<PAGE>
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THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
JUNE 30, 2000
SEMI-ANNUAL REPORT
(UNAUDITED)
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SEPARATE ACCOUNT VUL FUNDING
EQUIBUILDER-TM- FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
PRINCIPAL OFFICE LOCATED AT:
#1 Franklin Square
Springfield, Illinois 62713
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JUNE 30, 2000
SEMI-ANNUAL REPORT
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EQ ADVISORS TRUST
PRINCIPAL OFFICE LOCATED AT:
1755 Broadway
New York, New York 10019
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The Semi-Annual Report of Separate Account VUL is prepared and provided by The
American Franklin Life Insurance Company. The Semi-Annual Report of EQ Advisors
Trust is prepared by EQ Advisors Trust.
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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, 2000
(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>
Investments in EQ Advisors
Trust, at fair value
(cost: see below) $13,050,039 $ 479,724 $ 3,722,785 $ 3,226,488 $ 199,524 $ 2,016,526
Due from (to) general account 200 (110) 87 37 (233) (29)
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NET ASSETS $13,050,239 $ 479,614 $ 3,722,872 $ 3,226,525 $ 199,291 $ 2,016,497
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Unit value $ 499.80 $ 157.00 $ 289.39 $ 407.05 $ 240.00 $ 399.40
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Units outstanding 26,111 3,055 12,865 7,927 830 5,049
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Cost of investments $12,654,147 $ 463,264 $ 4,060,667 $ 3,747,738 $ 274,362 $ 1,557,565
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
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NET INVESTMENT INCOME (EXPENSE)
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 4,950 $ 113 $ 2,323 $ -- $ 285 $ 3,110
Capital gains distributions 639,687 -- 79,180 158,085 -- 111,183
Expenses
Mortality and expense risk charge 51,125 2,339 13,750 13,408 645 6,694
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Net investment income (expense) 593,512 (2,226) 67,753 144,677 (360) 107,599
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 584,350 754 36,771 25,522 (17,177) 41,620
Net unrealized appreciation
(depreciation):
Beginning of period 1,673,582 2,492 (309,150) (287,671) (88,727) 589,883
End of period 395,892 16,460 (337,882) (521,250) (74,838) 458,961
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Net change in unrealized appreciation
(depreciation) during the period (1,277,690) 13,968 (28,732) (233,579) 13,889 (130,922)
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Net realized and unrealized
gain (loss) on investments (693,340) 14,722 8,039 (208,057) (3,288) (89,302)
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Net increase (decrease) in net assets
resulting from operations $ (99,828) $ 12,496 $ 75,792 $ (63,380) $ (3,648) $ 18,297
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
COMMON MONEY AGGRESSIVE HIGH
STOCK MARKET BALANCED STOCK YIELD GLOBAL
SIX MONTHS ENDED JUNE 30, 2000 DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 593,512 $ (2,226) $ 67,753 $ 144,677 $ (360) $ 107,599
Net realized gain (loss)
on investments 584,350 754 36,771 25,522 (17,177) 41,620
Net change in unrealized appreciation
(depreciation) on investments (1,277,690) 13,968 (28,732) (233,579) 13,889 (130,922)
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Net increase (decrease) in net assets
from operations (99,828) 12,496 75,792 (63,380) (3,648) 18,297
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 302,501 10,566 149,491 126,365 10,560 55,993
Withdrawals (749,952) (24,075) (298,039) (241,204) (45,852) (126,178)
Transfers between Separate
Account VUL Divisions, net (72,100) (26,841) (23,557) 18,238 (11,188) 130,174
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Net increase (decrease) in net assets
from policy related transactions (519,551) (40,350) (172,105) (96,601) (46,480) 59,989
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Net increase (decrease) in net assets (619,379) (27,854) (96,313) (159,981) (50,128) 78,286
Net assets, beginning of period 13,669,618 507,468 3,819,185 3,386,506 249,419 1,938,211
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Net assets, end of period $ 13,050,239 $ 479,614 $ 3,722,872 $ 3,226,525 $ 199,291 $ 2,016,497
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YEAR ENDED DECEMBER 31, 1999
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 3,027,927 $ 24,718 $ 686,527 $ 261,654 $ 40,026 $ 190,481
Net realized gain (loss)
on investments 1,477,592 9,717 271,401 73,692 (990) 59,530
Net change in unrealized appreciation
(depreciation) on investments (1,970,278) 3,645 (409,089) 252,177 (51,453) 261,478
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Net increase (decrease) in net assets
from operations 2,535,241 38,080 548,839 587,523 (12,417) 511,489
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 671,415 19,548 336,986 300,610 22,079 106,726
Withdrawals (1,393,831) (404,288) (630,339) (539,670) (28,783) (170,946)
Transfers between Separate
Account VUL Divisions, net (47,034) 163,235 36,177 (205,727) (6,660) 49,743
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Net increase (decrease) in net assets
from policy related transactions (769,450) (221,505) (257,176) (444,787) (13,364) (14,477)
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Net increase (decrease) in net assets 1,765,791 (183,425) 291,663 142,736 (25,781) 497,012
Net assets, beginning of year 11,903,827 690,893 3,527,522 3,243,770 275,200 1,441,199
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Net assets, end of year $ 13,669,618 $ 507,468 $ 3,819,185 $ 3,386,506 $ 249,419 $ 1,938,211
=====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
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 in July 1987 in
conformity with Illinois insurance law and commenced operations in January
1990. The assets in each division are invested in units of beneficial
interest (shares) of a designated portfolio (Portfolio) of a mutual fund.
Prior to October 1999, the shares were invested in Portfolios of The Hudson
River Trust (HRT). On October 18, 1999, after receipt of Securities and
Exchange Commission approval, new Portfolios of the EQ Advisors Trust
(Trust) were substituted for the HRT Portfolios. At the time of the
substitution, the value of the Account's investments in the new EQ Advisors
Trust Portfolios was the same as immediately before the substitution. The
Account's financial statements should be read in conjunction with the
financial statements of the Trust.
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 American Franklin
business. New Policies are no longer being issued.
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 and expense
risk charges made under the Policies and (ii) other policy benefits.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments in shares of the Trust are carried at fair value using 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 calculated 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
5
<PAGE>
AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
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.
3. POLICY CHARGES
Certain jurisdictions require deductions from premium payments for premium
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 the 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); and 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 $586,000 for the six months ended June 30, 2000 and $1,174,000
for the year ended December 31, 1999.
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.
6
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS
SIX MONTHS ENDED JUNE 30, 2000
(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>
Unit value, beginning of period $503.79 $153.03 $283.66 $415.11 $244.12 $395.26
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Unit value, end of period $499.80 $157.00 $289.39 $407.05 $240.00 $399.40
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Number of units outstanding,
beginning of period 27,133 3,316 13,464 8,158 1,022 4,904
Net contract purchase payments 599 65 520 311 43 140
Withdrawals (1,477) (154) (1,037) (590) (189) (313)
Transfers between Separate
Account VUL Divisions, net
(144) (172) (82) 48 (46) 318
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Number of units outstanding,
end of period 26,111 3,055 12,865 7,927 830 5,049
==================================================================================
</TABLE>
5. REMUNERATION OF MANAGEMENT
The Account incurs no liability or expense for payment 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.
7
