<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
JUNE 30, 1997
SEMI-ANNUAL REPORT
SEPARATE ACCOUNT VUL FUNDING
EQUIBUILDER-TM- FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
Principal office located at:
#1 Franklin Square
Springfield, Illinois 62713
SEMI-ANNUAL REPORT DATED JUNE 30, 1997
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JUNE 30, 1997
SEMI-ANNUAL REPORT
THE HUDSON RIVER TRUST
PRINCIPAL OFFICE LOCATED AT:
1755 Broadway
New York, New York 10019
SEMI-ANNUAL REPORT DATED JUNE 30, 1997
- --------------------------------------------------------------------------------
The Semi-Annual Report of Separate Account VUL is prepared and provided
by The American Franklin Life Insurance Company. The Semi-Annual Report
of The Hudson River Trust is prepared by The Hudson River Trust.
- --------------------------------------------------------------------------------
This Semi-Annual Report is not to be construed as an offering for sale of any
American Franklin Life policy. 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 VUL
STATEMENT OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
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<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in The Hudson River Trust,
at fair value: (Cost: see below) $ 8,324,604 $ 770,436 $ 2,913,963 $ 3,156,561 $ 251,897 $ 1,273,891
Due from (to) General Account (10,835) 143 (838) (2,964) 291 (258)
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NET ASSETS $ 8,313,769 $ 770,579 $ 2,913,125 $ 3,153,597 $ 252,188 $ 1,273,633
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Unit value, at June 30, 1997 $ 283.75 $ 137.30 $ 197.33 $ 337.59 $ 248.22 $ 238.40
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Units outstanding, at June 30, 1997 29,299 5,612 14,763 9,342 1,016 5,342
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Cost $ 5,791,989 $ 764,691 $ 2,598,011 $ 2,731,137 $ 228,454 $ 933,636
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income
Dividends from The Hudson
River Trust $ 14,285 $ 6,906 $ 23,364 $ 3,496 $ 4,625 $ 3,024
Expenses
Mortality and expense risk charge 27,749 2,165 10,361 11,271 811 4,285
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Net investment income (expense) (13,464) 4,741 13,003 (7,775) 3,814 (1,261)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 46,379 (655) (759) 12,146 110 11,424
Net unrealized appreciation
(depreciation)
Beginning of period 1,624,090 (3,649) 125,321 322,346 7,615 154,518
End of period 2,532,615 5,745 315,952 425,424 23,443 340,255
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Net change in unrealized
appreciation during the period 908,525 9,394 190,631 103,078 15,828 185,737
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Net realized and unrealized
gain on investments 954,904 8,739 189,872 115,224 15,938 197,161
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Net increase in net assets
resulting from operations $ 941,440 $ 13,480 $ 202,875 $ 107,449 $ 19,752 $ 195,900
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ (13,464) $ 4,741 $ 13,003 $ (7,775) $ 3,814 $ (1,261)
Net realized gain (loss)
on investments 46,379 (655) (759) 12,146 110 11,424
Net change in unrealized
appreciation on investments 908,525 9,394 190,631 103,078 15,828 185,737
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Net increase in net assets
from operations 941,440 13,480 202,875 107,449 19,752 195,900
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 344,287 44,590 214,818 184,155 14,906 63,821
Transfers for policy related
transactions (427,084) (27,827) (171,774) (167,818) (4,873) (144,260)
Transfers between Separate
Account VUL's Divisions, net 4,339 78,406 (108,937) 41,329 13,181 (10,032)
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Net increase (decrease) in net assets
from policy related transactions (78,458) 95,169 (65,893) 57,666 23,214 (90,471)
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Increase in net assets 862,982 108,649 136,982 165,115 42,966 105,429
Net assets, beginning of period
7,450,787 661,930 2,776,143 2,988,482 209,222 1,168,204
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Net assets, end of period $ 8,313,769 $ 770,579 $ 2,913,125 $ 3,153,597 $ 252,188 $ 1,273,633
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FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 753,548 $ 26,542 $ 283,689 $ 510,667 $ 29,083 $ 63,854
Net realized gain (loss)
on investments 84,785 (331) (1,079) 37,813 296 18,066
Net change in unrealized appreciation
(depreciation) on investments 604,328 (1,180) 6,378 (34,525) 3,732 (32,696)
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Net increase in net assets
from operations 1,442,661 25,031 288,988 513,955 33,111 49,224
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 767,063 72,284 402,634 391,630 29,802 159,089
Transfers for policy related
transactions (674,803) (65,968) (381,368) (253,417) (11,337) (38,230)
Transfers between Separate
Account VUL's Divisions, net (44,569) 78,626 (44,582) 39,552 17,112 9,951
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Net increase (decrease) in net assets
from policy related transactions 47,691 84,942 (23,316) 177,765 35,577 130,810
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Increase in net assets 1,490,352 109,973 265,672 691,720 68,688 180,034
Net assets, beginning of year 5,960,435 551,957 2,510,471 2,296,762 140,534 988,170
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Net assets, end of year $ 7,450,787 $ 661,930 $ 2,776,143 $ 2,988,482 $ 209,222 $ 1,168,204
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 VUL (Account) as a unit
investment trust registered under the Investment Company Act of 1940.
The Account, which consists of six investment divisions, was
established on July 22, 1987 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 a mutual
fund, The Hudson River Trust (Trust). The Account's financial
statements should be read in conjunction with the financial statements
of the Trust. The Account commenced operations on January 5, 1990.
The Account was established by American Franklin to support the
operations of American Franklin's EquiBuilder-TM- Flexible Premium
Variable Life Insurance Policies (Policies). 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 Policies. The assets of
the Account are the property of American Franklin. The portion of the
Account's assets applicable to the Policies is not chargeable with
liabilities arising out of any other business American Franklin may
conduct. The Policies are no longer being sold.
The net assets of the Account may not be less than the reserves
applicable to the Policies. Assets may also be set aside in American
Franklin's General Account based on the amounts allocated under the
Policies to American Franklin's Guaranteed Interest Division and for
policy loans. Additional assets are set aside in American Franklin's
General Account to provide for (i) the unearned portion of the monthly
charges for mortality costs and administrative expenses made under the
Policies and (ii) other policy benefits.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Account are as follows:
Investments in shares of the Trust are carried at fair value.
Investments in shares of the Trust are valued at the net asset values
of the respective Portfolios of the Trust 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 Trust 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 Policies,
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
reflected in variable life insurance policy reserves. 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.
4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 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. The balance remaining after any such
deduction, the net premium, is placed by American Franklin in a Policy
Account established for each policyowner. Each month American
Franklin makes a charge against each Policy Account for:
administrative expenses (currently $6 per month plus an additional
charge of $24 per month for each of the first 12 months a policy is in
effect); cost of insurance, which is based on the insured person's
age, sex, risk class, amount of insurance and additional benefits, if
any. In addition, American Franklin will make charges for the
following: a partial withdrawal of net cash surrender value
(currently $25 or 2% of the amount withdrawn, whichever is less); an
increase in the face amount of insurance (currently a $1.50
administrative charge for each $1,000 increase up to a maximum charge
of $300); and a transfer between investment divisions in any policy
year in which four transfers have already been made (up to $25 for
each additional transfer in a given policy year). Charges may also be
made for providing more than one illustration of policy benefits to a
given policyowner. 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 .75% of
the Account's net assets to cover these risks. The total charges paid
by the Account to American Franklin were $517,749 for the six months
ended June 30, 1997.
During the first ten years a Policy is in effect, a surrender charge
may be deducted from a Policy Account by American Franklin if: the
Policy is surrendered for its net cash surrender value, the face
amount of the Policy is reduced or the Policy is permitted to lapse.
The maximum total surrender charge applicable to a particular Policy
is specified in the Policy and is equal to 50% of one "target" premium
which is based on the annual premium for a fixed whole life insurance
policy on the life of the insured person. This maximum will not vary
based on the amount of premiums paid or when they are paid. At the
end of the sixth policy year and at the end of each of the four
succeeding policy years, the maximum surrender charge is reduced by an
amount equal to 20% of the initial maximum surrender charge until,
after the end of the tenth policy year, there is no surrender charge.
Subject to the maximum surrender charge, the surrender charge will
equal 30% of actual premiums paid during the first policy year up to
one target premium, plus 9% of all other premiums actually paid during
the first ten policy years.
5
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 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:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $252.88 $134.27 $183.79 $326.62 $227.84 $217.07
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Unit value, end of period $283.75 $137.30 $197.33 $337.59 $248.22 $238.40
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Number of units outstanding,
beginning of period 29,464 4,930 15,105 9,150 918 5,381
Net contract purchase payments 1,328 327 1,151 555 63 290
Transfers for policy related
transactions (1,533) (203) (917) (500) (20) (277)
Transfers between Separate
Account VUL's Divisions, Net 40 558 (576) 137 55 (52)
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Number of units outstanding,
end of period 29,299 5,612 14,763 9,342 1,016 5,342
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</TABLE>
5. REMUNERATION OF MANAGEMENT
Separate Account VUL 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.
6
