<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
DECEMBER 31, 1995
ANNUAL REPORT
SEPARATE ACCOUNT VUL-2 FUNDING
EQUIBUILDER II-TM- AND EQUIBUILDER III-TM- FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
Principal office located at:
#1 Franklin Square
Springfield, Illinois 62713
Annual Report Dated December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
ANNUAL REPORT
VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
Principal office located at:
82 Devonshire Street
Boston, Massachusetts 02109
Annual Report Dated December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Annual Report of Separate Account VUL-2 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This 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-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Investments in Variable Insurance Products Fund and
Variable Insurance Products Fund II, at fair value:
(Cost: Money Market Division-$1,967,957
Equity-Income Division-$10,590,137
Growth Division-$15,959,789
Overseas Division-$4,613,728
High Income Division-$410,854
Investment Grade Bond Division-$1,225,196
Asset Manager Division-$14,647,315
Index 500 Division-$945,237
Asset Manager: Growth Division-$245,608
Contrafund Division-$848,898) $1,951,306 $12,774,640 $20,036,144 $4,925,435
---------------------------------------------------------------
Due (to) from General Account (6,078) (47,378) (50,760) (8,841)
---------------------------------------------------------------
NET ASSETS (NOTE 1) $1,945,228 $12,727,262 $19,985,384 $4,916,594
---------------------------------------------------------------
---------------------------------------------------------------
Unit Value, at December 31, 1995 (Note 4) $ 115.39 $ 204.85 $ 193.51 $ 137.53
---------------------------------------------------------------
---------------------------------------------------------------
Units Outstanding, at December 31, 1995 16,857 62,130 103,278 35,749
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
<TABLE>
<CAPTION>
HIGH INVESTMENT ASSET
INCOME GRADE BOND MANAGER
DIVISION DIVISION DIVISION
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Investments in Variable Insurance Products Fund and
Variable Insurance Products Fund II, at fair value:
(Cost: Money Market Division-$1,967,957
Equity-Income Division-$10,590,137
Growth Division-$15,959,789
Overseas Division-$4,613,728
High Income Division-$410,854
Investment Grade Bond Division-$1,225,196
Asset Manager Division-$14,647,315
Index 500 Division-$945,237
Asset Manager: Growth Division-$245,608
Contrafund Division-$848,898) $444,889 $1,322,613 $16,152,213
-------------------------------------------------------------
Due (to) from General Account (4,887) 1 (53,567)
-------------------------------------------------------------
NET ASSETS (NOTE 1) $440,002 $1,322,614 $16,098,646
-------------------------------------------------------------
-------------------------------------------------------------
Unit Value, at December 31, 1995 (Note 4) $ 125.33 $ 131.55 $ 148.96
-------------------------------------------------------------
-------------------------------------------------------------
United Outstanding, at December 31, 1995 3,511 10,054 108,073
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INDEX ASSET CONTRA-
500 MANAGER: FUND
DIVISION GROWTH DIVISION DIVISION
--------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Investments in Variable Insurance Products Fund and
Variable Insurance Products Fund II, at fair value:
(Cost: Money Market Division-$1,967,957
Equity-Income Division-$10,590,137
Growth Division-$15,959,789
Overseas Division-$4,613,728
High Income Division-$410,854
Investment Grade Bond Division-$1,225,196
Asset Manager Division-$14,647,315
Index 500 Division-$945,237
Asset Manager: Growth Division-$245,608
Contrafund Division-$848,898) $1,054,108 $240,520 $852,150
----------------------------------------------------------------
Due (to) from General Account (1,399) 226 (1,787)
----------------------------------------------------------------
NET ASSETS (NOTE 1) $1,052,709 $240,746 $850,363
----------------------------------------------------------------
----------------------------------------------------------------
Unit Value, at December 31, 1995 (Note 4) $ 142.98 $ 113.51 $ 119.19
----------------------------------------------------------------
----------------------------------------------------------------
Units Outstanding, at December 31, 1995 7,362 2,121 7,135
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
2
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income (Note 2)
Dividends from Variable Insurance Products Fund
and Variable Insurance Products Fund II $77,419 $ 508,562 $ 56,013 $ 25,084
Expenses (Note 3)
Mortality and expense risk charge 10,790 67,668 116,690 32,907
---------------------------------------------------------------------------------
Net Investment Income 66,629 440,894 (60,677) (7,823)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2)
Net realized gain - 40,704 151,058 66,933
Net unrealized appreciation (depreciation)
Beginning of year (17) 170,288 336,366 (22,095)
End of year (16,651) 2,184,503 4,076,355 311,707
---------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the year (16,634) 2,014,215 3,739,989 333,802
---------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on
Investments (16,634) 2,054,919 3,891,047 400,735
---------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From
Operations $49,995 $2,495,813 $3,830,370 $392,912
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
*For the period from May 1, 1995 (date of inception) to December 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
HIGH INVESTMENT ASSET
INCOME GRADE BOND MANAGER
DIVISION DIVISION DIVISION
---------- ----------------------------------------------
<S> <C> <C> <C>
Investment Income
Dividends from Variable Insurance Products Fund
and Variable Insurance Products Fund II $11,133 $31,090 $222,960
Expenses (Note 3)
Mortality and expense risk charge 1,976 9,060 106,138
-------------------------------------------------------------
Net Investment Income 9,157 22,030 116,822
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2)
Net realized gain 1,720 6,701 46,591
Net unrealized appreciation (depreciation)
Beginning of year (1,577) (29,988) (330,185)
End of year 34,035 97,417 1,504,898
-------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the year 35,612 127,405 1,835,083
-------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 37,332 134,106 1,881,674
-------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations $46,489 $156,136 $1,998,496
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INDEX ASSET CONTRA-
500 MANAGER: FUND
DIVISION GROWTH DIVISION* DIVISION*
-----------------------------------------------------------
<S> <C> <C> <C>
Investment Income
Income (Note 2)
Dividends from Variable Insurance Products Fund
and Variable Insurance Products Fund II $2,645 $10,174 $10,531
Expenses (Note 3)
Mortality and expense risk charge 2,694 181 1,020
-----------------------------------------------------------
Net Investment Income (49) 9,993 9,511
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2)
Net realized gain 5,233 850 3,999
Net unrealized appreciation (depreciation)
Beginning of year 602 - -
End of year 108,871 (5,088) 3,252
-----------------------------------------------------------
Net change in unrealized appreciation
(depreciation) during the year 108,269 (5,088) 3,252
-----------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 113,502 (4,238) 7,251
-----------------------------------------------------------
Net Increase in Net Assets Resulting From Operations $113,453 $5,755 $16,762
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
FOR THE YEAR ENDED DECEMBER 31, 1995 DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 66,629 $ 440,894 $ (60,677) $ (7,823)
Net realized gain on investments - 40,704 151,058 66,933
Net change in unrealized appreciation
(depreciation) on investments (16,634) 2,014,215 3,739,989 333,802
--------------------------------------------------------------
Net increase in net assets from operations 49,995 2,495,813 3,830,370 392,912
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 9,553,276 4,440,835 6,313,439 2,213,517
Transfers for policy related transactions (1,532,534) (1,949,178) (3,063,501) (971,018)
Transfers between Separate Account VUL-2's
Divisions, net (7,343,769) 2,161,554 3,028,169 194,533
--------------------------------------------------------------
Net increase in net assets from policy related
transactions 676,973 4,653,211 6,278,107 1,437,032
--------------------------------------------------------------
Increase in Net Assets 726,968 7,149,024 10,108,477 1,829,944
Net Assets, Beginning of Year 1,218,260 5,578,238 9,876,907 3,086,650
--------------------------------------------------------------
Net Assets, End of Year $1,945,228 $ 12,727,262 $ 19,985,384 $ 4,916,594
--------------------------------------------------------------
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 28,075 $ 226,821 $ 278,116 $ (3,726)
Net realized gain (loss) on investments - 43,656 85,150 27,974
Net change in unrealized appreciation
(depreciation) on investments (18) (33,647) (241,279) (84,525)
--------------------------------------------------------------
Net increase (decrease) in net assets from
operations 28,057 236,830 121,987 (60,277)
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 7,848,846 2,600,975 4,792,317 1,640,011
Transfers for policy related transactions (630,793) (1,075,174) (1,746,905) (416,868)
Transfers between Separate Account VUL-2's
Divisions, net (6,464,312) 1,059,803 1,792,148 1,416,018
--------------------------------------------------------------
Net increase in net assets from policy related
transactions 753,741 2,585,604 4,837,560 2,639,161
--------------------------------------------------------------
Increase in Net Assets 781,798 2,822,434 4,959,547 2,578,884
Net Assets, Beginning of Year 436,462 2,755,804 4,917,360 507,766
--------------------------------------------------------------
Net Assets, End of Year $ 1,218,260 $ 5,578,238 $ 9,876,907 $ 3,086,650
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
*For the period from May 1, 1995 (date of inception) to December 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
<TABLE>
<CAPTION>
HIGH INVESTMENT ASSET INDEX
INCOME GRADE BOND MANAGER 500
FOR THE YEAR ENDED DECEMBER 31, 1995 DIVISION DIVISION DIVISION DIVISION
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 9,157 $ 22,030 $ 116,822 $ (49)
Net realized gain on investments 1,720 6,701 46,591 5,233
Net change in unrealized appreciation
(depreciation) on investments 35,612 127,405 1,835,083 108,269
------------------------------------------------------------------
Net increase in net assets from operations 46,489 156,136 1,998,496 113,453
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 147,592 357,309 5,308,184 387,804
Transfers for policy related transactions (67,407) (189,702) (2,682,494) (102,537)
Transfers between Separate Account VUL-2's
Divisions, net 175,345 135,745 1,269,576 525,783
------------------------------------------------------------------
Net increase in net assets from policy
related transactions 255,530 303,352 3,895,266 811,050
------------------------------------------------------------------
Increase in Net Assets 302,019 459,488 5,893,762 924,503
Net Assets, Beginning of Year 137,983 863,126 10,204,884 128,206
------------------------------------------------------------------
Net Assets, End of Year $ 440,002 $1,322,614 $ 16,098,646 $ 1,052,709
------------------------------------------------------------------
------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 4,778 $ (2,402) $ 238,112 $ (176)
Net realized gain (loss) on investments (3,694) (4,530) 36,435 (49)
Net change in unrealized appreciation
(depreciation) on investments (2,801) (21,645) (791,743) 660
------------------------------------------------------------------
Net increase (decrease) in net assets from
operations (1,717) (28,577) (517,196) 435
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 71,051 342,943 5,269,101 55,082
Transfers for policy related transactions (25,971) (152,486) (1,934,246) (16,041)
Transfers between Separate Account VUL-2's
Divisions, net 42,837 137,259 2,086,210 72,633
------------------------------------------------------------------
Net increase in net assets from policy
related transactions 87,917 327,716 5,421,065 111,674
------------------------------------------------------------------
Increase in Net Assets 86,200 299,139 4,903,869 112,109
Net Assets, Beginning of Year 51,783 563,987 5,301,015 16,097
------------------------------------------------------------------
Net Assets, End of Year $ 137,983 $ 863,126 $ 10,204,884 $ 128,206
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET CONTRA-
MANAGER: FUND
FOR THE YEAR ENDED DECEMBER 31, 1995 GROWTH DIVISION* DIVISION*
---------------------------------------------
<S> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income $ 9,993 $ 9,511
Net realized gain on investments 850 3,999
Net change in unrealized appreciation
(depreciation) on investments (5,088) 3,252
-------------------------------------------
Net increase in net assets from operations 5,755 16,762
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 91,291 362,528
Transfers for policy related transactions (10,306) (51,008)
Transfers between Separated Account VUL-2's
Divisions, net 154,006 522,081
-------------------------------------------
Net increase in net assets from policy related
transactions 234,991 833,601
-------------------------------------------
Increase in Net Assets 240,746 850,363
Net Assets, Beginning of Year -- --
-------------------------------------------
Net Assets, End of Year $ 240,746 $ 850,363
-------------------------------------------
-------------------------------------------
</TABLE>
6
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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-2 (Account) as a
unit investment trust registered under the Investment Company Act of
1940. The Account, which consists of ten investment divisions, was
established on April 9, 1991 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 two mutual
funds, sponsored by Fidelity Investments, Variable Insurance Products
Fund and Variable Insurance Products Fund II (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, while the Investment Grade Bond,
Asset Manager, Index 500, Asset Manager: Growth and Contrafund
Divisions of the Account are invested in shares of a corresponding
Portfolio of Variable Insurance Products Fund II. The Account's
financial statements should be read in conjunction with the financial
statements of the Funds. The Account commenced operations on
September 30, 1991.
The Account was established by American Franklin to support the
operations of American Franklin's EquiBuilder II-TM- Flexible Premium
Variable Life Insurance Policies (EquiBuilder II Policies). The
Account also supports the operations of American Franklin's
EquiBuilder III-TM- Flexible Premium Variable Life Insurance Policies
(EquiBuilder III Policies) (the EquiBuilder II Policies and the
EquiBuilder III Policies are referred to collectively as the
Policies). At December 31, 1995, American Franklin had obtained the
necessary state insurance department approvals for the sale of the
EquiBuilder III Policies in 42 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
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 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 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 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.
7
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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. With respect to the EquiBuilder III
Policies, American Franklin makes a sales expense deduction equal to
5% of each premium paid during any policy year up to a "target
premium", which is based on the annual premium for a fixed whole life
insurance policy on the life of the insured person (no sales expense
deduction is made for premiums in excess of the target premium paid
during that policy year). 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 policyholder. 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 $7,806,000 in 1995.
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.
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 with respect to the EquiBuilder II Policies 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, and the surrender charge with respect to
the EquiBuilder III Policies will equal 25% 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.
8
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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 YEAR ENDED DECEMBER 31, 1995
<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 year $109.84 $153.57 $144.57 $126.11 $104.96
----------------------------------------------------------------------
----------------------------------------------------------------------
Unit value, end of year $115.39 $204.85 $193.51 $137.53 $125.33
----------------------------------------------------------------------
----------------------------------------------------------------------
Number of units outstanding,
beginning of year 11,091 36,324 68,319 24,475 1,315
Net contract purchase payments 84,654 24,310 35,459 16,902 1,244
Transfers for policy related
transactions (5,602) (10,424) (16,243) (7,312) (529)
Transfers between Separate Account
VUL-2's Divisions, Net (73,286) 11,920 15,743 1,684 1,481
----------------------------------------------------------------------
Number of units outstanding, end of year 16,857 62,130 103,278 35,749 3,511
----------------------------------------------------------------------
----------------------------------------------------------------------
INVESTMENT ASSET
GRADE ASSET INDEX MANAGER: CONTRA-
BOND MANAGER 500 GROWTH FUND
DIVISION DIVISION DIVISION DIVISION* DIVISION*
----------------------------------------------------------------------
Unit value, beginning of year $113.42 $128.65 $105.21 $ - $ -
----------------------------------------------------------------------
----------------------------------------------------------------------
Unit value, end of year $131.55 $148.96 $142.98 $113.51 $119.19
----------------------------------------------------------------------
----------------------------------------------------------------------
Number of units outstanding,
beginning of year 7,610 79,326 1,219 - -
Net contract purchase payments 2,892 38,534 2,942 823 3,069
Transfers for policy related transactions (1,543) (19,225) (767) (94) (416)
Transfers between Separate Account
VUL-2's Divisions, Net 1,095 9,438 3,968 1,392 4,482
----------------------------------------------------------------------
Number of units outstanding, end of year 10,054 108,073 7,362 2,121 7,135
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
*For the period from May 1, 1995 (date of inception) to December 31, 1995.
9
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The American Franklin Life Insurance Company
Policyowners of Separate Account VUL-2
We have audited the accompanying statement of net assets of Separate Account
VUL-2 (comprising, respectively, the Money Market, Equity-Income, Growth,
Overseas, High Income, Investment Grade Bond, Asset Manager, Index 500, Asset
Manager: Growth and Contrafund Divisions) as of December 31, 1995, and the
related statements of operations and changes in net assets for the Money Market,
Equity-Income, Growth, Overseas, High Income, Investment Grade Bond, Asset
Manager, and Index 500 Divisions for the year then ended and for the Asset
Manager: Growth and Contrafund Divisions for the period from May 1, 1995 (date
of inception) to December 31, 1995. These financial statements are the
responsibility of Separate Account VUL-2 management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
statement of changes in net assets for the year ended December 31, 1994, was
audited by other auditors whose report dated February 1, 1995, expressed an
unqualified opinion on that statement.
We conducted our audit 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, 1995 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
audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
Divisions constituting Separate Account VUL-2 at December 31, 1995, and the
results of their operations and changes in net assets for the Money Market,
Equity-Income, Growth, Overseas, High Income, Investment Grade Bond, Asset
Manager, and Index 500 Divisions for the year then ended and for the Asset
Manager: Growth and Contrafund Divisions for the period from May 1, 1995 (date
of inception) to December 31, 1995 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 9, 1996
11
