SEPARATE ACCOUNT VUL-2 OF THE AMERICAN FRANKLIN LIFE INS CO, 485BPOS, 1996-04-30

SEPARATE ACCOUNT VUL-2 OF THE AMERICAN FRANKLIN LIFE INS CO
485BPOS, 1996-04-30

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1933 Act Registration No. 33-77470
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- - --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM

N-8B-2

POST-EFFECTIVE AMENDMENT NO. 2

SEPARATE ACCOUNT VUL-2

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
(Exact Name of Trust)

THE AMERICAN FRANKLIN LIFE STEPHEN P. HORVAT, JR., ESQ.
INSURANCE COMPANY Senior Vice President,
(Name of Depositor) Secretary and General Counsel
#1 Franklin Square THE AMERICAN FRANKLIN LIFE
Springfield, Illinois 62713 INSURANCE COMPANY
(Address of Depositor's #1 Franklin Square
Principal Executive Offices) Springfield, Illinois 62713
(Name and Address of Agent for Service)

Insurance Company's Telephone Number,
including Area Code: (217) 528-2011

Copy to:
PETER K. INGERMAN, ESQ.
CHADBOURNE & PARKE LLP
30 Rockefeller Plaza
New York, New York 10112

Securities Being Registered: Units of Interest in Separate Account VUL-2 issued
under EquiBuilder III flexible premium variable life policies.

Pursuant to Rule 24f-2 of the Investment Company Act of 1940, Registrant has
elected to register an indefinite number units of interest in Separate Account
VUL-2 under EquiBuilder III flexible premium variable life insurance policies.
Registrant filed a Form 24F-2 for the fiscal year ended December 31, 1995 on
February 28, 1996.

Registrant elects to be governed by paragraph (b)(13)(i)(A) of Rule 6e-3(T)
under the Investment Company Act of 1940 with respect to the policy described
in the Prospectus.

It is proposed that this filing will become effective (check appropriate box)

/ / immediately upon filing pursuant to paragraph (b)

/x/ on April 30, 1996 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a) (i)

/ / on April 30, 1996 pursuant to paragraph (a) (i) of Rule
485

/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

<PAGE>

SEPARATE ACCOUNT VUL-2 OF

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
Post-Effective Amendment No. 2

RECONCILIATION AND TIE

Registration Item
of Form N-8B-2 Location in Prospectus
- - ----------------- ----------------------

1 . . . . . . . . . . . . . . . . Cover Page.

2 . . . . . . . . . . . . . . . . Cover Page.

3 . . . . . . . . . . . . . . . . Inapplicable.

4 . . . . . . . . . . . . . . . . Distribution of the Policies.

5, 6, 7 . . . . . . . . . . . . . Separate Account Investment Choices -
The Separate Account and Its Investment
Divisions.

8 . . . . . . . . . . . . . . . . Index to Financial Statements.

9 . . . . . . . . . . . . . . . . Legal Proceedings.

10(a) . . . . . . . . . . . . . . The Beneficiary; Assignment of a Policy.

10(b) . . . . . . . . . . . . . . Policy Account Value - Determination of
the Unit Value; Dividends.

10(c), 10(d). . . . . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changing the Face Amount of Insurance;
Separate Account Investment Choices -
Right to Change Operations; Deductions
and Charges - Surrender Charge, - Other
Transaction Charges, - Allocation of
Policy Account Charges; Policy Account
Transactions - Changing Premium and
Deduction Allocation Percentages, -
Transfers of Policy Account Value Among
Investment Divisions, - Borrowing from
the Policy Account, - Withdrawing Money
from the Policy Account, - Surrendering
the Policy for Its Net Cash Surrender
Value; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy; Payment of Proceeds;
The Guaranteed Interest Division -
Transfers from the Guaranteed Interest
Division.

10(e) . . . . . . . . . . . . . . Additional Information About EquiBuilder
III Policies - Lapse of the Policy, -
Reinstatement of the Policy.

10(f) . . . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Right to Change Operations;
Voting Rights of a Policy Owner.

10(g)(1), 10(g)(2), 10(h)(1),
10(h)(2). . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Right to Change Operations;
Deductions and Charges - Charges Against
the Policy Account - Changes in Monthly
Charges; Voting Rights of a Policy
Owner.

10(g)(3), 10(g)(4), 10(h)(3),
10(h)(4). . . . . . . . . . . . . Inapplicable.

10(i) . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Changes in EquiBuilder III Policies, -
Flexible Premium Payments, - Additional
Benefits; Separate Account Investment
Choices; Policy Account Value; Tax
Effects; Payment Options; Payment of
Proceeds.

<PAGE>

Registration Item
of Form N-8B-2 Location in Prospectus
- - ----------------- ----------------------

11. . . . . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Investment Policies of the
Portfolios of the Funds, - Ownership of
the Assets of the Separate Account.

12(a), 12(c), 12(d) . . . . . . . Separate Account Investment Choices -
The Funds.

12(b), 12(e). . . . . . . . . . . Inapplicable.

13(a) . . . . . . . . . . . . . . Summary - Investment Choices of
EquiBuilder III Policies, - Deductions
and Charges; Separate Account Investment
Choices - The Investment Manager of the
Funds; Deductions and Charges.

13(b), 13(c), 13(d), 13(e),
13(g) . . . . . . . . . . . . . . Inapplicable.

13(f) . . . . . . . . . . . . . . Distribution of the Policies.

14. . . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Policy Issuance Information;
Limitations on American Franklin's
Rights to Challenge a Policy;
Distribution of the Policies -
Applications.

15. . . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Flexible Premium Payments; Separate
Account Investment Choices
(Introduction); Deductions and Charges -
Deductions from Premiums; Policy Account
Transactions - Changing Premium and
Deduction Allocation Percentages.

16. . . . . . . . . . . . . . . . Separate Account Investment Choices -
(Introduction), - The Separate Account
and Its Investment Divisions, - The
Funds; Policy Account Value - Amounts in
the Separate Account; Policy Account
Transactions - Changing Premium and
Deduction Allocation Percentages, -
Transfers of Policy Account Value Among
Investment Divisions, - Loan Requests, -
Repaying the Loan; The Guaranteed
Interest Division - Transfers from the
Guaranteed Interest Division; Additional
Information About EquiBuilder III
Policies - Policy Periods,
Anniversaries, Dates and Ages.

17(a), 17(b), 17(c) . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changing the Face Amount of Insurance, -
Changes in EquiBuilder III Policies, -
Flexible Premium Payments, - Additional
Benefits; Separate Account Investment
Choices - Right to Change Operations;
Policy Account Value; Policy Account
Transactions - Changing Premium and
Deduction Allocation Percentages, -
Transfers of Policy Account Value Among
Investment Divisions, - Borrowing from
the Policy Account, - Withdrawing Money
from the Policy Account, - Surrendering
the Policy for Its Net Cash Surrender
Value; The Guaranteed Interest Division
- Transfers from the Guaranteed Interest
Division; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy, - Lapse of Policy, -
Reinstatement of the Policy; Tax
Effects; Payment Options; Payment of
Proceeds.

18(a) . . . . . . . . . . . . . . Policy Account Value - Determination of
the Unit Value.

18(b), 18(d). . . . . . . . . . . Inapplicable.

<PAGE>

Registration Item
of Form N-8B-2 Location in Prospectus
- - ----------------- ----------------------

18(c) . . . . . . . . . . . . . . Summary - Investment Choices of
EquiBuilder III Policies, - Deductions
and Charges; Separate Account Investment
Choices - Ownership of the Assets of the
Separate Account; Deductions and Charges
- Charges Against the Separate Account -
Tax Reserve; The Guaranteed Interest
Division (Introduction); Tax Effects.

19. . . . . . . . . . . . . . . . Reports to Policy Owners; Distribution
of the Policies; Voting Rights of a
Policy Owner.

20(a) . . . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Right to Change Operations;
Deductions and Charges - Charges Against
the Policy Account - Changes in Monthly
Charges; Voting Rights of a Policy
Owner.

20(b) . . . . . . . . . . . . . . Separate Account Investment Choices -
The Separate Account and Its Investment
Divisions.

20(c), 20(d), 20(e), 20(f). . . . Inapplicable.

21(a) . . . . . . . . . . . . . . Policy Account Transactions - Borrowing
from the Policy Account, - Loan
Requests, - Policy Loan Interest, - When
Interest is Due, - Repaying the Loan, -
The Effects of a Policy Loan on the
Policy Account; Tax Effects - Policy
Proceeds.

21(b), 21(c). . . . . . . . . . . Inapplicable.

22. . . . . . . . . . . . . . . . Limits on American Franklin's Right To
Challenge a Policy.

23. . . . . . . . . . . . . . . . Inapplicable.

24. . . . . . . . . . . . . . . . The Features of EquiBuilder III
Policies; Additional Information.

25. . . . . . . . . . . . . . . . The American Franklin Life Insurance
Company.

26. . . . . . . . . . . . . . . . Inapplicable.

27. . . . . . . . . . . . . . . . The American Franklin Life Insurance
Company; Other Policies and Contracts.

28. . . . . . . . . . . . . . . . The American Franklin Life Insurance
Company; Management.

29. . . . . . . . . . . . . . . . The American Franklin Life Insurance
Company; Management.

30, 31, 32, 33, 34. . . . . . . . Inapplicable.

35. . . . . . . . . . . . . . . . The American Franklin Life Insurance
Company; Distribution of the Policies.

36, 37. . . . . . . . . . . . . . Inapplicable.

38, 39. . . . . . . . . . . . . . Distribution of the Policies.

40. . . . . . . . . . . . . . . . Inapplicable.

41(a) . . . . . . . . . . . . . . Distribution of the Policies.

<PAGE>

Registration Item
of Form N-8B-2 Location in Prospectus
- - ----------------- ----------------------

41(b), 41(c), 42, 43. . . . . . . Inapplicable.

44(a)(1). . . . . . . . . . . . . Policy Account Value - Determination of
the Unit Value.

44(a)(2), 44(a)(3). . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changes in EquiBuilder III Policies;
Separate Account Investment Choices -
(Introduction), - The Separate Account
and Its Investment Divisions, - The
Funds, - Right to Change Operations;
Deductions and Charges; Policy Account
Value; Policy Account Transactions -
Changing Premium and Deduction
Allocation Percentages, - Transfers of
Policy Account Value Among Investment
Divisions, - Borrowing from the Policy
Account, - Loan Requests, - Repaying the
Loan, - Withdrawing Money from the
Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value;
The Guaranteed Interest Division -
Transfers from the Guaranteed Interest
Division; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy, - Policy Periods,
Anniversaries, Dates and Ages; Payment
of Proceeds.

44(a)(4). . . . . . . . . . . . . Deductions and Charges - Charges Against
the Separate Account - Tax Reserve; Tax
Effects.

44(a)(5). . . . . . . . . . . . . Deductions And Charges - Deductions From
Premiums.

44(a)(6). . . . . . . . . . . . . Deductions And Charges - Deductions From
Premiums, - Charges Against the Policy
Account, - Charges Against the Separate
Account, - Surrender Charge; Policy
Account Value - Amounts In the Separate
Account, - Determination of the Unit
Value.

44(b) . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changes in EquiBuilder III Policies;
Separate Account Investment Choices
(Introduction), - The Separate Account
and Its Investment Divisions, - The
Funds, - Right to Change Operations;
Deductions and Charges; Policy Account
Value; Policy Account Transactions -
Changing Premium and Deduction
Allocation Percentages, - Transfers of
Policy Account Value Among Investment
Divisions, - Borrowing from the Policy
Account, - Loan Requests, - Repaying the
Loan, - Withdrawing Money from the
Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value;
The Guaranteed Interest Division -
Transfers from the Guaranteed Interest
Division; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy, - Policy Periods,
Anniversaries, Dates and Ages; Tax
Effects; Payment of Proceeds.

44(c). . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changes in EquiBuilder III Policies, -
Flexible Premium Payments; Separate
Account Investment Choices -
(Introduction), - The Separate Account
and Its Investment Divisions, - The
Funds; Deductions and Charges; Policy
Account Value; Policy Account
Transactions - Changing Premium and
Deduction Allocation Percentages, -
Transfers of Policy Account Value Among
Investment Divisions, - Borrowing from
the Policy

<PAGE>

Registration Item
of Form N-8B-2 Location in Prospectus
- - ----------------- ----------------------

Account, - Loan Requests, - Repaying the
Loan, - Withdrawing Money from the
Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value;
The Guaranteed Interest Division -
Transfers from the Guaranteed Interest
Division; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy, - Policy Periods,
Anniversaries, Dates and Ages; Tax
Effects; Payment of Proceeds.

45. . . . . . . . . . . . . . . . Inapplicable.

46(a) . . . . . . . . . . . . . . The Features of EquiBuilder III Policies
- Death Benefits, - Maturity Benefit, -
Changes in EquiBuilder III Policies;
Separate Account Investment Choices -
(Introduction), - The Separate Account
and Its Investment Divisions, - the
Funds, - Right to Change Operations;
Deductions and Charges; Policy Account
Value; Policy Account Transactions -
Changing Premium and Deduction
Allocation Percentages, - Transfers of
Policy Account Value Among Investment
Divisions, - Borrowing from the Policy
Account, - Loan Requests, - Repaying the
Loan, - Withdrawing Money from the
Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value;
The Guaranteed Interest Division -
Transfers from the Guaranteed Interest
Division; Additional Information About
EquiBuilder III Policies - Right To
Examine the Policy, - Policy Periods,
Anniversaries, Dates and Ages; Tax
Effects; Payment of Proceeds.

46(b), 47, 48, 49, 50 . . . . . . Inapplicable.

51(a) - (j) . . . . . . . . . . . Summary; Detailed Information About
American Franklin and EquiBuilder III
Policies; Additional Information.

52(a) . . . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Right to Change Operations.

52(b), 52(d). . . . . . . . . . . Inapplicable.

52(c) . . . . . . . . . . . . . . Separate Account Investment Choices -
The Funds, - Right to Change Operations;
Deductions and Charges - Charges Against
the Policy Account - Changes in Monthly
Charges; Voting Rights of a Policy
Owner.

53(a) . . . . . . . . . . . . . . Tax Effects; Payment Options; Assignment
of a Policy; Employee Benefit Plans.

53(b), 54, 55, 56, 57, 58 . . . . Inapplicable.

59. . . . . . . . . . . . . . . . Financial Statements.
<PAGE>

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Flexible Premium Variable Life Insurance Policy

EQUIBUILDER III-TM-

ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

Prospectus Dated April 30, 1996

Principal Office of both Funds located at:
82 Devonshire Street
Boston, Massachusetts 02109

VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II

Prospectus Dated April 30, 1996

THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

EquiBuilder III is a trademark of The American Franklin Life Insurance Company
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<PAGE>

TABLE OF CONTENTS

PAGE
----

Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

SUMMARY

Features of EquiBuilder III Policies . . . . . . . . . . . . . . . . . . . . .1
Investment Choices of EquiBuilder III Policies . . . . . . . . . . . . . . . .2
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Policy Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Additional Information About EquiBuilder III Policies. . . . . . . . . . . . .5
Rates of Return of the Portfolios of the Funds . . . . . . . . . . . . . . . .6

DETAILED INFORMATION ABOUT AMERICAN FRANKLIN AND EQUIBUILDER III POLICIES

The American Franklin Life Insurance Company . . . . . . . . . . . . . . . . .7
The Features of EquiBuilder III Policies . . . . . . . . . . . . . . . . . . .7
How EquiBuilder III Policies Differ from Whole Life Insurance. . . . . . . .7
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Policy Issuance Information. . . . . . . . . . . . . . . . . . . . . . . . .8
Maturity Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Changes in EquiBuilder III Policies. . . . . . . . . . . . . . . . . . . . .9
Changing the Face Amount of Insurance. . . . . . . . . . . . . . . . . . . .9
Changing Death Benefit Options . . . . . . . . . . . . . . . . . . . . . . .9
When Policy Changes Go into Effect . . . . . . . . . . . . . . . . . . . . 10
Flexible Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . 10
Additional Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Disability Waiver Benefit. . . . . . . . . . . . . . . . . . . . . . . . 11
Accidental Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . 11
Children's Term Insurance. . . . . . . . . . . . . . . . . . . . . . . . 11
Term Insurance on an Additional Insured Person . . . . . . . . . . . . . 11
Separate Account Investment Choices. . . . . . . . . . . . . . . . . . . . . 12
The Separate Account and Its Investment Divisions. . . . . . . . . . . . . 12
The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Investment Policies of the Portfolios of the Funds . . . . . . . . . . . . 12
The Investment Manager of the Funds. . . . . . . . . . . . . . . . . . . . 14
Ownership of the Assets of the Separate Account. . . . . . . . . . . . . . 15
Right to Change Operations . . . . . . . . . . . . . . . . . . . . . . . . 16
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . 16
Charges Against the Policy Account . . . . . . . . . . . . . . . . . . . . 17
Administrative Charge. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . . . . 17
Charges for Additional Benefits. . . . . . . . . . . . . . . . . . . . . 18
Changes in Monthly Charges . . . . . . . . . . . . . . . . . . . . . . . 18
Charges Against the Separate Account . . . . . . . . . . . . . . . . . . . 18
Mortality and Expense Risks. . . . . . . . . . . . . . . . . . . . . . . 18
Charges Against the Funds. . . . . . . . . . . . . . . . . . . . . . . . 19
Tax Reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other Transaction Charges. . . . . . . . . . . . . . . . . . . . . . . . . 21
Partial Withdrawal of Net Cash Surrender Value . . . . . . . . . . . . . 21
Increase in the Face Amount of Insurance . . . . . . . . . . . . . . . . 21
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

<PAGE>

TABLE OF CONTENTS (CONTINUED)

PAGE

Illustrations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Allocation of Policy Account Charges . . . . . . . . . . . . . . . . . . . 21
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Amounts in the Separate Account. . . . . . . . . . . . . . . . . . . . . . 21
Determination of the Unit Value. . . . . . . . . . . . . . . . . . . . . . 22
Policy Account Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 23
Changing Premium and Deduction Allocation Percentages . . . . . . . . . . 23
Transfers of Policy Account Value Among Investment Divisions . . . . . . . 23
Borrowing from the Policy Account. . . . . . . . . . . . . . . . . . . . . 23
Loan Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Policy Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
When Interest is Due . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Repaying the Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Effects of a Policy Loan on the Policy Account . . . . . . . . . . . . 25
Lapse of the Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Withdrawing Money from the Policy Account. . . . . . . . . . . . . . . . . 26
Withdrawal Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Effects of a Partial Withdrawal. . . . . . . . . . . . . . . . . . . . 26
Surrendering the Policy for Its Net Cash Surrender Value . . . . . . . . . 27
The Guaranteed Interest Division . . . . . . . . . . . . . . . . . . . . . . 27
Amounts in the Guaranteed Interest Division. . . . . . . . . . . . . . . . 27
Interest on Amounts in the Guaranteed Interest Division. . . . . . . . . . 28
Transfers from the Guaranteed Interest Division. . . . . . . . . . . . . . 28
Additional Information About EquiBuilder III Policies. . . . . . . . . . . . 28
Right to Examine the Policy. . . . . . . . . . . . . . . . . . . . . . . . 28
Lapse of the Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Reinstatement of the Policy. . . . . . . . . . . . . . . . . . . . . . . . 29
Policy Periods, Anniversaries, Dates and Ages. . . . . . . . . . . . . . . 29
Tax Effects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Policy Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
American Franklin's Income Taxes . . . . . . . . . . . . . . . . . . . . . 32
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT AND CASH SURRENDER
VALUES, AND ACCUMULATED PREMIUMS . . . . . . . . . . . . . . . . . . . . . . 32

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Voting Rights of a Policy Owner. . . . . . . . . . . . . . . . . . . . . . . 40
Voting Rights of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 40
Determination of Voting Shares . . . . . . . . . . . . . . . . . . . . . . 40
How Shares of the Funds Are Voted. . . . . . . . . . . . . . . . . . . . . 40
Voting Privileges of Participants in Other Separate Accounts . . . . . . . 41
Separate Account Voting Rights . . . . . . . . . . . . . . . . . . . . . . 41
Reports to Policy Owners . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Limits on American Franklin's Right to Challenge a Policy. . . . . . . . . . 41
Payment Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
The Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Assignment of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Payment of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

<PAGE>

TABLE OF CONTENTS (CONTINUED)

PAGE
----

Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . . . . 45
Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Reinsurance Agreement with Integrity Life Insurance Company. . . . . . . . . 46
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Other Policies and Contracts . . . . . . . . . . . . . . . . . . . . . . . . 47
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1

THE POLICY IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE. AMERICAN FRANKLIN DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS
REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN
THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES
MATERIAL AUTHORIZED BY AMERICAN FRANKLIN.

iii

<PAGE>

DEFINITIONS

Set forth below is a glossary of certain terms used in this Prospectus.
ADMINISTRATIVE OFFICE--The address of the Administrative Office of American
Franklin is #1 Franklin Square, Springfield, Illinois 62713-0001.

AGE--The age of the Insured Person on his or her birthday nearest the date on
which a determination of the Insured Person's age is made.

AMERICAN FRANKLIN--The American Franklin Life Insurance Company, an Illinois
stock life insurance company and the issuer of the EquiBuilder III individual
flexible premium variable life insurance policies described in this Prospectus.

AMOUNT AT RISK--The difference between the amount of the Policy Account and the
current death benefit of a policy at any time.

CASH SURRENDER VALUE--The amount of the Policy Account less any applicable
surrender charges.

CODE--The Internal Revenue Code of 1986, as amended.

DATE OF PAYMENT--Normally, the day after receipt by American Franklin at its
Administrative Office of a check for the full initial premium of a policy.

FACE AMOUNT--The face amount of insurance shown on the Policy Information
page of a policy. The Face Amount is the minimum death benefit payable under
a policy while the policy remains in effect. The death benefit proceeds will
be reduced by any outstanding loan and loan interest on the policy and any
due and unpaid charges.

FINAL POLICY DATE--The policy anniversary nearest the Insured Person's 95th
birthday. American Franklin will pay to the Policy Owner the amount of the
Policy Account, net of any outstanding loan and loan interest on the policy,
if the Insured Person is still living on the Final Policy Date.

FUND(S)--Each of Variable Insurance Products Fund, a "series" type mutual fund,
five portfolios of which are available for investment of amounts allocated to
the investment divisions of the Separate Account, and Variable Insurance
Products Fund II, a "series" type mutual fund having five portfolios in which
amounts allocated to the investment divisions of the Separate Account are
invested, is referred to as a Fund. Both are referred to collectively as the
Funds.

GUARANTEED INTEREST DIVISION--A part of American Franklin's General Account in
which amounts in a Policy Account other than those allocated to the Separate
Account earn interest at a rate stipulated in advance and guaranteed by
American Franklin.

INSURED PERSON--The person whose life is insured under a policy.

ISSUE DATE--The date that American Franklin actually issues a policy.

NET CASH SURRENDER VALUE--Cash Surrender Value less any outstanding loan and
loan interest on the policy.

NET PREMIUM--The amount of any premium paid by the Policy Owner less the amount
of applicable state and local premium taxes, if any, and less a sales expense
deduction equal to 5% of each premium paid during any policy year until total
premiums for that policy year equal the Target Premium.

POLICY ACCOUNT--The sum of amounts allocated to the investment divisions of the
Separate Account and American Franklin's Guaranteed Interest Division for a
particular policy.

POLICY ANNIVERSARY--An anniversary of the Register Date of a policy while the
policy is in effect.

<PAGE>

DEFINITIONS (CONTINUED)

POLICY MONTH--A month-long period beginning on the Register Date and on the same
day in each subsequent calendar month while a policy is in effect.

POLICY OWNER--The person designated as such on the Policy Information page of a
policy.

POLICY YEAR--An annual period beginning on the Register Date and on each
anniversary of the Register Date while the policy is in effect.

SEPARATE ACCOUNT--Separate Account VUL-2, a segregated investment account of
American Franklin established under the Insurance Law of the State of Illinois
in which amounts in a Policy Account other than those in the Guaranteed
Interest Division are held for investment in one of the portfolios of the
Funds. The value of amounts in the Separate Account will fluctuate in
accordance with the performance of the corresponding portfolios of the Funds.

TARGET PREMIUM--A hypothetical premium equal to the annual premium necessary to
maintain a fixed-benefit whole life policy with a face amount equal to the
initial Face Amount of an EquiBuilder III policy for a person of the same age
and sex as the Insured Person. The Target Premium for each EquiBuilder III
policy is shown on the Policy Information page of the policy.

<PAGE>

EQUIBUILDER III-TM-
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

Issued by
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

THIS PROSPECTUS DESCRIBES EQUIBUILDER III, INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES ISSUED BY THE AMERICAN FRANKLIN LIFE INSURANCE
COMPANY ("AMERICAN FRANKLIN"). EQUIBUILDER III POLICIES PROVIDE LIFE INSURANCE
COVERAGE WITH FLEXIBILITY IN DEATH BENEFITS, PREMIUM PAYMENTS AND INVESTMENT
CHOICES. CAPITALIZED TERMS NOT OTHERWISE DEFINED ON THIS COVER PAGE HAVE THE
MEANINGS DESIGNATED WITHIN THIS PROSPECTUS. EQUIBUILDER III IS A TRADEMARK OF
AMERICAN FRANKLIN.

EQUIBUILDER III PAYS A DEATH BENEFIT TO A BENEFICIARY DESIGNATED BY THE
POLICY OWNER WHEN THE INSURED PERSON DIES IF THE POLICY IS STILL IN EFFECT. THE
POLICY OWNER MAY CHOOSE OPTION A, A FIXED DEATH BENEFIT THAT EQUALS THE FACE
AMOUNT OF THE POLICY, OR OPTION B, A VARIABLE DEATH BENEFIT THAT EQUALS THE
FACE AMOUNT OF THE POLICY PLUS THE VALUE OF THE POLICY ACCOUNT ESTABLISHED FOR
THE POLICY AS DESCRIBED IN THE NEXT PARAGRAPH. UNDER EITHER OPTION, A DEATH
BENEFIT EQUAL TO A PERCENTAGE OF THE POLICY ACCOUNT ON THE DAY THE INSURED
PERSON DIES WILL BE PAID IF THAT BENEFIT WOULD BE GREATER.

AMERICAN FRANKLIN MAKES A DEDUCTION FROM EACH PREMIUM FOR SALES EXPENSES
(SUBJECT TO AN ANNUAL MAXIMUM DEDUCTION) AND FOR ANY APPLICABLE PREMIUM TAXES.
THE NET PREMIUM IS PUT IN THE POLICY ACCOUNT ESTABLISHED FOR EACH POLICY. THE
POLICY OWNER MAY INSTRUCT AMERICAN FRANKLIN TO ALLOCATE AMOUNTS IN THE POLICY
ACCOUNT TO AMERICAN FRANKLIN'S GUARANTEED INTEREST DIVISION (WHICH IS PART OF
AMERICAN FRANKLIN'S GENERAL ACCOUNT AND PAYS INTEREST AT A DECLARED GUARANTEED
RATE) OR TO ONE OR MORE OF THE INVESTMENT DIVISIONS OF AMERICAN FRANKLIN'S
SEPARATE ACCOUNT VUL-2 (THE "SEPARATE ACCOUNT"), OR BOTH. HOWEVER, UNTIL THE
FIRST BUSINESS DAY FIFTEEN DAYS AFTER THE ISSUE DATE OF THE POLICY, THE POLICY
ACCOUNT WILL BE INVESTED IN THE MONEY MARKET DIVISION. MONEY MARKET, HIGH
INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER,
INDEX 500, ASSET MANAGER: GROWTH AND CONTRAFUND DIVISIONS ARE AVAILABLE FOR
INVESTMENT THROUGH THE SEPARATE ACCOUNT.

FUNDS ALLOCATED TO ANY OF THE INVESTMENT DIVISIONS OF THE SEPARATE ACCOUNT
ARE INVESTED IN SHARES OF A CORRESPONDING PORTFOLIO OF EITHER THE VARIABLE
INSURANCE PRODUCTS FUND OR THE VARIABLE INSURANCE PRODUCTS FUND II
(INDIVIDUALLY, A "FUND," AND COLLECTIVELY, THE "FUNDS"), EACH OF WHICH IS A
MUTUAL FUND. THE PROSPECTUS OF THE FUNDS, ATTACHED TO THIS PROSPECTUS,
DESCRIBES THE INVESTMENT OBJECTIVES, POLICIES AND RISKS OF EACH OF THE
PORTFOLIOS OF THE FUNDS. TEN PORTFOLIOS OF THE FUNDS ARE CURRENTLY AVAILABLE:
MONEY MARKET, HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT GRADE
BOND, ASSET MANAGER, INDEX 500, ASSET MANAGER: GROWTH AND CONTRAFUND. SEE
"SEPARATE ACCOUNT INVESTMENT CHOICES - THE FUNDS," BELOW.

THE VALUE OF A POLICY ACCOUNT ALLOCATED TO THE INVESTMENT DIVISIONS OF THE
SEPARATE ACCOUNT WILL VARY WITH THE INVESTMENT PERFORMANCE OF THE CORRESPONDING
PORTFOLIOS OF THE FUNDS; THERE IS NO MINIMUM GUARANTEED CASH VALUE FOR AMOUNTS
ALLOCATED TO THE INVESTMENT DIVISIONS OF THE SEPARATE ACCOUNT AND IF THE
INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIOS OF THE FUNDS IS ADVERSE,
THE VALUE OF A POLICY ACCOUNT CAN DECLINE. THE VALUE OF THE GUARANTEED
INTEREST DIVISION WILL DEPEND ON THE INTEREST RATES DECLARED. A POLICY ACCOUNT
WILL ALSO BE INCREASED BY ADDITIONAL NET PREMIUMS PAID BY THE POLICY OWNER AND
WILL BE REDUCED BY CHARGES MADE BY AMERICAN FRANKLIN FOR THE COST OF THE
INSURANCE PROVIDED BY THE POLICY AND FOR EXPENSES. A SURRENDER CHARGE MAY BE
IMPOSED IF A POLICY IS SURRENDERED OR LAPSES OR IF THE POLICY OWNER REDUCES THE
POLICY'S FACE AMOUNT.

AFTER THE FIRST PREMIUM, THE POLICY OWNER MAY DECIDE, WITHIN LIMITS, THE
AMOUNT AND FREQUENCY OF PREMIUM PAYMENTS. THE POLICY OWNER MAY ALSO INCREASE OR
DECREASE THE AMOUNT OF INSURANCE PROTECTION, WITHIN LIMITS.

AMERICAN FRANKLIN'S HOME OFFICE AND PRINCIPAL EXECUTIVE OFFICE IS #1
FRANKLIN SQUARE, SPRINGFIELD, ILLINOIS 62713, TELEPHONE (217) 528-2011.
INQUIRIES AND NOTICES SHOULD BE ADDRESSED TO AMERICAN FRANKLIN'S ADMINISTRATIVE
OFFICE AT THAT ADDRESS.

THE POLICY OWNER HAS THE RIGHT TO EXAMINE THE POLICY OFFERED HEREBY AND
RETURN IT TO AMERICAN FRANKLIN FOR A REFUND. SEE "ADDITIONAL INFORMATION ABOUT
EQUIBUILDER III POLICIES - RIGHT TO EXAMINE THE POLICY," BELOW, FOR INFORMATION
ABOUT THE MANNER IN WHICH THIS RIGHT MAY BE EXERCISED AND ABOUT LIMITATIONS ON
THAT RIGHT.

THE POLICIES DESCRIBED HEREIN ARE NOT INTENDED FOR USE IN CONNECTION WITH
QUALIFIED PLANS OR TRUSTS UNDER THE INTERNAL REVENUE CODE.

THIS PROSPECTUS SHOULD BE READ CAREFULLY FOR DETAILS ON THE POLICY BEING
OFFERED AND KEPT FOR FUTURE REFERENCE. THIS PROSPECTUS IS NOT VALID UNLESS IT
IS ATTACHED TO THE CURRENT PROSPECTUS FOR THE FUNDS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Because of the deductions and charges applicable to the purchase of new
insurance offered hereby, it may not be to a purchaser's advantage to replace
existing insurance or, if a purchaser already owns a flexible premium insurance
policy, to acquire additional insurance through the purchase of a policy
described in this Prospectus.

THE DATE OF THIS PROSPECTUS IS APRIL 30, 1996
Copyright 1996 The American Franklin Life Insurance Company.
All rights reserved.

<PAGE>

SUMMARY

This Prospectus describes the regular EquiBuilder III-TM- policy. There may
be differences between a particular policy and the description contained herein
because of requirements of the state in which a policy is issued. These
differences will be reflected in the policy. Also American Franklin reserves
the right to make modifications in light of particular circumstances.

Unless indicated otherwise, the discussion of the terms of a representative
policy contained in this Prospectus assumes that there is no policy loan
outstanding, that the policy is not in a grace period and that state variations
will be covered by a supplement or a policy endorsement, as appropriate.

The policies described herein are not intended for use in connection with
qualified plans or trusts under the Code.

The purpose of the policy offered hereby is to provide insurance protection
for a policy's beneficiary. American Franklin does not claim that the policy is
in any way similar to or comparable to a mutual fund's systematic investment
plan.

The following Summary of this Prospectus should be read in conjunction with
the detailed information appearing elsewhere herein.

EquiBuilder III-TM- is a trademark of American Franklin.

FEATURES OF EQUIBUILDER III-TM- POLICIES

INSURANCE BENEFIT OPTIONS

EquiBuilder III policies offer insurance on the life of the Insured Person.
American Franklin will pay a death benefit when the Insured Person dies.
American Franklin will pay a maturity benefit in lieu of a death benefit if the
Insured Person is still living on the policy anniversary nearest his or her 95th
birthday. Two death benefit options are available.

Option A provides a death benefit equal to the Face Amount of the policy;
and

Option B provides a death benefit equal to the Face Amount of the policy,
plus the value of the Policy Account.

Option B entails a higher cost of insurance charge and will cause the value
of the Policy Account to be less than if Option A were chosen.

Under either option, a death benefit equal to a percentage multiple of the
Policy Account on the day the Insured Person dies will be paid if that death
benefit would be greater than the death benefit payable under the option
selected. Any outstanding loans or unpaid charges will be deducted before any
death benefits are paid. Proceeds may be paid in a lump sum or under a variety
of payment plans.

A policy will remain in force only so long as an amount remains in the
Policy Account sufficient to cover cost of insurance and other expense
deductions and any surrender charge that would then be due.

American Franklin will not issue an EquiBuilder III policy with a Face
Amount of less than $50,000.

See "The Features Of EquiBuilder III Policies-Death Benefits" and "Payment
Options" below.

POLICY ACCOUNTS

An account (the "Policy Account") is established by American Franklin in its
records for each policy at the time of issue. After deduction of certain
charges from premiums, the balance of each premium is credited to the Policy
Account. A Policy Owner may allocate his or her Policy Account for investment
to the Guaranteed Interest Division, which pays a declared interest rate, or to
one or more of the investment divisions of the Separate Account, or both. See
"Separate Account Investment Choices," below. Until the first business day 15
days following the Issue Date of a policy, the initial net premium

<PAGE>

and all other net premiums received during such period will be allocated to the
Money Market division of the Separate Account. See "Additional Information
About EquiBuilder III Policies - Policy Periods, Anniversaries, Dates and Ages."

The value of the Policy Account reflects the amount and frequency of premium
payments, deductions and charges for the cost of insurance and expenses, the
investment experience of amounts allocated to the Separate Account, interest
earned on amounts allocated to the Guaranteed Interest Division, loans and
partial withdrawals. There is no minimum guaranteed Policy Account value with
respect to any amounts allocated to the investment divisions of the Separate
Account and, if the investment performance of the portfolios corresponding to
the investment divisions of the Separate Account is adverse, the value of a
Policy Account can decline. See "Policy Account Value," below.

POLICY CHANGES

At any time after the first policy year while a policy is in force, the
Policy Owner may change the death benefit option chosen and may also increase or
decrease the Face Amount of the policy, within limits. See "The Features Of
EquiBuilder III Policies-Changes In EquiBuilder III Policies," "-Changing the
Face Amount of Insurance," and "-Changing Death Benefit Options," below.
Certain policy changes, such as a decrease in the Face Amount of a policy, may
have adverse federal tax consequences. See "Tax Effects," below.

FLEXIBLE PREMIUM PAYMENTS

The frequency and the amount of premium payments are determined by the
Policy Owner, within certain limits. An initial minimum premium is required
based on the age, sex and risk class of the Insured Person and the Face Amount
of the policy. A Policy Owner may stipulate a planned periodic premium as a
guideline for future premiums, but if the planned premiums are not paid
insurance coverage will continue so long as the policy has sufficient Net Cash
Surrender Value to cover monthly charges. The Policy Owner need not pay
premiums of any set amount (except that the minimum premium is $100) or
according to any set schedule, but may have to make additional premium payments
to keep the policy in force if the policy's Net Cash Surrender Value is
insufficient to cover monthly charges. Payment of stipulated planned periodic
premiums may not always provide sufficient Net Cash Surrender Value to cover
monthly charges. See "The Features of EquiBuilder III Policies-Flexible Premium
Payments," below.

ADDITIONAL BENEFITS MAY BE AVAILABLE

Additional benefits to the policy may be added by rider. These benefits may
include an accidental death benefit, life insurance for additional insured
persons, life insurance for children and a disability waiver benefit to waive
the cost of monthly deductions. The cost of any additional benefits will be
deducted monthly from the Policy Account. See "The Features of EquiBuilder III
Policies-Additional Benefits," below.

INVESTMENT CHOICES OF EQUIBUILDER III POLICIES
A Policy Owner may allocate amounts in his or her Policy Account for
investment to either the Guaranteed Interest Division, which pays interest at a
declared rate, or to any one or more of the investment divisions of the Separate
Account, or both. The current investment divisions are:
Money Market
High Income
Equity-Income
Growth
Overseas
Investment Grade Bond
Asset Manager
Index 500
Asset Manager: Growth
Contrafund

Amounts allocated to any of the investment divisions are invested by American
Franklin in shares of a corresponding portfolio of the Variable Insurance
Products Fund or of the Variable Insurance Products

<PAGE>

Fund II (individually, a "Fund," and collectively, the "Funds"), each of which
is a "series" type mutual fund. The portfolios of the Funds have different
investment objectives, policies and risks. See "Separate Account Investment
Choices - The Funds," below.

In order to effect allocations to the investment divisions of the Separate
Account, American Franklin will purchase and redeem shares of the corresponding
portfolios of the Funds according to the Policy Owner's premium and deduction
allocation percentages, respectively. The shares of the Funds are sold
exclusively to separate accounts of insurance companies. Purchase and
redemption of shares will be made at net asset value through Fidelity
Distributors Corporation ("FDC") acting as distributor for the Funds.

Fidelity Management & Research Company ("Fidelity Management") is the
investment manager of the Funds. Fidelity Management is registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940.
See "Separate Account Investment Choices - The Investment Manager of the Funds,"
below, for information concerning the advisory fees that the Funds pay to
Fidelity Management.

Fidelity is one of America's largest investment management organizations.
It includes a number of different companies, which provide a variety of
financial services and products. Each portfolio of the Funds employs various
Fidelity companies to perform certain activities required for its operation.

For a full description of the Funds, see the Prospectus of the Funds, which
is attached to this Prospectus, and the Statements of Additional Information of
the Funds referred to therein.

See also "Separate Account Investment Choices" and "The Guaranteed Interest
Division," below.

DEDUCTIONS AND CHARGES

DEDUCTIONS FROM PREMIUMS

A deduction for any applicable taxes is made from premium payments. The
amount of tax will vary from one jurisdiction to another. Taxes currently range
up to 5%. In addition, American Franklin makes a sales expense deduction equal
to 5% of each premium paid during any policy year until total premiums for the
policy year equal the Target Premium. This deduction is designed to recover
some expenses of distributing policies. A contingent deferred sales charge may
also be imposed during the first ten policy years if a policy is surrendered or
lapses or the Face Amount is reduced. After such deduction, the balance (the
"net premium") is placed in the Policy Account. See "Deductions and
Charges-Deductions from Premiums" and "Deductions and Charges-Surrender Charge,"
below.

CHARGES AGAINST THE POLICY ACCOUNT

Certain amounts are charged against every Policy Account by American
Franklin each month. These are:

an administrative charge (currently $6 per month plus an additional
charge of $24 per month for each of the first 12 months a policy is in
effect);

a charge for additional benefits, if any; and

a cost of insurance charge, which is based on the Insured Person's age,
sex and risk class, and the amount of insurance.

American Franklin guarantees that the monthly administrative and cost of
insurance charges against the Policy Account will never be more than the maximum
amounts shown in each policy.

<PAGE>

In addition, charges will be made upon each of 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); or

a transfer between investment divisions in any policy year in which four
transfers have already been made (up to $25 for each additional transfer).

The Policy Owner generally may specify the manner in which charges against
the Policy Account are to be allocated. See "Deductions and Charges-Charges
Against the Policy Account" and "Deductions and Charges-Other Transaction
Charges," below.

CHARGES AGAINST THE SEPARATE ACCOUNT

American Franklin imposes a daily charge at an effective annual rate of .75%
of the value of the assets in the investment divisions of the Separate Account
for certain mortality and expense risks that American Franklin assumes. In
addition, the value of the assets in the investment divisions of the Separate
Account will be effected by investment management fees and other direct expenses
of the Funds. See "Deductions and Charges-Charges Against the Separate
Account," below.

SURRENDER CHARGE

During the first ten policy years, a surrender charge will be deducted from
the Policy Account if:

the policy is surrendered for its Net Cash Surrender Value; or

the policy is permitted to lapse at the end of a grace period.

Any request for a reduction of the Face Amount of a policy during the first
ten policy years will be considered a partial surrender and a pro rata portion
of the surrender charge will be deducted. The maximum total surrender charge
applicable to a particular policy is specified in the policy and is
approximately equivalent 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. 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 25% of actual premiums paid
during the first policy year up to one target premium plus 9% of all other
premiums actually paid. The surrender charge is a contingent deferred sales
charge designed to recover some expenses of distributing policies which are
surrendered in their early years. See "Deductions and Charges-Surrender
Charge," below. The expenses of distributing policies are also recovered
through a sales expense deduction in the amount of 5% of each premium paid
during any policy year until total premiums for that policy year equal the
Target Premium. See "Deductions and Charges-Deductions from Premiums," below.

OTHER TRANSACTION CHARGES

Charges will also be imposed for certain illustrations of expected death
benefits and policy account values. See "Deductions and Charges - Other
Transaction Charges."

POLICY ACCOUNTS

TRANSFERS AMONG INVESTMENT DIVISIONS

A Policy Owner may transfer amounts in the Policy Account among the
investment divisions. Transfers among investment divisions of the Separate
Account or into the Guaranteed Interest Division take effect on the date
American Franklin receives the request for transfer from the Policy Owner.

<PAGE>

Transfers out of the Guaranteed Interest Division may be made only on or within
30 days after a policy anniversary and are limited in amount. Minimum amounts
are required for each transfer, usually $500. If more than four transfers a
policy year are made, an administrative charge may be deducted from the Policy
Account. See "Policy Account Transactions-Transfers of Policy Account Value
Among Investment Divisions" and "The Guaranteed Interest Division-Transfers from
the Guaranteed Interest Division," below.

BORROWING AGAINST THE POLICY ACCOUNT

The Policy Owner may borrow a total amount up to 90% of the Cash Surrender
Value of his policy using the policy as security for the loan. A minimum loan
amount, usually $500, will be stated in the policy. Policy loan interest
accrues daily at a rate adjusted annually. For more information see "Policy
Account Transactions-Borrowing from the Policy Account," below.

WITHDRAWING CASH FROM THE POLICY ACCOUNT

After a policy has been in effect for a year, the Policy Owner may make a
partial withdrawal of Net Cash Surrender Value from the Policy Account. The
current minimum withdrawal is $500, and each withdrawal is subject to certain
other requirements. A charge (currently $25 or 2% of the amount withdrawn,
whichever is less) will be deducted from the Policy Account for each withdrawal.
See "Policy Account Transactions-Withdrawing Money from the Policy Account,"
below.

SURRENDERING THE POLICY FOR CASH

Each EquiBuilder III policy has a Cash Surrender Value, which is the
difference between the value of the Policy Account and any surrender charge
which applies during the first ten policy years. If the policy is surrendered
for cash, the Policy Owner will receive the Net Cash Surrender Value, which is
the Cash Surrender Value less any outstanding loan and loan interest due. See
"Policy Account Transactions-Surrendering the Policy for Its Net Cash Surrender
Value," below. During the initial policy years, the applicable surrender charge
may represent a substantial portion of the premiums paid. See "Illustrations of
Death Benefits, Policy Account and Cash Surrender Values, and Accumulated
Premiums," below.

ADDITIONAL INFORMATION ABOUT EQUIBUILDER III POLICIES

RIGHT TO EXAMINE THE POLICY

The Policy Owner has the right to examine the policy and to return it to
American Franklin for a refund. A refund request must be postmarked by the
latest of:

10 days after the Policy Owner receives the policy;
10 days after American Franklin mails the Policy Owner a notice of this
right; or
45 days after the Policy Owner signed the application for the policy.

See "Additional Information About EquiBuilder III Policies-Right to Examine the
Policy," below.

TAX EFFECTS OF EQUIBUILDER III POLICIES

Generally, the death benefit paid to the beneficiary of a policy is not
subject to federal income tax. In addition, under current federal tax law, the
Policy Owner does not have to pay income tax on any earnings in the Policy
Account as long as they remain in the Policy Account. The federal tax treatment
of distributions from a policy (including loans, assignments, pledges, partial
withdrawals and distributions on maturity, lapse or surrender) may depend on
whether the policy is treated as a "modified endowment contract." A policy will
be treated as a modified endowment contract if, in general, the cumulative
amount of premiums paid during specified periods exceeds certain levels relating
to death benefits provided under the policy. See "Tax Effects," below.

LAPSE OF THE POLICY

A policy can lapse if the Net Cash Surrender Value is insufficient to pay
monthly charges. This situation can result even while a Policy Account has
positive value if potential surrender charges and policy loans are large enough
so that there is not enough left to cover monthly charges. Payment of planned
premiums does

<PAGE>

not guarantee the continuation of the policy. Also, failure to pay premiums
will not automatically cause the policy to terminate. However, additional
premium payments will be needed if the Net Cash Surrender Value is not
sufficient to pay monthly charges. American Franklin will give the Policy Owner
notice that additional premiums are required before a policy is terminated. See
"Additional Information About EquiBuilder III Policies-Lapse of the Policy,"
below.

INQUIRIES AND NOTICES

All inquiries and notices regarding the policies should be directed to
American Franklin at its Administrative Office at #1 Franklin Square,
Springfield, Illinois 62713-0001.

RATES OF RETURN OF THE PORTFOLIOS OF THE FUNDS

The rates of return shown below are based on the investment performance,
after expenses, of the portfolios of the Funds for the periods ending December
31, 1995. The rates of return shown below do not account for deductions made by
American Franklin from premiums. These consist of a deduction for premium taxes
and a sales expense deduction in the amount of 5% of each premium paid during
any policy year until total premiums for that policy year equal the Target
Premium. The rates of return shown below also do not account for American
Franklin's insurance and administrative charges, or the mortality and expense
risk charge of .75% per annum. Also, these rates do not reflect the surrender
charge which applies during the first ten policy years. These rates of return
are not a prediction or a guarantee of future investment performance.

Average annual returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the portfolios over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that a portfolio's performance is not
constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of a portfolio.

The following chart shows each portfolio's total returns for the periods
ended December 31, 1995:

AVERAGE ANNUAL TOTAL RETURNS

ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Money Market Portfolio 5.87% 4.66% 6.09% 7.10%(a)
High Income Portfolio 20.72% 18.92% 11.47% 11.80%(b)
Equity-Income Portfolio 35.09% 21.32% NA(c) 13.33%
Growth Portfolio 35.36% 20.78% NA(c) 14.83%
Overseas Portfolio 9.68% 8.12% NA(d) 7.31%
Investment Grade Bond Portfolio 17.32% 9.23% NA(e) 8.92%
Asset Manager Portfolio 16.96% 12.76% NA(f) 11.24%
Index 500 Portfolio 37.19% NA(g) NA(g) 15.44%
Asset Manager: Growth NA(h) NA(h) NA(h) NA(h)
Contrafund NA(h) NA(h) NA(h) NA(h)

</TABLE>

(a) Commenced operations on April 1, 1982
(b) Commenced operations on September 19, 1985
(c) Commenced operations on October 9, 1986
(d) Commenced operations on January 28, 1987
(e) Commenced operations on December 5, 1988 (formerly called the Short-Term
Portfolio)
(f) Commenced operations on September 6, 1989
(g) Commenced operations on August 27, 1992
(h) Commenced operations on January 3, 1995

If Fidelity Management had not reimbursed certain portfolio expenses for the
portfolios during these periods, the total returns would have been lower.

<PAGE>

DETAILED INFORMATION ABOUT AMERICAN FRANKLIN AND EQUIBUILDER III POLICIES

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

The American Franklin Life Insurance Company ("American Franklin") is a
legal reserve stock life, accident and health insurance company organized under
the laws of the State of Illinois in 1981. It is engaged in the writing of term
insurance, universal and variable universal life insurance and single premium
whole life insurance and the sale of disability insurance. American Franklin
has another separate account which issues interests in variable insurance
policies having policy features that are similar to those of EquiBuilder III
policies but the assets of which are invested in a different open-end management
investment company. American Franklin no longer offers new policies having an
interest in that separate account. American Franklin is presently authorized to
write insurance in forty-six states, the District of Columbia and Puerto Rico.
American Franklin's home office is located at #1 Franklin Square, Springfield,
Illinois 62713.

American Franklin is a wholly-owned subsidiary of The Franklin Life
Insurance Company ("The Franklin"). The Franklin is a legal reserve stock life
insurance company organized under the laws of the State of Illinois in 1884.
The Franklin issues individual life insurance, annuity and accident and health
insurance policies, group annuities and group life and health insurance and
offers a variety of whole life, life, retirement income and level and decreasing
term insurance plans. Its home office is located at #1 Franklin Square,
Springfield, Illinois 62713. The Franklin is not the issuer of the policies
offered by this Prospectus, however, it has certain indirect obligations in
respect to those policies arising from The Franklin's undertakings to the
issuer, American Franklin, as a reinsurer of portions of the death benefits
provided under the policies.

The Franklin is a wholly-owned subsidiary of American Franklin Company
("AFC"). American General Corporation ("American General") through its
wholly-owned subsidiary, AGC Life Insurance Company, owns all of the outstanding
shares of common stock of AFC. The address of AFC is #1 Franklin Square,
Springfield, Illinois 62713. The address of AGC Life Insurance Company is
American General Center, Nashville, Tennessee 37250-0001. The address of
American General is 2929 Allen Parkway, Houston, Texas 77019-2155.

American General is the parent company of one of the nation's largest
diversified financial services organizations. American General's operating
subsidiaries are leading providers of retirement annuities, consumer loans, and
life insurance.

American General was incorporated as a general business corporation in Texas
in 1980 and is the successor to American General Insurance Company, an insurance
company incorporated in Texas in 1926.

American General has advised American Franklin that there was no person who
was known to it to be the beneficial owner of 10% or more of the voting power of
American General as of April 1, 1996.

THE FEATURES OF EQUIBUILDER III POLICIES

HOW EQUIBUILDER III POLICIES DIFFER FROM WHOLE LIFE INSURANCE

EquiBuilder III policies are designed to provide life insurance coverage
with flexibility in death benefits, premium payments and investment choices.
EquiBuilder III policies are different from traditional whole life insurance in
that the Policy Owner is not required to pay scheduled premiums and may, within
limits, choose the amount and frequency of premium payments. EquiBuilder III
policies also provide for two different types of death benefit options and the
Policy Owner may switch back and forth between these options. Another feature
of EquiBuilder III policies which is not available under traditional whole life
insurance is that the Policy Owner generally has the ability to increase or
decrease the Face Amount without purchasing a new policy. However, evidence of
insurability may be required. In addition, the Policy Owner may direct the
investment of net premiums, which will determine, in part, the value of the
Policy Account.

<PAGE>

DEATH BENEFITS

American Franklin will pay a death benefit (net of any policy loan and loan
interest) to the beneficiary of a policy when the Insured Person dies. The
Policy Owner may choose from two death benefit options: Option A and Option B.
Option A provides a benefit that equals the Face Amount of the policy. Except
as described below, the Option A benefit is fixed. Option B provides a benefit
that equals the Face Amount of the policy plus the amount in the Policy Account
on the day the Insured Person dies. Under Option B, the value of the benefit is
variable and fluctuates with the amount in the Policy Account. Option B entails
a higher monthly cost of insurance charge than Option A and will cause the value
of the Policy Account, and hence the Net Cash Surrender Value of the policy, to
be less than if Option A were chosen, all other things being equal.

Under both options, an alternate death benefit based on provisions of the
federal income tax law applies if it would provide a greater benefit (before
deductions for any outstanding policy loan and loan interest) than the option
selected. This benefit is a percentage multiple of the amount in the Policy
Account. The percentage declines as the Insured Person gets older. The benefit
will be the amount in the Policy Account on the day the Insured Person dies
multiplied by the percentage for the Insured Person's age (as of his or her
nearest birthday) at the beginning of the policy year of the Insured Person's
death. For ages that are not shown on the table set forth below, the applicable
percentages will decrease by a ratable portion for each full year.

Table of Death Benefits
Based On Policy Account Values

- - --------------------------------------------------------------------------------
MINIMUM DEATH BENEFIT AS PERCENTAGE
INSURED PERSON'S AGE OF THE POLICY ACCOUNT
- - --------------------------------------------------------------------------------
<S> <C>
40 or under 250%
45 215
50 185
55 150
60 130
65 120
70 115
75 to 90 105
95 100

</TABLE>

For example, if the Insured Person were 40 years old and the amount in the
Policy Account were $100,000, the death benefit would be at least $250,000 (250%
of $100,000).

These percentages are based on provisions of federal tax law which require a
minimum death benefit in relation to cash value for a policy to qualify as life
insurance. See "Tax Effects," below.

Under either Option A or Option B, the length of time a policy remains in
force depends on the Net Cash Surrender Value of the policy. Because the
charges that maintain the policy are deducted from the Policy Account, coverage
will last as long as the Net Cash Surrender Value (the amount in the Policy
Account minus the surrender charge and any outstanding policy loan and loan
interest) can cover these deductions. (See "Additional Information about
EquiBuilder III Policies-Lapse of the Policy," below.) The investment experience
(which may be either gain or loss) of any amounts in the investment divisions of
the Separate Account and the interest earned in the Guaranteed Interest Division
will affect the amount in the Policy Account. As a result, the returns from
these divisions will affect the length of time a policy remains in force. See
"Policy Account Value," below.

Policy Owners who prefer to have insurance coverage that varies with the
investment experience of their Policy Account should choose Option B. In no
event will the death benefit under Option B be less than the greater of the Face
Amount of the policy or the alternate death benefit described above (in either
case, less any outstanding policy loan and loan interest). Policy Owners who
prefer to have insurance coverage that does not vary in amount and that has
lower cost of insurance charges should choose Option A.

POLICY ISSUANCE INFORMATION

<PAGE>

American Franklin will not issue a new policy having a Face Amount that is
less than $50,000 nor will it issue a policy in respect of an Insured Person who
is older than 75.

No insurance under a policy will take effect: (a) until a policy is
delivered and the full initial premium is paid while the person proposed to be
insured is living and (b) unless the information in the application continues to
be true and complete, without material change, as of the time the premium is
paid.

See "The Features of EquiBuilder III Policies-Flexible Premium Payments" and
"Distribution of the Policies-Applications," below for additional information
concerning procedures for obtaining a policy.

MATURITY BENEFIT

If the Insured Person is still living on the policy anniversary nearest his
or her 95th birthday, American Franklin will pay the Policy Owner the amount in
the Policy Account net of any outstanding loan and loan interest. The policy
will then end.

CHANGES IN EQUIBUILDER III POLICIES

EquiBuilder III policies provide the Policy Owner flexibility to choose from
a variety of strategies, described in the sections that follow, which enable the
Policy Owner to increase or decrease his or her insurance protection.

A reduction in Face Amount lessens emphasis on the policy's insurance
coverage by reducing both the death benefit and the amount at risk (the
difference between the current death benefit under the policy and the amount of
the Policy Account). The reduced amount at risk results in lower cost of
insurance charges against the Policy Account. See "The Features of EquiBuilder
III Policies-Changing the Face Amount of Insurance," below. A partial
withdrawal of Net Cash Surrender Value reduces the Policy Account and death
benefit, while providing a cash payment but does not reduce the amount at risk
or the cost of insurance charges. See "Policy Account Transactions-Withdrawing
Money from the Policy Account," below. Choosing not to make premium payments
may have the effect of reducing the Policy Account. Reducing the Policy Account
will, under Option A, increase the amount at risk (and thereby increase cost of
insurance charges) while leaving the death benefit unchanged; under Option B, it
will decrease the death benefit while leaving the amount at risk and the cost of
insurance charge unchanged. See "The Features of EquiBuilder III
Policies-Flexible Premium Payments," below.

Increases in the Face Amount emphasize insurance coverage by increasing both
the death benefit and the amount at risk. See "The Features of EquiBuilder III
Policies-Changing the Face Amount of Insurance," below. Additional premium
payments may increase the Policy Account, which has the effect, under Option A,
of reducing the amount at risk and cost of insurance charge while leaving the
death benefit unchanged, or, under Option B, of increasing the death benefit
while leaving the amount at risk and cost of insurance charge unchanged. See
"The Features of EquiBuilder III Policies-Flexible Premium Payments," below.

CHANGING THE FACE AMOUNT OF INSURANCE

Any time after the first policy year while a policy is in force, the Policy
Owner may change the policy's Face Amount. This may be done by sending a
written request to American Franklin's Administrative Office. Any change will
be subject to American Franklin's approval and the following conditions:

If the Face Amount is to be increased, satisfactory evidence that the
Insured Person is still insurable must be provided. American Franklin's
current procedure if the Insured Person has become a more expensive risk is
to ask the Policy Owner to confirm that he or she wishes to pay higher cost
of insurance charges on the amount of the increase.

Any increase in the Face Amount must be at least $10,000. Monthly
deductions from the Policy Account for the cost of insurance will increase,
beginning on the date the increase in the Face Amount takes effect. In
addition, a one-time administrative charge for each increase will be made
against the Policy Account. This charge is currently $1.50 for each
additional $1,000 of insurance up to a maximum charge of $300. An increase
in the Face Amount will not increase the maximum surrender charge.

<PAGE>

The Face Amount may not be reduced below the minimum American Franklin
requires to issue a policy at the time of the reduction. Monthly charges
against the Policy Account for the cost of insurance will decrease if the
Face Amount is reduced. If the Face Amount is reduced during the first ten
policy years, a pro rata share of the applicable surrender charge will be
made against the Policy Account. See "Deductions and Charges-Surrender
Charge," below.

American Franklin's current procedure is to disapprove a requested decrease
in the Face Amount if it would cause the alternate death benefit to apply.
Instead, the Policy Owner will be requested to make a partial withdrawal of Net
Cash Surrender Value from the Policy Account and then a decrease in the Face
Amount. See "The Features of EquiBuilder III Policies-Death Benefits," below.

American Franklin's current procedure, if the Policy Owner requests a Face
Amount decrease when there has been a previous increase in the Face Amount, is
to apply the decrease first against the most recent increase in the Face Amount.
Decreases will then be applied to prior increases in the Face Amount in the
reverse order in which such increases took place, and then to the original Face
Amount.

Policy changes that result in a reduction of the death benefit, such as a
decrease in the Face Amount, may cause a policy to become a "modified endowment
contract." See "Tax Effects," below.

CHANGING DEATH BENEFIT OPTIONS

At any time after the first policy year while a policy is in force, the
Policy Owner may change the death benefit option by sending a written request to
American Franklin's Administrative Office. If the death benefit is changed from
Option A to Option B, the Face Amount will be decreased by the amount in the
Policy Account on the date of the change. Such a change may not be permitted if
it would reduce the Face Amount below the minimum American Franklin requires to
issue a policy at the time of the reduction. If the death benefit is changed
from Option B to Option A, the Face Amount of insurance will be increased by the
amount in the Policy Account on the date of the change.

No evidence of insurability will be required for the increase in the Face
Amount that occurs when a change is made from Option B to Option A, nor will any
charge be made for this increase. No surrender charge is made for the decrease
in the Face Amount that occurs when a change is made from Option A to Option B.
These increases and decreases in the Face Amount are made so that the amount of
the death benefit remains the same on the date of the change. When the death
benefit remains the same, there is no change in the net amount at risk, which is
the amount on which cost of insurance charges are based (see "Deductions and
Charges-Charges Against the Policy Account-Cost of Insurance Charge," below).

WHEN POLICY CHANGES GO INTO EFFECT

Any change in the Face Amount or death benefit option of a policy will go
into effect at the beginning of the policy month following the date American
Franklin approves a request for the change. After a request is approved,
American Franklin will send the Policy Owner a written notice of the approval
showing each change. The Policy Owner should attach this notice to his or her
policy. American Franklin may also request that the policy be returned to its
Administrative Office so that the appropriate changes may be made.

In some cases, a change requested by the Policy Owner may not be approved
because it might disqualify the policy as life insurance under applicable
federal tax law. American Franklin will send the Policy Owner a written notice
of its decision to disapprove any requested change for this reason. See "Tax
Effects," below.

FLEXIBLE PREMIUM PAYMENTS

The Policy Owner may choose the amount and frequency of premium payments, as
long as they are within the limits described below. Even though premiums are
flexible, the Policy Information page of each policy will show a "planned"
periodic premium. The planned premium is determined by the Policy Owner within
limits set by American Franklin when the Policy Owner applied for a policy and
is not necessarily designed to equal the amount of premiums that will keep the
policy in effect. Planned premiums are generally the amount the Policy Owner
decides he or she wants to pay and can be changed at any time.

<PAGE>

The Policy Owner must pay a minimum initial premium on or before the date on
which the policy is delivered by American Franklin. The insurance will not go
into effect until American Franklin receives this minimum initial premium.
American Franklin determines the applicable minimum initial premium based on the
age, sex and risk class of the Insured Person, the initial Face Amount of the
policy and any additional benefits selected. The first premium payment may be
made by check or money order payable to "The American Franklin Life Insurance
Company." Any additional premiums should be made by check or money order payable
to "The American Franklin Life Insurance Company" and should be sent directly to
its Administrative Office.

American Franklin will send the Policy Owner premium reminder notices based
on the planned premium unless the Policy Owner requests American Franklin not to
do so in his or her application or by writing to American Franklin's
Administrative Office. Nevertheless, the Policy Owner may make the planned
payment, skip the planned payment or change the frequency or the amount of the
payment.

Generally, the Policy Owner may pay other premiums at any time and in any
amount, as long as each payment is at least $100. (Policies issued in some
states may have different minimum premium payments.) American Franklin may
increase this minimum upon 90 days' written notice. American Franklin may also
reject premium payments in a policy year if the payments would cause the policy
to cease to qualify as life insurance under federal tax law. See "Tax Effects,"
below.

If the Policy Owner stops paying premiums temporarily or permanently, the
policy will continue in effect until the Net Cash Surrender Value can no longer
cover the monthly charges against the Policy Account for the benefits selected.
In addition, it should be noted that planned premiums may not be sufficient to
maintain a policy because of investment experience, policy changes or other
factors.

The tables set forth below under "Illustrations of Death Benefits, Policy
Account and Cash Surrender Values, and Accumulated Premiums" illustrate how the
key financial elements of EquiBuilder III policies work. The tables show death
benefits and Policy Account and Cash Surrender Values with Face Amounts and
planned annual premiums of different amounts for Insured Persons of different
ages.

ADDITIONAL BENEFITS

A policy may include additional benefits. A charge will be made against the
Policy Account monthly for each additional benefit. These benefits may be
cancelled at any time. More details will be included in the policy if any of
these benefits are selected. The following additional benefits are currently
available:

DISABILITY WAIVER BENEFIT. With this benefit, monthly charges from the
Policy Account are waived if the Insured Person becomes totally disabled on
or after the Insured Person's fifth birthday and the disability continues
for six months. If the disability starts before the policy anniversary
nearest the Insured Person's 60th birthday, American Franklin will waive
monthly charges for life as long as the disability continues. If the
disability starts after that, the charges will be waived only up to the
policy anniversary nearest the Insured Person's 65th birthday (as long as
the disability continues).

ACCIDENTAL DEATH BENEFIT. American Franklin will pay an additional
benefit if the Insured Person dies from bodily injury that results from an
accident, provided the Insured Person dies before the policy anniversary
nearest his or her 70th birthday.

CHILDREN'S TERM INSURANCE. This benefit provides term life insurance
on the lives of the Insured Person's children, including natural children,
stepchildren and legally adopted children, who have not yet reached their
eighteenth birthdays. The charge for this benefit covers all children under
eighteen. They are covered only until the Insured Person reaches age 65 or
the child reaches age 25, whichever first occurs.

TERM INSURANCE ON AN ADDITIONAL INSURED PERSON. Term insurance may be
obtained for another person, such as the Insured Person's spouse, under a
policy. A separate charge will be deducted for each additional insured
person.

<PAGE>

SEPARATE ACCOUNT INVESTMENT CHOICES

After certain amounts are deducted from each premium, the balance, called
the net premium, is put into the Policy Account established for each policy.
See "Deductions and Charges-Deductions from Premiums," below. The Policy
Account will be invested in the Money Market division until the first business
day fifteen days after the Issue Date of the policy. At that time, the Policy
Account will be allocated to the Guaranteed Interest Division or to one or more
of the investment divisions of the Separate Account or both, according to the
directions provided in the policy application. These instructions will apply to
any subsequent premium until new written instructions are given to American
Franklin at its Administrative Office. Premium allocation percentages may be
any whole number from zero to 100, but the sum must equal 100. See "The
Guaranteed Interest Division," below.

THE SEPARATE ACCOUNT AND ITS INVESTMENT DIVISIONS

The Separate Account was established on April 9, 1991 under the Insurance
Law of the State of Illinois, and is a unit investment trust registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
This registration does not involve any supervision by the Securities and
Exchange Commission of the management or investment policies of the Separate
Account. A unit investment trust is a type of investment company. The Separate
Account meets the definition of a "separate account" under federal securities
laws. The Separate Account has several investment divisions, each of which
invests in shares of a corresponding portfolio of the Variable Insurance
Products Fund or of the Variable Insurance Products Fund II (individually, a
"Fund," and collectively, the "Funds"). Currently, Money Market, High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, Index
500, Asset Manager: Growth and Contrafund divisions are available for investment
under EquiBuilder III policies. The Separate Account also issues interests
under EquiBuilder II variable life insurance policies, which have policy
features that are similar to those of EquiBuilder III policies but which have a
different sales charge structure.

THE FUNDS

Each of the Funds is a diversified open-end management investment company,
more commonly called a mutual fund. As "series" type mutual funds, they issue
several different "series" of stock, each of which relates to a different Fund
portfolio. The Funds currently have an aggregate of ten portfolios, each of
which has different investment objectives, policies and risks.

The Funds do not impose a sales charge or "load" for buying and selling
their shares. The Funds' shares are bought and sold by the Separate Account at
net asset value pursuant to agreements between American Franklin, the Funds and
the Funds' principal underwriter, Fidelity Distributors Corporation ("FDC"), 82
Devonshire Street, Boston, Massachusetts 02109. The Bank of New York, 110
Washington Street, New York, New York, is custodian of Money Market, High Income
and Investment Grade Bond Portfolio's assets; The Chase Manhattan Bank N.A.,
1211 Avenue of the Americas, New York, New York 10036, is custodian of
Equity-Income, Overseas, Asset Manager and Asset Manager: Growth Portfolios'
assets; and Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, is custodian of Growth, Index 500 and Contrafund Portfolios'
assets. The custodians take no part in determining the investment policies of
the portfolios or in deciding which securities are purchased or sold by the
portfolios.

The Funds sell their shares to separate accounts of insurance companies.
See "Voting Rights of a Policy Owner-Voting Privileges of Participants in Other
Separate Accounts" for information about measures that will be taken to protect
Policy Owners in the event of a conflict of interest between the Separate
Account and other separate accounts that invest in the Funds.

More detailed information about the Funds, their investment policies, risks,
expenses and all other aspects of their operations appears in their Prospectus,
which is attached to this Prospectus, and in their Statements of Additional
Information referred to therein.

INVESTMENT POLICIES OF THE PORTFOLIOS OF THE FUNDS

<PAGE>

Each portfolio of the Funds has a different investment objective which it
tries to achieve by following separate investment policies. The objectives and
policies of each portfolio will affect its return and its risks. The investment
experiences of the divisions of the Separate Account depend on the performances
of the corresponding portfolios. The investment objectives, policies,
restrictions and risks of the portfolios of the Funds are described in detail in
the Prospectus for the Funds, which is attached to this Prospectus, and in the
Funds' Statements of Additional Information. The policies and objectives of the
portfolios of the Variable Insurance Products Fund corresponding to the
divisions currently available for investment under EquiBuilder III policies may
be summarized as follows:

MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The
portfolio will invest only in high-quality U.S. dollar denominated money
market securities of domestic and foreign issuers.

HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high yielding, lower rated, fixed-income securities,
while also considering growth of capital. The portfolio may purchase
lower-quality bonds which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a discussion of
the risks of investment in these securities, please see the Prospectus for
the Funds, which is attached to this Prospectus.

EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
portfolio will also consider the potential for capital appreciation. The
portfolio's goal is to achieve a yield which exceeds the composite yield on
the securities comprising the Standard & Poor's 500 Composite Stock Price
Index.

GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be
found in other types of securities including bonds and preferred stocks.

OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.

The policies and objectives of the portfolios of the Variable Insurance
Products Fund II corresponding to the divisions currently available for
investment under EquiBuilder III policies may be summarized as follows:

INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income
as is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The portfolio will
maintain dollar-weighted average portfolio maturity of ten years or less.

ASSET MANAGER PORTFOLIO seeks a high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed-income instruments.

INDEX 500 PORTFOLIO seeks investment results that correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by Standard &
Poor's 500 Composite Stock Price Index, while keeping transaction costs and
other expenses low.

ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return over the
long term through investments in stocks, bonds and short-term instruments.

CONTRAFUND PORTFOLIO seeks to increase the value of investments over the
long term by investing in securities of companies that are undervalued or
out-of-favor.

Except for the Money Market, Investment Grade Bond and Index 500 Portfolios,
the portfolios may purchase lower-quality bonds which provide poor protection
for payment of principal and interest (commonly referred to as "junk bonds").
These securities are often in default or are highly speculative. Lower-quality
bonds involve greater risk of default or price changes than securities assigned
a higher quality rating due to changes in the issuer's creditworthiness. This
is an aggressive approach to income

<PAGE>

investing. For a discussion of the risks of investment in these securities,
please see the Prospectus for the Funds, which is attached to this Prospectus.

There is no guarantee that any portfolio of the Funds will achieve its
objective. In addition, the Funds' Prospectus advises that no single portfolio
constitutes a balanced investment plan.

THE INVESTMENT MANAGER OF THE FUNDS

Subject to the approval and supervision of the Funds' Boards of Trustees,
Fidelity Management manages the day-to-day investment operations of the Funds
and exercises overall responsibility for the investment and reinvestment of the
Funds' assets. See the Prospectus of the Funds for a description of the
experience and qualifications of Fidelity Management.

Fidelity is one of America's largest investment management organizations and
has its principal business address at 82 Devonshire Street, Boston,
Massachusetts. It includes a number of different companies, which provide a
variety of financial services and products. Each portfolio of the Funds employs
various Fidelity companies to perform certain activities required for its
operation.

Fidelity Management is the original Fidelity company, founded in 1946. It
provides a number of mutual funds and other clients with investment research and
portfolio management services. It maintains a large staff of experienced
investment personnel and a full complement of related support facilities.
Fidelity Management is a registered investment adviser under the Investment
Advisers Act of 1940. As of December 31, 1995, Fidelity Management advised
funds having more than 23 million shareholder accounts with a total value of
more than $354 billion. FMR Corp. is the ultimate parent of Fidelity Management
and FDC. Members of the Edward C. Johnson 3d family are the predominant owners
of a class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940, control of
a company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company; therefore, the Johnson family may
be deemed under the Investment Company Act of 1940 to form a controlling group
with respect to FMR Corp.

For managing each portfolio's investments and business affairs, each
portfolio pays Fidelity Management a monthly fee. See the Prospectus and
Statement of Additional Information of the Funds for a description of the way in
which these fees are calculated. Each portfolio also pays fees to other
companies affiliated with Fidelity Management for various services. Fidelity
Management has entered into sub-advisory agreements with affiliated companies
with respect to management of the High Income, Overseas, Money Market, Asset
Manager, Asset Manager: Growth and Contrafund Portfolios. The following table
shows the management fees, other expenses and total annual expenses paid during
fiscal 1995 by each portfolio, expressed as a percentage of average daily assets
of each portfolio:

Total Annual
Portfolio Management Fee Other Expenses Expenses
--------- -------------- -------------- --------
<S> <C> <C> <C>
Money Market Portfolio 0.24% 0.09% 0.33%

High Income Portfolio 0.60% 0.11% 0.71%(1)

Equity-Income Portfolio 0.51% 0.10% 0.61%

Growth Portfolio 0.61% 0.09% 0.70%

Overseas Portfolio 0.76% 0.15% 0.91%

Investment Grade Bond Portfolio 0.45% 0.14% 0.59%

Asset Manager Portfolio 0.71% 0.08% 0.79%(1)

Index 500 Portfolio 0.00% 0.28% 0.28%(2)

<PAGE>

Contrafund Portfolio 0.61% 0.11% 0.72%(1)

Asset Manager: Growth Portfolio 0.71% 0.29% 1.00%(1)(2)

</TABLE>

(1) A portion of the brokerage commissions the Funds paid was used to
reduce its expenses. Without this reduction total annual expenses would have
been: for High Income Portfolio: 0.71%; for Asset Manager Portfolio: 0.81%;
for Asset Manager: Growth Portfolio: 1.13%; and for Contrafund Portfolio:
0.73%.

(2) The Funds' expenses were voluntarily reduced by the Funds' investment
adviser. Absent reimbursement, management fees, other expenses, and total
expenses would have been: for Index 500 Portfolio: 0.28%, 0.19% and 0.47%,
respectively; and for Asset Manager: Growth Portfolio: 0.71%, 0.42% and
1.13%, respectively.

Fidelity Management may, from time to time, agree to reimburse a portfolio
for management fees and other expenses above a specified percentage of average
net assets. Reimbursement arrangements, which may be terminated at any time
without notice, will increase a portfolio's yield. If Fidelity Management
discontinues a reimbursement arrangement, an affected portfolio's expenses will
go up and its yield will be reduced. Fidelity Management retains the ability to
be repaid by a portfolio for expense reimbursements if expenses fall below the
limit prior to the end of the fiscal year. Repayment by a portfolio will lower
its yield.

See the Prospectus and the Statements of Additional Information of the Funds
for more information about the services provided by and the fees paid to
Fidelity Management and its affiliated companies.

OWNERSHIP OF THE ASSETS OF THE SEPARATE ACCOUNT

Under Illinois law, American Franklin owns the assets of the Separate
Account and uses them to support EquiBuilder III policies, other existing
variable life policies and other variable life policies it may issue in the
future. The portion of the Separate Account's assets supporting these policies
may not be used to satisfy liabilities arising out of any other business of
American Franklin. Under certain unlikely circumstances, one investment
division of the Separate Account may be liable for claims relating to the
operations of another division. In addition to premiums from EquiBuilder III
policies, American Franklin may allocate premiums from other policies to the
Separate Account. These policy owners will participate in the Separate Account
in proportion to the amounts in the Separate Account relating to their policies.
American Franklin may also permit charges owed to it to stay in the Separate
Account. Thus, American

<PAGE>

Franklin may also participate proportionately in the Separate Account. These
accumulated amounts belong to American Franklin and American Franklin may
transfer them from the Separate Account to its General Account at any time.

RIGHT TO CHANGE OPERATIONS

American Franklin reserves the right to change or add investment companies
in which Policy Accounts will be invested and to modify how it or the Separate
Account operates. American Franklin intends to comply with applicable law in
making any changes and, if necessary, will seek Policy Owner approval. American
Franklin has the right to:

add investment divisions to, or remove investment divisions from, the
Separate Account, combine two or more divisions within the Separate Account,
or withdraw assets relating to EquiBuilder III policies from one investment
division and put them into another;

operate the Separate Account under the direction of a committee or
discharge such a committee at anytime (the committee may be composed
entirely of persons who are "interested persons" of American Franklin within
the meaning of the Investment Company Act of 1940);

restrict or eliminate any voting rights of Policy Owners or other people
who have voting rights that affect the Separate Account;

operate the Separate Account or one or more of its investment divisions
in any other form the law allows, including a form that allows the Separate
Account to make direct investments. The Separate Account may be charged an
advisory fee if its investments are made directly, rather than through an
investment company. American Franklin may invest the assets of the Separate
Account in any legal investments. In choosing these investments American
Franklin will rely on its own or outside counsel for advice. In addition,
American Franklin may disapprove any change in investment advisers or in
investment policy unless a law or regulation provides differently; and

modify the provisions of the policies to assure qualification under the
pertinent provisions of the Code or to comply with other applicable federal
or state laws.

If any changes are made that result in a material change in the underlying
investments of an investment division, Policy Owners will be notified as
required by law. American Franklin may, for example, cause an investment
division to invest in a mutual fund other than or in addition to the Funds. If,
as a result of any such material change, a Policy Owner then wishes to transfer
the amount of his or her Policy Account invested in one investment division to
another division of the Separate Account or to the Guaranteed Interest Division,
he or she may do so without charge, by giving written instructions to American
Franklin at its Administrative Office. At the same time, the manner in which
net premiums and deductions are allocated may be changed.

DEDUCTIONS AND CHARGES

For information regarding other charges see also "Policy Account
Transactions," below.

DEDUCTIONS FROM PREMIUMS

Unless a loan is outstanding (see "Policy Account Transactions-Repaying the
Loan," below), any payment received by American Franklin before the Final Policy
Date is treated as a premium. The Final Policy Date is the policy anniversary
nearest the Insured Person's 95th birthday. Applicable taxes and a sales
expense deduction (subject to an annual maximum deduction) are deducted from all
premiums. The balance of each premium (the net premium) is placed in the Policy
Account.

All states and certain other jurisdictions (cities, counties,
municipalities) tax premium payments and some levy other charges. Taxes
currently range up to 5%. American Franklin deducts the applicable tax from
each premium payment. This is a tax to American Franklin, so the Policy Owner
cannot deduct it

<PAGE>

on his or her income tax return. The amount of the tax will vary depending on
the jurisdiction in which the Policy Owner resides. Since the tax is a
percentage of the premium, the amount of the tax will also vary with the amount
of the premium. This deduction for taxes will be increased or decreased to
reflect any changes in the applicable tax based on premiums. In addition, if a
Policy Owner changes his or her place of residence, the deduction will be
changed to the tax rate of the new jurisdiction. The Policy Owner should notify
American Franklin if he or she changes residence.

American Franklin makes a sales expense deduction equal to 5% of each
premium paid during any policy year until the total premiums for the policy year
equal the Target Premium. (See "Definitions," above, and "Deductions and
Charges-Surrender Charge," below, for more information concerning the Target
Premium). No sales expense deduction is made for premiums in excess of a Target
Premium paid during that policy year. During the next policy year, American
Franklin will again make a sales expense deduction equal to 5% of each premium
until total premiums paid during that policy year equal the Target Premium. A
Policy Owner can reduce aggregate sales expense deductions by concentrating
premium payments in a few policy years so that the premiums paid in each of
those years exceed a target premium. However, concentration of premium payments
during a policy's early policy years, and in particular during the first policy
year, may increase the contingent deferred sales charge that will be imposed if
the policy is surrendered or, in some instances, if the Face Amount of the
policy is reduced or the policy is permitted to lapse during the first ten
policy years. See "Deductions and Charges - Surrender Charge," below. In
addition, concentration of premium payments during the first seven policy years
can increase the likelihood that a policy will be considered a modified
endowment contract. See "Tax Effects - Policy Proceeds," below.

Sales expense deductions are made to help recover some expenses of
distributing the EquiBuilder III policies. These expenses include agents'
commissions and the printing of the EquiBuilder III prospectus and sales
literature. Sales expenses are also recovered through a contingent deferred
sales charge, which will be imposed if the policy is surrendered or, in some
instances, if the Face Amount of the policy is reduced or the policy is
permitted to lapse during the first ten policy years. The amount of sales
expense deductions and contingent deferred sales charges in any policy year is
not necessarily related to actual sales expenses in that year. See "Deductions
and Charges-Surrender Charge," and "Distribution of the Policies," below.

CHARGES AGAINST THE POLICY ACCOUNT

At the beginning of each policy month, the following charges are made
against each Policy Account. Additional charges against amounts in the Separate
Account are described under "Deductions and Charges-Charges Against the Separate
Account," below.

ADMINISTRATIVE CHARGE. The current charge is $6 per month. This charge is
designed to cover the continuing costs of maintaining the EquiBuilder III
policies, such as premium billing and collection, claim processing, policy
transactions, record keeping, communications with Policy Owners and other
expenses and overhead. This charge may be raised to reflect higher costs, but
American Franklin guarantees it will never be more than $12 per month. This
charge is designed to reimburse American Franklin for expenses and American
Franklin does not expect to profit from it. At the beginning of each of the
first twelve policy months that a policy is in effect, an additional
administrative charge of $24 per month will be deducted. This charge permits
American Franklin to recover the costs of issuance and placement of the policy
such as application processing, medical examinations, establishment of policy
records and underwriting costs (determining insurability and assigning the
Insured Person to a risk class). This charge is designed to reimburse American
Franklin for expenses and American Franklin does not expect to profit from it.

COST OF INSURANCE CHARGE. The cost of insurance is American Franklin's
current monthly cost of insurance rate multiplied by the amount at risk at the
beginning of the policy month. The amount at risk is the difference between the
current death benefit and the amount in the Policy Account. If the current
death benefit for the month is increased due to the requirements of federal tax
law (see "The Features of EquiBuilder III Policies-Death Benefits," above), the
amount at risk for the month will also increase. For this purpose the amount of
each Policy Account is determined before deduction of the cost of insurance
charge but after all other charges due on that date. The amount of the cost of
insurance charge will vary from month to month with changes in the amount at
risk and with increasing age of the Insured Person.

<PAGE>

The cost of insurance rate is based on the sex, age and risk class of the
Insured Person and the Face Amount size band of the policy at the time of the
charge. American Franklin may change these rates from time to time, but they
will never be more than the guaranteed maximum rates set forth in a particular
policy. The maximum charges are based on the Commissioner's 1980 Standard
Ordinary Male and Female Mortality Tables. The table below shows the current
and guaranteed maximum monthly cost of insurance rates per $1,000 of amount at
risk for a male non-smoker at various ages. In Montana and Massachusetts there
will be no distinctions based on sex. Congress and the legislatures of various
states have from time to time considered legislation that would require
insurance rates to be the same for males and females of the same age and risk
class. In addition, employers and Employee Organizations should consider the
impact of Title VII of the Civil Rights Act of 1964 on the purchase of an
EquiBuilder III policy in connection with an employment related insurance or
benefit plan. See "Employee Benefit Plans," below. Where required, American
Franklin will provide cost of insurance charges that do not distinguish between
males and females.

ILLUSTRATIVE TABLE OF MONTHLY COST OF INSURANCE RATES FOR
MALE NON-SMOKER (ROUNDED) PER $1,000 OF AMOUNT AT RISK

$50,000 - $199,999 $200,000 AND OVER
FACE AMOUNT SIZE BAND FACE AMOUNT SIZE BAND
--------------------- ---------------------
ATTAINED GUARANTEED CURRENT GUARANTEED CURRENT
AGE MAXIMUM RATE RATE MAXIMUM RATE RATE
--- ------------ ---- ------------ ----
<S> <C> <C> <C> <C>
5 $.08 $.08 $.08 $.08
15 .11 .11 .11 .10
25 .15 .10 .15 .10
35 .18 .11 .18 .10
45 .38 .20 .38 .17
55 .88 .49 .88 .42
65 2.14 1.42 2.14 1.20

</TABLE>

For a male non-smoker, age 35, with a $100,000 Face Amount Option A policy, an
initial premium of $1,000, and a 2% premium tax, the cost of insurance for the
first month will be $10.90. This example reflects deduction of a 5% sales
expense deduction and the current administrative charges ($6 per month plus the
additional charge of $24 per month that applies for the first 12 policy months)
and uses the current cost of insurance rate ($.11 per $1,000).

CHARGES FOR ADDITIONAL BENEFITS. The cost of any additional benefits will
be deducted monthly. These charges may be changed, but each policy contains
tables showing the guaranteed maximum rates for all of these insurance costs.

CHANGES IN MONTHLY CHARGES. Any changes in the cost of insurance, charges
for additional benefits or administrative charges will be by class of Insured
Person and will be based on changes in future expectations about such things as
investment earnings, mortality, the length of time policies will remain in
effect, expenses and taxes.

CHARGES AGAINST THE SEPARATE ACCOUNT

The amount in the Policy Account which is allocated to the investment
divisions of the Separate Account will be reduced proportionately by the
following fees and charges, which are allocated to the investment divisions of
the Separate Account. These fees and charges will not be made against amounts
allocated to the Guaranteed Interest Division.

MORTALITY AND EXPENSE RISKS. American Franklin makes a charge for assuming
mortality and expense risks. American Franklin guarantees that monthly
administrative and cost of insurance deductions from the Policy Account will
never be greater than the maximum amounts shown in the policy. The mortality
risk assumed is that insured persons will live for shorter periods than
estimated. When this happens, American Franklin has to pay a greater amount of
death benefit than expected in relation to the cost of insurance charges it
received. The expense risk assumed is that the cost of

<PAGE>

issuing and administering policies will be greater than expected. American
Franklin makes a daily charge for mortality and expense risks at an effective
annual rate of .75% of the value of the assets in the Separate Account
attributable to EquiBuilder III policies. This charge is reflected in the unit
values for the investment divisions of the Separate Account. See "Policy
Account Value-Determination of Unit Value," below. If the money collected from
this charge is not needed, it will be to American Franklin's gain.

CHARGES AGAINST THE FUNDS. The Separate Account purchases shares of the
Funds at net asset value. That price reflects investment management fees and
other direct expenses that have already been deducted from the assets of the
Funds. The Funds do not impose a sales charge. See "The Investment Adviser of
the Funds," above and the Funds' Prospectuses and Statements of Additional
Information for details concerning the Funds' investment management fees and
other expenses.

TAX RESERVE. American Franklin reserves the right to make a charge in the
future for taxes or reserves set aside for taxes, which will reduce the
investment income of the investment divisions of the Separate Account. See "Tax
Effects," below.

SURRENDER CHARGE

If a policy is totally surrendered, or, in some instances, if the Face
Amount of the policy is reduced or the policy is permitted to lapse during the
first ten policy years, a surrender charge is imposed as a means to recover
sales expenses. See "Deductions and Charges-Deductions from Premiums," above,
and "Distribution of the Policies," below. The amount of the surrender charge
will vary depending on the policy year in which the redemption occurs and the
amount of premium paid. No surrender charge will be applicable after the tenth
policy year. If during the first ten policy years a policy is not surrendered
or permitted to lapse and the Face Amount is not reduced, no surrender charge
will be incurred.

The surrender charge is a contingent deferred sales load. It is a
contingent load because it is imposed only if the Policy Owner surrenders his or
her policy (or reduces its Face Amount or lets it lapse) during the first ten
policy years. It is a deferred load because it is not deducted from premiums.
The amount of the load in a policy year is not necessarily related to actual
sales expense in that year. See "Deductions and Charges-Deductions from
Premiums," above, and "Distribution of the Policies," below.

The surrender charge is the difference between the amount in a particular
Policy Account and the Cash Surrender Value of the related policy during the
first ten policy years.

In the first ten policy years, a surrender charge will be imposed if the
Policy Owner:

totally surrenders his or her policy for its Net Cash Surrender Value;

reduces the Face Amount of his or her policy; or

lets his or her policy lapse.

Surrender charges are based on "Target" Premiums. Target Premiums are not
based on the "planned" premium the Policy Owner determines. See "The Features
Of EquiBuilder III Policies - Flexible Premium Payments." Target Premiums are
based on the age and sex of the Insured Person and the initial Face Amount of
the policy. In general, a Target Premium would equal the amount of annual
premium necessary to maintain a fixed-benefit whole life policy for the same
face amount on the life of the Insured Person.

The maximum surrender charge for a policy will be shown on the Policy
Information page of a policy and will equal 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. After the end of the
tenth policy year, there is no surrender charge.

Subject to the maximum surrender charge, the surrender charge is calculated
based on actual premium payments. The surrender charge equals 25% of premium
payments made during the first

<PAGE>

policy year up to the amount of one Target Premium and 9% of any additional
premiums paid during the first ten policy years, but not more than 50% of one
Target Premium.

Paying less than one Target Premium in the first policy year will reduce
the surrender charge only if not more than approximately five Target Premiums
are paid before surrender or lapse (i.e., only if the maximum surrender charge
is not reached). However, structuring payments in this manner will increase the
risk that a policy will lapse (and that a surrender charge will be incurred that
would not have been incurred if the policy had remained in force). If payments
are structured in this manner, the amounts in the Policy Account would need to
receive favorable investment performance for the policy not to lapse. In
addition, paying less premiums may increase cost of insurance charges (which are
based on amount at risk). Attempting to structure the timing and amount of
premium payments to reduce the potential surrender charge below the maximum is
not recommended.

EXAMPLE: Assume the purchase of a $200,000 initial Face Amount policy for a
male age 40. This policy would have a Target Premium of $2,280 and a maximum
surrender charge of $1,140 ($2,280 x 50%). Also, assume that all premium
payments are made at the beginning of each policy year. The following table
shows the surrender charge which would apply under different premium payment
assumptions if surrender of the policy were to occur during the indicated policy
year:

DURING YEAR PREMIUM CHARGE PREMIUM CHARGE PREMIUM CHARGE
<S> <C> <C> <C> <C> <C> <C>
1 $3,000 $ 635 $2,280 $ 570 $1,140 $ 285
2 3,000 905 2,280 775 3,420 593
3 3,000 1,140 2,280 980 2,280 790
4 3,000 1,140 2,280 1,140 2,280 1,003
5 3,000 1,140 2,280 1,140 2,280 1,140
6 3,000 1,140 2,280 1,140 2,280 1,140
7 3,000 912 2,280 912 2,280 912
8 3,000 684 2,280 684 2,280 684
9 3,000 456 2,280 456 2,280 456
10 3,000 228 2,280 228 2,280 228

</TABLE>

The maximum surrender charge will be reduced by the amount of any pro rata
surrender charge previously imposed in connection with a partial withdrawal of
Net Cash Surrender Value or decrease in the Face Amount of a policy.

During the first ten policy years, a decrease in the Face Amount of a policy
may be considered a partial surrender and American Franklin will deduct a
portion of the surrender charge. If the Face Amount of a policy is increased
and then decreased, a surrender charge will apply only to a decrease below the
original Face Amount (i.e., the Face Amount at the Issue Date). Generally, the
pro rata surrender charge for a partial surrender will be determined by dividing
the amount of the Face Amount decrease (excluding the portion that merely
reverses a prior increase) by the original Face Amount and multiplying the
fraction by the surrender charge which would apply if the policy were
surrendered.

For example, assume that a policy is issued for a male age 40 with a Face
Amount of $200,000. In the third policy year, the Policy Owner decides to
decrease this Face Amount by $100,000. Assume also that an annual premium of
$3,000 was paid for each of the first three policy years and that the maximum
surrender charge for the third policy year is $1,140. To determine the portion
of the surrender charge:

Divide the amount of the Face Amount decrease by the initial Face
Amount. ($100,000 DIVIDED BY $200,000 = .5)

Then multiply this fraction by the maximum surrender charge in effect
before the decrease.

Pro rata surrender charge = .5 x $1,140 = $570.

Thus, the Policy Owner would be charged $570 for decreasing the Face Amount
of this policy from $200,000 to $100,000 during the third policy year. The
maximum surrender charge payable in the future will be reduced proportionately.
American Franklin would send the Policy Owner a new Policy Information page that
shows the new maximum charges. The Policy Owner will pay the maximum only if he
or she surrenders the policy or lets the policy lapse after paying enough
premiums to reach the maximum.

<PAGE>

OTHER TRANSACTION CHARGES

In addition to the deductions and charges described above, fees for certain
policy transactions are charged against the Policy Account:

PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. There is an
administrative charge that is currently $25 or 2% of the amount withdrawn,
whichever is less, each time a partial withdrawal is made. See "Policy
Account Transactions-Withdrawing Money from the Policy Account," below.

INCREASE IN THE FACE AMOUNT OF INSURANCE. There is an administrative
charge that is currently $1.50 for each $1,000 of increase up to a maximum
charge of $300. See "The Features of EquiBuilder III Policies-Changes in
EquiBuilder III Policies," above.

TRANSFERS. If more than four transfers of Policy Account value are made
in a policy year among investment divisions, a charge of up to a maximum of
$25 for each additional transfer in that policy year may be made. However,
if all of the assets are transferred to the Guaranteed Interest Division, no
transfer charge will be imposed. See "Policy Account Transactions-Transfers
of Policy Account Value Among Investment Divisions," below. A request for
transfer involving the simultaneous transfer of funds from or to more than
one investment division will be considered one transfer.

ILLUSTRATIONS. If, after a policy is issued, a Policy Owner requests
more than one illustration of projected death benefits and Policy Account
and Cash Surrender Values in a policy year, a fee may be charged. See
"Illustrations of Death Benefits, Policy Account and Cash Surrender Values
and Accumulated Premiums," below.

The fees for partial withdrawals, increases in face amount and transfers are
guaranteed never to exceed the amounts stated above. See also "Deductions and
Charges-Surrender Charge," above.

ALLOCATION OF POLICY ACCOUNT CHARGES

Generally, charges against each Policy Account for monthly charges or
certain transaction fees are allocated among the investment divisions of the
Separate Account and the unloaned portion of the Guaranteed Interest Division in
accordance with the deduction allocation percentages specified by the Policy
Owner in his or her application or in accordance with subsequent instructions
received by American Franklin from the Policy Owner. However, deductions for
the first policy month will generally be made from the Money Market division.
See "Separate Account Investment Choices."

Allocation percentages for deductions may be any whole numbers (from zero to
one hundred) which add up to one hundred. A Policy Owner may change deduction
allocation percentages by giving written instructions to American Franklin at
its Administrative Office. Changes will be effective as of the date they are
received by American Franklin.

Charges for partial withdrawals of Net Cash Surrender Value and transfers of
Policy Account values will be subtracted equally among the divisions from which
the transactions were made. If American Franklin cannot make a charge as
described above, it will make the charge based on the proportion that the
unloaned amounts in the Guaranteed Interest Division, if any, and the amounts in
the investment divisions of the Separate Account bear to the total unloaned
value of the Policy Account.

POLICY ACCOUNT VALUE

The amount in a Policy Account is the sum of the amounts allocated to the
Guaranteed Interest Division and to the various investment divisions of the
Separate Account. The amount in a Policy Account also reflects various
deductions and charges. Monthly charges are made as of the first day of each
policy month. Transaction charges or surrender charges are made as of the
effective date of the transaction (for example, administrative charges for
increases in Face Amount are made as of the next monthly policy anniversary
after American Franklin approves the Policy Owner's request).

Charges against the Separate Account are reflected daily. Any amount
allocated to an investment division of the Separate Account will increase or
decrease depending on the investment experience of that division. For amounts
allocated to the investment divisions of the Separate Account, there is no

<PAGE>

guaranteed minimum cash value. The value of amounts in a Policy Account
allocated to the Guaranteed Interest Division is guaranteed. See "The
Guaranteed Interest Division," below.

AMOUNTS IN THE SEPARATE ACCOUNT

Amounts allocated, transferred or added to the investment divisions of the
Separate Account are used to purchase units representing undivided interests in
the various divisions. The amount in each division is represented by the value
of the units credited to the Policy Account for that division. The number of
units purchased or redeemed in an investment division of the Separate Account is
calculated by dividing the dollar amount of the transaction by the division's
unit value calculated after the close of business on the date of the transaction
(see "Additional Information About EquiBuilder III Policies-Policy Periods,
Anniversaries, Dates and Ages," below, regarding the date that the net amount of
the initial premium is credited to the Policy Account and interim allocation of
the initial net premium and any other net premium received prior to the time
that 15 days have elapsed after the Issue Date, and see "Policy Account
Transactions" and "The Guaranteed Interest Division-Transfers from the
Guaranteed Interest Division," below, regarding the effective dates of Policy
Account transactions). The number of units for an investment division at any
time is the number of units purchased less the number of units redeemed. The
value of units fluctuates with the investment performance of the corresponding
portfolio of a Fund, which reflects the investment income and realized and
unrealized capital gains and losses of the portfolio and the Fund's expenses.
The unit values also reflect charges American Franklin makes against the
Separate Account. The number of units credited to a Policy Account, however,
will not vary because of changes in unit values. On any given day, the value a
Policy Account has in an investment division of the Separate Account is the unit
value times the number of units credited to the Policy Account in that division.
The units of each investment division of the Separate Account have different
unit values.

Units of an investment division are purchased when the Policy Owner
allocates premiums, repays loans or transfers amounts to that division. Units
are redeemed or sold when the Policy Owner makes withdrawals or transfers
amounts from an investment division of the Separate Account (including transfers
for loans) and to pay the death benefit when the Insured Person dies. American
Franklin also redeems units for monthly charges or other charges from the
Separate Account.

DETERMINATION OF THE UNIT VALUE

American Franklin determines unit values for each investment division of the
Separate Account at the end of each business day. Generally, a business day is
any day American Franklin is open and the New York Stock Exchange is open for
trading. American Franklin will not process any policy transactions as of any
day that is not a business day other than to issue a policy anniversary report,
make monthly charge deductions and pay the death benefit under a policy. The
initial unit value for each investment division was set at $100. Subsequently,
the unit value for any business day is equal to the unit value for the preceding
business day multiplied by the net investment factor for that division on that
business day.

American Franklin determines a net investment factor for each investment
division every business day as follows:

First, the value of the shares belonging to the division in the
corresponding Fund portfolio at the close of business that day is determined
(before giving effect to any policy transactions for that day, such as
premium payments or surrenders). For this purpose, American Franklin uses
the share value reported to it by the Fund;

Next, any dividends or capital gains distributions paid by the Fund for
the corresponding portfolio on that day are added;

Then, this sum is divided by the value of the amounts in the investment
division at the close of business on the preceding business day (after
giving effect to any policy transactions on that day);

Then, a daily asset charge for each calendar day between business days
is subtracted (for example, a Monday calculation may include charges for
Saturday and Sunday). The daily charge is .00002063, which is an effective
annual rate of .75%. This charge is for mortality and expense risks assumed
by American Franklin under the policy;

<PAGE>

Finally, any daily charge for taxes or amounts set aside as a reserve
for taxes is subtracted.

Generally, this means that unit values are adjusted to reflect what happens
to the Funds, and also for the mortality and expense risk charge and any charge
for taxes.

POLICY ACCOUNT TRANSACTIONS

The transactions described below may have different effects on the Policy
Account, death benefit, Face Amount or cost of insurance. The Policy Owner
should consider the net effects before combining Policy Account transactions.
See "The Features of EquiBuilder III Policies-Changes in EquiBuilder III
Policies," above. Certain transactions also entail charges. For information
regarding other charges, see "Deductions And Charges," above.

CHANGING PREMIUM AND DEDUCTION ALLOCATION PERCENTAGES

A Policy Owner may change the allocation percentages of his or her net
premiums or of his or her monthly deductions by giving written instructions to
American Franklin at its Administrative Office. These changes will go into
effect as of the date American Franklin receives the request at its
Administrative Office and will affect transactions on and after that date.

TRANSFERS OF POLICY ACCOUNT VALUE AMONG INVESTMENT DIVISIONS

A Policy Owner may transfer amounts from any investment division of the
Separate Account to any other investment division of the Separate Account or to
the Guaranteed Interest Division. A Policy Owner may make up to four transfers
of Policy Account value among investment divisions of the Separate Account in
each policy year without charge. Depending on the overall cost of performing
these transactions, American Franklin may charge up to a current maximum of $25
for each additional transfer, except that no charge will be imposed for a
transfer of all amounts in the investment divisions of the Separate Account to
the Guaranteed Interest Division. If all amounts are in the Guaranteed Interest
Division, the policy will not vary for investment experience. To make a
transfer, the Policy Owner should send written instructions to American Franklin
at its Administrative Office.

If a charge is imposed for making a transfer, American Franklin will
allocate the charge as described under "Deductions And Charges-Allocation of
Policy Account Charges," above. All simultaneous transfers included in one
transfer request count as one transfer for purposes of any fee.

A transfer from an investment division of the Separate Account will take
effect as of the date American Franklin receives written instructions to make
the transfer. The minimum amount American Franklin will transfer on any date
will be shown on the Policy Information page in each policy and is usually $500.
This minimum need not come from any one investment division or be transferred to
any one investment division as long as the total amount transferred that day
equals or exceeds the minimum. However, American Franklin will transfer the
entire amount in any investment division of the Separate Account even if it is
less than the minimum specified in a policy. Policy Owners should note that
future premiums will continue to be allocated to investment divisions of the
Separate Account or the Guaranteed Interest Division in accordance with existing
allocations unless instructions are also given with respect to changing them.

Special rules apply to transfers from the Guaranteed Interest Division. See
"The Guaranteed Interest Division-Transfers From The Guaranteed Interest
Division," below.

BORROWING FROM THE POLICY ACCOUNT

At any time that a policy has a Net Cash Surrender Value, the Policy Owner
may borrow money from American Franklin using only his or her policy as security
for the loan. The maximum aggregate amount that will be loaned is equal to 90%
of the Cash Surrender Value of the policy on the date the request for a loan is
received by American Franklin at its Administrative Office. Any new loan must
be at least the minimum amount shown on the Policy Information page of a policy,
usually $500. If the Policy Owner requests an additional loan, the amounts of
any outstanding loan and loan interest will be added to the additional amount
requested and the original loan will be cancelled. Thus, only one loan will be

<PAGE>

outstanding at any time. Any amount that secures a loan remains part of the
Policy Account but is assigned to the Guaranteed Interest Division. This loaned
amount earns interest at a rate that American Franklin expects will be different
from the interest rate for unloaned amounts in the Guaranteed Interest Division.
See "Tax Effects-Policy Proceeds," below, with respect to the federal income tax
consequences of a loan.

LOAN REQUESTS

Requests for loans should be submitted in writing to American Franklin at
its Administrative Office. The Policy Owner may specify how much of the loan
should be taken from the unloaned amount, if any, of his or her Policy Account
allocated to the Guaranteed Interest Division and how much should be taken from
the amounts allocated to the investment divisions of the Separate Account. If a
loan is requested from an investment division of the Separate Account, American
Franklin will redeem units sufficient to cover that part of the loan and
transfer the amount to the loaned portion of the Guaranteed Interest Division.
The amounts in each division will be determined as of the day American Franklin
receives the request for a loan at its Administrative Office.

If the Policy Owner does not specify how to allocate a loan, the loan will
be allocated according to the Policy Owner's deduction allocation percentages.
If the loan cannot be allocated based on these percentages, American Franklin
will allocate it based on the proportions of the unloaned amount, if any, of the
Policy Owner's Policy Account allocated to the Guaranteed Interest Division and
the respective amounts allocated to each investment division of the Separate
Account to the unloaned value of the Policy Account.

<PAGE>

POLICY LOAN INTEREST

Interest on a policy loan accrues daily at an adjustable interest rate.
American Franklin determines the rate at the beginning of each policy year. The
same rate applies to any outstanding policy loans and any new amounts borrowed
during the year. American Franklin will notify the Policy Owner of the current
rate when a loan is requested. American Franklin determines loan rates as
follows. The maximum rate is the greater of:

5-1/2% ; or

the "Published Monthly Average" for the month that ends two months
before the interest rate is set. The "Published Monthly Average" is the
Monthly Average Corporates yield shown in Moody's Corporate Bond Yield
Averages published by Moody's Investor Services, Inc.

If this average is no longer published, American Franklin will use any
successor or the average established by the insurance supervisory official of
the jurisdiction in which the policy is delivered. American Franklin will not
charge more than the maximum rate permitted by applicable law. American
Franklin may also set a rate lower than the maximum.

Any change in the rate from one year to the next will be at least 1/2 of 1%.
The current loan interest rate will only change, therefore, if the Published
Monthly Average differs from the previous loan interest rate by at least 1/2 of
1%. American Franklin will give advance notice of any increase in the interest
rate on any loans outstanding.

WHEN INTEREST IS DUE

Interest is due on each policy anniversary. If interest is not paid when it
is due, it will be added to the outstanding loan and allocated based on the
deduction allocation percentages for the Policy Account then in effect. This
means American Franklin makes an additional loan to pay the interest and
transfers amounts from the investment divisions of the Separate Account and the
unloaned portion of the Guaranteed Interest Division to make the loan. If
American Franklin cannot allocate the interest based on these percentages, it
will allocate it as described above for allocating the loan.

REPAYING THE LOAN

All or part of a policy loan may be repaid at any time while the Insured
Person is alive and a policy is in force. While a policy loan is outstanding,
American Franklin will apply all amounts it receives in respect of that policy
to repayment of the policy loan unless the payment is accompanied by written
instructions that it is to be considered a premium.

American Franklin will first allocate loan repayments to the Guaranteed
Interest Division until the amount of any loans originally allocated to that
division is repaid. For example, if a Policy Owner borrowed $500 from the
Guaranteed Interest Division and $500 from the Equity-Income Division, no
repayments may be allocated to the Equity-Income Division until the $500
borrowed from the Guaranteed Interest Division is repaid. After this amount has
been repaid, the Policy Owner may specify how subsequent repayments should be
allocated. If the Policy Owner does not give instructions, American Franklin
will allocate repayments based on current premium allocation percentages at the
time repayment is made.

THE EFFECTS OF A POLICY LOAN ON THE POLICY ACCOUNT

A loan against a policy will have a permanent effect on the value of the
Policy Account and, therefore, on benefits under the policy, even if the loan is
repaid. When a loan is made against a policy, the amount of the loan is set
aside in the Guaranteed Interest Division where it earns a declared rate for
loaned amounts. The loan amount will not be available for investment in the
investment divisions of the Separate Account or in the unloaned portion of the
Guaranteed Interest Division.

The interest rate for loaned amounts in the Guaranteed Interest Division is
expected to be different from the rate that applies to unloaned amounts in the
Guaranteed Interest Division. Generally, it will be

<PAGE>

2% less than the interest rate charged on the loan, minus any charge for taxes
or reserves for taxes, but never less than 4-1/2%. Each month, this interest is
added to unloaned amounts of the Policy Account in the Guaranteed Interest
Division.

The impact of a loan on a Policy Account will depend, on one hand, on the
investment experience of the investment divisions of the Separate Account and
the rates declared for the unloaned portion of the Guaranteed Interest Division
and, on the other hand, the rates declared for the loaned portion of the
Guaranteed Interest Division. For example, if $1,000 is borrowed against $5,000
in the Money Market Division, the $1,000 will be set aside in the Guaranteed
Interest Division. This $1,000 would not be affected by any increases or
decreases in the value of units in the Money Market Division. However, the
$1,000 earns interest at a declared interest rate.

LAPSE OF THE POLICY

A policy loan may also affect the amount of time that the insurance provided
by a policy remains in force. For example, a policy may lapse more quickly when
a loan is outstanding because the loaned amount cannot be used to cover the
monthly charges that are made against the Policy Account. If these charges
exceed the Net Cash Surrender Value of the policy, then the lapse provisions of
the policy will apply. Since the policy permits loans up to 90% of the Cash
Surrender Value, additional premium payments may be required to keep the policy
in force if the maximum amount is borrowed. For more information about these
provisions, see "Additional Information About EquiBuilder III Policies-Lapse of
the Policy," below.

WITHDRAWING MONEY FROM THE POLICY ACCOUNT

After a policy has been in effect for a year, the Policy Owner may request a
partial withdrawal of the Net Cash Surrender Value by making a written request
to American Franklin at its Administrative Office. Any withdrawal is subject to
certain conditions. It must:

be at least $500;

not cause the death benefit to fall below the minimum for which American
Franklin would issue the policy at the time (see "Policy Account
Transactions-The Effects of a Partial Withdrawal," below); and

not cause the policy to fail to qualify as life insurance under
applicable tax law.

The Policy Owner may specify how much of the withdrawal he or she wants
taken from each investment division. If no instructions are given, American
Franklin will make the withdrawal on the basis of the then current deduction
allocation percentages. If American Franklin cannot withdraw the amount
based on the Policy Owner's directions or on the deduction allocation
percentages, American Franklin will withdraw the amount based on the
proportions of the unloaned amount, if any, of the Policy Account allocated
to the Guaranteed Interest Division and the respective amounts allocated to
the investment divisions of the Separate Account to the total unloaned value
of the Policy Account. For example, if 50% of a Policy Account is in the
Guaranteed Interest Division and 50% is in the Money Market Division and the
Policy Owner wants to withdraw $1,000, American Franklin would take $500
from each division.

WITHDRAWAL CHARGES

When a partial withdrawal of Net Cash Surrender Value is made, a current
expense charge of $25 or 2% of the amount withdrawn, whichever is less, will be
charged against the Policy Account. This charge will be allocated equally among
the divisions from which the withdrawal was made. If the charge cannot be
allocated in this manner, it will be allocated as described under "Deductions
And Charges-Allocation of Policy Account Charges," above.

THE EFFECTS OF A PARTIAL WITHDRAWAL

A partial withdrawal of Net Cash Surrender Value reduces the amount in the
Policy Account. It also reduces the Cash Surrender Value and the death benefit
on a dollar-for-dollar basis. If the death benefit

<PAGE>

based on a percentage multiple applies, the reduction in death benefit can be
greater. See "The Features of EquiBuilder III Policies-Death Benefits," above.
If death benefit Option A is selected, the Face Amount of the policy will also
be reduced so there will be no change in the amount at risk. No pro rata
surrender charge will be deducted in connection with a reduction in Face Amount
made in connection with a partial withdrawal of Net Cash Surrender Value. A new
Policy Information page will be sent to the Policy Owner to reflect this change.
The Policy Owner may be asked to return the policy to American Franklin's
Administrative Office to make a change. A partial withdrawal will not affect
the Face Amount of the policy if death benefit Option B is in effect. The
withdrawal and these reductions will be effective as of the date American
Franklin receives the request at its Administrative Office. See "Tax
Effects-Policy Proceeds," below, for the tax consequences of a partial
withdrawal. A policy loan may be more advantageous if the Policy Owner's need
for cash is temporary.

SURRENDERING THE POLICY FOR ITS NET CASH SURRENDER VALUE

During the first ten policy years, the Cash Surrender Value of a policy is
the amount in the Policy Account minus the surrender charge described under
"Deductions And Charges - Surrender Charge," above. After ten policy years, the
Cash Surrender Value and Policy Account are equal. During the initial policy
years, the applicable surrender charge may represent a substantial portion of
the premiums paid. See "Illustrations of Death Benefits, Policy Account and
Cash Surrender Values, and Accumulated Premiums," below.

A policy may be surrendered for its Net Cash Surrender Value at any time
while the Insured Person is living. This may be done by sending a written
request and the policy to American Franklin at its Administrative Office. The
Net Cash Surrender Value of the policy equals the Cash Surrender Value minus any
outstanding loan and loan interest. American Franklin will compute the Net Cash
Surrender Value as of the date a request for surrender and the policy are
received by American Franklin at its Administrative Office, and all insurance
coverage under the policy will end on that date.

THE GUARANTEED INTEREST DIVISION

A Policy Owner may allocate some or all of a Policy Account to the
Guaranteed Interest Division, which is part of American Franklin's General
Account and pays interest at a declared rate guaranteed by American Franklin for
each policy year. The principal, after charges, is also guaranteed by American
Franklin. The General Account supports American Franklin's insurance and
annuity obligations. Because of applicable exemptive and exclusionary
provisions, interests in the Guaranteed Interest Division have not been
registered under the Securities Act of 1933, and neither the Guaranteed Interest
Division nor the General Account has been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the General
Account, the Guaranteed Interest Division nor any interests therein are
generally subject to regulation under the 1933 Act or the 1940 Act. American
Franklin has been advised that the staff of the Securities and Exchange
Commission has not made a review of the disclosures which are included in this
Prospectus which relate to the General Account and the Guaranteed Interest
Division. These disclosures, however, may be subject to certain generally
applicable provisions of the federal securities law relating to the accuracy and
completeness of statements made in a prospectus.

AMOUNTS IN THE GUARANTEED INTEREST DIVISION

A Policy Owner may accumulate amounts in the Guaranteed Interest Division
by:

allocating net premiums and loan repayments;

transferring amounts from the investment divisions of the Separate
Account; or

earning interest on amounts already allocated to the Guaranteed Interest
Division.

The amount allocated to the Guaranteed Interest Division at any time is the
sum of all net premiums and loan repayments allocated to that division and all
transfers and earned interest, and includes amounts securing any policy loan
outstanding. This amount is reduced by amounts transferred or withdrawn from
and charges allocated to this division.

<PAGE>

INTEREST ON AMOUNTS IN THE GUARANTEED INTEREST DIVISION

American Franklin pays a declared interest rate on all amounts in the
Guaranteed Interest Division. At policy issuance and prior to each policy
anniversary, American Franklin declares the rates that will apply to amounts in
the Guaranteed Interest Division for the following policy year. Different rates
are paid on unloaned and loaned amounts in the Guaranteed Interest Division.
These annual interest rates will never be less than the minimum guaranteed
interest rate of 4-1/2%. Interest is compounded daily at an effective annual
rate that equals the declared rate for each policy year.

At the end of each policy month, American Franklin will credit interest to
amounts in the Guaranteed Interest Division in the following way:

amounts in the Guaranteed Interest Division during the entire policy
month are credited with interest from the beginning to the end of the month;

amounts added to the Guaranteed Interest Division during the month from
net premiums or loan repayments are credited with interest from the date
American Franklin receives them. The only exception to this rule applies to
the initial net premium payment. American Franklin will allocate the
initial net premium to the Money Market division until 15 days after the
Issue Date (any other net premium received during this period will be
allocated in the same way), and will then allocate the amounts in the Policy
Account to the Guaranteed Interest Division and the investment divisions of
the Separate Account in accordance with the Policy Owner's premium
allocation percentages. See "Additional Information About EquiBuilder
III-Policy Periods, Anniversaries, Dates and Ages," below;

amounts transferred to the Guaranteed Interest Division are credited
with interest from the date of the transfer to the end of the month; and

amounts charged against or withdrawn from the Guaranteed Interest
Division are credited with interest from the beginning of the policy month
to the date of the charge or withdrawal.

Interest credited to any loaned amounts in the Guaranteed Interest Division
is allocated to the unloaned portion of the Guaranteed Interest Division and the
investment divisions of the Separate Account in accordance with the Policy
Owner's premium allocation percentages at the end of the policy year or at the
time of a full loan repayment.

TRANSFERS FROM THE GUARANTEED INTEREST DIVISION

A Policy Owner may request a transfer of unloaned amounts in the Guaranteed
Interest Division to one or more of the investment divisions of the Separate
Account. American Franklin will make the transfer as of the date a written
request for transfer is received, provided that the request is received within
30 days after a policy anniversary. The maximum amount that may be transferred
is the greater of 25% of the unloaned value in the Guaranteed Interest Division
on the date the transfer takes effect or the minimum transfer amount shown in
the policy when it is issued. The smallest amount that may be transferred is
the lesser of the unloaned value in the Guaranteed Interest Division on the date
the transfer takes effect or the minimum transfer amount shown in the policy.

ADDITIONAL INFORMATION ABOUT EQUIBUILDER III POLICIES

RIGHT TO EXAMINE THE POLICY

Each Policy Owner has a right to examine the policy. If for any reason the
Policy Owner is not satisfied with it, he or she may cancel the policy within
the time limits described below. The Policy Owner may cancel the policy by
sending it with a written request to cancel to American Franklin's
Administrative Office.

A request to cancel the policy must be postmarked no later than the
latest of the following three dates:

10 days after the Policy Owner receives his or her policy;

<PAGE>

10 days after American Franklin mails the Policy Owner a written notice
disclosing the right to cancel (Notice of Withdrawal Right); or

45 days after the Policy Owner signs Part 1 of the policy application.

If the Policy Owner cancels the policy, American Franklin will, within seven
days of receipt of the policy and a duly executed, timely notice of
cancellation, refund an amount equal to the premiums paid.

Insurance coverage ends when a Policy Owner sends a request for
cancellation.

LAPSE OF THE POLICY

If the Net Cash Surrender Value of a policy is insufficient to pay the
charges that are made against the Policy Account each month, or if the total of
any policy loan plus loan interest exceeds the Cash Surrender Value of a policy,
American Franklin will commence procedures to terminate the policy. American
Franklin will notify the Policy Owner and any assignee shown on its records in
writing that the Net Cash Surrender Value is insufficient to pay monthly charges
or that an outstanding policy loan plus loan interest exceeds the Cash Surrender
Value of the policy, that a grace period has begun during which the Policy Owner
must pay an additional premium to prevent lapse of the policy, and that a
specified amount of premium, which will cover estimated monthly charges for
three months, must be paid to avoid lapse of the policy. The grace period
extends for 61 days beginning on the day American Franklin sends the Policy
Owner notice that the grace period is starting.

If American Franklin receives payment of at least the stipulated amount
before the end of the grace period, the amount paid will be used to satisfy the
overdue charges. Any balance left will be placed in the Policy Account and
allocated in the same manner as previous premium payments.

If American Franklin does not receive payment within the 61 days, the policy
will lapse without value. American Franklin will withdraw any amount left in
the Policy Account and apply this amount to the charges owed to it, including
any applicable surrender charge. American Franklin will inform the Policy Owner
and any assignee at their respective last known addresses that the policy has
ended without value.

If the Insured Person dies during the grace period, American Franklin will
pay the insurance benefits to the beneficiary, minus any outstanding policy loan
and loan interest and overdue charges.

REINSTATEMENT OF THE POLICY

A Policy Owner may reinstate his or her policy within three years after it
lapses if:

evidence is provided that the Insured Person is still insurable; and

a premium payment sufficient to keep the policy in force for three
months after the date it is reinstated is paid to American Franklin.

The effective date of the reinstated policy will be the beginning of the
policy month which coincides with or follows the date American Franklin approves
the reinstatement application. Upon reinstatement, there will be no further
surrender charges applied against the policy. Previous loans will not be
reinstated.

POLICY PERIODS, ANNIVERSARIES, DATES AND AGES

Policy years, policy months and policy anniversaries are measured from the
Register Date shown on the Policy Information page in the policy. Each policy
month begins on the same day in each calendar month as the day of the month of
the Register Date. For purposes of receiving Policy Owner requests, American
Franklin is open from 8:00 a.m. to 4:00 p.m., Columbus, Ohio time.

The Register Date is the earlier of the Issue Date or the Date of Payment.
The Date of Payment will normally be the day after receipt of a check for the
full initial premium at American Franklin's Administrative Office. The Issue
Date, shown on the Policy Information page of each policy, is the date

<PAGE>

a policy is actually issued, and depends on the underwriting and other
requirements for issuing a particular policy. Contestability is measured from
the Issue Date, as is the suicide exclusion.

The initial net premium will be put in the Policy Account as of the Date of
Payment. The initial net premium will be allocated to the Money Market division
of the Separate Account, regardless of the Policy Owner's premium allocation
percentages, until the first business day 15 days after the Issue Date. Any
other net premium received during that period will also be allocated to the
Money Market division. On the first business day 15 days after the Issue Date,
the amount in the Policy Account will be reallocated in accordance with the
Policy Owner's premium allocation percentages. Charges and deductions under the
policy are first made as of the Register Date. See "The Features of EquiBuilder
III Policies-Death Benefits," above, regarding the commencement of insurance
coverage.

The Final Policy Date is the policy anniversary nearest the Insured Person's
95th birthday. The policy ends on that date if the Insured Person is still
alive and the maturity benefit is paid.

Generally, references in this Prospectus to the age of the Insured Person
refer to his or her age on the birthday nearest to that particular date.

TAX EFFECTS

INTRODUCTION

The federal income tax treatment of the policies and payments received
thereunder depends on various factors, including, among other factors, the tax
status of American Franklin and the form in which payments are received. The
discussion of federal income taxes contained in this Prospectus, which focuses
on rules applicable to policies purchased under this Prospectus, is general in
nature and is based on existing federal income tax law, which is subject to
change. The tax discussion is not intended as tax advice. The applicable
federal income tax law is complex and contains many special rules and exceptions
in addition to the general rules summarized herein. For these reasons, various
questions about the applicable rules exist. Accordingly, each person
contemplating the purchase of a policy is advised to consult with a qualified
tax advisor concerning federal income taxes and any other federal, state or
local taxes that may be applicable.

POLICY PROCEEDS

The Internal Revenue Code of 1986, as amended ("Code"), contains a
definition of life insurance for tax purposes. EquiBuilder III policies will
meet this definition of life insurance and will receive the same federal income
tax treatment as fixed benefit life insurance. Thus, generally:

the death benefit under an EquiBuilder III policy will be excludable
from the gross income of the beneficiary under Section 101(a)(1) of the
Code; and

the Policy Owner will not be considered to have received any income in
respect of increases in the Policy Account due to interest or investment
experience ("Inside Build-up") until a distribution is made from the policy.

The taxation of distributions from an EquiBuilder III policy, including
loans, loan increases, assignments or pledges to secure a loan, partial
withdrawals or distributions on the lapse, maturity or surrender of the policy,
depends upon whether or not the policy is considered to be a modified endowment
contract. EquiBuilder III policies are considered modified endowment contracts
if they fail the so-called seven-pay test. That test is failed if the
cumulative amount of premiums paid (less certain distributions made) under the
policy at any time during its first seven years exceeds certain levels. The
levels relate to the death benefit, and so, for example, a reduction in the
death benefit during the first seven policy years would require a
redetermination of the premium level and could result in retroactive failure of
the seven-pay test. American Franklin will monitor premium payments for
compliance with the seven-pay test and will offer to refund excess premiums in
accordance with any applicable law, regulations or interpretations.

In general, if an EquiBuilder III policy is deemed to be a modified
endowment contract, any distribution from the policy will be taxed as income to
the extent the Policy Account exceeds the tax

<PAGE>

basis in the policy. (The tax basis is generally the amount of premiums paid,
less the amount of any tax-free withdrawals, plus the amount of any taxable
loans.) In addition, the amount so taxed would be subject to a 10% penalty tax
unless, at the time of distribution, the Policy Owner is (a) permanently or
totally disabled, (b) at least 59-1/2 years old, or (c) taking the distribution
pursuant to a life income settlement option under the policy providing for
substantially equal periodic payments made not less frequently than annually.
This tax treatment will apply retroactively to distributions made during the two
years prior to the time the policy becomes a modified endowment contract and may
apply to earlier distributions as well.

In connection with modified endowment contracts, Policy Owners should be
aware that:

-- All modified endowment contracts (other than contracts held in
connection with certain qualified plans and trusts accorded special
treatment under the Code) that American Franklin and its affiliates issue
to the same Policy Owner during any calendar year will be treated as one
modified endowment contract in computing the taxable amount of any
distribution.

-- A policy received in exchange for a modified endowment contract will
be treated as a modified endowment contract.

-- Material changes in EquiBuilder III policies that can cause such
policies to become modified endowment contracts (if they do not meet the
seven-pay test at any time during the seven policy years following the
change), generally include a change of the insured individual, an increase
in the face amount of the policy, a change in the death benefit option under
some circumstances, the addition of, or increase in, qualified additional
benefits under a policy under some circumstances and possibly other changes.

A qualified tax adviser should be consulted prior to any proposed
distribution as to the applicability of the modified endowment contract rules.

If an EquiBuilder III policy is not considered to be a modified endowment
contract, distributions on the lapse, maturity or surrender of the policy will
be subject to taxation to the extent the Cash Surrender Value exceeds the tax
basis in the policy. In addition, partial withdrawals could result in a portion
of the amount paid being subject to federal income tax. The taxation of partial
withdrawals is governed by complex rules, and a qualified tax adviser should be
consulted prior to a proposed partial withdrawal.

In general, loans received under a policy that is not a modified endowment
contract will be treated as indebtedness of the Policy Owner, and no part of any
loan under such a policy will constitute income to the Policy Owner. No
deduction for personal interest (including, generally, interest paid on policy
loans) is currently allowed. Also, no deduction is allowed for interest on
policy loans under policies that are considered single premium life insurance
policies, or on policy loans incurred pursuant to a plan of systematic
borrowing. Interest on loans under policies purchased or carried as part of a
trade or business is subject to special rules. A qualified tax adviser should
be consulted as to the deductibility of interest paid on any loans.

For the Policy Owner and the beneficiary to receive life insurance tax
treatment, the policy must initially qualify and continue to qualify as life
insurance under applicable tax law. To make sure that the policy continues to
qualify, American Franklin has reserved in the policy the rights to decline to
(i) accept all or part of any premium payments, (ii) change death benefit
options, and (iii) permit partial withdrawals, that would cause the policy to
fail to qualify as life insurance under applicable tax law. American Franklin
may also make changes in the policy or its riders or make payments from the
policy and its riders to the extent it deems necessary to continue to qualify
the policy as life insurance. Payments from a policy which American Franklin
deems necessary to continue to qualify a policy as life insurance for federal
income tax purposes may also be subject to federal income taxation under the
applicable distribution rules described above.

Under the Code, the Secretary of the Treasury has authority to set standards
for diversification of the investments underlying variable life insurance
policies in order for such policies to be treated as life insurance. The
Department of the Treasury has issued final regulations regarding the
diversification requirements. Failure to meet these diversification
requirements would disqualify a policy as a variable life insurance policy under
Section 7702 of the Code. If this were to occur, a policy's Inside Build-up

<PAGE>

would be subject to federal income tax. American Franklin believes that the
investments underlying the policies offered hereby are in compliance with the
diversification requirements.

Prior to the issuance of the final regulations regarding the diversification
requirements, the Department of the Treasury stated that it anticipated issuing
regulations or rulings prescribing the circumstances under which the ability of
a policyholder to direct his or her investment to particular divisions of a
separate account may cause the policyholder, rather than the insurance company,
to be treated as the owner of the assets in the account. If a Policy Owner were
considered the owner of the assets of the Separate Account, the income and gains
from the account would be included in the Policy Owner's income for federal
income tax purposes. Although the final regulations regarding the
diversification requirements do not address this issue, future regulations or
rulings may do so.

The death benefit under a policy generally will be includable in the estate
of the Insured Person for purposes of federal estate tax. Federal estate tax is
integrated with federal gift tax under a unified rate schedule. Federal estate
tax is currently imposed at graduated rates from 37% to 55% with the maximum
rate applying to taxable estates in excess of $3,000,000. (However, the
graduated rates are phased out for taxable estates in excess of $10,000,000.) In
general, estates not in excess of $600,000 are exempt from federal estate tax.
In addition, an unlimited marital deduction generally applies for federal estate
tax purposes.

The particular situation of each Policy Owner, Insured Person or beneficiary
will determine how ownership or receipt of policy proceeds will be treated for
purposes of federal estate tax. A qualified tax adviser should be consulted in
respect to federal estate tax as well as any state and local estate, inheritance
and other taxes which may apply.

See the Prospectus and Statements of Additional Information for the Funds
for a discussion of the Funds' tax aspects, including the diversification
requirements applicable to the Funds.

AMERICAN FRANKLIN'S INCOME TAXES

Under the life insurance company tax provisions of the Code, variable life
insurance generally is treated in a manner consistent with fixed-benefit life
insurance. The operations of the Separate Account are included in American
Franklin's federal income tax return and American Franklin pays no federal
income tax on investment income and capital gains reflected in variable life
insurance policy reserves. Consequently, no charge is currently being made to
any division of the Separate Account for federal income taxes of American
Franklin. American Franklin reserves the right, however, to make such a charge
in the future, if it incurs federal income tax which is attributable to the
Separate Account. If such a charge were made, it would be set aside as a
provision for taxes which would be kept in the affected division rather than in
the General Account. It is anticipated that Policy Owners would benefit from
any investment earnings that are not needed to maintain this provision.

American Franklin may have to pay state and local taxes (in addition to
applicable taxes based on premiums) in several states. At present, these taxes
are not substantial. If they increase, however, charges may be made for such
taxes when they are attributable to the Separate Account.

INCOME TAX WITHHOLDING

Generally, unless the Policy Owner provides, in accordance with prescribed
procedures, a written election to the contrary before a taxable distribution is
made, American Franklin is required to withhold income tax from any portion of
the money the Policy Owner receives if he or she withdraws money from the Policy
Account or surrenders the policy or if the policy matures. If the Policy Owner
does not wish American Franklin to withhold tax from the payment, or if it does
not withhold enough, the Policy Owner may have to pay taxes later. Penalties
may be applicable under the estimated tax rules if a Policy Owner's withholding
and estimated tax payments are insufficient.

ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT
AND CASH SURRENDER VALUES, AND ACCUMULATED PREMIUMS

The tables set forth below are intended to illustrate how the key financial
elements of a policy work. The tables show how death benefits and Policy
Account and Cash Surrender Values ("policy benefits")

<PAGE>

could vary over an extended period of time if the investment divisions of the
Separate Account had constant hypothetical gross annual investment returns of
0%, 4%, 8% or 12% over the years covered by each table. The policy benefits
will differ from those shown in the tables if the annual investment returns are
not absolutely constant. That is, the figures will be different if the returns
averaged 0%, 4%, 8% or 12%, over a period of years but went above or below those
figures in individual policy years. The policy benefits will also differ,
depending on a particular Policy Owner's premium allocation to each division, if
the overall actual rates of return averaged 0%, 4%, 8% or 12%, but went above or
below those figures for the individual investment divisions. The tables are for
male non-smokers. Planned premium payments are assumed to be paid at the
beginning of each policy year. The difference between the Policy Account and
the Cash Surrender Value in the first ten years is the surrender charge.

The tables illustrate cost of insurance and expense charges (policy cost
factors) at both current rates (which are described under "Deductions and
Charges-Deductions from the Policy Account-Cost of Insurance Charge" and
"Deductions and Charges-Charges Against the Separate Account," above) and at the
maximum rates American Franklin guarantees in the policies. The amounts shown
illustrate policy benefits on the last day of selected policy years. The
illustrations reflect a daily charge against the Separate Account investment
divisions. This charge includes a .75% annual charge against the investment
divisions of the Separate Account for mortality and expense risks and the effect
on each division's investment experience of the charges to the Funds' assets for
management (.52% of aggregate average daily net assets is assumed) and direct
expenses of the Funds (estimated at .14% of aggregate average daily net assets).
The effect of these adjustments is that on a 0% gross rate of return the net
rate of return would be -1.41%, on 4% it would be 2.59%, on 8% it would be
6.59% and on 12% it would be 10.59%. Management fees and direct expenses of
the Funds vary by portfolio and may vary from year to year. During 1995 the
aggregate actual charge for management fees and direct expenses incurred by
certain portfolios of the Funds as a percentage of average daily net assets
exceeded the figures assumed. Fidelity Management has voluntarily agreed to
reimburse the management fees and other expenses above a specified percentage of
average net assets of some of the portfolios and to use a portion of the
brokerage commissions paid by certain portfolios to reduce their total expenses.
Such arrangements, which may be terminated at any time without notice, will
increase a portfolio's yield.

The tables reflect a deduction from each premium for taxes (a 2% deduction
is assumed) and a sales expense deduction in the amount of 5% of each premium
paid during any policy year until total premiums for that policy year equal the
Target Premium. There are tables for both Death Benefit Option A and Death
Benefit Option B and each option is illustrated using current and guaranteed
policy cost factors. The current cost tables assume that the monthly
administrative charge remains constant at $6. The guaranteed tables assume that
the monthly administrative charge is $6 in the first year and $12 thereafter.
In each case, deduction of the current additional monthly administrative charge
of $24 per month to cover costs of establishing a policy is assumed in each of
the first 12 policy months. The tables reflect the fact that no deduction is
currently made for federal or state income taxes. If a charge is made for those
taxes in the future, it will take a higher rate of return to produce after-tax
returns of 0%, 4%, 8% or 12%. All illustrations assume that no transfers,
withdrawals, policy loans, or changes in Face Amount or Death Benefit Option
will be made and that no additional benefits are added to the policy.

The second column of each table shows what would happen if an amount equal
to the gross premiums were invested to earn interest, after taxes, of 5%
compounded annually. These tables show that if a policy is surrendered in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value will be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a policy for a relatively short time will be
high.

At the request of an applicant for a policy, American Franklin will furnish
a comparable illustration based on the age and sex of the proposed Insured
Person, standard risk assumptions, a stipulated initial Face Amount and proposed
premiums. Upon request after issuance American Franklin will also provide

<PAGE>

an illustration of future policy benefits based on both guaranteed and current
cost factor assumptions and actual Policy Account value. If illustrations are
requested more than once in any policy year, a charge may be imposed.

<PAGE>

TABLE OF CONTENTS FOR ILLUSTRATIONS

INITIAL FACE AMOUNT $200,000 MALE NON-SMOKER

PREMIUM PAGE

<S> <C> <C>
Age 40, Option A--Current Charges $3,000 36
Age 40, Option A--Guaranteed Charges $3,000 36
Age 40, Option B--Current Charges $3,000 37
Age 40, Option B--Guaranteed Charges $3,000 37

</TABLE>

INITIAL FACE AMOUNT $100,000 MALE NON-SMOKER

PREMIUM PAGE

<S> <C> <C>
Age 40, Option A--Current Charges $1,500 38
Age 40, Option A--Guaranteed Charges $1,500 38
Age 40, Option B--Current Charges $1,500 39
Age 40, Option B--Guaranteed Charges $1,500 39

</TABLE>

<PAGE>
EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION A ASSUMING CURRENT CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,150 $200,000 $200,000 $200,000 $200,000 $ 2,149 $ 2,248 $ 2,347 $ 2,447 $ 1,514 $ 1,613 $ 1,712 $ 1,812
2 6,458 200,000 200,000 200,000 200,000 4,531 4,824 5,125 5,434 3,626 3,919 4,220 4,530
3 9,930 200,000 200,000 200,000 200,000 6,858 7,445 8,064 8,717 5,718 6,305 6,924 7,577
4 13,577 200,000 200,000 200,000 200,000 9,132 10,114 11,177 12,328 7,992 8,974 10,037 11,188
5 17,406 200,000 200,000 200,000 200,000 11,352 12,830 14,475 16,301 10,212 11,690 13,335 15,161
6 21,426 200,000 200,000 200,000 200,000 13,520 15,598 17,972 20,678 12,380 14,458 16,832 19,538
7 25,647 200,000 200,000 200,000 200,000 15,610 18,390 21,653 25,476 14,698 17,478 20,741 24,564
8 30,080 200,000 200,000 200,000 200,000 17,624 21,210 25,536 30,743 16,940 20,526 24,852 30,059
9 34,734 200,000 200,000 200,000 200,000 19,565 24,061 29,635 36,535 19,109 23,605 29,179 36,079
10 39,620 200,000 200,000 200,000 200,000 21,433 26,944 33,968 42,911 21,205 26,716 33,740 42,683
11 44,751 200,000 200,000 200,000 200,000 23,230 29,860 38,552 49,937 23,230 29,860 38,552 49,937
12 50,139 200,000 200,000 200,000 200,000 24,984 32,839 43,433 57,714 24,984 32,839 43,433 57,714
13 55,796 200,000 200,000 200,000 200,000 26,663 35,851 48,602 66,298 26,663 35,851 48,602 66,298
14 61,736 200,000 200,000 200,000 200,000 28,270 38,901 54,085 75,786 28,270 38,901 54,085 75,786
15 67,972 200,000 200,000 200,000 200,000 29,805 41,991 59,906 86,282 29,805 41,991 59,906 86,282
16 74,521 200,000 200,000 200,000 200,000 31,265 45,117 66,087 97,902 31,265 45,117 66,087 97,902
17 81,397 200,000 200,000 200,000 200,000 32,611 48,248 72,628 110,757 32,611 48,248 72,628 110,757
18 88,617 200,000 200,000 200,000 200,000 33,865 51,403 79,577 125,011 33,865 51,403 79,577 125,011
19 96,198 200,000 200,000 200,000 200,000 35,021 54,581 86,964 140,833 35,021 54,581 86,964 140,833
20 104,158 200,000 200,000 200,000 212,244 36,070 57,773 94,823 158,391 36,070 57,773 94,823 158,391
25 (Age 65) 150,340 200,000 200,000 200,000 338,537 39,353 73,784 142,690 277,489 39,353 73,784 142,690 277,489

</TABLE>

EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION A ASSUMING GUARANTEED CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,150 $200,000 $200,000 $200,000 $200,000 $ 2,149 $ 2,248 $ 2,347 $ 2,447 $ 1,514 $ 1,613 $ 1,712 $ 1,812
2 6,458 200,000 200,000 200,000 200,000 4,124 4,408 4,701 5,002 3,219 3,503 3,796 4,097
3 9,930 200,000 200,000 200,000 200,000 6,023 6,576 7,162 7,780 4,883 5,436 6,022 6,640
4 13,577 200,000 200,000 200,000 200,000 7,844 8,749 9,733 10,801 6,704 7,609 8,593 9,661
5 17,406 200,000 200,000 200,000 200,000 9,585 10,925 12,422 14,092 8,445 9,785 11,282 12,952
6 21,426 200,000 200,000 200,000 200,000 11,242 13,099 15,232 17,677 10,102 11,959 14,092 16,537
7 25,647 200,000 200,000 200,000 200,000 12,814 15,269 18,170 21,589 11,902 14,357 17,258 20,677
8 30,080 200,000 200,000 200,000 200,000 14,299 17,433 21,243 25,864 13,615 16,749 20,559 25,180
9 34,734 200,000 200,000 200,000 200,000 15,691 19,587 24,458 30,538 15,235 19,131 24,002 30,082
10 39,620 200,000 200,000 200,000 200,000 16,987 21,723 27,821 35,655 16,759 21,495 27,593 35,427
11 44,751 200,000 200,000 200,000 200,000 18,182 23,840 31,340 41,265 18,182 23,840 31,340 41,265
12 50,139 200,000 200,000 200,000 200,000 19,263 25,921 35,014 47,413 19,263 25,921 35,014 47,413
13 55,796 200,000 200,000 200,000 200,000 20,217 27,955 38,847 54,158 20,217 27,955 38,847 54,158
14 61,736 200,000 200,000 200,000 200,000 21,033 29,929 42,842 61,565 21,033 29,929 42,842 61,565
15 67,972 200,000 200,000 200,000 200,000 21,692 31,826 47,000 69,706 21,692 31,826 47,000 69,706
16 74,521 200,000 200,000 200,000 200,000 22,186 33,635 51,333 78,674 22,186 33,635 51,333 78,674
17 81,397 200,000 200,000 200,000 200,000 22,503 35,343 55,848 88,575 22,503 35,343 55,848 88,575
18 88,617 200,000 200,000 200,000 200,000 22,636 36,943 60,565 99,534 22,636 36,943 60,565 99,534
19 96,198 200,000 200,000 200,000 200,000 22,573 38,422 65,498 111,697 22,573 38,422 65,498 111,697
20 104,158 200,000 200,000 200,000 200,000 22,301 39,767 70,666 125,230 22,301 39,767 70,666 125,230
25(Age 65) 150,340 200,000 200,000 200,000 267,426 16,718 43,424 100,602 219,202 16,718 43,424 100,602 219,202

</TABLE>

(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefits and Policy Account and Cash Surrender Values will differ if
premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefits and Policy Account and Cash Surrender Values for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 4%, 8% or 12% over a period of years, but also
fluctuated above or below that average for individual policy years. The death
benefits and Policy Account and Cash Surrender Values for a policy would also be
different from those shown, depending on the investment allocations made to the
investment divisions of the Separate Account and the different rates of return
of the Funds' portfolios, if the actual rates of investment return applicable to
the policy averaged 0%, 4%, 8% and 12%, but varied above or below that average
for individual divisions. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.

<PAGE>

EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION B ASSUMING CURRENT CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,150 $202,145 $202,244 $202,343 $202,443 $ 2,145 $ 2,244 $ 2,343 $ 2,443 $ 1,510 $ 1,609 $ 1,709 $ 1,808
2 6,458 204,520 204,812 205,112 205,421 4,520 4,812 5,112 5,421 3,615 3,907 4,208 4,516
3 9,930 206,836 207,420 208,037 208,687 6,836 7,420 8,037 8,687 5,696 6,280 6,897 7,547
4 13,577 209,093 210,069 211,128 212,272 9,093 10,069 11,128 12,272 7,953 8,929 9,988 11,132
5 17,406 211,290 212,759 214,393 216,207 11,290 12,759 14,393 16,207 10,150 11,619 13,253 15,067
6 21,426 213,431 215,492 217,846 220,530 13,431 15,492 17,846 20,530 12,291 14,352 16,706 19,390
7 25,647 215,484 218,237 221,467 225,251 15,484 18,237 21,467 25,251 14,572 17,325 20,555 24,339
8 30,080 217,452 220,996 225,269 230,412 17,452 20,996 25,269 30,412 16,768 20,312 24,585 29,728
9 34,734 219,337 223,769 229,263 236,061 19,337 23,769 29,263 36,061 18,881 23,313 28,807 35,605
10 39,620 221,138 226,556 233,460 242,246 21,138 26,556 33,460 42,246 20,910 26,328 33,232 42,018
11 44,751 222,856 229,356 237,874 249,026 22,856 29,356 37,874 49,026 22,856 29,356 37,874 49,026
12 50,139 224,522 232,201 242,550 256,493 24,522 32,201 42,550 56,493 24,522 32,201 42,550 56,493
13 55,796 226,099 235,052 247,465 264,682 26,099 35,052 47,465 64,682 26,099 35,052 47,465 64,682
14 61,736 227,591 237,912 252,638 273,671 27,591 37,912 52,638 73,671 27,591 37,912 52,638 73,671
15 67,972 228,996 240,779 258,084 283,541 28,996 40,779 58,084 83,541 28,996 40,779 58,084 83,541
16 74,521 230,307 243,645 263,812 294,379 30,307 43,645 63,812 94,379 30,307 43,645 63,812 94,379
17 81,397 231,481 246,464 269,793 306,237 31,481 46,464 69,793 106,237 31,481 46,464 69,793 106,237
18 88,617 232,541 249,257 276,067 319,248 32,541 49,257 76,067 119,248 32,541 49,257 76,067 119,248
19 96,198 233,479 252,012 282,643 333,523 33,479 52,012 82,643 133,523 33,479 52,012 82,643 133,523
20 104,158 234,283 254,715 289,525 349,180 34,283 54,715 89,525 149,180 34,283 54,715 89,525 149,180
25(Age 65) 150,340 235,850 266,862 328,733 450,416 35,850 66,862 128,733 250,416 35,850 66,862 128,733 250,416

</TABLE>

EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION B ASSUMING GUARANTEED CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,150 $202,145 $202,244 $202,343 $202,443 $ 2,145 $ 2,244 $ 2,343 $ 2,443 $ 1,510 $ 1,609 $ 1,709 $ 1,808
2 6,458 204,105 204,388 204,680 204,979 4,105 4,388 4,680 4,979 3,200 3,483 3,775 4,075
3 9,930 205,982 206,531 207,112 207,726 5,982 6,531 7,112 7,726 4,842 5,391 5,972 6,586
4 13,577 207,771 208,667 209,640 210,697 7,771 8,667 9,640 10,697 6,631 7,527 8,500 9,557
5 17,406 209,471 210,793 212,269 213,916 9,471 10,793 12,269 13,916 8,331 9,653 11,129 12,776
6 21,426 211,076 212,901 214,997 217,399 11,076 12,901 14,997 17,399 9,936 11,761 13,857 16,259
7 25,647 212,584 214,988 217,827 221,173 12,584 14,988 17,827 21,173 11,672 14,076 16,915 20,261
8 30,080 213,992 217,049 220,761 225,262 13,992 17,049 20,761 25,262 13,308 16,365 20,077 24,578
9 34,734 215,295 219,075 223,800 229,693 15,295 19,075 23,800 29,693 14,839 18,619 23,344 29,237
10 39,620 216,486 221,059 226,942 234,495 16,486 21,059 26,942 34,495 16,258 20,831 26,714 34,267
11 44,751 217,561 222,993 230,187 239,699 17,561 22,993 30,187 39,699 17,561 22,993 30,187 39,699
12 50,139 218,504 224,857 233,523 245,329 18,504 24,857 33,523 45,329 18,504 24,857 33,523 45,329
13 55,796 219,301 226,634 236,941 251,414 19,301 26,634 36,941 51,414 19,301 26,634 36,941 51,414
14 61,736 219,937 228,304 240,429 257,986 19,937 28,304 40,429 57,986 19,937 28,304 40,429 57,986
15 67,972 220,394 229,844 243,968 265,071 20,394 29,844 43,968 65,071 20,394 29,844 43,968 65,071
16 74,521 220,662 231,236 247,551 272,712 20,662 31,236 47,551 72,712 20,662 31,236 47,551 72,712
17 81,397 220,727 232,462 251,162 280,952 20,727 32,462 51,162 80,952 20,727 32,462 51,162 80,952
18 88,617 220,586 233,509 254,796 289,844 20,586 33,509 54,796 89,844 20,586 33,509 54,796 89,844
19 96,198 220,224 234,356 258,437 299,441 20,224 34,356 58,437 99,441 20,224 34,356 58,437 99,441
20 104,158 219,630 234,983 262,072 309,803 19,630 34,983 62,072 109,803 19,630 34,983 62,072 109,803
25(Age 65) 150,340 212,195 233,441 278,879 374,780 12,195 33,441 78,879 174,780 12,195 33,441 78,879 174,780

</TABLE>

<PAGE>

EquiBuilder III-TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION A ASSUMING CURRENT CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $100,000 $100,000 $100,000 $100,000 $ 884 $ 929 $ 975 $ 1,021 $ 566 $ 612 $ 657 $ 703
2 3,229 100,000 100,000 100,000 100,000 2,027 2,160 2,298 2,439 1,575 1,708 1,845 1,987
3 4,965 100,000 100,000 100,000 100,000 3,142 3,411 3,695 3,995 2,572 2,841 3,125 3,425
4 6,788 100,000 100,000 100,000 100,000 4,227 4,681 5,172 5,703 3,657 4,111 4,602 5,133
5 8,703 100,000 100,000 100,000 100,000 5,285 5,971 6,734 7,580 4,715 5,401 6,164 7,010
6 10,713 100,000 100,000 100,000 100,000 6,314 7,281 8,386 9,644 5,744 6,711 7,816 9,074
7 12,824 100,000 100,000 100,000 100,000 7,302 8,599 10,121 11,902 6,846 8,143 9,665 11,446
8 15,040 100,000 100,000 100,000 100,000 8,246 9,923 11,944 14,374 7,904 9,581 11,602 14,032
9 17,367 100,000 100,000 100,000 100,000 9,150 11,255 13,863 17,087 8,922 11,027 13,635 16,859
10 19,810 100,000 100,000 100,000 100,000 10,012 12,594 15,882 20,065 9,898 12,480 15,768 19,951
11 22,376 100,000 100,000 100,000 100,000 10,834 13,942 18,014 23,344 10,834 13,942 18,014 23,344
12 25,069 100,000 100,000 100,000 100,000 11,630 15,314 20,279 26,967 11,630 15,314 20,279 26,967
13 27,898 100,000 100,000 100,000 100,000 12,385 16,694 22,672 30,964 12,385 16,694 22,672 30,964
14 30,868 100,000 100,000 100,000 100,000 13,096 18,081 25,201 35,373 13,096 18,081 25,201 35,373
15 33,986 100,000 100,000 100,000 100,000 13,767 19,479 27,880 40,249 13,767 19,479 27,880 40,249
16 37,261 100,000 100,000 100,000 100,000 14,409 20,900 30,733 45,655 14,409 20,900 30,733 45,655
17 40,699 100,000 100,000 100,000 100,000 15,010 22,332 33,761 51,645 15,010 22,332 33,761 51,645
18 44,309 100,000 100,000 100,000 100,000 15,561 23,768 36,973 58,284 15,561 23,768 36,973 58,284
19 48,099 100,000 100,000 100,000 100,000 16,059 25,207 40,382 65,653 16,059 25,207 40,382 65,653
20 52,079 100,000 100,000 100,000 100,000 16,497 26,643 44,002 73,839 16,497 26,643 44,002 73,839
25(Age 65) 75,170 100,000 100,000 100,000 158,111 17,606 33,660 65,948 129,599 17,606 33,660 65,948 129,599

</TABLE>

EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION A ASSUMING GUARANTEED CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $100,000 $100,000 $100,000 $100,000 $ 884 $ 929 $ 975 $ 1,021 $ 566 $ 612 $ 657 $ 703
2 3,229 100,000 100,000 100,000 100,000 1,802 1,931 2,063 2,200 1,349 1,478 1,611 1,747
3 4,965 100,000 100,000 100,000 100,000 2,683 2,934 3,199 3,479 2,113 2,364 2,629 2,909
4 6,788 100,000 100,000 100,000 100,000 3,525 3,936 4,383 4,868 2,955 3,366 3,813 4,298
5 8,703 100,000 100,000 100,000 100,000 4,328 4,938 5,619 6,379 3,758 4,368 5,049 5,809
6 10,713 100,000 100,000 100,000 100,000 5,089 5,935 6,907 8,021 4,519 5,365 6,337 7,451
7 12,824 100,000 100,000 100,000 100,000 5,809 6,928 8,251 9,810 5,353 6,472 7,795 9,354
8 15,040 100,000 100,000 100,000 100,000 6,484 7,915 9,654 11,761 6,142 7,573 9,312 11,419
9 17,367 100,000 100,000 100,000 100,000 7,115 8,893 11,116 13,891 6,887 8,665 10,888 13,663
10 19,810 100,000 100,000 100,000 100,000 7,697 9,859 12,642 16,217 7,583 9,745 12,528 16,103
11 22,376 100,000 100,000 100,000 100,000 8,229 10,811 14,234 18,763 8,229 10,811 14,234 18,763
12 25,069 100,000 100,000 100,000 100,000 8,703 11,741 15,891 21,548 8,703 11,741 15,891 21,548
13 27,898 100,000 100,000 100,000 100,000 9,114 12,644 17,612 24,596 9,114 12,644 17,612 24,596
14 30,868 100,000 100,000 100,000 100,000 9,456 13,511 19,398 27,936 9,456 13,511 19,398 27,936
15 33,986 100,000 100,000 100,000 100,000 9,719 14,334 21,249 31,599 9,719 14,334 21,249 31,599
16 37,261 100,000 100,000 100,000 100,000 9,898 15,107 23,166 35,624 9,898 15,107 23,166 35,624
17 40,699 100,000 100,000 100,000 100,000 9,988 15,823 25,153 40,057 9,988 15,823 25,153 40,057
18 44,309 100,000 100,000 100,000 100,000 9,985 16,478 27,217 44,953 9,985 16,478 27,217 44,953
19 48,099 100,000 100,000 100,000 100,000 9,882 17,064 29,361 50,374 9,882 17,064 29,361 50,374
20 52,079 100,000 100,000 100,000 100,000 9,673 17,574 31,593 56,394 9,673 17,574 31,593 56,394
25(Age 65) 75,170 100,000 100,000 100,000 120,187 6,476 18,413 44,177 98,514 6,476 18,413 44,177 98,514

</TABLE>

<PAGE>

EquiBuilder III-TM- Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION B ASSUMING CURRENT CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $100,882 $100,927 $100,973 $101,019 $ 882 $ 927 $ 973 $ 1,019 $ 565 $ 610 $ 656 $ 701
2 3,229 102,022 102,155 102,292 102,432 2,022 2,155 2,292 2,432 1,569 1,702 1,839 1,980
3 4,965 103,130 103,398 103,682 103,980 3,130 3,398 3,682 3,980 2,560 2,828 3,112 3,410
4 6,788 104,207 104,658 105,147 105,675 4,207 4,658 5,147 5,675 3,637 4,088 4,577 5,105
5 8,703 105,253 105,934 106,692 107,532 5,253 5,934 6,692 7,532 4,683 5,364 6,122 6,962
6 10,713 106,267 107,226 108,321 109,568 6,267 7,226 8,321 9,568 5,697 6,656 7,751 8,998
7 12,824 107,236 108,519 110,024 111,785 7,236 8,519 10,024 11,785 6,780 8,063 9,568 11,329
8 15,040 108,156 109,810 111,804 114,201 8,156 9,810 11,804 14,201 7,814 9,468 11,462 13,859
9 17,367 109,030 111,101 113,666 116,838 9,030 11,101 13,666 16,838 8,802 10,873 13,438 16,610
10 19,810 109,855 112,388 115,614 119,714 9,855 12,388 15,614 19,714 9,741 12,274 15,500 19,600
11 22,376 110,635 113,674 117,654 122,860 10,635 13,674 17,654 22,860 10,635 13,674 17,654 22,860
12 25,069 111,383 114,972 119,807 126,316 11,383 14,972 19,807 26,316 11,383 14,972 19,807 26,316
13 27,898 112,082 116,265 122,062 130,098 12,082 16,265 22,062 30,098 12,082 16,265 22,062 30,098
14 30,868 112,730 117,548 124,421 134,235 12,730 17,548 24,421 34,235 12,730 17,548 24,421 34,235
15 33,986 113,329 118,824 126,896 138,770 13,329 18,824 26,896 38,770 13,329 18,824 26,896 38,770
16 37,261 113,893 120,106 129,506 143,755 13,893 20,106 29,506 43,755 13,893 20,106 29,506 43,755
17 40,699 114,406 121,378 132,243 149,224 14,406 21,378 32,243 49,224 14,406 21,378 32,243 49,224
18 44,309 114,859 122,628 135,105 155,214 14,859 22,628 35,105 55,214 14,859 22,628 35,105 55,214
19 48,099 115,247 123,850 138,094 161,777 15,247 23,850 38,094 61,777 15,247 23,850 38,094 61,777
20 52,079 115,562 125,035 141,209 168,962 15,562 25,035 41,209 68,962 15,562 25,035 41,209 68,962
25(Age 65) 75,170 115,816 130,091 158,706 215,476 15,816 30,091 58,706 115,476 15,816 30,091 58,706 115,476

</TABLE>

EquiBuilder III -TM-Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-SMOKER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION B ASSUMING GUARANTEED CHARGES
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $100,882 $100,927 $100,973 $101,019 $ 882 $ 927 $ 973 $ 1,019 $ 565 $ 610 $ 656 $ 701
2 3,229 101,793 101,921 102,053 102,189 1,793 1,921 2,053 2,189 1,341 1,469 1,601 1,737
3 4,965 102,664 102,913 103,176 103,455 2,664 2,913 3,176 3,455 2,094 2,343 2,606 2,885
4 6,788 103,491 103,898 104,341 104,821 3,491 3,898 4,341 4,821 2,921 3,328 3,771 4,251
5 8,703 104,276 104,877 105,549 106,298 4,276 4,877 5,549 6,298 3,706 4,307 4,979 5,728
6 10,713 105,013 105,845 106,800 107,894 5,013 5,845 6,800 7,894 4,443 5,275 6,230 7,324
7 12,824 105,703 106,800 108,094 109,620 5,703 6,800 8,094 9,620 5,247 6,344 7,638 9,164
8 15,040 106,344 107,739 109,433 111,486 6,344 7,739 9,433 11,486 6,002 7,397 9,091 11,144
9 17,367 106,933 108,659 110,815 113,504 6,933 8,659 10,815 13,504 6,705 8,431 10,587 13,276
10 19,810 107,467 109,555 112,240 115,686 7,467 9,555 12,240 15,686 7,353 9,441 12,126 15,572
11 22,376 107,945 110,424 113,707 118,047 7,945 10,424 13,707 18,047 7,945 10,424 13,707 18,047
12 25,069 108,356 111,255 115,209 120,596 8,356 11,255 15,209 20,596 8,356 11,255 15,209 20,596
13 27,898 108,696 112,040 116,741 123,343 8,696 12,040 16,741 23,343 8,696 12,040 16,741 23,343
14 30,868 108,956 112,769 118,297 126,302 8,956 12,769 18,297 26,302 8,956 12,769 18,297 26,302
15 33,986 109,127 113,430 119,865 129,484 9,127 13,430 19,865 29,484 9,127 13,430 19,865 29,484
16 37,261 109,205 114,015 121,442 132,905 9,205 14,015 21,442 32,905 9,205 14,015 21,442 32,905
17 40,699 109,182 114,513 123,020 136,583 9,182 14,513 23,020 36,583 9,182 14,513 23,020 36,583
18 44,309 109,056 114,919 124,593 140,541 9,056 14,919 24,593 40,541 9,056 14,919 24,593 40,541
19 48,099 108,821 115,222 126,155 144,800 8,821 15,222 26,155 44,800 8,821 15,222 26,155 44,800
20 52,079 108,471 115,412 127,696 149,383 8,471 15,412 27,696 49,383 8,471 15,412 27,696 49,383
25(Age 65) 75,170 104,498 113,973 134,419 177,857 4,498 13,973 34,419 77,857 4,498 13,973 34,419 77,857

</TABLE>

<PAGE>

ADDITIONAL INFORMATION

VOTING RIGHTS OF A POLICY OWNER

VOTING RIGHTS OF THE FUNDS

As was explained in "Separate Account Investment Choices," above, the assets
in the divisions of the Separate Account are invested in shares of the
corresponding portfolios of the Funds. American Franklin is the legal owner of
the shares and, as such, has the right to vote on certain matters. Among other
things, it may vote to:

a. elect the Boards of Trustees of the Funds;
b. ratify the selection of independent auditors for the Funds; and
c. vote on any other matters described in the current prospectuses of the
Funds or requiring a vote by shareholders under the Investment Company
Act of 1940.

Even though American Franklin owns the shares, American Franklin will
provide Policy Owners the opportunity to tell it how to vote the number of
shares that are allocated to their policies. American Franklin will vote those
shares at meetings of shareholders of the Funds according to such instructions.
If American Franklin does not receive instructions in time from all Policy
Owners, it will vote shares for which no instructions have been received in a
portfolio in the same proportion as it votes shares for which it received
instructions in that portfolio. American Franklin will also vote any shares of
the Funds that it is entitled to vote directly due to amounts it has accumulated
in the Separate Account in the same proportions that Policy Owners vote. If the
federal securities laws or regulations or interpretations of them change so that
American Franklin is permitted to vote shares of the Funds without seeking
instructions from Policy Owners or to restrict Policy Owner voting, American
Franklin may do so.

DETERMINATION OF VOTING SHARES

A Policy Owner may participate in voting only on matters concerning a Fund's
portfolios in which his or her assets have been invested. American Franklin
determines the number of a Fund's shares in each division that are attributable
to a particular policy by dividing the amount in the Policy Account allocated to
that division by the net asset value of one share of the corresponding portfolio
as of the record date set by the Fund's Board for the Fund's shareholders
meeting. The record date for this purpose must be at least 10 and no more than
90 days before the meeting of the Fund. American Franklin will count fractional
shares for these purposes.

For example, suppose that a Policy Account has a net value of $3,000, with
50% of this amount being attributable to the Equity-Income division and 50%
being attributable to the Money Market division, which means that $1,500 is in
each division. Assume that the net asset value of one share in the
corresponding Equity-Income Portfolio is $150 and the net asset value of one
share in the corresponding Money Market Portfolio is $100. If the $1,500 in
each division is divided by the net asset value of one share, the Policy Owner
will have the right to instruct American Franklin regarding 10 shares for the
Equity-Income division and 15 shares for the Money Market division.

American Franklin will send proxy material and a form for giving voting
instructions to each Policy Owner that has voting rights. In certain cases,
American Franklin may disregard instructions relating to approval of investments
or contracts with an adviser to a Fund or relating to changes in a Fund's
investment adviser, principal underwriter or the investment policies of its
portfolios. If it does so, American Franklin will advise the Policy Owners and
give its reasons in the next semiannual report to Policy Owners.

HOW SHARES OF THE FUNDS ARE VOTED

All shares of the Funds are entitled to one vote. The votes of all
divisions are cast together on an aggregate basis, except on matters where the
interests of the portfolios differ. In such cases, voting is on a
portfolio-by-portfolio basis. In these cases, the approval of the shareholders
in one portfolio is not needed to make a decision in another portfolio.
Examples of matters that would require a portfolio-by-portfolio vote are changes
in the fundamental investment policy of a particular portfolio or approval of an

<PAGE>

investment advisory agreement. Shareholders in a portfolio not affected by a
particular matter generally would not be entitled to vote on it.

VOTING PRIVILEGES OF PARTICIPANTS IN OTHER SEPARATE ACCOUNTS

Shares of the Funds may be owned by other separate accounts of American
Franklin or by separate accounts of other insurance companies affiliated or
unaffiliated with American Franklin. Shares owned by these separate accounts
will probably be voted according to the instructions of the owners of insurance
policies and contracts issued by those other insurance companies. Moreover,
American Franklin expects that the number of shares owned in the Funds by
separate accounts of insurance companies that are not affiliated with American
Franklin will initially exceed the number of shares owned by the Separate
Account. These factors will dilute the effect of the voting instructions of
Policy Owners. American Franklin currently does not foresee any disadvantages
to Policy Owners arising out of this. The Securities and Exchange Commission
has granted the Funds exemptive orders pursuant to the Investment Company Act of
1940 that permit the Funds to offer their shares to separate accounts, like the
Separate Account, that are maintained by life insurance companies that are not
affiliated with the Funds. Those exemptive orders impose several conditions on
the Funds and participating separate accounts to protect the holders of
interests in the various separate accounts investing in shares of the Funds.
The Boards of Trustees of the Funds have agreed to monitor events in order to
identify any material irreconcilable conflicts that possibly may arise and to
determine what action, if any, should be taken in response by, and at the
expense of, American Franklin or one or more of the other participating
insurance companies. American Franklin and the other participating insurance
companies are obligated to report potential or existing conflicts of interest to
the Funds' Boards of Trustees. If American Franklin believes that a Fund's
response to any of those events insufficiently protects Policy Owners, American
Franklin will take appropriate action to protect Policy Owners. Corrective
action for an irreconcilable conflict of interest involving the Separate Account
might include withdrawal of the assets of the Separate Account from a Fund.
Also, if American Franklin ever believes that any of the Funds' portfolios is so
large as to impair materially the investment performance of a portfolio or a
Fund, American Franklin will examine other investment options.

SEPARATE ACCOUNT VOTING RIGHTS

Under the Investment Company Act of 1940, certain actions (such as some of
those described under "Separate Account Investment Choices-Right to Change
Operations," above) may require Policy Owner approval. In that case, a Policy
Owner will be entitled to one vote for every $100 of value allocated to his or
her policy in the investment divisions of the Separate Account, and a
proportionate fractional vote for any amount less than $100. American Franklin
will cast votes attributable to amounts retained in the investment divisions of
the Separate Account in the same proportions as votes cast by Policy Owners.

REPORTS TO POLICY OWNERS

After the end of each policy year, each Policy Owner will be sent a report
that shows the current death benefit for his or her policy, the value of his or
her Policy Account, information about investment divisions, the Cash Surrender
Value of his or her policy, the amount of any outstanding policy loans, the
amount of any interest owed on the loan and information about the current loan
interest rate. The annual report will also show any transactions involving the
Policy Owner's Policy Account that occurred during the year. Transactions
include premium allocations, deductions, and any transfers or withdrawals that
were made in that year. American Franklin will also send semi-annual reports
with financial information on the Separate Account and the Funds, including a
list of the investments held by each portfolio.

In addition, reports will also contain any other information that is
required by the insurance supervisory official in the jurisdiction in which a
policy is delivered.

Notices will be sent to Policy Owners for transfers of amounts between
investment divisions and certain other policy transactions.

LIMITS ON AMERICAN FRANKLIN'S RIGHT TO CHALLENGE A POLICY

American Franklin can challenge the validity of an insurance policy (based
on material misstatements in the application or, with respect to any policy
change, based on material misstatements

<PAGE>

in the application for the change) if it appears that the Insured Person is not
actually covered by the policy under American Franklin's rules. However, there
are some limits on how and when American Franklin can challenge the policy.

Except on the basis of fraud, American Franklin cannot challenge the policy
after it has been in effect, during the Insured Person's lifetime, for two years
from the date the policy was issued or reinstated. (Some states may require
this time to be measured in some other way.)

Except on the basis of fraud, American Franklin cannot challenge any policy
change that requires evidence of insurability (such as an increase in Face
Amount) after the change has been in effect for two years during the Insured
Person's lifetime.

American Franklin can challenge at any time (and require proof of continuing
disability) an additional benefit that provides benefits to the Insured Person
in the event that the Insured Person becomes totally disabled.

If the Insured Person dies within the time that the validity of the policy
may be challenged, American Franklin may delay payment until it decides whether
to challenge the policy.

If the Insured Person's age or sex is misstated on any application, the
death benefit and any additional benefits provided will be those which would
have been purchased by the most recent deduction for the cost of insurance and
the cost of any additional benefits at the Insured Person's correct age and sex.

If the Insured Person commits suicide within two years after the date on
which the policy was issued or reinstated, the death benefit will be limited to
the total of all premiums that have been paid to the time of death minus the
amount of any outstanding policy loan and loan interest and minus any partial
withdrawals of Net Cash Surrender Value. If the Insured Person commits suicide
within two years after the effective date of an increase in death benefit that
the Policy Owner requested, American Franklin will pay the death benefit which
was in effect before the increase, plus the monthly cost of insurance deductions
for the increase (including the expense charge). (Some states require this time
to be measured by some other date.)

PAYMENT OPTIONS

Policy benefits or other payments such as the Net Cash Surrender Value or
death benefit may be paid immediately in one sum or another form of payment
described below may be designated for all or part of the proceeds. Payments
under these options are not affected by the investment experience of any
investment division of the Separate Account. Instead, interest accrues pursuant
to the options chosen (such interest will be appropriately includable in federal
gross income of the beneficiary). If the Policy Owner does not arrange for a
specific form of payment before the Insured Person dies, the beneficiary will
have his choice. However, if the Policy Owner makes an arrangement for payment
of the money, the beneficiary cannot change that choice after the Insured Person
dies. Payment Options will also be subject to American Franklin's rules at the
time of selection. Currently, these alternate payment options are only
available if the proceeds applied are $1,000 or more and any periodic payment
will be at least $20.

The following payment options are generally available:

INCOME PAYMENTS FOR A FIXED PERIOD: American Franklin will pay the
amount applied in equal installments (including applicable interest) for a
specific number of years, for up to 30 years.

LIFE INCOME WITH PAYMENTS GUARANTEED FOR A FIXED TERM OF YEARS:
American Franklin will pay the money at agreed intervals as a definite
number of equal payments and as long thereafter as the payee lives. The
Policy Owner (or beneficiary in some cases) may choose any one of four
definite periods: 5, 10, 15 or 20 years.

PROCEEDS AT INTEREST: The money will stay on deposit with American
Franklin while the payee is alive. Interest will accrue on the money at a
declared interest rate, and interest will be paid at agreed upon intervals.

<PAGE>

FIXED AMOUNT: American Franklin will pay the sum in installments in a
specified amount. Installments will be paid until the original amount,
together with any interest, has been exhausted.

American Franklin guarantees interest under the foregoing options at the
rate of 3% a year.

American Franklin may also pay or credit excess interest on the options from
time to time. The rate and manner of payment or crediting will be determined by
American Franklin. Under the second option no excess interest will be paid on
the part of the proceeds used to provide payments beyond the fixed term of
years.

The beneficiary or any other person who is entitled to receive payment may
name a successor to receive any amount that would otherwise be paid to that
person's estate if that person died. No successor may be named if a payment
option chosen is contingent on the life of a beneficiary. The person who is
entitled to receive payment may change the successor at any time.

American Franklin must approve any arrangements that involve more than one
of the payment options, or a payee who is not a natural person (for example, a
corporation), or a payee who is a fiduciary. Also, the details of all
arrangements will be subject to American Franklin's rules at the time the
arrangements take effect. This includes rules on the minimum amount payable
under an option, minimum amounts for installment payments, withdrawal or
commutation rights (rights to cancel an arrangement involving payments over time
in return for a lump sum payment), the naming of people who are entitled to
receive payment and their successors and the ways of proving age and survival.

A Policy Owner may change his or her choice of a payment option (and may
make later changes) and that change will take effect in the same way as it would
if a beneficiary were being changed. (See "The Beneficiary," below). Any
amounts paid under the payment options will not be subject to the claims of
creditors or to legal process, to the extent that the law provides.

THE BENEFICIARY

An applicant for a policy must name a beneficiary when he or she applies for
a policy. The beneficiary is entitled to the insurance benefits of the policy.
The Policy Owner may change the beneficiary during the Insured Person's lifetime
by written notice to American Franklin at its Administrative Office. If no
beneficiary is living when the Insured Person dies, the death benefit will be
paid to the Insured Person's estate.

ASSIGNMENT OF A POLICY

The Policy Owner may assign (transfer) his or her rights in a policy to
someone else as collateral for a loan or for some other reason. In order to do
so the Policy Owner must send a copy of the assignment to American Franklin's
Administrative Office. American Franklin is not responsible for any payment
made or any action taken before it has received notice of the assignment (or of
termination of the assignment) or for the validity of the assignment. An
absolute assignment is a change of ownership. The federal income tax treatment
of a policy that has been assigned for valuable consideration may be different
from the federal income tax treatment described herein.

EMPLOYEE BENEFIT PLANS

Employers and employee organizations should consider, in consultation with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the purchase
of EquiBuilder III policies in connection with an employment-related insurance
or benefit plan. The United States Supreme Court held, in a 1983 decision,
that, under Title VII, optional annuity benefits under a deferred compensation
plan could not vary on the basis of sex.

The policies described herein are not intended for use in connection with
qualified plans or trusts under the Code.

PAYMENT OF PROCEEDS

<PAGE>

American Franklin will pay any death benefits, Net Cash Surrender Value or
loan proceeds within seven days after it receives the required form or request
(and other documents that may be required) at its Administrative Office. Death
benefits are determined as of the date of death of the Insured Person and will
not be affected by subsequent changes in the unit values of the investment
divisions of the Separate Account. Interest will be paid in respect of the
period from the date of death to the date of payment.

American Franklin may, however, delay payment for one or more of the
following reasons:

American Franklin contests the policy or is deciding whether or not to
contest the policy;

American Franklin cannot determine the amount of the payment because the
New York Stock Exchange is closed, because trading in securities has been
restricted by the Securities and Exchange Commission, or because the
Securities and Exchange Commission has declared that an emergency exists; or

The Securities and Exchange Commission by order permits American
Franklin to delay payment to protect the Policy Owners.

American Franklin may defer payment of any Net Cash Surrender Value or
loan amount from the Guaranteed Interest Division for up to six months after
receipt of a request. American Franklin will pay interest of at least 3% a
year from the date a request for withdrawal of Net Cash Surrender Value is
received if payment from the Guaranteed Interest Division is delayed more
than 30 days.

<PAGE>

DIVIDENDS

No dividends are paid on the policies offered by this Prospectus.

DISTRIBUTION OF THE POLICIES

Franklin Financial Services Corporation ("Franklin Financial"), a Delaware
corporation and a wholly-owned subsidiary of The Franklin Life Insurance
Company, is the principal underwriter, as defined by the Investment Company Act
of 1940, of the EquiBuilder III policies for the Separate Account under a Sales
Agreement between Franklin Financial and the Separate Account. Franklin
Financial's principal executive office is at #1 Franklin Square, Springfield,
Illinois 62713.

Franklin Financial is registered with the Securities and Exchange Commission
as a broker-dealer under the Securities and Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. Franklin Financial also
acts as principal underwriter for Franklin Life Variable Annuity Funds A and B
and Franklin Life Money Market Variable Annuity Fund C, which are separate
accounts of The Franklin Life Insurance Company and registered investment
companies issuing interests in variable annuity contracts. Franklin Financial
also acts as principal underwriter for Separate Account VUL of American
Franklin, which is a registered investment company issuing interests in variable
life insurance contracts having policy features that are similar to those of
EquiBuilder III policies but the assets of which are invested in a different
open-end management investment company. American Franklin no longer offers new
policies having an interest in that separate account. Franklin Financial is the
principal underwriter of American Franklin's EquiBuilder II variable life
insurance policies under which interests in the Separate Account are issued.
The EquiBuilder II policies have policy features that are similar to those of
the EquiBuilder III policies but have a different sales charge structure.

Policies are sold primarily by persons who are insurance agents or brokers
for American Franklin authorized by applicable law to sell life and other forms
of personal insurance, including variable life insurance. Pursuant to an
agreement between American Franklin and Franklin Financial, Franklin Financial
has agreed to employ and supervise agents chosen by American Franklin to sell
the policies and to use its best efforts to qualify such persons as registered
representatives of Franklin Financial.

Franklin Financial incurs certain sales expenses, such as sales literature
preparation and related costs, in connection with the sale of the policies
pursuant to a Sales Agreement with American Franklin. Sales expense deductions
made from each premium and surrender charges imposed in connection with the
surrender of a policy and certain reductions of Face Amount are paid to Franklin
Financial as a means to recover sales expenses. Such sales expense deductions
and surrender charges are not necessarily related to Franklin Financial's actual
sales expenses in any particular year. To the extent sales expenses are not
covered by sales expense deductions and surrender charges, Franklin Financial
will cover them from other assets.

Commissions earned by registered representatives of Franklin Financial on
the sale of the policies range up to 73% of premiums paid during the first
policy year. Pursuant to an Agreement between American Franklin and Franklin
Financial, American Franklin has agreed to pay such commissions and Franklin
Financial has agreed to remit to American Franklin the excess of all sales
expense deductions and surrender charges paid to Franklin Financial over the
sales and promotional expenses incurred by Franklin Financial to the extent
necessary to reimburse American Franklin for commissions or other remuneration
paid in connection with sales of the policies. Such Agreement also provides
that the amount of such commissions and other remuneration not so reimbursed
shall be deemed to have been contributed by American Franklin to the capital of
Franklin Financial. Commissions and other remuneration will be paid by American
Franklin from other sources, including mortality and expense risk charges or
other charges in connection with the EquiBuilder III policies, or from its
General Account to the extent it does not receive reimbursement from Franklin
Financial.

Franklin Financial also may enter into agreements with American Franklin and
each such agent with respect to the supervision of such agent. The policies
also may be sold by persons who are registered representatives of other
registered broker-dealers who are members of the National Association of
Securities Dealers, Inc., and with whom Franklin Financial may enter into a
selling agreement.

<PAGE>

Registration as a broker-dealer does not mean that the Securities and
Exchange Commission has in any way passed upon the financial standing, fitness
or conduct of any broker or dealer, upon the merits of any securities offering
or upon any other matter relating to the business of any broker or dealer.
Salesmen and employees selling policies, where required, are also licensed as
securities salesmen under state law.

APPLICATIONS

When an application for a policy is completed, it is submitted to American
Franklin. American Franklin makes the decision to issue a policy based on the
information in the application and its standards for issuing insurance and
classifying risks. If it decides not to issue a policy, any premium paid will
be refunded.

REINSURANCE AGREEMENT WITH INTEGRITY LIFE INSURANCE COMPANY

American Franklin has entered into a reinsurance agreement with Integrity
Life Insurance Company ("Integrity") in respect of the EquiBuilder III policies.
Integrity has advised American Franklin that Integrity intends to terminate this
agreement.

Integrity is a subsidiary of ARM Financial Group, Inc., a financial
services company controlled by Morgan Stanley & Co. Incorporated, an investment
banking firm headquartered in New York, New York.

STATE REGULATION

As a life insurance company organized and operated under Illinois law,
American Franklin is subject to statutory provisions governing such companies
and to regulation by the Illinois Director of Insurance. An annual statement is
filed with the Director on or before March 1 of each year covering the
operations of American Franklin for the preceding year and its financial
condition on December 31 of such year. American Franklin's books and accounts
are subject to review and examination by the Illinois Insurance Department at
all times, and a full examination of its operations is conducted by the National
Association of Insurance Commissioners ("NAIC") periodically. The NAIC has
divided the country into six geographic zones. A representative of each such
zone may participate in the examination.

In addition, American Franklin is subject to the insurance laws and
regulations of the jurisdictions other than Illinois in which it is licensed to
operate. Generally, the insurance departments of such jurisdictions apply the
law of Illinois in determining permissible investments for American Franklin.

LEGAL MATTERS

Legal matters concerning federal securities laws applicable to the issue and
sale of the EquiBuilder III flexible premium variable life insurance policies
offered hereby have been passed upon by Chadbourne & Parke LLP, 30 Rockefeller
Plaza, New York, New York 10112. All matters of Illinois law, including
American Franklin's right and power to issue such policies, have been passed
upon by Stephen P. Horvat, Jr., Esq., Senior Vice President, General Counsel,
Secretary and a director of American Franklin and a director and Secretary of
Franklin Financial.

LEGAL PROCEEDINGS

Neither American Franklin nor the Separate Account is a party to any
material legal proceedings.

EXPERTS

The statement of net assets as of December 31, 1995 and the related
statements of operations and changes in net assets for the year then ended of
the Separate Account, appearing herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein. The financial statements at December 31, 1995, and for the eleven
months then ended and the statements of operations, shareholder's equity and
cash flows for the one month ended January 31, 1995 of American Franklin,
appearing herein, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein. The statement
of changes in net assets of the

<PAGE>

Separate Account for the year ended December 31, 1994, appearing herein, has
been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth
in their report thereon appearing elsewhere herein. The balance sheet of
American Franklin at December 31, 1994 and the statements of operations,
shareholder's equity and cash flows of American Franklin for each of the two
years in the period then ended have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon appearing
elsewhere herein. Such financial statements referred to above are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.

Actuarial matters in this Prospectus have been examined by Robert M.
Beuerlein, who is Executive Vice President and Actuary of American Franklin.
His opinion on actuarial matters is filed as an exhibit to the Registration
Statement relating to the policies filed with the SEC.

REGISTRATION STATEMENT

A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning American Franklin, the Separate Account and the policies
offered hereby. Statements contained in this Prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.

OTHER POLICIES AND CONTRACTS

American Franklin may offer, under other prospectuses, other variable life
policies or variable annuity contracts having interests in the Separate Account
and containing terms and conditions different from those of the policies offered
hereby. Interests in the Separate Account are also issued under American
Franklin's EquiBuilder II variable life insurance policies, which have policy
features that are similar to those of EquiBuilder III policies but which have a
different sales charge structure.

MANAGEMENT

The following persons hold the positions designated with respect to American
Franklin. The table also shows their principal occupations during the past five
years and any positions held with The Franklin and Franklin Financial.

<PAGE>

POSITION HELD WITH
PRINCIPAL OCCUPATIONS AMERICAN FRANKLIN
NAME DURING PAST 5 YEARS AND FRANKLIN FINANCIAL
---- --------------------- ----------------------

Robert M. Beuerlein Senior Vice Director, Executive Vice
President-Actuarial and President and Actuary,
Director, The Franklin; American Franklin; Director,
Vice President, The Franklin Financial.
Franklin, from April,
1991 to January, 1993;
Executive Vice President
and Actuary, American
Franklin; Vice President
and Actuary, American
Franklin, prior to
January, 1992.

Thomas J. Byerly Executive Vice Director, American Franklin;
President, Chief Director and Senior Vice
Marketing Officer and President, Franklin Financial.
Director, The Franklin;
also Chief Operating
Officer, The Franklin,
prior to February, 1995;
Senior Vice
President-Marketing and
Director, The Franklin
from August, 1989 to
July, 1993.

Robert M. Devlin* Senior Chairman and Senior Chairman and Director,
Director, The Franklin, American Franklin.
since February, 1995;
President and Director,
American General
Corporation, Houston,
Texas; Vice Chairman,
American General
Corporation, prior to
October, 1995; President
and Chief Investment
Officer, American
General Life Insurance
Company, Houston, Texas,
prior to 1993.

Barbara Fossum Vice President, The Vice President, American
Franklin; prior to Franklin
June, 1995, General
Life Insurance Company,
Houston, Texas.

<PAGE>

POSITION HELD WITH
PRINCIPAL OCCUPATIONS AMERICAN FRANKLIN
NAME DURING PAST 5 YEARS AND FRANKLIN FINANCIAL
---- --------------------- ----------------------

Robert J. Gibbons Director, President and President and Director,
Chief Executive Officer, American Franklin; Chairman
The Franklin; President of the Board, President
and Chief Executive and Chief Executive Officer,
Officer, American Franklin Financial.
General Life Insurance
Company of New York,
Syracuse, New York,
prior to February, 1995;
Senior Vice President
and Chief Marketing
Officer, American
General Life Insurance
Company of New York,
prior to June, 1994.

Harold S. Hook* Senior Chairman and Senior Chairman and Director,
Director, The Franklin, American Franklin.
since February, 1995;
Chairman, Chief
Executive Officer and
Director, American
General Corporation,
Houston, Texas.

Stephen P. Horvat, Jr. Senior Vice President, Director, Senior Vice
Secretary, General President, General Counsel
Counsel and Director, and Secretary, American
The Franklin. Franklin; Director, Vice
President and Secretary,
Franklin Financial.

<PAGE>

POSITION HELD WITH
PRINCIPAL OCCUPATIONS AMERICAN FRANKLIN
NAME DURING PAST 5 YEARS AND FRANKLIN FINANCIAL
---- --------------------- ----------------------

Howard C. Humphrey Chairman of the Board, Chairman of the Board,
The Franklin; also Chief American Franklin.
Executive Officer, The
Franklin, prior to
December, 1995; also
President, The Franklin,
prior to February, 1995;
Vice President - Life
Insurance, American
Brands, Inc., prior to
January, 1995.

Thomas K. McCracken Vice President-Special Vice President-Special
Markets, The Franklin. Markets, American Franklin.

Randall E. O'Brien Division Vice Division Vice
President-Product President-Product Development
Development and Special and Special Markets, American
Markets, The Franklin. Franklin; Vice President,
Franklin Financial.

<PAGE>

POSITION HELD WITH
PRINCIPAL OCCUPATIONS AMERICAN FRANKLIN
NAME DURING PAST 5 YEARS AND FRANKLIN FINANCIAL
---- --------------------- ----------------------

Jeffrey D. Pirmann Vice President, Vice President and Treasurer,
Controller and American Franklin; Vice
Treasurer, The Franklin. President, Treasurer and Chief
Financial Officer, Franklin
Financial.

Gary D. Reddick Director and Executive Executive Vice
Vice President, The President-Administration and
Franklin, since Director, American Franklin;
February, 1995; Senior Director and Executive Vice
Vice President, American President, Franklin Financial.
General Corporation,
Houston, Texas prior to
February, 1995; Senior
Vice President, American
General Life Insurance
Company, Houston, Texas,
prior to October, 1994.

Peter V. Tuters* Vice President, Chief Vice President, Chief
Investment Officer and Investment Officer and
Director, The Franklin, Director, American Franklin.
since February, 1995;
Senior Vice President,
since 1992, and Chief
Investment Officer,
since December, 1993,
American General
Corporation, Houston,
Texas; Vice President,
Crown Life Insurance
Company, Toronto,
Ontario, Canada, prior
thereto.

J. Alan Vala Vice President and Vice President and Agency
Agency Secretary, Secretary, American Franklin;
The Franklin. Vice President and Assistant
Secretary, Franklin Financial.

Diane S. Workman Vice President- Vice President-Administration,
Administration, American American Franklin.
Franklin; Assistant Vice
President, American
Franklin, prior to
April, 1992.

The principal business address of each individual with an asterisk next to
his name is 2929 Allen Parkway, Houston, Texas 77019. The principal business
address of each other individual is in care of The Franklin Life Insurance
Company, #1 Franklin Square, Springfield, Illinois 62713.

51
<PAGE>

Index To Financial Statements

<TABLE>

Page
<S> <C>
The Separate Account:

Report of Independent Auditors....................................................................... F-2

Report of Independent Accountants.................................................................... F-3

Audited Financial Statements:

Statement of Net Assets, December 31, 1995......................................................... F-4-F-5

Statement of Operations for the year ended December 31, 1995....................................... F-6-F-7

Statements of Changes in Net Assets for the years ended December 31, 1995 and 1994................. F-8-F-9

Notes to Financial Statements...................................................................... F-10-F-13

The American Franklin Life Insurance Company:*

Report of Independent Auditors....................................................................... F-14

Report of Independent Accountants.................................................................... F-15

Audited Financial Statements:

Balance Sheet, December 31, 1995 and 1994......................................................... F-16-F-17

Statement of Operations for the eleven months ended December 31, 1995, one month ended
January 31, 1995, and years ended December 31, 1994 and 1993....................................... F-18

Statement of Shareholder's Equity for the eleven months ended December 31, 1995, one month
ended January 31, 1995, and years ended December 31, 1994 and 1993 ................................ F-19

Statement of Cash Flows for the eleven months ended December 31, 1995, one month ended
January 31, 1995, and years ended December 31, 1994 and 1993 ...................................... F-20

Notes to Financial Statements ..................................................................... F-21-F-39

</TABLE>

___________________________
* The financial statements of American Franklin contained herein should be
considered only as bearing upon the ability of American Franklin to meet
its obligations under the policies offered hereby.

F-1

<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.

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.

/s/ Ernst & Young LLP
Ernst & Young LLP

Chicago, Illinois
February 9, 1996

F-2

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

--------------------

To the Board of Directors
of The American Franklin Life Insurance Company
and Policyowners of Separate Account VUL-2

We have audited the accompanying statement of changes in net assets of the
Money Market Division, Equity-Income Division, Growth Division, Overseas
Division, Investment Grade Bond Division, Asset Manager Division, High Income
Division and Index 500 Division of Separate Account VUL-2 (the "Fund") for
the year ended December 31, 1994. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement based on our audit.

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 statement is free of
material misstatement. Our procedures included confirmation of securities
owned as of December 31, 1994 by correspondence with the custodian. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 financial statement referred to above presents fairly, in
all material respects, the changes in net assets of the Money Market
Division, Equity-Income Division, Growth Division, Overseas Division,
Investment Grade Bond Division, Asset Manager Division, High Income Division
and Index 500 Division of Separate Account VUL-2 for the year ended December
31, 1994 in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.

203 North LaSalle Street
Chicago, Illinois 60601
February 1, 1995

F-3

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1995

MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS

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.

F-4

<PAGE>

HIGH INVESTMENT ASSET INDEX ASSET CONTRA-
INCOME GRADE BOND MANAGER 500 MANAGER: FUND
DIVISION DIVISION DIVISION DIVISION GROWTH DIVISION DIVISION
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

$444,889 $1,322,613 $16,152,213 $1,054,108 $240,520 $852,150
- - ----------------------------------------------------------------------------------------------------

(4,887) 1 (53,567) (1,399) 226 (1,787)
- - ----------------------------------------------------------------------------------------------------

$440,002 $1,322,614 $16,098,646 $1,052,709 $240,746 $850,363
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------

$ 125.33 $ 131.55 $ 148.96 $ 142.98 $ 113.51 $ 119.19
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------

3,511 10,054 108,073 7,362 2,121 7,135
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------

</TABLE>

F-5

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995

MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------
<S> <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.

F-6

<PAGE>

HIGH INVESTMENT ASSET INDEX ASSET CONTRA-
INCOME GRADE BOND MANAGER 500 MANAGER: FUND
DIVISION DIVISION DIVISION DIVISION GROWTH DIVISION* DIVISION*
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

$11,133 $ 31,090 $ 222,960 $ 2,645 $10,174 $10,531

1,976 9,060 106,138 2,694 181 1,020
- - -------------------------------------------------------------------------------------

9,157 22,030 116,822 (49) 9,993 9,511

1,720 6,701 46,591 5,233 850 3,999

(1,577) (29,988) (330,185) 602 - -

34,035 97,417 1,504,898 108,871 (5,088) 3,252
- - -------------------------------------------------------------------------------------

35,612 127,405 1,835,083 108,269 (5,088) 3,252
- - -------------------------------------------------------------------------------------

37,332 134,106 1,881,674 113,502 (4,238) 7,251
- - -------------------------------------------------------------------------------------

$46,489 $156,136 $1,998,496 $113,453 $5,755 $16,762
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------

</TABLE>

F-7

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENTS OF CHANGES IN NET ASSETS

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.

F-8

<PAGE>

$ 9,157 $ 22,030 $ 116,822 $ (49) $ 9,993 $ 9,511
1,720 6,701 46,591 5,233 850 3,999

35,612 127,405 1,835,083 108,269 (5,088) 3,252
- - ------------------------------------------------------------------------------------------
46,489 156,136 1,998,496 113,453 5,755 16,762

147,592 357,309 5,308,184 387,804 91,291 362,528
(67,407) (189,702) (2,682,494) (102,537) (10,306) (51,008)

175,345 135,745 1,269,576 525,783 154,006 522,081
- - ------------------------------------------------------------------------------------------

255,530 303,352 3,895,266 811,050 234,991 833,601
- - ------------------------------------------------------------------------------------------

302,019 459,488 5,893,762 924,503 240,746 850,363
137,983 863,126 10,204,884 128,206 - -
- - ------------------------------------------------------------------------------------------

$440,002 $1,322,614 $16,098,646 $1,052,709 $240,746 $850,363
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------

$ 4,778 $ (2,402) $ 238,112 $ (176)
(3,694) (4,530) 36,435 (49)

(2,801) (21,645) (791,743) 660
- - --------------------------------------------------------

(1,717) (28,577) (517,196) 435

71,051 342,943 5,269,101 55,082
(25,971) (152,486) (1,934,246) (16,041)

42,837 137,259 2,086,210 72,633
- - --------------------------------------------------------

87,917 327,716 5,421,065 111,674
- - --------------------------------------------------------

86,200 299,139 4,903,869 112,109
51,783 563,987 5,301,015 16,097
- - --------------------------------------------------------
$137,983 $ 863,126 $10,204,884 $128,206
- - --------------------------------------------------------
- - --------------------------------------------------------

</TABLE>

F-9

<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.

F-10

<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.

F-11

<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

MONEY MARKET EQUITY- HIGH
DIVISION INCOME GROWTH OVERSEAS INCOME
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*
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.

F-12

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES FO 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.

F-13

<PAGE>

REPORT OF INDEPENDENT AUDITORS

______________________________

Board of Directors
and Shareholder
The American Franklin Life Insurance Company

We have audited the accompanying balance sheet of The American Franklin Life
Insurance Company (a wholly-owned subsidiary of The Franklin Life Insurance
Company, which is a wholly-owned subsidiary of American Franklin Company) as of
December 31, 1995, and the related statements of operations, shareholder's
equity and cash flows for the eleven months ended December 31, 1995 and the one
month ended January 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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. 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 financial statements referred to above present fairly, in
all material respects, the financial position of The American Franklin Life
Insurance Company at December 31, 1995, and the results of its operations and
its cash flows for the eleven months ended December 31, 1995 and the one month
ended January 31, 1995 in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

Chicago, Illinois
March 15, 1996

F-14

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

__________________________________

To the Board of Directors
and Shareholder of
The American Franklin Life Insurance Company

We have audited the accompanying balance sheet of The American Franklin Life
Insurance Company (a wholly-owned subsidiary of The Franklin Life Insurance
Company) as of December 31, 1994, and the related statements of operations,
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's 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. 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 The American Franklin Life
Insurance Company as of December 31, 1994, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.

As discussed in the Notes to Financial Statements, in 1993 the Company changed
its methods of accounting for reinsurance contracts and certain investments in
debt and equity securities.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.

203 North LaSalle Street
Chicago, Illinois 60601
February 1, 1995

F-15

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands, except share data)

<TABLE>
<CAPTION>
Predecessor
Basis
-------------
December 31
-----------------------------
ASSETS 1995 1994
-----------------------------
<S> <C> <C>
Investments
Fixed maturity securities
Fair value
(amortized cost: $24,333; $2,214) $ 26,578 $ 2,200
Amortized cost (fair value: $20,979) - 22,093
Policy loans 2,427 1,308
-----------------------------
29,005 25,601

Cash and cash equivalents 1,865 2,403

Accrued investment income 493 544

Amounts recoverable from reinsurers 5,308 3395

Deferred policy acquisition costs 4,101 16,540

Cost of insurance purchased 13,621 -

Insurance premiums in course of settlement 505 722

Other assets 1,331 624

Assets held in separate accounts 72,202 40,923
-----------------------------
Total assets $ 128,431 $ 90,752
-----------------------------
-----------------------------
</TABLE>

See Notes to Financial Statements.

F-16

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands, except share data)

<TABLE>
<CAPTION>
Predecessor
Basis
-------------
December 31
-----------------------------
LIABILITIES 1995 1994
-----------------------------
<S> <C> <C>

Insurance liabilities
Policy reserves, contract claims and
other policyholders' funds $ 6,604 $ 2,729
Universal life contracts 27,842 24,122
Unearned revenue 1,913 2,787

Income taxes
Current (461) 20
Deferred (1,172) (517)

Accrued expenses and other liabilities 3,855 2,821
Liabilities related to separate accounts 72,202 40,923
-----------------------------

Total liabilities 110,783 72,885
-----------------------------

SHAREHOLDER'S EQUITY

Common stock ($5 par value; 500,000
shares authorized, issued and outstanding) 2,500 2,500

Paid-in capital 15,373 12,500
Net unrealized gains (losses)
on securities 727 (9)

Retained earnings (deficit) (952) 2,876
-----------------------------

Total shareholder's equity 17,648 17,867
-----------------------------

Total liabilities and shareholder's equity $ 128,431 $ 90,752
-----------------------------
-----------------------------
</TABLE>

See Notes to Financial Statements.

F-17

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(In thousands)

<TABLE>
<CAPTION>
Predecessor Basis
-------------------------------------------
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------
1995 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations $ 9,472 $ 676 $ 8,074 $ 5,215
Net investment income 2,129 160 2,142 2,181
Realized investment (losses) gains (6) - (4) 229
Other income (expense) 465 842 (26) 642
-----------------------------------------------------------
Total revenues 12,060 1,678 10,186 8,267
-----------------------------------------------------------
Benefits and expenses
Benefits paid or provided 2,597 330 1,415 1,869
Change in policy reserves 458 1,027 (194) (772)
Commissions and allowances 9,323 706 9,246 5,861
Change in deferred policy
acquisition costs and cost
of insurance purchased (4,558) (298) (5,161) (3,729)
Taxes, licenses and fees 988 96 974 605
General insurance expenses 4,713 312 3,676 3,112
-----------------------------------------------------------
Total benefits and expenses 13,521 2,173 9,956 6,946
-----------------------------------------------------------
Income (loss) before income taxes (1,461) (495) 230 1,321
-----------------------------------------------------------
Income tax expense (benefit)
Current 452 34 604 636
Deferred (961) (217) (534) (139)
-----------------------------------------------------------
Total income tax
expense (benefit) (509) (183) 70 497
-----------------------------------------------------------
Net income (loss) $ (952) $ (312) $ 160 $ 824
-----------------------------------------------------------
-----------------------------------------------------------

</TABLE>

See Notes to Financial Statements.

F-18

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Predecessor Basis
-------------------------------------------
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------
1995 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock $ 2,500 $ 2,500 $ 2,500 $ 2,500

Paid-in capital
Balance at beginning of period 15,373 12,500 12,500 12,500
Adjustment for the acquisition - 2,873 - -
-----------------------------------------------------------
Balance at end of period 15,373 15,373 12,500 12,500
-----------------------------------------------------------
Net unrealized gains (losses) on
Securities
Balance at beginning of period - (9) 164 -

Change during the period 1,118 (3) (270) 256
Amounts applicable to deferred
federal income taxes (391) 1 97 (92)
Adjustment for the acquisition - 11 - -
-----------------------------------------------------------
Balance at end of period 727 - (9) 164
-----------------------------------------------------------
Retained earnings (deficit)

Balance at beginning of period - 2,876 2,716 1,892
Net income (loss) (952) (312) 160 824
Adjustment for the acquisition - (2,564) - -
-----------------------------------------------------------
Balance at end of period (952) - 2,876 2,716
-----------------------------------------------------------
Total shareholder's equity
at end of period $ 17,648 $ 17,873 $ 17,867 $ 17,880
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

F-19

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(In thousands)

Investing activities
Investment purchases
Held-to-maturity - - (968) (7,823)
Available-for-sale (5,859) (41) (532) -
Investment calls, maturities and
sales
Held-to-maturity - 12 2,293 5,694
Available-for-sale 4,426 - - -

Other investments - - - 436
-----------------------------------------------------------
Net cash provided by (used
for) investing activities (1,433) (29) 793 (1,693)
-----------------------------------------------------------
Financing activities
Proceeds from intercompany
borrowings (1,425) - - -
Repayments of intercompany
borrowings (1,335) - - -
Universal life contract deposits 27,956 1,957 25,014 16,537
Universal life contract
withdrawals (21,750) (1,305) (19,933) (11,867)
-----------------------------------------------------------
Net cash provided by
financing activities 6,296 652 5,081 4,670
-----------------------------------------------------------

Net increase (decrease) in cash and
cash equivalents (271) (267) 521 (138)
Cash and cash equivalents at
beginning of period 2,136 2,403 1,882 2,020
-----------------------------------------------------------
Cash and cash equivalents at end of
period $ 1,865 $ 2,136 $ 2,403 1,882
-----------------------------------------------------------
-----------------------------------------------------------

</TABLE>

See Notes to Financial Statements.

F-20
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

1.1 NATURE OF OPERATIONS

The American Franklin Life Insurance Company (AMFLIC or the Company),
which is headquartered in Springfield, Illinois, sells and services
variable universal life and universal life insurance products to the
middle income market, primarily in the Midwest.

1.2 PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the
accounts of AMFLIC, a wholly-owned subsidiary of The Franklin Life
Insurance Company (FLIC), which is a wholly-owned subsidiary of
American Franklin Company (AFC). To conform with the 1995
presentation, certain items in the prior years financial statements
and notes have been reclassified.

The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets
and liabilities, (2) disclosures of contingent assets and liabilities,
and (3) the reported amounts of revenues and expenses during the
reporting periods. Ultimate results could differ from those estimates.

1.3 ACQUISITION

Prior to January 31, 1995, AFC was a wholly-owned subsidiary of
American Brands, Inc. (American Brands). On January 31, 1995,
American Brands completed the sale of AFC to AGC Life Insurance
Company (AGCL), a subsidiary of American General Corporation
(AGC), for a purchase price of $1.17 billion. The purchase price
consisted of $920 million in cash paid at closing and a $250 million
extraordinary cash dividend paid by AFC to its former parent prior
to closing. The portion of the purchase price allocated to AMFLIC
was $17.9 million. These transactions received the required
regulatory approval from the Illinois and New York Insurance
Departments.

F-21

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1.3 ACQUISITION (CONTINUED)

The sale was accounted for using the purchase method of accounting in
accordance with the provisions of Accounting Principles Board Opinion
16, "Business Combinations", and other existing accounting literature
pertaining to purchase accounting. Under purchase accounting, the total
purchase cost was allocated to the assets and liabilities acquired based
on a determination of their fair value. AMFLIC'S balance sheet at
December 31, 1995, and its statements of operations, shareholder's
equity and cash flows for the eleven months then ended, are reported
under the purchase method of accounting and, accordingly, are not
consistent with the basis of presentation of the previous periods'
financial statements (Predecessor Basis).

The fair values of AMFLIC's assets and liabilities at January 31, 1995
were as follows (in thousands):

<S> <C>
Fixed maturities $ 24,022
Policy loans 1,342
Short-term investments 1,358
Separate account assets 40,970
Other assets 6,187
Cost of insurance purchased 14,279
Federal income taxes 478
Insurance liabilities (27,530)
Separate account liabilities (40,970)
Other liabilities (2,263)
-----------
Net assets $ 17,873
-----------
-----------

</TABLE>

F-22

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1.4 ACCOUNTING CHANGES

Effective December 31, 1993, AMFLIC adopted Statement of
Financial Accounting Standards (SFAS) 115, "Accounting for
Certain Investments in Debt and Equity Securities." This
standard requires that fixed maturity securities be classified
into one of three categories: (1) held-to-maturity, (2)
available-for-sale, or (3) trading. Securities classified as
held-to-maturity are carried at amortized cost, while those
classified as available-for-sale or trading are carried at fair value.
The unrealized gain (loss) on those securities classified as
available-for-sale is recorded as an adjustment to shareholder's
equity, while the unrealized gain (loss) on those securities
classified as trading is recorded as an adjustment to income.
At December 31, 1994 and 1993, AMFLIC classified the
majority of fixed maturity securities as held-to-maturity and a
portion as available-for-sale. The effect of the adoption of SFAS 115
was immaterial.

Effective January 1, 1993, Franklin adopted SFAS 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts". The adoption of this statement did not have a material
impact on Franklin's consolidated financial statements.

1.5 INVESTMENTS

FIXED MATURITY SECURITIES. Concurrent with the sale of AMFLIC, and
in conjunction with purchase accounting, effective January 31, 1995,
AMFLIC classified all fixed maturity securities as available-for-sale
and recorded them at fair value. After adjusting related balance sheet
accounts as if the unrealized gains (losses) had been realized, the net
fair value adjustment is recorded in net unrealized gains (losses) on
securities within shareholder's equity. If the fair value of a
security classified as available-for-sale declines below its cost and
this decline is considered to be other than temporary, the security is
reduced to its fair value, and the reduction is recorded as a
realized loss.

POLICY LOANS. Policy loans are reported at unpaid principal
balance and are adjusted periodically for any differences between
face value and unpaid principal balance, and for possible
uncollectible amounts.

INVESTMENT INCOME. Interest on fixed maturity securities is recorded
as income when earned and is adjusted for any amortization of
premium or discount.

REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses)
are recognized using the specific identification method and include
declines in the fair value of investments below cost that are
considered other than temporary.

1.6 CASH AND CASH EQUIVALENTS

Highly liquid investments with an original maturity of three months
or less are included in cash and cash equivalents. The carrying
amount approximates fair value.

F-23

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1.7 DEFERRED POLICY ACQUISITION COSTS (DPAC)

The costs of writing an insurance policy, including agents' commissions
and underwriting and marketing expenses, are deferred and included in
the DPAC asset.

DPAC associated with interest-sensitive life insurance contracts is
charged to expense in relation to the estimated gross profits of
those contracts. DPAC associated with all other insurance contracts
is charged to expense over the premium-paying period or as the premiums
are earned over the life of the contract.

Gross profits include realized investment gains (losses). In addition,
DPAC is adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the
balance sheet date. The impact of this adjustment is included in net
unrealized gains (losses) on securities within shareholder's equity.

AMFLIC reviews the carrying amount of DPAC on at least an annual basis.
In determining whether the carrying amount is appropriate, AMFLIC
considers estimated future gross profits, or future premiums, as
applicable for the type of contract. In all cases, AMFLIC considers
expected mortality, interest earned and credited rates, persistency,
and expenses.

1.8 COST OF INSURANCE PURCHASED (CIP)

The cost assigned to insurance contracts in force at the acquisition
date is referred to as CIP. CIP is charged to expense using the same
assumptions as DPAC. Interest is accreted on the unamortized balance
of CIP at rates of 6 to 8.5%. CIP is also adjusted for the impact of
net unrealized gains (losses) on securities in the same manner as DPAC.
AMFLIC reviews the carrying amount of CIP on at least an annual basis
using the same methods used to evaluate DPAC.

1.9 SEPARATE ACCOUNTS

Separate accounts are assets and liabilities associated with certain
contracts for which the investment risk lies solely with the holder
of the contract rather than AMFLIC. Consequently, the insurer's
liability for these accounts equals the value of the account assets.
Investment income, realized investment gains (losses), and
policyholder account deposits and withdrawals related to Separate
accounts are excluded from the statements of operations and cash flows.
Assets held in separate accounts are carried at fair value.

F-24

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1.10 INSURANCE LIABILITIES

Substantially all of AMFLIC's insurance liabilities relate to
long-duration contracts, which generally require performance
over a period of more than one year. The contract provisions
normally cannot be changed or canceled by AMFLIC during the
contract period.

For interest-sensitive life insurance policies, reserves include the
policy account balance and deferred revenue charges. Reserves
for other types of long-duration contracts are based on estimates
of the cost of future policy benefits to be paid as a result of
present and future claims due to death, disability, surrender of a
policy, or payment of an endowment. Reserves are determined using
the net level premium method. Interest assumptions used to compute
reserves ranged from 4.0% to 9.0% at December 31, 1995.

1.11 PREMIUM RECOGNITION

Receipts for interest-sensitive life insurance policies are
classified as deposits instead of revenues. Revenues for these
contracts consist of the mortality, expense, and surrender
charges assessed against the account balance. Policy changes
that are designed to compensate AMFLIC for future services are
deferred and recognized in income over the period earned,
using the same assumptions used to amortize DPAC. For all other
long-duration contracts, premiums are recognized when due.

1.12 INCOME TAXES

Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of
assets and liabilities, at the enacted tax rates expected to be in
effect when the temporary differences reverse. The effect of a tax
rate change is recognized in income in the period of enactment.
State income taxes are included in income tax expense.

A change in deferred taxes related to fluctuations in fair value of
available-for-sale securities is included in net unrealized gains
(losses) on securities in shareholder's equity.

F-25

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. Investments

2.1 INVESTMENT INCOME

Income by type of investment was as follows:

ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------------------
In thousands 1995 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Fixed maturity securities $ 2,097 $ 168 $ 2,166 $ 2,166
Policy loans 68 8 44 30
Other investments - - 1 47
-----------------------------------------------------------------------
Gross investment income 2,165 176 2,211 2,243
Investment expense 36 16 69 62
-----------------------------------------------------------------------
Net investment income $ 2,129 $ 160 $ 2,142 $ 2,181
-----------------------------------------------------------------------
-----------------------------------------------------------------------

</TABLE>

2.2 REALIZED INVESTMENT GAINS (LOSSES)

Realized investment gains (losses) (all related to fixed maturity
securities) and related DPAC and CIP amortization were as follows:

Fixed maturity securities
Gross gains $ 153 $ - $ 30 $ 231
Gross losses 171 - 34 2
-----------------------------------------------------------------------
Total (18) - (4) 229
-----------------------------------------------------------------------

Adjustment to DPAC and CIP 12 - - -
-----------------------------------------------------------------------
Realized investment gains (losses) $ (6) $ - $ (4) $ 229
-----------------------------------------------------------------------
-----------------------------------------------------------------------

</TABLE>

Voluntary sales of investments resulted in:

Realized
--------------------------------
In thousands Proceeds Gains Losses
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELEVEN MONTHS ENDED AVAILABLE-FOR-SALE $ 1,517 $ - $ 72
DECEMBER 31, 1995

</TABLE>

F-26

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.3 FIXED MATURITY SECURITIES

VALUATION. Amortized cost and fair value of available-for-sale and
held-to-maturity fixed maturity securities were as follows:

DECEMBER 31, 1995
--------------------------------------------------------

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
In thousands COST GAINS LOSSES VALUE
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Fixed maturity securities
Corporate bonds
Investment grade $ 10,026 $ 1,106 $ - $ 11,132
Below investment grade 798 66 - 864

Public utilities 4,317 542 - 4,859

Mortgage-backed 1,850 190 - 2,040

U.S. Government 7,138 327 - 7,465

States/political subdivisions 204 14 - 218
--------------------------------------------------------

Total available-for-sale
securities $ 24,333 $ 2,245 $ - $ 26,578
--------------------------------------------------------
--------------------------------------------------------

</TABLE>

F-27

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.3 FIXED MATURITY SECURITIES (CONTINUED)

DECEMBER 31, 1994
--------------------------------------------------------

HELD-TO-MATURITY SECURITIES
Fixed maturity securities
Corporate bonds
Investment grade $ 11,702 $ 281 $ (552) $ 11,431
Below investment grade 2,589 13 (24) 2,578

Public utilities 4,953 32 (486) 4,499

Mortgage-backed 1,963 - (341) 1,622

Foreign governments 399 - (23) 376

U.S. Government 277 - (8) 269

States/political subdivisions 210 - (6) 204
---------------------------------------------------------

Total held-to-maturity
securities $ 22,093 $ 326 $ (1,440) $ 20,979
--------------------------------------------------------
</TABLE>

F-28

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.3 FIXED MATURITY SECURITIES (CONTINUED)

DECEMBER 31, 1994
--------------------------------------------------------

Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Fixed maturity securities
U.S. Government $ 2,214 $ 43 $ (57) $ 2,200
-------------------------------------------------------

Total available-for-sale 2,214 43 (57) 2,200
-------------------------------------------------------

Total fixed maturity
securities $ 24,307 $ 369 $ (1,497) $ 23,179
-------------------------------------------------------
-------------------------------------------------------

</TABLE>

MATURITIES. The contractual maturities of fixed maturity securities, at
December 31, 1995 were as follows:

DECEMBER 31, 1995
------------------------------
AMORTIZED FAIR
In thousands COST VALUE
- - --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 306 $ 311

Due after one year through five years 4,131 4,430

Due after five years through ten years 15,885 17,328

Due after ten years 2,161 2,469

Mortgage-backed securities 1,850 2,040
------------------------------

Totals $ 24,333 $ 26,578
------------------------------
------------------------------

</TABLE>

Actual maturities may differ from contractual maturities since
borrowers may have the right to call or prepay obligations. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.

F-29

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.4 NET UNREALIZED GAINS (LOSSES) ON SECURITIES

Net unrealized gains (losses) on fixed maturity securities included in
shareholder's equity at December 31 were as follows:

In thousands 1995 1994
--------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $ 2,245 $ 43
Gross unrealized losses - (57)
DPAC fair value adjustment (228)
CIP fair value adjustment (899) -
Deferred federal income taxes (391) 5
------------------------------
Net unrealized gains (losses)
on securities $ 727 $ (9)
------------------------------
------------------------------
</TABLE>

2.5 INVESTMENTS ON DEPOSIT

As of December 31, 1995 and 1994, fixed maturity securities carried at
$6,873,000 and $4,039,000, respectively, were on deposit with
regulatory authorities to comply with state insurance laws.

2.6 INVESTMENT RESTRICTIONS

AMFLIC is restricted by the insurance laws of its domiciliary state
as to the amount which it can invest in any entity. At
December 31, 1995 and 1994, AMFLIC's largest investment in any
one entity other than U.S. Government obligations was $450,000.

F-30
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. Fair Value of Financial Instruments

Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised
in drawing conclusions based on fair value, since (1) the fair values
presented do not include the value associated with all of the Company's
assets and liabilities, and (2) the reporting of investments at fair value
without a corresponding revaluation of related policyholder liabilities can
be misinterpreted.

<TABLE>
<CAPTION>
DECEMBER 31 December 31
1995 1994
---------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
In thousands AMOUNT VALUE Amount Value
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Available-for-sale fixed maturity
securities $ 26,578 $ 26,578 $ 2,200 $ 2,200

Held-to-maturity fixed maturity
securities - - 22,093 20,979
</TABLE>

The methods and assumptions used to estimate fair value were as follows:

FIXED MATURITY SECURITIES. Fair values of fixed maturity securities were
based on quoted market prices, where available. For investments not
actively traded, fair values were estimated using values obtained from
independent pricing services or in the case of some private placements, by
discounting expected future cash flows using a current market rate
applicable to yield, credit quality, and the average life of the
investments.

POLICY LOANS. Policy loans have no stated maturity dates and are an
integral part of the related insurance contract. Accordingly, it is not
practicable to estimate a fair value. The weighted average interest rate
charged on policy loan balances during 1995 and 1994 was 7.82%.

F-31

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. Deferred Policy Acquisition Costs (DPAC)

An analysis of the changes in the DPAC asset is as follows:

ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
---------------------------------------------------
In thousands 1995 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of period balance $ - $ 16,540 $ 11,379 $ 7,650

Capitalization 4,328 445 6,349 4,467

Amortization - (147) (1,188) (738)
Effect of unrealized gains
on securities (228) - - -

Effect of realized investment
losses 1 - - -

Adjustment for the
acquisition (a) - (16,838) - -
---------------------------------------------------
End of period balance $ 4,101 $ - $ 16,540 $ 11,379
---------------------------------------------------
---------------------------------------------------
</TABLE>

(a) Represents the necessary elimination of the historical DPAC asset
required by purchase accounting.

F-32

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. Cost of Insurance Purchased (CIP)

An analysis of the changes in the CIP asset is as follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH
ENDED ENDED
----------------------------------
DECEMBER 31 JANUARY 31
In thousands 1995 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
Beginning of period balance $ 14,279 $ -

Interest accretion 1,073 -

Additions 1,844 -

Amortization (2,687) -

Effect of unrealized gains on securities (899) -

Effect of realized investment losses 11 -

Adjustment for the acquisition (a) - 14,279
----------------------------------
End of period balance $ 13,621 $14,279
----------------------------------
----------------------------------
</TABLE>

(a) Represents the amount necessary to recognize the new CIP asset attributable
to the January 31, 1995 acquisition.

CIP amortization, net of accretion, expected to be recorded in each of the next
five years is $2,995,000, $2,616,000, $2,285,000, $2,008,000 and $1,762,000.

F-33

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)

6. Separate Account

AMFLIC administers two separate accounts in connection with the issue of
its Variable Universal Life products.

7. Income Taxes

AMFLIC is subject to the life insurance company provisions of the federal
tax law. Prior to January 31, 1995, AMFLIC was part of a consolidated
federal income tax return with its former parent company. The method of
allocation of tax expense was based upon separate return calculations with
current credit for net losses and tax credits. Consolidated Alternative
Minimum Tax, if any, was allocated separately. Intercompany tax balances
were to be settled no later than thirty (30) days after the date of filing
the consolidated return.

After January 31, 1995, AMFLIC will be part of a life/life consolidated
return which also includes FLIC. The tax allocation agreement is in the
process of being drafted, executed and approved by the Board of Directors.

7.1 DEFERRED TAXES

Components of deferred tax liabilities and assets at December 31, were as
follows:

In thousands 1995 1994
-----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities, applicable to:
Basis differential of investments $ 605 $ -
DPAC and CIP 3,773 4,121
Other 383 134
----------------------------
Total deferred tax liabilities 4,761 4,255
----------------------------
Deferred tax assets, applicable to:
Policy reserves (5,592) (4484)
Basis differential of investments - (46)
Other (341) (242)
----------------------------
Total deferred tax assets (5,933) (4772)
----------------------------
Net deferred tax assets $ (1,172) $ (517)
----------------------------
----------------------------
</TABLE>

AMFLIC expects adequate future taxable income to realize the net deferred
tax assets. Accordingly, no valuation allowance is considered necessary.

F-34

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.2 TAX EXPENSE

A reconciliation between the federal income tax rate and the effective
income tax rate follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
----------------------------------------------------
1995 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
State taxes, net (0.4) 0.4 (6.5) 2.2
Invested asset items 0.2 - (1.7) (0.3)
Other - 1.6 3.6 0.7
---------------------------------------------------
Effective tax rate 34.8 % 37.0 % 30.4 % 37.6 %
----------------------------------------------------
----------------------------------------------------
</TABLE>

7.3 TAXES PAID

Federal income taxes paid during the eleven months ended December 31, 1995,
and for the years ended December 31, 1994 and 1993 were $1,031,000,
$745,000, and $551,000, respectively. State income taxes paid (received)
during the eleven months ended December 31, 1995, and for the years ended
December 31,1994, and 1993 were $1,000, $(14,000) and $34,000,
respectively. There were no federal or state income taxes paid during
January 1995.

7.4 TAX RETURN EXAMINATIONS

The Internal Revenue Service (IRS) has completed examinations of AMFLIC's
returns through 1989. All resolved issues have been settled within the
amounts previously provided in the financial statements. Adequate
provision has been made for unresolved issues.

F-35

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. Statutory Accounting

State insurance laws prescribe accounting practices for calculating
statutory net income and equity. In addition, state regulators may allow
permitted statutory accounting practices that differ from prescribed
practices.

No significant permitted practices are used to prepare AMFLIC's statutory
financial statements.

At December 31, 1995 and 1994, AMFLIC had statutory stockholder's equity of
$9,912,000 and $11,192,000, respectively. AMFLIC's statutory net loss was
$4,704,000, $4,576,000, and $2,933,000 for the years ended December 31,
1995, 1994 and 1993, respectively.

Generally, AMFLIC is restricted by the insurance laws of its domiciliary
state as to amounts that can be transferred in the form of dividends, loans
or advances without the approval of the Illinois Insurance Department.
Currently, under these restrictions, no dividends may be paid out and,
loans and advances in excess of $2,478,000 may not be transferred without
the approval of the Illinois Insurance Department.

F-36

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. Statement of Cash Flows

In addition to the cash activities shown in the statements of cash flows,
the following transactions, in thousands of dollars, occurred:
<TABLE>
<CAPTION>

ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C>
Interest added to universal life
contracts $ 1,126 $ 111 $ 1,216 $ 1,120
--------------------------------------------------
--------------------------------------------------
</TABLE>

10. Related Party Transaction

AMFLIC has no full-time employees or office facilities. General and
administrative expenses are allocated to AMFLIC from FLIC, based upon hours
worked by administrative personnel. Allocated expenses for the eleven
months ended December 31, 1995, the one month ended January 1995, and the
years ended December 31, 1994 and 1993 amounted to approximately
$3,277,000, $204,000, $1,655,000, and $1,750,000, respectively.

AMFLIC participates in a program of short-term borrowing with AGC to
maintain its long-term investment commitments. During 1995, AMFLIC
borrowed $1,425,000 and repaid $1,335,000. The remaining balance was
repaid in January 1996. Interest is paid on the outstanding balance based
on the Federal Reserve Board's monthly average H.15 rate for 30-day
commercial paper.

11. Reinsurance

AMFLIC is routinely involved in reinsurance transactions. Ceded
reinsurance becomes a liability of the reinsurer that assumes the risk. If
the reinsurer could not meet its obligations, AMFLIC would reassume the
liability. The likelihood of a material reinsurance liability being
reassumed by AMFLIC is considered to be remote. AMFLIC diversifies the
risk of exposure to reinsurance loss by using a number of life reinsurers
that have strong claims-paying ability ratings. The maximum retention on
one life for individual life insurance is $50,000.

Amounts paid or deemed to have been paid in connection with ceded
reinsurance contracts are recorded as reinsurance receivables. The cost of
reinsurance related to long-duration contracts is recognized over the life
of the underlying reinsured policies using assumptions consistent with
those used to account for the underlying policies.

F-37

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. Reinsurance (continued)

Under the provisions of an assumed reinsurance agreement, AMFLIC
recognized, in thousands of dollars, the following:
<TABLE>
<CAPTION>

ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 361 $ 43 $ 523 $ 581

Other income 972 8 152 234

Benefits 1,166 145 303 660

Commission expense 54 6 72 84

Premium taxes 6 6 30 37
</TABLE>

Under the provisions of a modified coinsurance agreement covering their
Variable Universal Life product, AMFLIC ceded, in thousands of dollars, the
following:

AMFLIC also carries reinsurance for policy risks that exceed the Company's
retention limit of $50,000. AMFLIC ceded, in thousands of dollars, the
following amounts:

F-38

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. State Guaranty Associations

State guaranty fund expense included in operating costs and expenses was
$37,000, $18,000, $57,000 and $28,000 for the eleven months ended December
31, 1995, one month ended January 31, 1995, and the years ended December
31, 1994 and 1993, respectively. Amounts assessed AMFLIC by state life and
health insurance guaranty funds resulting from paid industry insolvencies
were $37,000, $18,000, $57,000 and $28,000 for the eleven months ended
December 31, 1995, one month ended January 31, 1995, and the two years
ended December 31, 1994 and 1993. These assessments are expected to be
partially recovered against the payment of future premium taxes.

There was no liability accrued at December 31, 1995, or prior periods as
these amounts were determined to be immaterial.

F-39

<PAGE>

- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

EQUIBUILDER III-TM-

ISSUED BY

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
#1 FRANKLIN SQUARE
SPRINGFIELD, ILLINOIS 62713-0001
217-528-2011

EQUIBUILDER III IS A TRADEMARK OF THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
- - --------------------------------------------------------------------------------

<PAGE>

Part II

UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.

UNDERTAKING PURSUANT TO RULE 484(b)(1)
UNDER THE SECURITIES ACT OF 1933

American Franklin's By-Laws provide, in Article X, as follows:

"Section 1. The Company shall indemnify and hold harmless each person who
shall serve at any time hereafter as a director, officer or employee of the
Company, or who shall serve any other company or organization in any
capacity at the request of the Company, from and against any and all claims
and liabilities to which such person shall become subject by reason of
having heretofore or hereafter been a director, officer or employee of the
Company, or by reason of any action alleged to have been heretofore or
hereafter taken or omitted by such person as a director, officer or
employee, and shall reimburse each such person for all legal and other
expenses reasonably incurred in connection with any such claim or liability;
provided, however, that no such person shall be indemnified against, or be
reimbursed for, any expense incurred in connection with any claim or
liability arising out of such person's own wilful misconduct."

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-1

<PAGE>

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and documents:

The facing sheet.

Reconciliation and tie.

The Prospectus.

Undertaking to file reports.

Undertaking pursuant to Rule 484 under the Securities Act of 1933.

The signatures.

Written Consents of the following persons:

Chadbourne & Parke LLP
Stephen P. Horvat, Jr., Esq., Senior Vice President, General Counsel and
Secretary
Robert M. Beuerlein, Vice President and Actuary
Ernst & Young LLP
Coopers & Lybrand L.L.P.

The following exhibits required by Article IX(A) of Form N-8B-2:

* 1-A(1) Certified resolutions regarding organization of Separate
Account VUL-2.
1-A(2) Inapplicable.
****1-A(3)(a) Sales Agreement between Franklin Financial Services
Corporation ("Franklin Financial") and Separate Account
VUL-2 of The American Franklin Life Insurance Company,
dated as of January 31, 1995.
* 1-A(3)(b)(i) Specimen Regional Manager Registered Representative
Agreement between Franklin Financial and registered
representatives of Franklin Financial distributing
EquiBuilder III policies.
* 1-A(3)(b)(ii) Specimen Registered Representative Agreement between
Franklin Financial and registered representatives of
Franklin Financial distributing EquiBuilder III policies.
** 1-A(3)(c) Schedule of Sales Commissions.
** 1-A(4) Agreement between The American Franklin Life Insurance
Company ("American Franklin") and Franklin Financial,
dated March 31, l994, regarding supervision of agents.
** 1-A(5)(a) EquiBuilder III Flexible Premium Life Insurance Policy.
* 1-A(5)(b) Accidental Death Benefit Rider.
* 1-A(5)(c) Term Insurance Rider.
* 1-A(5)(d) Children's Term Insurance Rider.
* 1-A(5)(e) Disability Rider - Waiver of Monthly Deductions.
** 1-A(5)(f) Endorsement to EquiBuilder III Flexible Premium Life
Insurance policy when issued to a Policy Owner in the
State of Texas.
1-A(6)(a) Articles of Incorporation of American Franklin.
1-A(6)(b) By-Laws of American Franklin.
1-A(7) Inapplicable.
* 1-A(8)(a)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund ("VIPF") and Fidelity Distributors
Corporation ("FDC"), dated July 18, 1991.
*** 1-A(8)(a)(2) Amendment No. 1 to Participation Agreement among American
Franklin, VIPF and FDC, effective as of November 1, 1991.
* 1-A(8)(a)(3) Participation Agreement among American Franklin, Variable
Insurance Products Fund II ("VIPF II") and FDC, dated
July 18, 1991.
- - --------------------------------------------------------------------------------

* Incorporated herein by reference to similarly designated exhibit to
Form S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed July 24, 1991 (Reg. No. 33-41838).
** Filed with original filing of the Registration Statement on Form S-6,
filed April 7, 1994 (Reg. No. 33-77470).

II-2

<PAGE>

*** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 3 on Form S-6 of Separate Account VUL-2
of The American Franklin Life Insurance Company, filed February 26,
1993 (Reg. No. 33-41838).
**** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 1 on Form S-6 of Separate Account VUL-2
of The American Franklin Life Insurance Company, filed March 2, 1995
(Reg. No. 33-77470).

II-3

<PAGE>

*** 1-A(8)(a)(4) Amendment No. 1 to Participation Agreement among American
Franklin, VIPF II and FDC, effective as of November 1,
1991.
* 1-A(8)(a)(5) Sub-License Agreement between FDC and American Franklin
dated July 18, 1991.
****1-A(8)(a)(6) Amendment No. 2 to Participation Agreement among American
Franklin, VIPF and FDC, dated January 18, 1995.
****1-A(8)(a)(7) Amendment No. 2 to Participation Agreement among American
Franklin, VIPF II and FDC, dated January 18, 1995.
* 1-A(8)(c) Modified Coinsurance Agreement between American Franklin
and Integrity, dated March 10, 1989.
* 1-A(8)(c)(1) Amendment No. 1 to Modified Coinsurance Agreement between
American Franklin and Integrity.
* 1-A(8)(d) Reinsurance Agreement between American Franklin and The
Franklin Life Insurance Company ("The Franklin"),
effective as of January 1, 1988.
* 1-A(8)(d)(1) Amendment No. 1 effective as of January 1, 1990 to
Reinsurance Agreement between American Franklin and The
Franklin.
* 1-A(8)(d)(2) Amendment No. 2 effective as of January 1, 1990 to
Reinsurance Agreement between American Franklin and The
Franklin.
* 1-A(9) Administrative Service Agreement between The Franklin and
American Franklin, dated May 16, l988.
** 1-A(10) Application for EquiBuilder III Policy set forth as
Exhibit 1-A(5)(a) above.
Other Exhibits:
2 See Exhibit 1-A(5)(a) above.
** 3(a) Opinion and Consent of Stephen P. Horvat, Jr., Esq.,
Senior Vice President, General Counsel and Secretary of
American Franklin.
3(b) Opinion and Consent of Robert M. Beuerlein, Vice President
and Actuary of American Franklin.
4 Inapplicable.
5 Inapplicable.
6(a) Consent of Ernst & Young LLP.
6(b) Consent of Coopers & Lybrand L. L. P.
6(c) Consent of Chadbourne & Parke LLP.
6(d) Consent of Stephen P. Horvat, Jr., Esq., Senior Vice
President, General Counsel and Secretary of American
Franklin.
7 Power of Attorney.
** 8 Description of American Franklin's Issuance, Transfer and
Redemption Procedures for EquiBuilder III Policies
pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment
Company Act of 1940.
** 9 Notice of Cancellation Right Pursuant to Rule
6e-3(T)(b)(13)(viii) under the Investment Company Act of
1940.
** 10 Representations, description and undertaking pursuant to
Rule 6e-3(T)(b)(13)(iii)(F) under the Investment Company
Act of 1940.
** 11(a) Guaranty of Obligations of Principal Underwriter pursuant
to Rule 6e-3(T)(b)(13)(vi) of the Investment Company Act
of 1940, dated March 31, 1994.
11(b) Statement of American Franklin pursuant to Rule 27d-2
under the Investment Company Act of 1940 for the year
ended December 31, 1995.
27 Financial Data Schedule meeting the requirements of
Rule 483.

- - --------------------------------------------------------------------------------

II-4

<PAGE>

- - --------------------------------------------------------------------------------
* Incorporated herein by reference to similarly designated exhibit to
Form S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed July 24, 1991 (Reg. No. 33-41838).
** Filed with original filing of the Registration Statement on Form S-6,
filed April 7, 1994 (Reg. No. 33-77470).
**** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 1 on Form S-6 of Separate Account VUL-2
of The American Franklin Life Insurance Company, filed March 2, 1995
(Reg. No. 33-77470).

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Separate Account VUL-2 of The American Franklin Life Insurance Company certifies
that it meets the requirements of the Securities Act of 1933 Rule 485(b) for
effectiveness of this Registration Statement and has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement on Form S-6 to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Springfield, and State
of Illinois on the 18th of April, 1996.

SEPARATE ACCOUNT VUL-2 OF
THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY

By: THE AMERICAN FRANKLIN
LIFE INSURANCE COMPANY,
Depositor

[SEAL] By: /s/ Stephen P. Horvat, Jr.
----------------------------
Stephen P. Horvat, Jr.,
Senior Vice President,
General Counsel and
Secretary

Attest:

/s/ Elizabeth E. Arthur
- - -----------------------------------
Elizabeth E. Arthur
Assistant Secretary

II-6

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, The American
Franklin Life Insurance Company certifies that it meets the requirements of the
Securities Act of 1933 Rule 485(b) for effectiveness of this Registration
Statement and has duly caused this Post-Effective Amendment to the Registration
Statement on Form S-6 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Springfield, and State of Illinois on the 18th
day of April, 1996.

THE AMERICAN FRANKLIN
LIFE INSURANCE COMPANY

By: /s/ Stephen P. Horvat, Jr.
-----------------------------
Stephen P. Horvat, Jr.,
Senior Vice President,
General Counsel and
Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form S-6 has been
signed by the following persons in the capacities and on the dates indicated:

Signature Title Date

/s/ Robert M. Beuerlein * Director, Executive
- - ----------------------------------- Vice President and
Robert M. Beuerlein Actuary April 18, 1996

/s/ Thomas J. Byerly*
- - -----------------------------------
Thomas J. Byerly Director April 18, 1996

- - ----------------------------------- Director and Senior
Robert M. Devlin Chairman April __, 1996

/s/ Robert J. Gibbons* Director and President
- - ----------------------------------- (principal executive
Robert J. Gibbons officer) April 18, 1996

- - ----------------------------------- Director and Senior
Harold S. Hook Chairman April __, 1996

/s/ Stephen P. Horvat, Jr. Director, Senior Vice
- - ----------------------------------- President, General
Stephen P. Horvat, Jr. Counsel and Secretary April 18, 1996

II-7

<PAGE>

/s/ Howard C. Humphrey*
- - -----------------------------------
Howard C. Humphrey Chairman of the Board April 18, 1996

/s/ Jeffrey D. Pirmann* Vice President and
- - ----------------------------------- Treasurer (principal
Jeffrey D. Pirmann financial officer and April 18, 1996
principal accounting
officer)

/s/ Gary D. Reddick*
- - ----------------------------------- Director and Executive
Gary D. Reddick Vice President April 18, 1996

- - ----------------------------------- Director, Vice President
Peter V. Tuters and Chief Investment
Officer April __, 1996

/s/ Stephen P. Horvat, Jr.
- - -----------------------------------
*By Stephen P. Horvat, Jr.,
Attorney-in-Fact

II-8

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
* 1-A(1) Certified resolutions regarding organization of Separate
Account VUL-2.
1-A(2) Inapplicable.
****1-A(3)(a) Sales Agreement between Franklin Financial Services
Corporation ("Franklin Financial") and Separate Account
VUL-2 of The American Franklin Life Insurance Company,
dated as of January 31, 1995.
* 1-A(3)(b)(i) Specimen Regional Manager Registered Representative
Agreement between Franklin Financial and registered
representatives of Franklin Financial distributing
EquiBuilder III policies.
* 1-A(3)(b)(ii) Specimen Registered Representative Agreement between
Franklin Financial and registered representatives of
Franklin Financial distributing EquiBuilder III policies.
** 1-A(3)(c) Schedule of Sales Commissions.
** 1-A(4) Agreement between The American Franklin Life Insurance
Company ("American Franklin") and Franklin Financial,
dated March 31, l994, regarding supervision of agents.
** 1-A(5)(a) EquiBuilder III Flexible Premium Life Insurance Policy.
* 1-A(5)(b) Accidental Death Benefit Rider.
* 1-A(5)(c) Term Insurance Rider.
* 1-A(5)(d) Children's Term Insurance Rider.
* 1-A(5)(e) Disability Rider - Waiver of Monthly Deductions.
** 1-A(5)(f) Endorsement to EquiBuilder III Flexible Premium Life
Insurance policy when issued to a Policy Owner in the
State of Texas.
1-A(6)(a) Articles of Incorporation of American Franklin.
1-A(6)(b) By-Laws of American Franklin.
1-A(7) Inapplicable.
* 1-A(8)(a)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund ("VIPF") and Fidelity Distributors
Corporation ("FDC"), dated July 18, 1991.
***1-A(8)(a)(2) Amendment No. 1 to Participation Agreement among American
Franklin, VIPF and FDC, effective as of November 1, 1991.
* 1-A(8)(a)(3) Participation Agreement among American Franklin, Variable
Insurance Products Fund II ("VIPF II") and FDC, dated July
18, 1991.
***1-A(8)(a)(4) Amendment No. 1 to Participation Agreement among American
Franklin, VIPF II and FDC, effective as of November 1,
1991.
* 1-A(8)(a)(5) Sub-License Agreement between FDC and American Franklin
dated July 18, 1991.
****1-A(8)(a)(6) Amendment No. 2 to Participation Agreement among American
Franklin, VIPF and FDC, dated January 18, 1995.
****1-A(8)(a)(7) Amendment No. 2 to Participation Agreement among American
Franklin, VIPF II and FDC, dated January 18, 1995.
</TABLE>
- - --------------------------------------------------------------------------------
* Incorporated herein by reference to similarly designated exhibit to Form
S-6 of Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed July 24, 1991 (Reg. No. 33-41838).

<PAGE>

EXHIBIT INDEX (CONTINUED)
** Filed with original filing of the Registration Statement on Form S-6,
filed April 7, 1994 (Reg. No. 33-77470).

**** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 1 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed March 2, 1995
(Reg. No. 33-77470).

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
* 1-A(8)(c) Modified Coinsurance Agreement between American Franklin
and Integrity, dated March 10, 1989.
* 1-A(8)(c)(1) Amendment No. 1 to Modified Coinsurance Agreement between
American Franklin and Integrity.
* 1-A(8)(d) Reinsurance Agreement between American Franklin and The
Franklin Life Insurance Company ("The Franklin"),
effective as of January 1, 1988.
* 1-A(8)(d)(1) Amendment No. 1 effective as of January 1, 1990 to
Reinsurance Agreement between American Franklin and The
Franklin.
* 1-A(8)(d)(2) Amendment No. 2 effective as of January 1, 1990 to
Reinsurance Agreement between American Franklin and The
Franklin.
* 1-A(9) Administrative Service Agreement between The Franklin and
American Franklin, dated May 16, l988.
** 1-A(10) Application for EquiBuilder III Policy set forth as
Exhibit 1-A(5)(a) above.
Other Exhibits:
2 See Exhibit 1-A(5)(a) above.
** 3(a) Opinion and Consent of Stephen P. Horvat, Jr., Esq.,
Senior Vice President, General Counsel and Secretary of
American Franklin.
3(b) Opinion and Consent of Robert M. Beuerlein, Vice President
and Actuary of American Franklin.
4 Inapplicable.
5 Inapplicable.
6(a) Consent of Ernst & Young LLP.
6(b) Consent of Coopers & Lybrand L. L. P.
6(c) Consent of Chadbourne & Parke LLP.
6(d) Consent of Stephen P. Horvat, Jr., Esq., Senior Vice
President, General Counsel and Secretary of American
Franklin.
7 Power of Attorney.
8 Description of American Franklin's Issuance, Transfer and
Redemption Procedures for EquiBuilder III Policies
pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment
Company Act of 1940.
** 9 Notice of Cancellation Right Pursuant to Rule
6e-3(T)(b)(13)(viii) under the Investment Company Act of
1940.
** 10 Representations, description and undertaking pursuant to
Rule 6e-3(T)(b)(13)(iii)(F) under the Investment Company
Act of 1940.
** 11(a) Guaranty of Obligations of Principal Underwriter pursuant
to Rule 6e-3(T)(b)(13)(vi) of the Investment Company Act
of 1940, dated March 31, 1994.
11(b) Statement of American Franklin pursuant to Rule 27d-2
under the Investment Company Act of 1940 for the year
ended December 31, 1995.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
27 Financial Data Schedule meeting the requirements of
Rule 483.
</TABLE>
- - --------------------------------------------------------------------------------

* Incorporated herein by reference to similarly designated exhibit to Form
S-6 of Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed July 24, 1991 (Reg. No. 33-41838).
** Filed with original filing of the Registration Statement on Form S-6,
filed April 7, 1994 (Reg. No. 33-77470).

<PAGE>

EXHIBIT 1-A(6)(a)

RESTATED ARTICLES OF INCORPORATION

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

(AMENDED FEBRUARY 22, 1995)

We, the undersigned officers of The American Franklin Life Insurance
Company, do hereby amend the Articles of Incorporation of The American Franklin
Life Insurance Company to read as follows:

ARTICLE I

The name of the Company shall be THE AMERICAN FRANKLIN LIFE INSURANCE
COMPANY.

ARTICLE II

The principal office of this Company shall be located in the City of
Springfield, County of Sangamon, in the State of Illinois.

ARTICLE III

The duration of this Company shall be perpetual.

ARTICLE IV

The purpose of this Company is to engage in the business of life and
accident and health insurance as now defined in Class 1(a) and (b) of Section 4
of the Illinois Insurance Code, which an insurance company may now or hereafter
be permitted to transact.

ARTICLE V

The corporate powers shall be vested in and exercised by a Board of
Directors composed of not less than three nor more than twelve natural persons
who are at least twenty-one years of age and at least three of whom are
residents and citizens of the State of Illinois. The Board of

<PAGE>

Directors shall adopt By-Laws for the government of this Company and may amend,
alter or repeal the same from time to time as may be deemed necessary or
expedient.

ARTICLE VI

At the first meeting of the shareholders, the full Board of Directors
shall be elected and thereafter the full Board of Directors shall be elected
annually by the shareholders at a duly constituted meeting held for that
purpose. Any vacancy in the Board of Directors may be filled by election at a
special meeting of the shareholders called for that purpose. All Directors
elected by the shareholders shall hold office until the next annual meeting of
the shareholders next succeeding their election or until their successors are
elected and qualified.

ARTICLE VII

At all shareholders' meetings, each shareholder may cast one vote, in
person or by proxy, for each share of stock owned by him on all matters coming
before any such meeting and in all elections for Directors every shareholder
shall be entitled to cumulative voting and to as many votes as the number of
Directors to be elected multiplied by the number of his shares shall equal and
to cast all of his votes for a single candidate for Director or to distribute
them as he shall think fit among two or more of his choices for election to the
Board of Directors.

ARTICLE VIII

The authorized capital of this Company shall be $2,500,000 divided into
500,000 shares at the par value of Five Dollars ($5.00) each and the aggregate
number of common shares which the corporation shall have authority to issue
without further amendment of this Article shall be 500,000; the number of
shares to be issued and sold shall be 500,000 to provide a paid-up capital of
$2,500,000 and paid-in surplus of not less than $2,000.000.

ARTICLE IX

The names and addresses of the Incorporators are:

Name Address
---- -------

<PAGE>

William J. Alley Franklin Square
Springfield, Illinois 62713

Howard C. Humphrey Franklin Square
Springfield, Illinois 62713

Frederick H. Stone Franklin Square
Springfield, Illinois 62713

<PAGE>

EXHIBIT 1-A(6)(B)

B Y L A W S

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SPRINGFIELD, ILLINOIS

(AMENDED FEBRUARY 22, 1995)

A R T I C L E I

MEETING OF STOCKHOLDERS

Section 1. The regular annual meeting of the stockholders of the Company
shall be held at the Home Office of the Company in the City of Springfield,
Illinois on the first Tuesday of April in each year, at the hour of nine o'clock
a.m.

Section 2. Special meetings of the stockholders may be called at any time
by the President and Secretary or by the holders of not less than a majority of
the then outstanding stock by mailing to each stockholder a written notice
(stating the time, place, and object of the meeting) at least five (5) days
prior to the date fixed therefor.

Section 3. At any meeting of stockholders the holders of the majority of
the capital stock issued and outstanding, present in person or represented by
proxy, shall constitute a quorum for all purposes. If the holders of the amount
of stock necessary to constitute a quorum shall fail to attend in person or by
proxy at the time and place fixed by these Bylaws for an annual meeting, or
fixed by notice as provided for a special meeting, a majority in interest
(although less than a quorum) of the stockholders present in person or by proxy
may adjourn, from time to time, without notice other than by announcement at the
meeting. At any such adjourned meeting at which a quorum shall be present any
business may be transacted which might have been transacted at the meeting as
originally fixed or notified.

<PAGE>

A R T I C L E I I

DIRECTORS

Section 1. The Board of Directors of the Company shall consist of twelve
(12) members. They shall be elected by the stockholders at their regular annual
meeting for the term of one year each or until their successors are elected.

Section 2. Vacancies in the Board of Directors may be filled by the
stockholders at any regular meeting of stockholders, or at any special meeting
called for that purpose.

Section 3. A regular meeting of the Board of Directors shall be held
on the second Tuesday in the months of January, April, July and October at 8:30
a.m. Notice of each meeting shall be given to each member of the Board by the
President or Secretary at least three days prior to the meeting date. A
majority of all of the Directors shall constitute a quorum for the transaction
of business but when a quorum is not present, one or more Directors present may
adjourn and continue to adjourn such meeting from time to time, but not to a
time beyond the date of the next regular meeting.

Section 4. Special meetings of the Board of Directors may be called by
the President and Secretary, or by a majority of the Directors, by mailing to
each Director a written notice (stating the time, place and object of the
meeting) at least two days prior to the date fixed therefor. A majority of all
Directors shall constitute a quorum.

Section 5. The Board of Directors, at its first meeting following the
regular annual meeting of the stockholders in each year, shall elect one of its
members as Chairman of the Board to serve for one year or until his successor is
elected. The Chairman shall preside at all meetings of the stockholders and of
the Board of Directors and shall perform such other duties as may be required of
him by the Board or by the Executive Committee. In case of a vacancy in the
office of Chairman the same may be filled for the unexpired term by the Board of
Directors at any regular meeting or at any special meeting called for that
purpose. In the event of the absence or inability of the Chairman his duties
shall be performed by the President. In the event of the absence or inability
of the Chairman and the President the duties of the Chairman shall be performed
by a Vice President designated by the Board of Directors.

<PAGE>

Section 6. The Board of Directors shall have the power to elect or
appoint, and to remove at pleasure, all officers, committees and members of
committees, and shall fix the salaries of all officers and committee members and
prescribe their duties.

A R T I C L E I I I

STANDING COMMITTEES

Section 1. The Board of Directors shall, at its first meeting following
the regular annual meeting of the stockholders in each year, appoint the
following standing committees: an Executive Committee of not less than three
members or more than seven members; an Investment Committee of not less than
three members or more than nine members; an Auditing Committee of not less than
three members or more than five members. All members shall serve for a term of
one year or until their successors may be appointed. Vacancies may be filled by
the Board of Directors at any regular meeting, or at any special meeting called
for that purpose. Said Committees shall make written reports of their
transactions to the Board, and their acts shall be subject to review by the
Board of Directors. A majority of the members of any committee shall be a
quorum for the transactions of business.

Section 2. The Executive Committee shall have the custody of all books,
papers, and records of the Company, and shall have general control and direction
of all the affairs and business of the Company not delegated in these Bylaws to
other persons, officers or committees or reserved to the Board of Directors.

Section 3. The Investment Committee shall have authority to make all
investments of the Company (except loans to policyholders when provided for by
their policies) and all such investments shall be made in the name of the
Company. Said Committee shall have control of all real estate belonging to the
Company, and when in their judgment it is expedient to do so, may authorize any
proper officer or employee to sell and/or transfer any of the Company's
properties, securities, or investments and to to manage any of the Company's
properties. No investments shall be made or any assets sold unless the
investment or sale is authorized or ratified by all
members of said Committee present at the meeting when such investment or sale is
considered.

<PAGE>

Section 4. The Auditing Committee shall audit the receipts and
disbursements of the Company each month, and shall perform such other duties as
may be required of it by the Board of Directors.

A R T I C L E I V

EXECUTIVE OFFICERS

Section 1. The Executive Officers of the Company shall consist of a
President, one or more Vice Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, and one or more Assistant Treasurers, who shall be
elected by the Board of Directors at their first meeting after the annual
meeting of the stockholders, and they shall, subject to these Bylaws, serve for
a term of one year each or until their successors are duly elected. In case of
a vacancy in any of the offices named in this section the same may be filled for
the unexpired term by the Board of Directors at any regular meeting, or at a
special meeting called for that purpose.

Section 2. The President shall perform such duties as usually pertain to
his office or may be required of him by the Board of Directors or by the
Executive Committee.

Section 3. The Vice Presidents, in the order designated by the President,
shall perform the duties of the President in case of his absence or inability to
act. In event the President shall fail to make such designation the order shall
be designated by the Board of Directors, and in event of the absence or
inability of the President and the Vice Presidents, the Board of Directors may
select one of its members as President Pro Tem. The Vice Presidents shall
perform such other duties as may be required of them by the Board of Directors
or by the Executive Committee.

Section 4. The Secretary shall keep a record of the meetings of the
stockholders and of the Board of Directors, and shall perform such duties as
usually pertain to his office, or as may be required of him by the Board of
Directors or by the Executive Committee.

Section 5. The Assistant Secretaries, in the order designated by the
Secretary, shall perform the duties of the Secretary in case of his absence or
inability to act. In event the Secretary shall fail to make such designation
the order shall be designated by the Board of Directors, and in the event of the
absence or inability of the Secretary and the Assistant Secretaries, the Board
of Directors may select one of its members as

<PAGE>

Secretary Pro Tem. The Assistant Secretaries shall perform such other duties as
may be required of them by the Board of Directors or by the Executive Committee.

Section 6. The Treasurer shall perform such duties as may be required of
him by the Board of Directors, or by the Executive Committee.

Section 7. The Assistant Treasurers, in the order designated by the
Treasurer, shall perform the duties of the Treasurer in case of his absence or
inability to act. In event the Treasurer shall fail to make such designation
the order shall be designated by the Board of Directors, and in the event of the
absence or inability of the Treasurer and the Assistant Treasurers, the Board of
Directors may select one of its members as Treasurers Pro Tem. The Assistant
Treasurers shall perform such other duties as may be required of them by the
Board of Directors or by the Executive Committee.

Section 8. The Officers of this Company shall comply with the Rules of
the Illinois Insurance Department respecting Internal Security Standards and
Fidelity Bonds as now defined in Rule 9.04 of the Illinois Insurance Department.

A R T I C L E V

TRANSFERRING REAL ESTATE, SECURITIES, ETC.

Section 1. The President or a Vice President or an Assistant Vice
President or the General Counsel or the Treasurer or the Assistant Treasurer and
the Secretary or an Assistant Secretary are authorized for and on behalf of the
Company.

(a) To execute, acknowledge, and deliver deeds to real estate when such
real estate has been sold.

(b) To assign, transfer, and cancel evidence of indebtedness and notes
secured by mortgage upon real estate when such notes
have been paid or sold.

<PAGE>

and to execute partial releases, easements, and subordinations.

(d) To transfer bonds, stocks, and/or other securities held as
collateral security for loans when such loans have been paid
or sold.

(e) To transfer bonds, stocks and/or other assets or securities when
such bonds, stocks and/or other assets or securities have been sold
or called for payment.

(f) To execute such other instruments from time to time as may be
necessary or expedient to carry on the business of the Company.

Section 2. The President, a Vice President, an Assistant Vice President,
the General Counsel or the Secretary is authorized to negotiate and enter into
any leasing agreement for any real estate owned by the Company and to execute
the same for and on behalf of the Company, and to do and perform any and all
other acts that may be necessary to effectively accomplish the purposes
mentioned.

A R T I C L E V I

ACTUARIES, MEDICAL DIRECTORS, ETC.

Section 1. The Board of Directors may appoint one or more Actuaries,
one or more Associate Actuaries, and one or more Assistant Actuaries, one or
more Medical Directors, one or more Associate Medical Directors, or one or
more Assistant Medical Directors and such other officers and department heads
as it may deem necessary and expedient, who shall perform such duties as may
be required of them by the Board of Directors or by the Executive Committee.

A R T I C L E V I I

SALARIES

Section 1. All salaries, compensations or emolument to be paid to any
officer or director of the Company, and all salaries, compensations, or

<PAGE>

emolument amounting in any year to more than forty thousand dollars ($40,000.00)
to any person, firm, or corporation, shall be first authorized by a vote of the
Board of Directors, which vote shall be by roll call at regular meeting of said
Board, and which vote shall be duly recorded in the records of the Company.

A R T I C L E V I I I

SEAL

Section 1. The Corporate Seal of the Company shall be two concentric
circles between which shall be the words "The American Franklin Life Insurance
Company, Springfield, IL" and in the center shall be inserted the words
"Corporate Seal", and such seal is impressed on margin hereof.

A R T I C L E I X

AMENDMENTS

Section 1. These Bylaws may be amended, repealed, or altered in whole or
in part by the Board of Directors at any regular meeting, or at any special
meeting called for that purpose.

A R T I C L E X

INDEMNIFICATION FOR OFFICERS AND DIRECTORS

Section 1. The Company shall indemnify and hold harmless each person who
shall serve at any time hereafter as a director, officer, or employee of the
Company, or who shall serve any other company or organization in any capacity at
the request of the Company, from and against any and all claims and liabilities
to which such person shall become subject by reason of having heretofore or
hereafter been a director, officer or employee of the Company, or by reason of
any action alleged to have been heretofore or hereafter taken or omitted by such
persons as a director, officer or employee, and shall reimburse each such person
for all legal and other expenses reasonably incurred in connection with any such
claim or liability; provided, however, that no such person

<PAGE>

shall be indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of such person's own willful
misconduct.

* * * * * * * *

<PAGE>

EXHIBIT 3(b)

April 18, 1996

The American Franklin Life
Insurance Company
#1 Franklin Square
Springfield, Illinois 62713

Gentlemen:

This opinion is furnished in connection with the filing of the Post-Effective
Amendment No. 2 to the Registration Statement on Form S-6 (Reg. No. 33-77470) by
Separate Account VUL-2 of The American Franklin Life Insurance Company (the
"Separate Account") and The American Franklin Life Insurance Company ("American
Franklin") covering an indefinite number of units of interests in the Separate
Account. Net premiums received under American Franklin's EquiBuilder III
individual flexible premium variable life insurance policies (the "Policies")
to be offered by American Franklin may be allocated by American Franklin to the
Separate Account as described in the Prospectus forming a part of the
Registration Statement.

I participated in the preparation of the Policies and I am familiar with
their provisions. I am also familiar with the description contained in the
Prospectus. In my opinion:

1. The illustrations for the Policies set forth under "Illustrations of
Death Benefits, Policy Account and Cash Surrender Values and
Accumulated Premiums" in the Prospectus, based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Policies. The rate structure of the Policies has not been designed so
as to make the relationship between planned premiums and benefits, as
shown in the illustrations, appear to be correspondingly more
favorable to a prospective purchaser of Policies for males age 40 than
to prospective purchasers of Policies for a male at other ages or for
a female.

2. The table of cost of insurance rates, set forth under "Deductions and
Charges - Charges Against the Policy Account - Cost of Insurance
Charge" in the Prospectus, contains both the current and guaranteed
rates to be used for these Policies for males of illustrative ages.
These rates have not been designed so as to make the relationship
between current and guaranteed rates more favorable for males of the
ages illustrated than for a male at other ages or a female.

I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Experts'' in
the Prospectus forming a part of the Registration Statement.

Very truly yours,

/s/ Robert M. Beuerlein
-----------------------
ROBERT M. BEUERLEIN
EXECUTIVE VICE PRESIDENT AND ACTUARY

<PAGE>

EXHIBIT 6(a)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 9, 1996, with respect to the financial
statements of Separate Account VUL-2 of The American Franklin Life Insurance
Company as of December 31, 1995 and for the periods noted in the report, and our
report dated March 15, 1996 with respect to the financial statements of The
American Franklin Life Insurance Company as of December 31, 1995 and for the
eleven months ended December 31, 1995 and one month ended January 31, 1995 in
this Post-Effective Amendment to the Registration Statement on Form S-6 (No. 33-
77470) under the Securities Act of 1933 of Securities of Unit Investment Trusts
Registered on Form N-8B-2 and related Prospectus of Separate Account VUL-2 of
The American Franklin Life Insurance Company.

/s/ Ernst & Young LLP
- - ---------------------
ERNST & YOUNG LLP

Chicago, Illinois
April 29, 1996

<PAGE>

EXHIBIT 6(b)

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (Reg. No. 33-77470) of Separate Account VUL-2
of The American Franklin Life Insurance Company and of The American Franklin
Life Insurance Company, as depositor, of:

(1) Our report dated February 1, 1995, on our audit of the statement of
changes in net assets of the Money Market Division, Equity-Income
Division, Growth Division, Overseas Division, Investment Grade Bond
Division, Asset Manager Division, High Income Division and Index 500
Division of Separate Account VUL-2 of The American Franklin Life Insurance
Company for the year ended December 31, 1994; and

(2) Our report dated February 1, 1995, on our audits of the financial
statements of The American Franklin Life Insurance Company as of December
31, 1994 and for the years ended December 31, 1994 and 1993.

<PAGE>

We also consent to the reference to our firm under the caption "Experts" in
the Prospectus constituting a part of this Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (Reg. No. 33-77470) of Separate Account VUL-2
of The American Franklin Life Insurance Company.

/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.

Chicago, Illinois
April 29, 1996

<PAGE>

EXHIBIT 6(c)

CONSENT OF COUNSEL

We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus constituting a part of this Post-Effective Amendment No. 2 to the
Registration Statement under the Securities Act of 1933.

/s/ Chadbourne & Parke LLP
--------------------------
CHADBOURNE & PARKE LLP

New York, New York
April 18, 1996

<PAGE>

EXHIBIT 6(d)

CONSENT OF COUNSEL

I hereby consent to the use of my name under the caption "Legal Matters" in
the Prospectus constituting a part of this Post-Effective Amendment No. 2 to the
Registration Statement under the Securities Act of 1933 and to the incorporation
herein by reference of my opinion dated March 30, 1994 filed as part of the
Registration Statement under the Securities Act of 1933 (Reg. No. 33-77470) on
Form S-6 filed April 7, 1994.

/s/ Stephen P. Horvat, Jr.
--------------------------
STEPHEN P. HORVAT, JR.
Senior Vice President, General
Counsel and Secretary

Springfield, Illinois
April 18, 1996

<PAGE>

Conformed Copy
Exhibit 7

POWER OF ATTORNEY

The undersigned, acting in the capacity or capacities stated
opposite their respective names below, hereby constitute and appoint STEPHEN P.
HORVAT, JR., RAYMOND P. WEBER, EDWARD P. SMITH and PETER K. INGERMAN, and each
of them, singularly, attorneys-in-fact of the undersigned with full power to
each of them to sign for and in the name of the undersigned in the capacities
indicated below (a) Post-Effective Amendment No. 2 to the Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act"), on Form S-6
(Reg. No. 33-77470) of The American Franklin Life Insurance Company and Separate
Account VUL-2 of The American Franklin Life Insurance Company in connection with
the registration of units of interest in Separate Account VUL-2 issued under
EquiBuilder III-TM- flexible premium variable life insurance policies, and (b)
any and all amendments (including any further Post-Effective Amendments)
thereto, and to give any certification which may be required in connection
therewith pursuant to Rule 485 under the 1933 Act.

Signature Title Date
--------- ----- ----

/s/ Howard C. Humphrey
- - --------------------------
Howard C. Humphrey Chairman of the Board 1/22, 1996

/s/ Robert M. Beuerlein
- - --------------------------
Robert M. Beuerlein Director, Executive Vice
President and Actuary 1/16, 1996

- - --------------------------
Harold S. Hook Director and Senior
Chairman , 1996

/s/ Stephen P. Horvat, Jr.
- - --------------------------
Stephen P. Horvat, Jr. Director, Senior Vice
President, General Counsel
and Secretary 1/16, 1996

- - --------------------------
Robert M. Devlin Director and Senior Chairman , 1996

/s/ T.J. Byerly
- - --------------------------
Thomas J. Byerly Director 1/16, 1996

/s/ Robert J. Gibbons
- - --------------------------
Robert J. Gibbons Director and President
(principal executive officer) 1/16, 1996

/s/ Jeffrey D. Pirmann
- - --------------------------
Jeffrey D. Pirmann Vice President and Treasurer
(principal financial officer
and principal accounting
officer) 1/16, 1996

<PAGE>

/s/ Gary D. Reddick
- - --------------------------
Gary D. Reddick Director and Executive
Vice President 1/16, 1996

- - --------------------------
Peter V. Tuters Director, Vice President
and Chief Investment Officer , 1996

<PAGE>

EXHIBIT 11(b)

STATEMENT PURSUANT TO RULE 27d-2

The undersigned, being a principal accounting officer of The American Franklin
Life Insurance Company, hereby certifies, pursuant to Rule 27d-2 under the
Investment Company Act of 1940, that at least on a monthly basis throughout the
year 1995, which was also its fiscal year, The American Franklin Life Insurance
Company had a combined capital paid-up, gross paid-in and contributed surplus
and unassigned surplus at least equal to the larger of (a) $1,000,000 or (b)
200% of the amount of the total refund obligation of Franklin Financial Services
Corporation, principal underwriter of the EquiBuilder III flexible premium
variable life insurance contracts issued with reference to the investment
performance of Separate Account VUL-2, a registered investment company and a
separate account of The American Franklin Life Insurance Company, pursuant to
Sections 27(d) and 27(f) of the Investment Company Act of 1940.

/s/ Jeffrey D. Pirmann
----------------------
JEFFREY D. PIRMANN
Vice President, Controller and Treasurer

Springfield, Illinois
April 18, 1996

<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE YEAR ENDING 12-31-95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 51,454,720
<INVESTMENTS-AT-VALUE> 59,754,018
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174,470
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 59,579,548
<DIVIDEND-INCOME> 955,611
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 349,124
<NET-INVESTMENT-INCOME> 606,487
<REALIZED-GAINS-CURRENT> 323,789
<APPREC-INCREASE-CURRENT> 8,175,905
<NET-CHANGE-FROM-OPS> 9,106,181
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 210,829
<NUMBER-OF-SHARES-REDEEMED> 62,155
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>