPAL OFFICE OF BOTH FIDELITY FUNDS LOCATED AT:
82 Devonshire Street
Boston, Massachusetts 02109
MFS VARIABLE INSURANCE TRUST
PRINCIPAL OFFICE LOCATED AT:
500 Boylston Street
Boston, Massachusetts 02116
ANNUAL REPORTS DATED DECEMBER 31, 1997
The Annual Report of Separate Account VA-1 is prepared and provided by The
American Franklin Life Insurance Company. The Annual Reports of the Variable
Insurance Products Fund and the Variable Insurance Products Fund II are prepared
by Fidelity Investments. The Annual Report of MFS Variable Insurance Trust is
prepared by MFS Investment Management.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is not to be construed as an offering for sale of any
American Franklin Life contract. No offering is made except in conjunction with
a prospectus which must precede or accompany this report.
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY EQUITY- HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
-------------------------------------------------------------
Investments in Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust, at fair value:
<S> <C> <C> <C> <C> <C>
(Cost: See below) $ 2,133,962 $ 5,659,925 $ 4,269,066 $ 1,074,712 $ 1,096,627
Due from General Account 82 217 164 41 210
-------------------------------------------------------------
NET ASSETS $ 2,134,044 $ 5,660,142 $ 4,269,230 $ 1,074,753 $ 1,096,837
-------------------------------------------------------------
-------------------------------------------------------------
Unit value, at December 31, 1997 $ 5.14 $ 5.99 $ 5.65 $ 5.54 $ 5.89
-------------------------------------------------------------
-------------------------------------------------------------
Units outstanding, at December 31, 1997 415,509 945,566 755,694 193,892 186,285
-------------------------------------------------------------
-------------------------------------------------------------
Cost of Investments $ 2,133,962 $ 5,478,282 $ 4,277,002 $ 1,122,347 $ 1,053,833
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust, at fair value:
(Cost: See below) $ 383,004 $ 1,321,207 $ 4,225,206 $ 2,526,117 $ 2,107,512
Due from General Account - 51 162 97 81
-------------------------------------------------------------
NET ASSETS $ 383,004 $ 1,321,258 $ 4,225,368 $ 2,526,214 $ 2,107,593
-------------------------------------------------------------
-------------------------------------------------------------
Unit value, at December 31, 1997 $ 5.32 $ 5.78 $ 6.21 $ 5.83 $ 5.50
-------------------------------------------------------------
-------------------------------------------------------------
Units outstanding, at December 31, 1997 71,989 228,526 680,587 433,486 383,222
-------------------------------------------------------------
-------------------------------------------------------------
Cost of Investments 372,346 1,282,351 4,078,473 2,513,713 2,107,891
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS TOTAL MFS
RESEARCH WITH INCOME RETURN UTILITIES MFS VALUE
ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust, at fair value:
(Cost: See below) $ 4,381,889 $ 1,390,357 $ 3,589,532 $ 912,126 $ 604,579
Due from General Account 168 53 138 121 23
--------------------------------------------------------------
NET ASSETS $ 4,382,057 $ 1,390,410 $ 3,589,670 $ 912,247 $ 604,602
--------------------------------------------------------------
--------------------------------------------------------------
Unit value, at December 31, 1997 $ 5.61 $ 6.09 $ 5.73 $ 6.01 $ 5.99
--------------------------------------------------------------
--------------------------------------------------------------
Units outstanding, at December 31, 1997 780,716 228,416 626,024 151,829 100,943
--------------------------------------------------------------
--------------------------------------------------------------
Cost of Investments $ 4,368,742 $ 1,380,585 $ 3,457,832 $ 841,575 $ 669,836
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY EQUITY- HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------
NET INVESTMENT INCOME (EXPENSE)
<S> <C> <C> <C> <C> <C>
Income
Dividends from Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust $ 45,919 $ - $ - $ - $ -
Expenses
Mortality and expense risk charge 11,983 21,790 14,200 5,551 4,705
--------------------------------------------------------------
Net investment income (expense) 33,936 (21,790) (14,200) (5,551) (4,705)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain - 7,054 19,623 4,079 1,744
Net unrealized appreciation (depreciation)
Beginning of period - - - - -
End of period - 181,643 (7,936) (47,635) 42,794
--------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
during the period - 181,643 (7,936) (47,635) 42,794
--------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments - 188,697 11,687 (43,556) 44,538
--------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 33,936 $ 166,907 $ (2,513) $ (49,107) $ 39,833
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------
NET INVESTMENT INCOME (EXPENSE)
<S> <C> <C> <C> <C> <C>
Income
Dividends from Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust $ - $ - $ - $ - $ -
Expenses
Mortality and expense risk charge 1,400 5,278 16,370 9,586 11,724
--------------------------------------------------------------
Net investment income (expense) (1,400) (5,278) (16,370) (9,586) (11,724)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain 146 4,336 14,060 14,623 21,859
Net unrealized appreciation (depreciation)
Beginning of period - - - - -
End of period 10,658 38,856 146,733 12,404 (379)
--------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
during the period 10,658 38,856 146,733 12,404 (379)
--------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 10,804 43,192 160,793 27,027 21,480
--------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 9,404 $ 37,914 $ 144,423 $ 17,441 $ 9,756
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS TOTAL MFS
RESEARCH WITH INCOME RETURN UTILITIES MFS VALUE
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
NET INVESTMENT INCOME (EXPENSE)
<S> <C> <C> <C> <C> <C>
Income
Dividends from Variable Insurance Products Fund,
Variable Insurance Products Fund II, and
MFS Variable Insurance Trust $ - $ 32,555 $ - $ - $ 80,356
Expenses
Mortality and expense risk charge 20,141 5,139 13,566 3,183 3,074
----------------------------------------------------------
Net investment income (expense) (20,141) 27,416 (13,566) (3,183) 77,282
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain 7,944 9,844 10,482 380 12,630
Net unrealized appreciation (depreciation)
Beginning of period - - - - -
End of period 13,147 9,772 131,700 70,551 (65,257)
----------------------------------------------------------
Net change in unrealized appreciation (depreciation)
during the period 13,147 9,772 131,700 70,551 (65,257)
----------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 21,091 19,616 142,182 70,931 (52,627)
----------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 950 $ 47,032 $128,616 $ 67,748 $ 24,655
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY EQUITY- HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
CHANGES IN NET ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (expense) $ 33,936 $ (21,790) $ (14,200) $ (5,551) $ (4,705)
Net realized gain on investments - 7,054 19,623 4,079 1,744
Net change in unrealized appreciation
(depreciation) on investments - 181,643 (7,936) (47,635) 42,794
---------------------------------------------------------------
Net increase (decrease) in net assets from
operations 33,936 166,907 (2,513) (49,107) 39,833
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 3,051,376 5,425,325 4,237,375 1,070,074 1,058,464
Withdrawals (6,825) (47,105) (25,073) (1,162) (500)
Transfers between Separate Account VA-1's
Divisions, net (944,443) 115,015 59,441 54,948 (960)
---------------------------------------------------------------
Net increase in net assets from contract related
transactions 2,100,108 5,493,235 4,271,743 1,123,860 1,057,004
---------------------------------------------------------------
Increase in net assets 2,134,044 5,660,142 4,269,230 1,074,753 1,096,837
Net assets, beginning of period - - - - -
---------------------------------------------------------------
Net assets, end of period $ 2,134,044 $ 5,660,142 $ 4,269,230 $ 1,074,753 $ 1,096,837
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
CHANGES IN NET ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (expense) $ (1,400) $ (5,278) $ (16,370) $ (9,586) $ (11,724)
Net realized gain on investments 146 4,336 14,060 14,623 21,859
Net change in unrealized appreciation
(depreciation) on investments 10,658 38,856 146,733 12,404 (379)
-----------------------------------------------------------
Net increase (decrease) in net assets from operations 9,404 37,914 144,423 17,441 9,756
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 357,852 1,306,246 3,951,222 2,432,361 2,064,214
Withdrawals (312) (846) (15,675) (6,995) (6,359)
Transfers between Separate Account VA-1's
Divisions, net 16,060 (22,056) 145,398 83,407 39,982
-----------------------------------------------------------
Net increase in net assets from contract related
transactions 373,600 1,283,344 4,080,945 2,508,773 2,097,837
-----------------------------------------------------------
Increase in net assets 383,004 1,321,258 4,225,368 2,526,214 2,107,593
Net assets, beginning of period - - - - -
-----------------------------------------------------------
Net assets, end of period $ 383,004 $1,321,258 $4,225,368 $2,526,214 $2,107,593
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS TOTAL MFS
RESEARCH WITH INCOME RETURN UTILITIES MFS VALUE
CHANGES IN NET ASSETS DIVISION DIVISION DIVISION DIVISION DIVISION
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (expense) $ (20,141) $ 27,416 $ (13,566) $ (3,183) $ 77,282
Net realized gain on investments 7,944 9,844 10,482 380 12,630
Net change in unrealized appreciation (depreciation)
on investments 13,147 9,772 131,700 70,551 (65,257)
------------------------------------------------------------
Net increase (decrease) in net assets from operations 950 47,032 128,616 67,748 24,655
FROM CONTRACT RELATED TRANSACTIONS:
Net contract purchase payments 4,376,126 1,342,706 3,492,360 844,009 540,032
Withdrawals (16,740) (6,853) (8,529) (726) (957)
Transfers between Separate Account VA-1's
Divisions, net 21,721 7,525 (22,777) 1,216 40,872
------------------------------------------------------------
Net increase in net assets from contract related
transactions 4,381,107 1,343,378 3,461,054 844,499 579,947
------------------------------------------------------------
Increase in net assets 4,382,057 1,390,410 3,589,670 912,247 604,602
Net assets, beginning of period - - - - -
------------------------------------------------------------
Net assets, end of period $4,382,057 $1,390,410 $3,589,670 $ 912,247 $ 604,602
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF OPERATIONS
The American Franklin Life Insurance Company (American Franklin) is a
wholly-owned subsidiary of The Franklin Life Insurance Company. American
Franklin established Separate Account VA-1 (Account) as a unit investment
trust registered under the Investment Company Act of 1940. The Account,
which consists of fifteen investment divisions, was established on May 22,
1996 in conformity with Illinois Insurance Law. The assets in each
division are invested in units of beneficial interest (shares) of a
designated portfolio (Portfolio) of mutual funds, sponsored by Fidelity
Investments (Variable Insurance Products Fund and Variable Insurance
Products Fund II) and MFS Investment Management (MFS Variable Insurance
Trust) (Funds). The Money Market, Equity-Income, Growth, Overseas, and
High Income Divisions of the Account are invested in shares of a
corresponding Portfolio of Variable Insurance Products Fund; the Investment
Grade Bond, Asset Manager, Index 500, and Contrafund Divisions of the
Account are invested in shares of a corresponding Portfolio of Variable
Insurance Products Fund II; and the MFS Emerging Growth, MFS Research, MFS
Growth With Income, MFS Total Return, MFS Utilities, and MFS Value
Divisions of the Account are invested in shares of a corresponding
Portfolio of MFS Variable Insurance Trust. The Account's financial
statements should be read in conjunction with the financial statements of
the Funds. Assets may also be invested in American Franklin's General
Account based on the amounts allocated under the Contracts to American
Franklin's Fixed Account. The Account commenced operations on February 28,
1997. The accumulation unit value for each division was $5 at the
inception of the account.
The Account was established by American Franklin to support the operations
of American Franklin's The Chairman-TM- Combination Fixed and Variable
Annuity Contracts (the Contracts). At December 31, 1997, American Franklin
had obtained the necessary state insurance department approvals for the
sale of the Contracts in 38 states.
Franklin Financial Services Corporation, a wholly-owned subsidiary of The
Franklin Life Insurance Company, acts as the principal underwriter, as
defined in the Investment Company Act of 1940, of the Contracts. The
assets of the Account are the property of American Franklin. The portion
of the Account's assets applicable to the Contracts is not chargeable with
liabilities arising out of any other business American Franklin may
conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Account are as follows:
Investments in shares of the Funds are carried at fair value. Investments
in shares of the Funds are valued at the net asset values of the respective
Portfolios of the Funds corresponding to the investment divisions of the
Account. Investment transactions are recorded on the trade date.
Dividends are recorded as received. Realized gains and losses on sales of
the Funds' shares are determined based on the specific identification
method.
The operations of the Account are included in the federal income tax return
of American Franklin. Under the provisions of the Contracts, American
Franklin has the right to charge the Account for federal income tax
attributable to the Account. No charge is currently being made against the
Account for such tax since, under current tax law, American Franklin pays
no tax on investment income and capital gains of the Account on assets held
in the Account. However, American Franklin retains the right to charge for
any federal income tax incurred which is attributable to the Account if the
law is changed. Charges for state and local taxes, if any, attributable to
the Account may also be made.
10
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SALES AND ADMINISTRATIVE CHARGES
Certain jurisdictions require that deductions be made from premium payments
for taxes. The amount of such deductions varies and may be up to 5% of the
premium or purchase payment. Other jurisdictions assess a premium tax at
the point of annuitization. The balance of a purchase payment remaining
after any such deduction is placed by American Franklin in an account
established for each contractowner. Each year American Franklin makes a
charge of $30 against each contractowner's account for administrative
expenses. This annual fee is currently waived if cumulative purchase
payments are at least $75,000. In addition, American Franklin will make
charges for a transfer between investment divisions in any contract year in
which twelve transfers have already been made ($25 for each additional
transfer in a given contract year). American Franklin assumes mortality
and expense risks related to the operations of the Account and deducts a
charge from the assets of the Account at an effective annual rate of 1.40%
of the Account's average daily net asset value to cover these risks and to
offset other administrative expenses not covered by the annual contract
fee. The total charges paid by the Account to American Franklin were
$148,200 for the period from February 28, 1997 (date of inception) to
December 31, 1997.
American Franklin will impose a surrender charge on the amount of each
purchase payment that is withdrawn during the first seven years after it
was received, unless the withdrawal is exempt from the surrender charge.
The maximum surrender charge is 6% of purchase payments withdrawn during
the first two years after they were received; the percentage declines
depending on how many years have passed since the withdrawn purchase
payment was made and is eliminated after the seventh year.
11
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS
Unit value information and a summary of changes in outstanding units is
shown below:
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY EQUITY- HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $5.00 $5.00 $5.00 $5.00 $5.00
----------------------------------------------------------
----------------------------------------------------------
Unit value, end of period $5.14 $5.99 $5.65 $5.54 $5.89
----------------------------------------------------------
----------------------------------------------------------
Number of units outstanding,
beginning of period - - - - -
Net contract purchase payments 602,404 934,067 749,740 184,417 186,518
Withdrawals (1,332) (8,001) (4,373) (206) (85)
Transfers between Separate Account
VA-1's Divisions, Net (185,563) 19,500 10,327 9,681 (148)
----------------------------------------------------------
Number of units outstanding,
end of period 415,509 945,566 755,694 193,892 186,285
----------------------------------------------------------
----------------------------------------------------------
MFS
INVESTMENT ASSET INDEX CONTRA- EMERGING
GRADE BOND MANAGER 500 FUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
Unit value, beginning of period $5.00 $5.00 $5.00 $5.00 $5.00
----------------------------------------------------------
----------------------------------------------------------
Unit value, end of period $5.32 $5.78 $6.21 $5.83 $5.50
----------------------------------------------------------
----------------------------------------------------------
Number of units outstanding,
beginning of period - - - - -
Net contract purchase payments 69,000 233,481 660,464 420,462 377,275
Withdrawals (59) (146) (2,563) (1,189) (1,139)
Transfers between Separate Account
VA-1's Divisions, Net 3,048 (4,809) 22,686 14,213 7,086
----------------------------------------------------------
Number of units outstanding,
end of period 71,989 228,526 680,587 433,486 383,222
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
12
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS
Unit value information and a summary of changes in outstanding units is
shown below:
FOR THE PERIOD FROM FEBRUARY 28, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS GROWTH MFS TOTAL MFS MFS
RESEARCH WITH INCOME RETURN UTILITIES VALUE
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $5.00 $5.00 $5.00 $5.00 $5.00
----------------------------------------------------------
----------------------------------------------------------
Unit value, end of period $5.61 $6.09 $5.73 $6.01 $5.99
----------------------------------------------------------
----------------------------------------------------------
Number of units outstanding,
beginning of period - - - - -
Net contract purchase payments 780,936 229,569 632,529 151,754 94,256
Withdrawals (2,963) (1,141) (1,523) (126) (165)
Transfers between Separate Account
VA-1 Divisions, Net 2,743 (12) (4,982) 201 6,852
----------------------------------------------------------
Number of units outstanding,
end of period 780,716 228,416 626,024 151,829 100,943
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
5. REMUNERATION OF MANAGEMENT
The Account incurs no liability for remuneration to directors, members of
advisory boards, officers or any other person who might provide a service
for the Account, except as described in Note 3.
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The American Franklin Life Insurance Company
Contractowners of Separate Account VA-1
We have audited the accompanying statement of net assets of Separate Account
VA-1 (comprising, respectively, the Money Market, Equity-Income, Growth,
Overseas, High Income, Investment Grade Bond, Asset Manager, Index 500,
Contrafund, MFS Emerging Growth, MFS Research, MFS Growth With Income, MFS Total
Return, MFS Utilities and MFS Value Divisions) as of December 31, 1997, and the
related statement of operations and the statement of changes in net assets for
the period from February 28, 1997 (date of inception) to December 31, 1997.
These financial statements are the responsibility of Separate Account VA-1
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. Our procedures
included confirmation of securities owned as of December 31, 1997 by
correspondence with the custodian. 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 financial position of each of the respective
Divisions constituting Separate Account VA-1 at December 31, 1997, and the
results of their operations and changes in net assets for the period from
February 28, 1997 (date of inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 20, 1998
14
