SEPARATE ACCOUNT VUL-2 OF THE AMERICAN FRANKLIN LIFE INS CO, 485BPOS, 1998-04-30

SEPARATE ACCOUNT VUL-2 OF THE AMERICAN FRANKLIN LIFE INS CO
485BPOS, 1998-04-30

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<PAGE>
1933 Act Registration No.33-41838
- ------------------------------------------------------------------------------

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. 10

SEPARATE ACCOUNT VUL-2

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

THE AMERICAN FRANKLIN LIFE ROSS D. FRIEND, ESQ.
INSURANCE COMPANY Senior Vice President,
(Name of Depositor) Assistant 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: (800) 528-2011

Copy to:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004

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

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

/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 30, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (i)
/ / on April 30, 1998 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. 10

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 II
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 II
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 II 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.

<PAGE>

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

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 II
Policies - Changes in EquiBuilder II
Policies, - Flexible Premium
Payments, - Additional Benefits;
Separate Account Investment Choices;
Policy Account Value; Tax Effects;
Payment Options; Payment of
Proceeds.

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 II 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 II
Policies - Policy Issuance
Information; Limitations on American
Franklin's Rights to Challenge a
Policy; Distribution of the Policies
- Applications.

15 . . . . . . . . . . . . . . . . . . . . The Features of EquiBuilder II
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 II
Policies - Policy Periods,
Anniversaries, Dates and Ages.
<PAGE>

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

17(a), 17(b), 17(c). . . . . . . . . . . . The Features of EquiBuilder II
Policies - Death Benefits, -
Maturity Benefit, - Changing the
Face Amount of Insurance, - Changes
in EquiBuilder II 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 II
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.

18(c). . . . . . . . . . . . . . . . . . . Summary - Investment Choices of
EquiBuilder II 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.

<PAGE>

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

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

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

24 . . . . . . . . . . . . . . . . . . . . The Features of EquiBuilder II
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.

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 II
Policies - Death Benefits, -
Maturity Benefit, - Changes in
EquiBuilder II 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 II
Policies - Right To

<PAGE>

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

. . . . . . . . . . . . . . . . . . . . . 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 II
Policies - Death Benefits, -
Maturity Benefit, - Changes in
EquiBuilder II 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 II
Policies - Right To Examine the
Policy, - Policy Periods,
Anniversaries, Dates and Ages; Tax
Effects; Payment of Proceeds.

44(c). . . . . . . . . . . . . . . . . . . The Features of EquiBuilder II
Policies - Death Benefits, -
Maturity Benefit, - Changes in
EquiBuilder II 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 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 II
Policies - Right To

<PAGE>

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

. . . . . . . . . . . . . . . . . . . . . Examine the Policy, - Policy
Periods, Anniversaries, Dates and
Ages; Tax Effects; Payment of
Proceeds.
45 . . . . . . . . . . . . . . . . . . . . Inapplicable.

46(a). . . . . . . . . . . . . . . . . . . The Features of EquiBuilder II
Policies - Death Benefits, -
Maturity Benefit, - Changes in
EquiBuilder II 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 II
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 II
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>

- -------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policy

EQUIBUILDER II-TM-

ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

Prospectus Dated April 30, 1998

FIDELITY INVESTMENTS:
VARIABLE INSURANCE PRODUCTS FUND AND Principal Office of both Fidelity
VARIABLE INSURANCE PRODUCTS FUND II Funds located at:
82 Devonshire Street
Boston, Massachusetts 02109

Prospectus Dated April 30, 1998

MASSACHUSETTS FINANCIAL SERVICES COMPANY: Principal Office located at:
MFS VARIABLE INSURANCE TRUST 500 Boylston Street
Boston, Massachusetts 02116

Prospectus Dated May 1, 1998

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 II is a trademark of The American Franklin Life Insurance Company
- --------------------------------------------------------------------------------
<PAGE>

EQUIBUILDER II-TM-
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

This Prospectus describes EquiBuilder II, individual flexible premium
variable life insurance policies issued by The American Franklin Life Insurance
Company ("American Franklin"). EquiBuilder II 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 II is a trademark of
American Franklin.

EquiBuilder II 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.

After certain deductions have been made from each premium, 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 VIP Money Market division. VIP Money Market, VIP High Income,
VIP Equity-Income, VIP Growth, VIP Overseas, VIPII Investment Grade Bond, VIPII
Asset Manager, VIPII Index 500, VIPII Asset Manager: Growth, VIPII Contrafund,
MFS Emerging Growth, MFS Research, MFS Growth With Income, MFS Total Return, MFS
Utilities and MFS Value 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 ("VIP"), the Variable Insurance Products Fund II
("VIPII") or the MFS Variable Insurance Trust (individually, a "Fund," and
collectively, the "Funds"), each of which is a mutual fund. The Prospectuses of
the Funds, attached to this Prospectus, describe the investment objectives,
policies and risks of each of the portfolios of the Funds. Sixteen portfolios
of the Funds are currently available: VIP Money Market, VIP High Income, VIP
Equity-Income, VIP Growth, VIP Overseas, VIPII Investment Grade Bond, VIPII
Asset Manager, VIPII Index 500, VIPII Asset Manager: Growth, VIPII Contrafund,
MFS Emerging Growth, MFS Research, MFS Growth With Income, MFS Total Return, MFS
Utilities and MFS Value. 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
<PAGE>

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 (800) 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 II 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 PURCHASE OF THE POLICY INVOLVES CERTAIN RISKS. Because it is a
variable life insurance policy, the value of the Policy reflects the investment
performance of the selected investment divisions. Investment results can vary
both up and down and can even decrease the value of the premium payments.
Therefore, Policy Owners could lose all or part of the money they have invested.
American Franklin does not guarantee the value of the Policy. Rather, Policy
Owners bear all investment risks.

Life insurance is intended to be a long-term investment. Policy Owners
should evaluate their insurance needs and the Policy's long-term investment
potential and risks before purchasing the Policy.
<PAGE>

PARTIAL WITHDRAWALS AND SURRENDER OF THE POLICY MAY BE SUBJECT TO TAX, AND
BEFORE THE POLICY OWNER ATTAINS AGE 59 1/2, MAY ALSO BE SUBJECT TO A 10% FEDERAL
PENALTY TAX IF THE POLICY BECOMES A "MODIFIED ENDOWMENT CONTRACT". LOANS MAY BE
TAXABLE IF THE POLICY BECOMES A MODIFIED ENDOWMENT CONTRACT.

THE DATE OF THIS PROSPECTUS IS APRIL 30, 1998
Copyright 1998 The American Franklin Life Insurance Company. All rights
reserved.
<PAGE>

TABLE OF CONTENTS
PAGE
----

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

SUMMARY

Features of EquiBuilder II Policies. . . . . . . . . . . . . . . . . . . . . 1
Investment Choices of EquiBuilder II Policies. . . . . . . . . . . . . . . . 2
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Policy Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Additional Information About EquiBuilder II Policies . . . . . . . . . . . . 5

DETAILED INFORMATION ABOUT AMERICAN FRANKLIN AND EQUIBUILDER II POLICIES

The American Franklin Life Insurance Company . . . . . . . . . . . . . . . . 6
The Features of EquiBuilder II Policies. . . . . . . . . . . . . . . . . . . 7
How EquiBuilder II Policies Differ from Whole Life Insurance. . . . . . 7
Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Policy Issuance Information . . . . . . . . . . . . . . . . . . . . . . 8
Maturity Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Changes in EquiBuilder II Policies. . . . . . . . . . . . . . . . . . . 8
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. . . . . . . . . . . . . . . . . . . . .11
The Separate Account and Its Investment Divisions . . . . . . . . . . .11
The Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Investment Policies of the Portfolios of the Funds. . . . . . . . . . .12
Ownership of the Assets of the Separate Account . . . . . . . . . . . .14
Right to Change Operations. . . . . . . . . . . . . . . . . . . . . . .14
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Deductions from Premiums. . . . . . . . . . . . . . . . . . . . . . . .15
Charges Against the Policy Account. . . . . . . . . . . . . . . . . . .15
Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . .15
Cost of Insurance Charge. . . . . . . . . . . . . . . . . . . . . . .16
Charges for Additional Benefits . . . . . . . . . . . . . . . . . . .16
Changes in Monthly Charges. . . . . . . . . . . . . . . . . . . . . .16
Charges Against The Separate Account. . . . . . . . . . . . . . . . . .16
Mortality and Expense Risks . . . . . . . . . . . . . . . . . . . . .17
Charges Against the Funds . . . . . . . . . . . . . . . . . . . . . .17
Tax Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Surrender Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Other Transaction Charges . . . . . . . . . . . . . . . . . . . . . . .20
Partial Withdrawal of Net Cash Surrender Value. . . . . . . . . . . .20
Increase in the Face Amount of Insurance. . . . . . . . . . . . . . .20
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

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TABLE OF CONTENTS (Continued)

Illustrations . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Allocation of Policy Account Charges. . . . . . . . . . . . . . . . . .20
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Amounts in the Separate Account . . . . . . . . . . . . . . . . . . . .21
Determination of the Unit Value . . . . . . . . . . . . . . . . . . . .22
Policy Account Transactions. . . . . . . . . . . . . . . . . . . . . . . . .22
Changing Premium and Deduction Allocation Percentages . . . . . . . . .22
Transfers of Policy Account Value Among Investment Divisions. . . . . .22
Borrowing from the Policy Account . . . . . . . . . . . . . . . . . . .23
Loan Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Policy Loan Interest. . . . . . . . . . . . . . . . . . . . . . . . . .23
When Interest is Due. . . . . . . . . . . . . . . . . . . . . . . . . .24
Repaying the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . .24
The Effects of a Policy Loan on the Policy Account. . . . . . . . . . .24
Lapse of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . .24
Withdrawing Money from the Policy Account . . . . . . . . . . . . . . .25
Withdrawal Charges. . . . . . . . . . . . . . . . . . . . . . . . . . .25
The Effects of a Partial Withdrawal . . . . . . . . . . . . . . . . . .25
Surrendering the Policy for Its Net Cash Surrender Value. . . . . . . .26
The Guaranteed Interest Division . . . . . . . . . . . . . . . . . . . . . .26
Amounts in the Guaranteed Interest Division . . . . . . . . . . . . . .26
Interest on Amounts in the Guaranteed Interest Division . . . . . . . .26
Transfers from the Guaranteed Interest Division . . . . . . . . . . . .27
Additional Information About EquiBuilder II Policies . . . . . . . . . . . .27
Right to Examine the Policy . . . . . . . . . . . . . . . . . . . . . .27
Lapse of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . .28
Reinstatement of the Policy . . . . . . . . . . . . . . . . . . . . . .28
Policy Periods, Anniversaries, Dates and Ages . . . . . . . . . . . . .28
Federal Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . .29
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Tax Status of the Policy. . . . . . . . . . . . . . . . . . . . . . . .29
Possible Tax Law Changes. . . . . . . . . . . . . . . . . . . . . . . .30
Tax Treatment of Policy Benefits. . . . . . . . . . . . . . . . . . . .30
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Voting Rights of a Policy Owner. . . . . . . . . . . . . . . . . . . . . . .38
Voting Rights of the Funds. . . . . . . . . . . . . . . . . . . . . . .38
Determination of Voting Shares. . . . . . . . . . . . . . . . . . . . .38
How Shares of the Funds Are Voted . . . . . . . . . . . . . . . . . . .38
Voting Privileges of Participants in Other Separate Accounts. . . . . .39
Separate Account Voting Rights. . . . . . . . . . . . . . . . . . . . .39
Reports to Policy Owners . . . . . . . . . . . . . . . . . . . . . . . . . .39
Limits on American Franklin's Right to Challenge a Policy. . . . . . . . . .39
Payment Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
The Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Assignment of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Payment of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

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<PAGE>

TABLE OF CONTENTS (Continued)
PAGE
----

Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . . . .42
Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Reinsurance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Administrative Services. . . . . . . . . . . . . . . . . . . . . . . . . . .43
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Year 2000 Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Other Policies and Contracts . . . . . . . . . . . . . . . . . . . . . . . .45
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

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.

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<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 II 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 of 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, Variable Insurance Products
Fund II, 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 MFS Variable Insurance Trust, a "series" type mutual fund, six
portfolios of which are available for investment of amounts allocated to the
investment divisions of the Separate Account, is referred to as a Fund. All
three 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.

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.

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<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 annual premium which is based on the age and sex
of the Insured Person, the initial Face Amount of the policy and the types and
amounts of any additional benefits included in the policy. The Target Premium
for each EquiBuilder II policy is shown on the Policy Information page of the
policy.

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<PAGE>

SUMMARY

This Prospectus describes the regular EquiBuilder II-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. The policy is not 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 II-TM- is a trademark of American Franklin.

FEATURES OF EQUIBUILDER II-TM- POLICIES

INSURANCE BENEFIT OPTIONS

EquiBuilder II 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 II policy with a Face Amount
of less than $50,000.

See "The Features Of EquiBuilder II 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 and all other
net premiums received during such period will be allocated to the VIP Money
Market

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<PAGE>

division of the Separate Account. See "Additional Information About EquiBuilder
II 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 II Policies-Changes In EquiBuilder II 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 "Federal Tax Considerations," 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 II 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 II
Policies-Additional Benefits," below.

INVESTMENT CHOICES OF EQUIBUILDER II 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:

VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VIPII Investment Grade Bond
VIPII Asset Manager
VIPII Index 500
VIPII Asset Manager: Growth
VIPII Contrafund

MFS Emerging Growth
MFS Research
MFS Growth With Income

2
<PAGE>

MFS Total Return
MFS Utilities
MFS Value

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, the Variable Insurance Products Fund II or the MFS Variable
Insurance Trust (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 Variable Insurance
Products Fund and Variable Insurance Products Fund II and through MFS Fund
Distributors, Inc. acting as distributor for MFS Variable Insurance Trust.

Subject to the approval and supervision of the Boards of Trustees, Fidelity
Management & Research Company ("FMR") manages the day-to-day investment
operations of the Variable Insurance Products Fund and the Variable Insurance
Products Fund II and exercises overall responsibility for the investment and
reinvestment of their assets. See the Prospectus of the Variable Insurance
Products Fund and the Variable Insurance Products Fund II for a description of
the experience and qualifications of FMR. For managing each portfolio's
investments and business affairs, each portfolio of the Variable Insurance
Products Fund and the Variable Insurance Products Fund II pays FMR a monthly
fee. See "Deductions and Charges - Charges Against the Funds", below, for a
description of the way in which this fee is calculated.

Massachusetts Financial Services Company ("MFS") provides the portfolios of
the MFS Variable Insurance Trust with overall investment advisory and
administrative services, as well as general office facilities. Subject to such
policies as the Board of Trustees may determine, MFS makes investment decisions
for each portfolio of the MFS Variable Insurance Trust. See the Prospectus of
the MFS Variable Insurance Trust for a description of the experience and
qualifications of MFS. For its services and facilities, MFS receives a monthly
management fee. See "Deductions and Charges - Charges Against the Funds",
below, for a description of the way in which this fee is calculated.

For a full description of the Funds, see the Prospectuses of the Funds, which
are attached to this Prospectus, and the Statements of Additional Information of
the Funds referred to therein. Certain portfolios described in the Prospectuses
of the Funds are NOT available under the policy. 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%. After such deduction, the balance (the "net premium") is placed in
the Policy Account. See "Deductions and Charges-Deductions from Premiums,"
below.

CHARGES AGAINST THE POLICY ACCOUNT

Certain amounts are charged against every Policy Account by American Franklin
at the beginning of each policy 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);

3
<PAGE>

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.

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 30% of actual premiums paid
during the first policdy 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.

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."

4
<PAGE>

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. 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. Loans are
deducted from the amount payable on surrender of the Policy and are also
deducted from any death benefit payable. Loan interest accrues daily and, if it
is not repaid each year, it is capitalized. Depending upon investment
performance of the investment divisions and the amounts borrowed, loans may
cause a Policy to lapse. If the Policy is not a modified endowment contract,
lapse of the Policy with loans outstanding may result in adverse tax
consequences. (See "Federal Tax Considerations.")

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 II 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 II 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; or

45 days after the Policy Owner signed the application for the policy.

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

5
<PAGE>

FEDERAL TAX CONSIDERATIONS OF EQUIBUILDER II 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 "Federal Tax Considerations,"
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 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 II 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. Currently, certain transactions under the
policies may be effected by telephone. American Franklin reserves the right to
suspend telephone transaction privileges at any time. American Franklin will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if these procedures are followed, will not be liable
for any losses due to unauthorized or fraudulent instructions. Procedures
followed for telephone transactions may involve requiring some form of personal
identification, providing written confirmation of the transaction, and recording
telephone instructions.

DETAILED INFORMATION ABOUT AMERICAN FRANKLIN AND EQUIBUILDER II 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 variable
universal life insurance and variable annuities. American Franklin has another
separate account (Separate Account VUL) which issues interests in variable
insurance policies having policy features that are similar to those of
EquiBuilder II 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 Separate Account VUL. American Franklin also has
a separate account which issues interests in variable annuities. 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.

American General Corporation ("American General"), through its wholly-owned
subsidiary, AGC Life Insurance Company, owns all of the outstanding shares of
common stock of The Franklin. 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.

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<PAGE>

American General is one of the largest diversified financial services
organizations in the United States. American General's operating subsidiaries
are leading providers of retirement services, 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 March 5, 1998.

THE FEATURES OF EQUIBUILDER II POLICIES

HOW EQUIBUILDER II POLICIES DIFFER FROM WHOLE LIFE INSURANCE

EquiBuilder II policies are designed to provide life insurance coverage with
flexibility in death benefits, premium payments and investment choices.
EquiBuilder II 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 II
policies also provide for two different types of death benefit options and the
Policy Owner may change options. Another feature of EquiBuilder II 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.

DEATH BENEFITS

American Franklin will pay a death benefit (net of any policy loan and loan
interest and any overdue charges) 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>

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<PAGE>

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 "Federal Tax Considerations," 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 II Policies-Lapse of the Policy," below.) The investment experience
(which may be either positive or negative) 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

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 II 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 II POLICIES

EquiBuilder II 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 II
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 II
Policies-Flexible Premium Payments," below.

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<PAGE>

Increases in the Face Amount emphasize insurance coverage by increasing both
the death benefit and the amount at risk. See "The Features of EquiBuilder II
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 II 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.

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 II 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 "Federal Tax Considerations," 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

9
<PAGE>

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
"Federal Tax Considerations," 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.

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 "Federal Tax
Considerations," 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 II 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.

10
<PAGE>

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.

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. The
net premium is credited to the Policy Account as of the date the premium payment
is received at American Franklin's Administrative Office, or, if later, the
Register Date. The net premium is credited to the Policy Account prior to
deductions of any charges against the Policy Account due on that date. 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 the Policy Owner provides new instructions 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 a number of investment divisions, each of which
invests in shares of a corresponding portfolio of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II or the MFS Variable
Insurance Trust (individually, a "Fund," and collectively, the "Funds").
Currently, VIP Money Market, VIP High Income, VIP Equity-Income, VIP Growth, VIP
Overseas, VIPII Investment Grade Bond, VIPII Asset Manager, VIPII Index 500,
VIPII Asset Manager: Growth, VIPII Contrafund, MFS Emerging Growth, MFS
Research, MFS Growth With Income, MFS Total Return, MFS Utilities and MFS Value
divisions are available for investment under EquiBuilder II policies. The
Separate Account also issues interests under EquiBuilder III variable life
insurance policies, which have policy features that are similar to those of
EquiBuilder II policies but which have a different sales charge structure.

11
<PAGE>

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. Currently an aggregate of sixteen portfolios, each of which has
different investment objectives, policies and risks, are available for
investment of amounts allocated to the Separate Account.

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 and the Funds.

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
Prospectuses, which are attached to this Prospectus, and in their Statements of
Additional Information referred to therein. See "Deductions and Charges -
Charges Against the Funds", below, for additional information relating to
expenses of the Funds.

INVESTMENT POLICIES OF THE PORTFOLIOS OF THE FUNDS

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 and policies of
certain portfolios are similar to the investment objectives and policies of
other funds that may be managed by the same investment adviser. The investment
results of the portfolios, however, may be higher or lower than the results of
such other funds. There can be no assurance, and no representation is made,
that the investment results of any of the portfolios will be comparable to the
investment results of any other fund, even if the other fund has the same
investment adviser. The investment objectives, policies, restrictions and risks
of the portfolios of the Funds are described in detail in the Prospectuses for
the Funds, which are 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 II policies may be summarized as
follows:

VIP 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.

VIP 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 the Prospectus.

VIP 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.

VIP 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.

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

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<PAGE>

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

VIPII 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.

VIPII 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 money market instruments.

VIPII 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.

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

VIPII CONTRAFUND PORTFOLIO seeks to increase the value of investments
over the long term by investing in securities of companies whose value FMR
believes is not fully recognized by the public, that are undervalued or
out-of-favor.

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

MFS EMERGING GROWTH PORTFOLIO seeks to provide long-term growth of
capital.

MFS RESEARCH PORTFOLIO seeks to provide long-term growth of capital
and future income.

MFS GROWTH WITH INCOME PORTFOLIO seeks to provide reasonable
current income and long-term growth of capital and income.

MFS TOTAL RETURN PORTFOLIO seeks to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent
with the prudent employment of capital, and secondarily to provide a
reasonable opportunity for growth of capital and income.

MFS UTILITIES PORTFOLIO seeks capital growth and current income
(income above that available from a portfolio invested entirely in equity
securities).

MFS VALUE PORTFOLIO seeks capital appreciation.

Except for the VIP Money Market, VIPII Investment Grade Bond, VIPII Index 500
and MFS Growth With Income 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 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 investing.
For a discussion of the risks of investment in these securities, please see the
Prospectuses for the Funds, which are attached to this Prospectus.

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

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<PAGE>

BEFORE SELECTING ANY DIVISION, the Policy Owner should carefully read the
Prospectuses for the Funds, which include more complete information about each
portfolio, including investment objectives and policies, charges and expenses.
A Policy Owner may obtain additional copies of the Prospectuses of the Funds by
contacting American Franklin's Administrative Office.

American Franklin may enter into agreements with affiliates of the Funds that
provide for reimbursement of American Franklin for certain costs incurred in
connection with administering the Funds as variable funding options for the
EquiBuilder II policies. Currently, American Franklin and MFS have entered into
an arrangement whereby American Franklin receives a fee equal, on an annualized
basis, to a percentage of the aggregate net assets of each of the portfolios of
the MFS Variable Insurance Trust attributable to the EquiBuilder II policies and
certain other variable contracts issued by American Franklin and its affiliates.
This fee will not be paid by the portfolios, their shareholders or the Policy
Owners.

Affiliates of FMR may compensate American Franklin or an affiliate for
administrative, distribution, or other services relating to the portfolios of
the Funds. Such compensation is generally based on assets of the portfolios
attributable to the EquiBuilder II policies and certain other variable contracts
issued by American Franklin and its affiliates.

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 II policies, other 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 II 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
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 II 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 any time (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

14
<PAGE>

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.

American Franklin deducts the charges described below to cover costs and
expenses, services provided, and risks assumed under the Policies. The amount
of a charge may not necessarily correspond to the costs associated with
providing the services or benefits indicated by the designation of the charge or
associated with the particular Policy. For example, the surrender charge may
not fully cover all of the sales and distribution expenses actually incurred by
American Franklin, and proceeds from other charges, including the mortality and
expense risk charge, may be used in part to cover such expenses.

DEDUCTIONS FROM PREMIUMS

Any payment received by American Franklin before the Final Policy Date is
treated as a premium, unless a policy loan is outstanding and the payment is
accompanied by written instructions that it is to be applied to repayment of the
policy loan. (See "Policy Account Transactions - Repaying the Loan," below.)
The Final Policy Date is the policy anniversary nearest the Insured Person's
95th birthday. Applicable taxes 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 or levy other taxes or 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 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 deduction is a
percentage of the premium, the amount of the tax deduction 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 taxes. 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.

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 II
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. 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

15
<PAGE>

application processing, medical examinations, establishment of policy records
and underwriting costs (determining insurability and assigning the Insured
Person to a risk class).

COST OF INSURANCE CHARGE. The monthly 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 divided by $1,000. 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 II
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.

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-tobacco user 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 II 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-TOBACCO (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-tobacco user, 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 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

16
<PAGE>

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 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
II 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 and may be used to cover policy distribution
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
"Federal Tax Considerations," below.

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.

For managing each portfolio's investments and business affairs, each portfolio
pays FMR or MFS a monthly fee. See the Prospectuses and Statements of
Additional Information of the Funds for a description of the way in which these
fees are calculated. FMR has entered into sub-advisory agreements with
affiliated companies with respect to management of the VIP High Income, VIP
Overseas, VIP Money Market, VIPII Asset Manager, VIPII Asset Manager: Growth and
VIPII Contrafund Portfolios. The following table shows the management fees,
other expenses and total annual expenses paid during fiscal 1997 by each
portfolio, expressed as a percentage of average net assets of each portfolio:

MANAGEMENT FEES AFTER EXPENSE OTHER EXPENSES AFTER EXPENSE TOTAL
REIMBURSEMENT REIMBURSEMENT (3) ANNUAL EXPENSES (1)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP Money Market 0.21% 0.10% 0.31%

VIP High Income 0.59% 0.12% 0.71%

VIP Equity-Income 0.50% 0.08% 0.58%

VIP Growth 0.60% 0.09% 0.69%

VIP Overseas 0.75% 0.17% 0.92%

VIPII Investment Grade Bond 0.44% 0.14% 0.58%

VIPII Asset Manager 0.55% 0.10% 0.65%

VIPII Index 500 0.24% 0.04% 0.28%(2)

VIPII Contrafund 0.60% 0.11% 0.71%

VIPII Asset Manager: Growth 0.60% 0.17% 0.77%

17
<PAGE>

MFS Emerging Growth 0.75% 0.12% 0.87%

MFS Research 0.75% 0.13% 0.88%

MFS Growth With Income 0.75% 0.25%(4) 1.00%(4)

MFS Total Return 0.75% 0.25%(4) 1.00%(4)

MFS Utilities 0.75% 0.25%(4) 1.00%(4)

MFS Value 0.75% 0.25%(4) 1.00%(4)
</TABLE>

(1) A portion of the brokerage commissions certain Fidelity Portfolios paid was
used to reduce their expenses. In addition, certain Fidelity Portfolios have
entered into arrangements with their custodian whereby credits realized, as a
result of uninvested cash balances were used to reduce custodian expenses.
Including these reductions, total annual expenses would have been: for VIP
Equity-Income Portfolio: 0.57%; for VIP Growth Portfolio: 0.67%; for VIP
Overseas Portfolio: 0.90%; for VIPII Asset Manager Portfolio: 0.64%; for VIPII
Contrafund Portfolio: 0.68%; and for VIPII Asset Manager: Growth Portfolio:
0.76%.

(2) Certain expenses were voluntarily reduced by the investment adviser.
Absent reimbursement, management fees, other expenses and total annual expenses
would have been 0.27%, 0.13% and 0.40%, respectively, for VIPII Index 500
Portfolio.

(3) Each MFS Portfolio has an expense offset arrangement which reduces the
Portfolios' custodian fee based upon the amount of cash maintained by the
Portfolio with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which would also
have the effect of reducing the Portfolios' expenses). Any such fee reductions
are not reflected under "Other Expenses."

(4) The investment adviser has agreed to bear expenses for these MFS
Portfolios, subject to reimbursement by each Portfolio, such that each
Portfolio's "Other Expenses" shall not exceed 0.25% of the average daily net
assets of the Portfolio during the current fiscal year. Otherwise, 'Other
Expenses" and "Total Annual Expenses" for these MFS Portfolios would be:

OTHER EXPENSES TOTAL ANNUAL EXPENSES
-------------- ---------------------
<S> <C> <C>
MFS Growth With Income 0.35% 1.10%
MFS Total Return 0.27% 1.02%
MFS Utilities 0.45% 1.20%
MFS Value 1.33% 2.08%
</TABLE>

See the Prospectuses and the Statements of Additional Information of the Funds
for more information about the services provided by and the fees paid to FMR,
MFS and affiliated companies.

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 "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.

18
<PAGE>

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 "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 II Policies-Flexible Premium Payments." Target Premiums are based on
the age and sex of the Insured Person, the initial Face Amount of the policy and
the types and amounts of any additional benefits included in the policy.
Payment of the Target Premium does not guarantee that the policy will remain in
effect.

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 30% of premium
payments made during the first 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:

19
<PAGE>

DURING YEAR PREMIUM CHARGE PREMIUM CHARGE PREMIUM CHARGE
<S> <C> <C> <C> <C> <C> <C>
1 $3,000 $749 $2,280 $684 $1,140 $342
2 3,000 1,019 2,280 889 3,420 650
3 3,000 1,140 2,280 1,094 2,280 855
4 3,000 1,140 2,280 1,140 2,280 1,060
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 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.

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 II Policies-Changes in
EquiBuilder II 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

20
<PAGE>

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 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
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 next calculated at the close of business on the date of the
transaction (see "Additional Information About EquiBuilder II 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.

21
<PAGE>

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. For
purposes of receiving Policy Owner requests, American Franklin is open from 8:00
a.m. to 3:00 p.m., Springfield, Illinois time. 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 immediately 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;

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 II Policies-Changes in EquiBuilder II
Policies," above. Certain transactions also entail charges. For information
regarding other charges, see "Deductions And Charges," above.

22
<PAGE>

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 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 give 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 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. 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
"Federal Tax Considerations-Policy Proceeds," below, with respect to the federal
income tax consequences of a loan.

LOAN REQUESTS

Requests for loans should be made 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.

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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.

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 calendar 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, provided that any loan repayment
currently must be at least $100 (unless the amount of the outstanding loan and
loan interest is less than $100). While a policy loan is outstanding, American
Franklin will apply all amounts it receives in respect of that policy as a
premium unless the payment is accompanied by written instructions that it is to
be applied to repayment of the policy loan.

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,

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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 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 II 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

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<PAGE>

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 based on a percentage
multiple applies, the reduction in death benefit can be greater. See "The
Features of EquiBuilder II 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. An
endorsement 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 "Federal Tax Considerations-Tax
Treatment of Policy Benefits," 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 in
form satisfactory to American Franklin 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. See
"Federal Tax Considerations - Tax Treatment of Policy Benefits," below, for the
tax consequences of a surrender.

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;

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<PAGE>

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.

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 II-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.

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 II 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

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<PAGE>

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 two dates:

10 days after the Policy Owner receives his or her policy; 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. A payment of less than the
Stipulated Amount received before the end of the grace period will be applied to
overdue charges but will not prevent lapse of the policy.

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.

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, the maximum surrender charge
for the policy will be reduced by the amount of all surrender charges previously
imposed on the policy, and for purposes of determining any future surrender
charges on the policy, the policy will be deemed to have been in effect since
the original Register Date. Previous loans will not be reinstated.

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<PAGE>

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 3:00 p.m., Springfield, Illinois 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 of 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 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
II 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.

FEDERAL TAX CONSIDERATIONS

INTRODUCTION

The following summary provides a general description of the federal income tax
considerations associated with your purchase of the Policy and does not purport
to be complete or to cover all situations. American Franklin advises that
counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon American Franklin's understanding of
the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service.

TAX STATUS OF THE POLICY

Code section 7702 sets forth the definition of a life insurance contract for
federal tax purposes. The Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing section 7702. While proposed
regulations and other interim guidance has been issued, final regulations have
not been adopted. In short, guidance as to how section 7702 is to be adopted is
limited. If a Policy were determined not to be a life insurance contract for
purposes of section 7702, such Policy would not qualify for the favorable tax
treatment normally provided to a life insurance policy.

With respect to a Policy issued on the basis of a standard rate class,
American Franklin believes (largely in reliance on IRS Notice 88-128 and the
proposed regulations under section 7702, issued on July 5, 1991) that such a
Policy should meet the section 7702 definition of a "life insurance contract."
With respect to a policy that is issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), there is less guidance, in
particular as to how the mortality and other expense requirements of section
7702 should be applied in determining whether such a policy meets the section
7702 definition of a life insurance contract. If it is subsequently determined
that a policy does not satisfy section 7702, American Franklin may take whatever
steps are appropriate and necessary to attempt to cause such a Policy to comply
with section 7702. For these reasons, American Franklin reserves the

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<PAGE>

right to restrict Policy transactions as necessary to attempt to continue its
qualification as a life insurance contract under section 7702.

In addition to the definitional test described above, section 817(h) mandates
that the investments of the Separate Account must be "adequately diversified" in
accordance with Treasury regulations in order for the Policy to qualify as a
life insurance contract under section 7702 of the Code. The Separate Account,
through the Funds, intends to comply with the diversification requirements
prescribed in Treas. Reg. Section 1.817-5, which affect how the Fund's assets
are to be invested.

In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contract owner's gross income. The Service has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. The
Treasury also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Policy Owner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."

The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the Service in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policy Owner has additional flexibility in allocating premium
payments and policy values. These differences could result in a Policy Owner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, American Franklin does not know what standards will be
set forth, if any, in the regulations or rulings which the Treasury has stated
it expects to issue. American Franklin therefore reserves the right to modify
the Policy as necessary to attempt to prevent a Policy Owner from being
considered the owner of a pro rata share of the assets of the Separate Account
or to otherwise qualify the Policy for favorable tax treatment.

The policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. American Franklin does not
guarantee the tax treatment of any such arrangement. Therefore, if you are
contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement. Moreover, in recent years, Congress has adopted new rules relating
to corporate owned life insurance. Any business contemplating the purchase of a
new life insurance contract or a change in an existing contract should consult a
tax advisor.

POSSIBLE TAX LAW CHANGES

Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of this Policy. It is possible that any legislation change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and
their effect on the Policy.

The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.

TAX TREATMENT OF POLICY BENEFITS

IN GENERAL. American Franklin believes that the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a
flexible-benefit life insurance policy for federal income tax purposes. Thus,
the Death Benefit under the Policy should be excludable from the gross income of
the Beneficiary under Code section 101(a)(1).

Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option (i.e., a change from option A to option B or vice
versa), a policy loan, a withdrawal, a surrender, or an assignment of the Policy
may have federal income tax consequences. In addition, federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or Beneficiary.

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<PAGE>

Generally, the Policy Owner will not be deemed to be in constructive receipt
of the Policy Account, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by a Policy, depend on whether the Policy is classified as a
"Modified Endowment Contract." Whether a Policy is or is not a modified
endowment contract, upon a complete surrender or lapse of a Policy, or when
benefits are paid at such a Policy's maturity, if the amounts received plus the
amount of indebtedness exceeds the total investment in the Policy the excess
will generally be treated as ordinary income subject to tax.

MODIFIED ENDOWMENT CONTRACTS. Code section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.

Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In
general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven policy years exceeds the sum of
the net level premiums which would have been paid on or before such time if the
Policy provided for paid-up future benefits after the payment of seven level
annual premiums. The determination of whether a policy will be a Modified
Endowment Contract after a material change generally depends upon the
relationship of the death benefit and Policy Account at the time of such change
and the additional premiums paid in the seven years following the material
change. A reduction in a policy's death benefit may also cause a policy to be
treated as a Modified Endowment Contract.

The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are extremely complex and cannot be adequately described in
the limited confines of this summary. Therefore, a current or prospective
Policy Owner should consult with a competent advisor to determine whether a
policy transaction will cause the Policy to be treated as a Modified Endowment
Contract. American Franklin will, however, monitor Policies and will attempt to
notify a Policy Owner on a timely basis if his or her Policy is, in American
Franklin's judgment, in jeopardy of becoming a Modified Endowment Contract.

DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as Modified Endowment Contracts will be subject to the
following tax rules. First, all distributions, including distributions upon
surrender and partial surrenders from such a Policy, are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Account immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from or secured by,
such a Policy are treated as distributions from such a Policy and taxed
accordingly. Past due loan interest that is added to the loan amount will be
treated as a loan. Third, a 10 percent additional income tax is included in
income except where the distribution or loan is made on or after the Policy
Owner attains age 591/2, is attributable to the Policy Owner's becoming
disabled, or is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the Policy Owner or the joint lives (or joint
life expectancies) of the Policy Owner and the Policy Owner's Beneficiary.

If a Policy becomes a modified endowment contract after it is issued,
distributions that occur during the policy year it becomes a modified endowment
contract and any subsequent policy year will be taxed as distributions from a
modified endowment contract. In addition, distributions from a Policy within
two years before it becomes a modified endowment contract will be taxed as
distributions from a modified endowment contract.

DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Distributions from a policy that is not a Modified Endowment Contract, are
generally treated as first recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first fifteen years after the policy is
issued and that results in a cash distribution to the Policy Owner in order for
the Policy to continue complying with the section 7702 definitional limits.
Such a cash distribution will be taxed in whole or in part as ordinary income
(to the extent of any gain in the Policy) under rules prescribed in section
7702.

Loans from, or secured by, a policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans generally are treated as
indebtedness of the Policy Owner.

31
<PAGE>

Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10 percent additional tax.

POLICY LOANS. Generally, interest paid on any loan under a Policy is not
deductible. Before taking a Policy loan, a Policy Owner should consult a tax
adviser as to the tax consequences of such a loan.

INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from gross income
of the Policy Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Policy Owner.

MULTIPLE POLICIES. All modified Endowment Contracts that are issued by American
Franklin (and its affiliates) to the same Policy Owner during any calendar year
are treated as one Modified Endowment Contract for purposes of determining the
amount includable in the gross income under Code section 72(e).

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") 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-tobacco users. Planned premium

32
<PAGE>

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 (.60% of aggregate average daily net assets is assumed) and direct
expenses of the Funds (.15% of aggregate average daily net assets is assumed).
The effect of these adjustments is that on a 0% gross rate of return the net
rate of return would be -1.50%, on 4% it would be 2.50%, on 8% it would be 6.50%
and on 12% it would be 10.50%. Management fees and direct expenses of the Funds
vary by portfolio and may vary from year to year. During 1997 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. FMR 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. Each MFS portfolio has an expense
offset arrangement which reduces the portfolios' custodian fee, and the
investment adviser has agreed to bear expenses for each MFS portfolio such that
certain expenses shall not exceed a specified percentage of average net assets.
Such arrangements, which may be terminated at any time without notice, will
increase a portfolio's yield.

The tables assume an applicable tax rate based on premiums of 2%. 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 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.

Table of Contents For Illustrations
<TABLE>
<CAPTION>

INITIAL FACE AMOUNT $200,000 MALE NON-TOBACCO

PREMIUM PAGE
<S> <C> <C>
Age 40, Option A-Current Charges $3,000 34
Age 40, Option A-Guaranteed Charges $3,000 34
Age 40, Option B-Current Charges $3,000 35
Age 40, Option B-Guaranteed Charges $3,000 35

INITIAL FACE AMOUNT $100,000 MALE NON-TOBACCO

PREMIUM PAGE
<S> <C> <C>
Age 40, Option A-Current Charges $1,500 36
Age 40, Option A-Guaranteed Charges $1,500 36
Age 40, Option B-Current Charges $1,500 37
Age 40, Option B-Guaranteed Charges $1,500 37
</TABLE>

33
<PAGE>

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION A ASSUMING CURRENT CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 3,150 200,000 200,000 200,000 200,000 2,259 2,363 2,467 2,571 1,510 1,614 1,718 1,822
2 6,458 200,000 200,000 200,000 200,000 4,748 5,054 5,369 5,693 3,729 4,035 4,351 4,674
3 9,930 200,000 200,000 200,000 200,000 7,178 7,792 8,440 9,122 6,038 6,652 7,300 7,982
4 13,577 200,000 200,000 200,000 200,000 9,552 10,578 11,690 12,892 8,412 9,438 10,550 11,752
5 17,406 200,000 200,000 200,000 200,000 11,868 13,413 15,131 17,039 10,728 12,273 13,991 15,899
6 21,426 200,000 200,000 200,000 200,000 14,130 16,299 18,778 21,605 12,990 15,159 17,638 20,465
7 25,647 200,000 200,000 200,000 200,000 16,310 19,211 22,617 26,607 15,398 18,299 21,705 25,695
8 30,080 200,000 200,000 200,000 200,000 18,412 22,153 26,665 32,098 17,728 21,469 25,981 31,414
9 34,734 200,000 200,000 200,000 200,000 20,438 25,126 30,938 38,133 19,982 24,670 30,482 37,677
10 39,620 200,000 200,000 200,000 200,000 22,388 28,132 35,453 44,773 22,160 27,904 35,225 44,545
11 44,751 200,000 200,000 200,000 200,000 24,266 31,173 40,228 52,088 24,266 31,173 40,228 52,088
12 50,139 200,000 200,000 200,000 200,000 26,097 34,278 45,309 60,178 26,097 34,278 45,309 60,178
13 55,796 200,000 200,000 200,000 200,000 27,851 37,418 50,689 69,104 27,851 37,418 50,689 69,104
14 61,736 200,000 200,000 200,000 200,000 29,532 40,597 56,393 78,964 29,532 40,597 56,393 78,964
15 67,972 200,000 200,000 200,000 200,000 31,140 43,817 62,446 89,867 31,140 43,817 62,446 89,867
16 74,521 200,000 200,000 200,000 200,000 32,669 47,076 68,872 101,930 32,669 47,076 68,872 101,930
17 81,397 200,000 200,000 200,000 200,000 34,085 50,341 75,671 115,269 34,085 50,341 75,671 115,269
18 88,617 200,000 200,000 200,000 200,000 35,372 53,601 82,865 130,033 35,372 53,601 82,865 130,033
19 96,198 200,000 200,000 200,000 202,050 36,551 56,877 90,505 146,413 36,551 56,877 90,505 146,413
20 104,158 200,000 200,000 200,000 220,472 37,606 60,156 98,621 164,531 37,606 60,156 98,621 164,531
25 150,340 200,000 200,000 200,000 349,849 40,360 76,159 147,792 286,762 40,360 76,159 147,792 286,762

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION A ASSUMING GUARANTEED CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 3,150 200,000 200,000 200,000 200,000 2,259 2,363 2,467 2,571 1,510 1,614 1,718 1,822
2 6,458 200,000 200,000 200,000 200,000 4,341 4,639 4,946 5,261 3,322 3,620 3,927 4,242
3 9,930 200,000 200,000 200,000 200,000 6,345 6,925 7,539 8,187 5,205 5,785 6,399 7,047
4 13,577 200,000 200,000 200,000 200,000 8,267 9,217 10,250 11,370 7,127 8,077 9,110 10,230
5 17,406 200,000 200,000 200,000 200,000 10,108 11,514 13,086 14,838 8,968 10,374 11,946 13,698
6 21,426 200,000 200,000 200,000 200,000 11,861 13,811 16,050 18,617 10,721 12,671 14,910 17,477
7 25,647 200,000 200,000 200,000 200,000 13,528 16,107 19,153 22,742 12,616 15,195 18,241 21,830
8 30,080 200,000 200,000 200,000 200,000 15,104 18,398 22,399 27,249 14,420 17,714 21,715 26,565
9 34,734 200,000 200,000 200,000 200,000 16,588 20,681 25,797 32,180 16,132 20,225 25,341 31,724
10 39,620 200,000 200,000 200,000 200,000 17,972 22,950 29,354 37,577 17,744 22,722 29,126 37,349
11 44,751 200,000 200,000 200,000 200,000 19,255 25,201 33,078 43,496 19,255 25,201 33,078 43,496
12 50,139 200,000 200,000 200,000 200,000 20,423 27,421 36,971 49,984 20,423 27,421 36,971 49,984
13 55,796 200,000 200,000 200,000 200,000 21,463 29,598 41,037 57,104 21,463 29,598 41,037 57,104
14 61,736 200,000 200,000 200,000 200,000 22,363 31,719 45,281 64,925 22,363 31,719 45,281 64,925
15 67,972 200,000 200,000 200,000 200,000 23,108 33,767 49,705 73,524 23,108 33,767 49,705 73,524
16 74,521 200,000 200,000 200,000 200,000 23,688 35,733 54,321 83,000 23,688 35,733 54,321 83,000
17 81,397 200,000 200,000 200,000 200,000 24,091 37,604 59,143 93,465 24,091 37,604 59,143 93,465
18 88,617 200,000 200,000 200,000 200,000 24,313 39,376 64,189 105,052 24,313 39,376 64,189 105,052
19 96,198 200,000 200,000 200,000 200,000 24,339 41,033 69,477 117,913 24,339 41,033 69,477 117,913
20 104,158 200,000 200,000 200,000 200,000 24,158 42,566 75,030 132,226 24,158 42,566 75,030 132,226
25 150,340 200,000 200,000 200,000 281,533 19,098 47,358 107,486 230,765 19,098 47,358 107,486 230,765
</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.

34
<PAGE>

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION B ASSUMING CURRENT CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 3,150 202,255 202,359 202,463 202,567 2,255 2,359 2,463 2,567 1,506 1,610 1,714 1,818
2 6,458 204,736 205,042 205,356 205,679 4,736 5,042 5,356 5,679 3,718 4,023 4,338 4,660
3 9,930 207,155 207,766 208,411 209,091 7,155 7,766 8,411 9,091 6,015 6,626 7,271 7,951
4 13,577 209,511 210,532 211,638 212,834 9,511 10,532 11,638 12,834 8,371 9,392 10,498 11,694
5 17,406 211,804 213,338 215,045 216,940 11,804 13,338 15,045 16,940 10,664 12,198 13,905 15,800
6 21,426 214,037 216,189 218,647 221,450 14,037 16,189 18,647 21,450 12,897 15,049 17,507 20,310
7 25,647 216,178 219,052 222,423 226,373 16,178 19,052 22,423 26,373 15,266 18,140 21,511 25,461
8 30,080 218,232 221,929 226,387 231,753 18,232 21,929 26,387 31,753 17,548 21,245 25,703 31,069
9 34,734 220,200 224,822 230,550 237,638 20,200 24,822 30,550 37,638 19,744 24,366 30,094 37,182
10 39,620 222,081 227,728 234,924 244,081 22,081 27,728 34,924 44,081 21,853 27,500 34,696 43,853
11 44,751 223,876 230,649 239,522 251,139 23,876 30,649 39,522 51,139 23,876 30,649 39,522 51,139
12 50,139 225,616 233,614 244,390 258,908 25,616 33,614 44,390 58,908 25,616 33,614 44,390 58,908
13 55,796 227,265 236,586 249,506 267,423 27,265 36,586 49,506 67,423 27,265 36,586 49,506 67,423
14 61,736 228,826 239,567 254,889 276,765 28,826 39,567 54,889 76,765 28,826 39,567 54,889 76,765
15 67,972 230,297 242,556 260,553 287,018 30,297 42,556 60,553 87,018 30,297 42,556 60,553 87,018
16 74,521 231,673 245,545 266,508 298,270 31,673 45,545 66,508 98,270 31,673 45,545 66,508 98,270
17 81,397 232,910 248,487 272,727 310,576 32,910 48,487 72,727 110,576 32,910 48,487 72,727 110,576
18 88,617 233,987 251,359 279,202 324,024 33,987 51,359 79,202 124,024 33,987 51,359 79,202 124,024
19 96,198 234,929 254,181 285,975 338,758 34,929 54,181 85,975 138,758 34,929 54,181 85,975 138,758
20 104,158 235,716 256,929 293,041 354,879 35,716 56,929 93,041 154,879 35,716 56,929 93,041 154,879
25 150,340 236,487 268,525 332,437 457,260 36,487 68,525 132,437 257,260 36,487 68,525 132,437 257,260

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $200,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $3,000
DEATH BENEFIT OPTION B ASSUMING GUARANTEED CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 3,150 202,255 202,359 202,463 202,567 2,255 2,359 2,463 2,567 1,506 1,610 1,714 1,818
2 6,458 204,322 204,618 204,924 205,238 4,322 4,618 4,924 5,238 3,303 3,600 3,905 4,219
3 9,930 206,302 206,878 207,487 208,130 6,302 6,878 7,487 8,130 5,162 5,738 6,347 6,990
4 13,577 208,191 209,131 210,153 211,261 8,191 9,131 10,153 11,261 7,051 7,991 9,013 10,121
5 17,406 209,988 211,375 212,925 214,653 9,988 11,375 12,925 14,653 8,848 10,235 11,785 13,513
6 21,426 211,686 213,603 215,804 218,325 11,686 13,603 15,804 18,325 10,546 12,463 14,664 17,185
7 25,647 213,286 215,811 218,793 222,305 13,286 15,811 18,793 22,305 12,374 14,899 17,881 21,393
8 30,080 214,783 217,994 221,893 226,618 14,783 17,994 21,893 26,618 14,099 17,310 21,209 25,934
9 34,734 216,171 220,144 225,106 231,293 16,171 20,144 25,106 31,293 15,715 19,688 24,650 30,837
10 39,620 217,446 222,252 228,431 236,360 17,446 22,252 28,431 36,360 17,218 22,024 28,203 36,132
11 44,751 218,602 224,312 231,868 241,853 18,602 24,312 31,868 41,853 18,602 24,312 31,868 41,853
12 50,139 219,624 226,303 235,406 247,798 19,624 26,303 35,406 47,798 19,624 26,303 35,406 47,798
13 55,796 220,498 228,209 239,036 254,226 20,498 28,209 39,036 54,226 20,498 28,209 39,036 54,226
14 61,736 221,210 230,010 242,747 261,170 21,210 30,010 42,747 61,170 21,210 30,010 42,747 61,170
15 67,972 221,740 231,682 246,520 268,662 21,740 31,682 46,520 68,662 21,740 31,682 46,520 68,662
16 74,521 222,081 233,209 250,349 276,746 22,081 33,209 50,349 76,746 22,081 33,209 50,349 76,746
17 81,397 222,217 234,572 254,219 285,468 22,217 34,572 54,219 85,468 22,217 34,572 54,219 85,468
18 88,617 222,145 235,758 258,126 294,886 22,145 35,758 58,126 94,886 22,145 35,758 58,126 94,886
19 96,198 221,853 236,746 262,055 305,057 21,853 36,746 62,055 105,057 21,853 36,746 62,055 105,057
20 104,158 221,328 237,519 265,993 316,044 21,328 37,519 65,993 116,044 21,328 37,519 65,993 116,044
25 150,340 214,235 236,755 284,586 384,750 14,235 36,755 84,586 184,750 14,235 36,755 84,586 184,750
</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.

35
<PAGE>

<TABLE>
<CAPTION>
EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION A ASSUMING CURRENT CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 1,575 100,000 100,000 100,000 100,000 939 987 1,035 1,083 565 612 660 708
2 3,229 100,000 100,000 100,000 100,000 2,136 2,276 2,420 2,569 1,626 1,767 1,911 2,059
3 4,965 100,000 100,000 100,000 100,000 3,302 3,585 3,884 4,198 2,732 3,015 3,314 3,628
4 6,788 100,000 100,000 100,000 100,000 4,438 4,914 5,429 5,987 3,868 4,344 4,859 5,417
5 8,703 100,000 100,000 100,000 100,000 5,544 6,264 7,063 7,951 4,974 5,694 6,493 7,381
6 10,713 100,000 100,000 100,000 100,000 6,620 7,634 8,791 10,110 6,050 7,064 8,221 9,540
7 12,824 100,000 100,000 100,000 100,000 7,654 9,013 10,606 12,472 7,198 8,557 10,150 12,016
8 15,040 100,000 100,000 100,000 100,000 8,643 10,398 12,513 15,057 8,301 10,056 12,171 14,715
9 17,367 100,000 100,000 100,000 100,000 9,590 11,792 14,520 17,893 9,362 11,564 14,292 17,665
10 19,810 100,000 100,000 100,000 100,000 10,494 13,194 16,632 21,006 10,380 13,080 16,518 20,892
11 22,376 100,000 100,000 100,000 100,000 11,357 14,606 18,862 24,431 11,357 14,606 18,862 24,431
12 25,069 100,000 100,000 100,000 100,000 12,193 16,042 21,228 28,215 12,193 16,042 21,228 28,215
13 27,898 100,000 100,000 100,000 100,000 12,987 17,488 23,730 32,387 12,987 17,488 23,730 32,387
14 30,868 100,000 100,000 100,000 100,000 13,736 18,941 26,373 36,988 13,736 18,941 26,373 36,988
15 33,986 100,000 100,000 100,000 100,000 14,444 20,407 29,173 42,074 14,444 20,407 29,173 42,074
16 37,261 100,000 100,000 100,000 100,000 15,109 21,883 32,140 47,699 15,109 21,883 32,140 47,699
17 40,699 100,000 100,000 100,000 100,000 15,709 23,350 35,270 53,915 15,709 23,350 35,270 53,915
18 44,309 100,000 100,000 100,000 100,000 16,233 24,798 38,571 60,792 16,233 24,798 38,571 60,792
19 48,099 100,000 100,000 100,000 100,000 16,695 26,241 42,070 68,421 16,695 26,241 42,070 68,421
20 52,079 100,000 100,000 100,000 103,037 17,085 27,670 45,778 76,893 17,085 27,670 45,778 76,893
25 75,170 100,000 100,000 100,000 163,588 17,527 34,281 68,070 134,089 17,527 34,281 68,070 134,089

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION A ASSUMING GUARANTEED CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 1,575 100,000 100,000 100,000 100,000 939 987 1,035 1,083 565 612 660 708
2 3,229 100,000 100,000 100,000 100,000 1,911 2,046 2,186 2,330 1,401 1,537 1,677 1,820
3 4,965 100,000 100,000 100,000 100,000 2,844 3,109 3,388 3,684 2,274 2,539 2,818 3,114
4 6,788 100,000 100,000 100,000 100,000 3,738 4,171 4,643 5,154 3,168 3,601 4,073 4,584
5 8,703 100,000 100,000 100,000 100,000 4,591 5,234 5,952 6,754 4,021 4,664 5,382 6,184
6 10,713 100,000 100,000 100,000 100,000 5,401 6,293 7,319 8,494 4,831 5,723 6,749 7,924
7 12,824 100,000 100,000 100,000 100,000 6,168 7,350 8,746 10,390 5,712 6,894 8,290 9,934
8 15,040 100,000 100,000 100,000 100,000 6,890 8,401 10,235 12,459 6,548 8,059 9,893 12,117
9 17,367 100,000 100,000 100,000 100,000 7,566 9,444 11,791 14,718 7,338 9,216 11,563 14,490
10 19,810 100,000 100,000 100,000 100,000 8,193 10,477 13,415 17,187 8,079 10,363 13,301 17,073
11 22,376 100,000 100,000 100,000 100,000 8,770 11,498 15,112 19,890 8,770 11,498 15,112 19,890
12 25,069 100,000 100,000 100,000 100,000 9,289 12,499 16,880 22,848 9,289 12,499 16,880 22,848
13 27,898 100,000 100,000 100,000 100,000 9,743 13,474 18,720 26,087 9,743 13,474 18,720 26,087
14 30,868 100,000 100,000 100,000 100,000 10,128 14,416 20,633 29,638 10,128 14,416 20,633 29,638
15 33,986 100,000 100,000 100,000 100,000 10,435 15,316 22,619 33,535 10,435 15,316 22,619 33,535
16 37,261 100,000 100,000 100,000 100,000 10,658 16,170 24,682 37,820 10,658 16,170 24,682 37,820
17 40,699 100,000 100,000 100,000 100,000 10,792 16,970 26,826 42,543 10,792 16,970 26,826 42,543
18 44,309 100,000 100,000 100,000 100,000 10,834 17,713 29,059 47,761 10,834 17,713 29,059 47,761
19 48,099 100,000 100,000 100,000 100,000 10,778 18,391 31,386 53,542 10,778 18,391 31,386 53,542
20 52,079 100,000 100,000 100,000 100,000 10,616 18,998 33,816 59,964 10,616 18,998 33,816 59,964
25 75,170 100,000 100,000 100,000 127,632 7,688 20,423 47,707 104,616 7,688 20,423 47,707 104,616
</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.

36
<PAGE>

<TABLE>
<CAPTION>
EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION B ASSUMING CURRENT CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 1,575 100,937 100,985 101,033 101,081 937 985 1,033 1,081 563 610 658 706
2 3,229 102,130 102,270 102,414 102,562 2,130 2,270 2,414 2,562 1,621 1,760 1,904 2,052
3 4,965 103,290 103,572 103,869 104,183 3,290 3,572 3,869 4,183 2,720 3,002 3,299 3,613
4 6,788 104,417 104,890 105,403 105,957 4,417 4,890 5,403 5,957 3,847 4,320 4,833 5,387
5 8,703 105,511 106,225 107,019 107,900 5,511 6,225 7,019 7,900 4,941 5,655 6,449 7,330
6 10,713 106,572 107,577 108,723 110,030 6,572 7,577 8,723 10,030 6,002 7,007 8,153 9,460
7 12,824 107,585 108,929 110,505 112,350 7,585 8,929 10,505 12,350 7,129 8,473 10,049 11,894
8 15,040 108,548 110,280 112,367 114,876 8,548 10,280 12,367 14,876 8,206 9,938 12,025 14,534
9 17,367 109,464 111,631 114,315 117,632 9,464 11,631 14,315 17,632 9,236 11,403 14,087 17,404
10 19,810 110,330 112,979 116,351 120,639 10,330 12,979 16,351 20,639 10,216 12,865 16,237 20,525
11 22,376 111,149 114,326 118,485 123,926 11,149 14,326 18,485 23,926 11,149 14,326 18,485 23,926
12 25,069 111,934 115,685 120,736 127,535 11,934 15,685 20,736 27,535 11,934 15,685 20,736 27,535
13 27,898 112,671 117,039 123,093 131,484 12,671 17,039 23,093 31,484 12,671 17,039 23,093 31,484
14 30,868 113,353 118,384 125,560 135,801 13,353 18,384 25,560 35,801 13,353 18,384 25,560 35,801
15 33,986 113,987 119,723 128,146 140,531 13,987 19,723 28,146 40,531 13,987 19,723 28,146 40,531
16 37,261 114,568 121,051 130,855 145,711 14,568 21,051 30,855 45,711 14,568 21,051 30,855 45,711
17 40,699 115,069 122,340 133,666 151,360 15,069 22,340 33,666 51,360 15,069 22,340 33,666 51,360
18 44,309 115,479 123,576 136,573 157,512 15,479 23,576 36,573 57,512 15,479 23,576 36,573 57,512
19 48,099 115,813 124,771 139,596 164,237 15,813 24,771 39,596 64,237 15,813 24,771 39,596 64,237
20 52,079 116,057 125,910 142,727 171,577 16,057 25,910 42,727 71,577 16,057 25,910 42,727 71,577
25 75,170 115,452 130,140 159,668 217,920 15,452 30,140 59,668 117,920 15,452 30,140 59,668 117,920

EquiBuilder II Flexible Premium Variable Life Insurance
The American Franklin Life Insurance Company

INITIAL FACE AMOUNT $100,000 MALE AGE 40 NON-TOBACCO USER PLANNED PREMIUM $1,500
DEATH BENEFIT OPTION B ASSUMING GUARANTEED CHARGES
Last Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
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> <C>
1 1,575 100,937 100,985 101,033 101,081 937 985 1,033 1,081 563 610 658 706
2 3,229 101,902 102,037 102,176 102,319 1,902 2,037 2,176 2,319 1,392 1,527 1,666 1,809
3 4,965 102,824 103,087 103,364 103,658 2,824 3,087 3,364 3,658 2,254 2,517 2,794 3,088
4 6,788 103,702 104,131 104,598 105,104 3,702 4,131 4,598 5,104 3,132 3,561 4,028 4,534
5 8,703 104,535 105,170 105,879 106,669 4,535 5,170 5,879 6,669 3,965 4,600 5,309 6,099
6 10,713 105,320 106,198 107,205 108,360 5,320 6,198 7,205 8,360 4,750 5,628 6,635 7,790
7 12,824 106,056 107,214 108,580 110,189 6,056 7,214 8,580 10,189 5,600 6,758 8,124 9,733
8 15,040 106,742 108,215 110,003 112,169 6,742 8,215 10,003 12,169 6,400 7,873 9,661 11,827
9 17,367 107,375 109,197 111,473 114,310 7,375 9,197 11,473 14,310 7,147 8,969 11,245 14,082
10 19,810 107,951 110,157 112,991 116,627 7,951 10,157 12,991 16,627 7,837 10,043 12,877 16,513
11 22,376 108,470 111,089 114,555 119,135 8,470 11,089 14,555 19,135 8,470 11,089 14,555 19,135
12 25,069 108,922 111,985 116,161 121,843 8,922 11,985 16,161 21,843 8,922 11,985 16,161 21,843
13 27,898 109,301 112,836 117,801 124,765 9,301 12,836 17,801 24,765 9,301 12,836 17,801 24,765
14 30,868 109,599 113,632 119,470 127,915 9,599 13,632 19,470 27,915 9,599 13,632 19,470 27,915
15 33,986 109,808 114,361 121,158 131,305 9,808 14,361 21,158 31,305 9,808 14,361 21,158 31,305
16 37,261 109,923 115,014 122,862 134,953 9,923 15,014 22,862 34,953 9,923 15,014 22,862 34,953
17 40,699 109,936 115,583 124,572 138,879 9,936 15,583 24,572 38,879 9,936 15,583 24,572 38,879
18 44,309 109,847 116,060 126,286 143,107 9,847 16,060 26,286 43,107 9,847 16,060 26,286 43,107
19 48,099 109,647 116,436 127,995 147,661 9,647 16,436 27,995 47,661 9,647 16,436 27,995 47,661
20 52,079 109,333 116,701 129,693 152,567 9,333 16,701 29,693 52,567 9,333 16,701 29,693 52,567
25 75,170 105,537 115,665 137,342 183,160 5,537 15,665 37,342 83,160 5,537 15,665 37,342 83,160
</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.

37
<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 VIP Equity-Income division and 50%
being attributable to the VIP Money Market division, which means that $1,500 is
in each division. Assume that the net asset value of one share in the
corresponding VIP Equity-Income Portfolio is $150 and the net asset value of one
share in the corresponding VIP 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
VIP Equity-Income division and 15 shares for the VIP 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
investment advisory agreement. Shareholders in a portfolio not affected by a
particular matter generally would not be entitled to vote on it.

38
<PAGE>

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 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.

39
<PAGE>

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.

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.

40
<PAGE>

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 satisfactory to American Franklin at its
Administrative Office. The change will take effect on the date the notice is
signed. However, the change will be subject to all payments made and actions
taken by American Franklin under the Policy before American Franklin receives
the notice at its Administrative Office. If the beneficiary is changed, any
previous arrangement made as to a payment option for benefits is canceled. A
payment option for the new beneficiary may be chosen.

At the time of the Insured Person's death, the benefit will be paid equally
to the primary beneficiaries, or, if no primary beneficiaries are living, the
first contingent beneficiaries (if any), or, if no primary or first contingent
beneficiaries are living, the second contingent beneficiaries (if any). If no
beneficiary is living when the Insured Person dies, the death benefit will be
paid to the Policy Owner, or to the executors or administrators of the Policy
Owner.

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 II 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.

41
<PAGE>

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

PAYMENT OF PROCEEDS

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.

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 II 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 II 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 III
variable life insurance policies under which interests in the Separate Account
are issued. The EquiBuilder III policies have policy features that are similar
to those of the EquiBuilder II 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.

42
<PAGE>

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. 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.
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 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 90% of premiums paid during the first
policy year. For policies issued on or after October 8, 1997, annual trail
commissions are earned at an annual rate of 0.25% on the amount in the Policy
Account that is in the Separate Account. 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 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 II policies, or from its General
Account to the extent it does not receive reimbursement from Franklin Financial.

Commissions paid on policies issued under Separate Accounts VUL and VUL-2
of American Franklin during the years 1997, 1996 and 1995 were $17,946,679.69,
$13,454,621.96 and $8,304,001.59, respectively.

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.

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 AGREEMENTS

American Franklin has entered into a reinsurance agreement with Integrity
Life Insurance Company ("Integrity") in respect of the EquiBuilder II policies.
This agreement was terminated as to policies sold on or after January 1, 1997
but will continue as to business in force prior to that date.

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.

American Franklin has also entered into a modified coinsurance agreement
effective January 1, 1997 with The Franklin, under which The Franklin reinsures
on a modified coinsurance basis a portion of the risk under EquiBuilder II
policies issued after January 1, 1997.

ADMINISTRATIVE SERVICES

While American Franklin has primary responsibility for all administration
of the Policies, American General Life Insurance Company ("AGL") has agreed
pursuant to a services agreement among American General Corporation and almost
all of its subsidiaries to provide the following administrative services in

43
<PAGE>

connection with the Policies: (1) the purchase and redemption of shares of the
portfolios of the Funds and (2) the determination of unit values for each
investment division of the Separate Account. American Franklin and AGL, as
wholly-owned subsidiaries of American General Corporation, are parties to the
services agreement. Pursuant to such agreement, American Franklin reimburses
AGL for the costs and expenses which AGL incurs in providing such administrative
services in connection with the Policies, but neither American Franklin nor AGL
incurs a loss or realizes a profit by reason thereof. AGL is a stock life
insurance company organized under the laws of Texas and is also engaged in the
writing and sale of life insurance and annuity contracts.

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.

YEAR 2000 TRANSITION

Like all financial services providers, American Franklin utilizes systems
that may be affected by Year 2000 transition issues and it relies on service
providers, including banks, custodians, and investment managers, that also may
be affected. American Franklin and its affiliates have developed, and are in
the process of implementing, a Year 2000 transition plan, and are confirming
that their service providers are also so engaged. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on American Franklin. However, as
of the date of this prospectus, it is not anticipated that Policy Owners will
experience negative effects on their investment, or on the services provided in
connection therewith, as a result of Year 2000 transition implementation.
American Franklin currently anticipates that its systems will be Year 2000
compliant on or about December 31, 1998, but there can be no assurance that
American Franklin will be successful, or that interaction with other service
providers will not impair American Franklin's services at that time.

LEGAL MATTERS

Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.

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, 1997 and the related
statement of operations for the year then ended and the statements of changes in
net assets for each of the two years in the period 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 of American Franklin at December 31, 1997 and 1996 and for
each of the two years in the period ended December 31, 1997, the eleven months
ended December 31, 1995 and the one month ended January 31, 1995, appearing
herein, have been audited by Ernst & Young LLP, independent auditors, 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 firm as experts in accounting and auditing.

44
<PAGE>

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 III variable life insurance policies, which have policy
features that are similar to those of EquiBuilder II 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.

NAME PRINCIPAL OCCUPATIONS DURING POSITION HELD WITH AMERICAN
---- ---------------------------- ---------------------------
PAST 5 YEARS FRANKLIN AND FRANKLIN
------------ ---------------------
FINANCIAL
---------
<S> <C> <C>
B. Shelby Baetz* General Counsel, American Secretary, American
General Independent Producer Franklin.
Division, Houston, Texas,
since January, 1998;
Associate General Counsel,
American General
Corporation, Houston, Texas,
prior to January, 1998.

Wayne A. Barnard** Vice President and Chief Vice President, American
Actuary, American General Franklin.
Life Insurance Company,
Houston, Texas.

Earl W. Baucom Treasurer, The Franklin, Director, Senior Vice
since June 30, 1997, Senior President, Chief Financial
Vice President and Chief Officer and Treasurer,
Financial Officer, The American Franklin.
Franklin, since June 10,
1996; Director, The
Franklin, since August 21,
1996; Chief Financial
Officer, Providian Direct
Insurance, from October,
1993 to December, 1995;
Controller, Providian
Corporation, prior to
October, 1993.

Robert M. Beuerlein Senior Vice President- Director, Executive Vice
Actuarial and Director, The President and Actuary,
Franklin. American Franklin.

45
<PAGE>

James S. D'Agostino, Vice Chairman and Director, Vice Chairman and Director,
Jr.* The Franklin, since May 27, American Franklin.
1997; President, American
General Corporation,
Houston, Texas, since April
24, 1997; Chief Executive
Officer, American General
Life and Accident Insurance
Company, Nashville,
Tennessee, from July 1, 1995
to March 5, 1997.

Barbara Fossum Senior Vice President, The Senior Vice President,
Franklin, since March 20, American Franklin.
1998; Vice President, The
Franklin, from June, 1995,
to March 20, 1998; Vice
President, American General
Life Insurance Company,
Houston, Texas, prior to
June, 1995.

Ross D. Friend Senior Vice President and Senior Vice President,
General Counsel, The General Counsel and
Franklin, since September 3, Assistant Secretary,
1996; Assistant Secretary, American Franklin;
The Franklin, since November Director, Vice President
13, 1997; Secretary, The and Secretary, Franklin
Franklin, from September 3, Financial.
1996 to November 13, 1997;
Attorney-In-Charge,
Prudential Life Insurance
Company, Jacksonville,
Florida, from July, 1995 to
September, 1996; Chief Legal
Officer, Confederation Life
Insurance Company, Atlanta,
Georgia, prior to July, 1995.

Robert F. Herbert, Senior Vice President and Vice President, American
Jr.** Chief Financial Officer, Franklin.
American General Life
Insurance Company, Houston,
Texas, since May of 1996;
Controller, American General
Life Insurance Company, prior
to May of 1996.

Simon J. Leech** Vice President, American Vice President and
General Life Insurance Administrative Officer,
Company, Houston, Texas. American Franklin.

46
<PAGE>

NAME PRINCIPAL OCCUPATIONS DURING POSITION HELD WITH
---- ---------------------------- ------------------
PAST 5 YEARS AMERICAN FRANKLIN AND
------------ ---------------------
FRANKLIN FINANCIAL
------------------
<S> <C> <C>
Rodney O. Martin, President and Chief Executive Director and Senior
Jr.* Officer, American General Chairman, American
Life Insurance Company, Franklin.
Houston, Texas, since August,
1996; President, American
General Life Insurance
Company of New York,
Syracuse, New York, from
November, 1995 to August,
1996; Vice President,
Connecticut Mutual Life
Insurance Company, Hartford,
Connecticut, prior to
November, 1995.

Thomas K. McCracken Director - Marketing, The Director - Special
Franklin. Markets, American
Franklin.

Mark R. McGuire Vice President, The Franklin, Vice President and
since January 6, 1997; Administrative Officer,
Consultant/Manager, American American Franklin.
General Life Insurance
Company, Houston, Texas,
prior to January, 1997.

Jon P. Newton* Director and Vice Chairman, Director and Vice
The Franklin, since January Chairman, American
31, 1996; Vice Chairman, Franklin.
American General Corporation,
Houston, Texas since April,
1997; Vice Chairman and
General Counsel, American
General Corporation, from
October, 1995 to April, 1997;
Senior Vice President and
General Counsel, American
General Corporation, prior to
October, 1995.

Gary D. Reddick Director, The Franklin, since Vice Chairman and
February, 1995; Vice Director, American
Chairman, The Franklin, since Franklin; Director and
July 1, 1997; Executive Vice Vice Chairman, Franklin
President, The Franklin, from Financial.
February, 1995 to July 1,
1997; Senior Vice President,
American General Corporation,
Houston, Texas prior to
February, 1995; Senior Vice
President, American General
Life Insurance Company,
Houston, Texas, prior to
October, 1994.

47
<PAGE>

NAME PRINCIPAL OCCUPATIONS DURING POSITION HELD WITH
---- ---------------------------- ------------------
PAST 5 YEARS AMERICAN FRANKLIN AND
------------ ---------------------
FRANKLIN FINANCIAL
------------------
<S> <C> <C>
Richard W. Scott* Executive Vice President and Vice President and Chief
Chief Investment Officer, Investment Officer,
American General Corporation, American Franklin.
Houston, Texas, since
February, 1998; Vice Chairman
and Chief Investment Officer,
Western National Corporation,
Houston, Texas, from
February, 1997 to February,
1998; Vice Chairman, Chief
Investment Officer and
General Counsel, Western
National Corporation, from
July, 1996 to February, 1997;
Executive Vice President,
General Counsel and Chief
Investment Officer, Western
National Corporation, from
May, 1995 to July, 1996;
Executive Vice President and
General Counsel, Western
National Corporation, from
February, 1994 to May, 1995;
Partner, Vinson & Elkins LLP,
Houston, Texas, prior to
February, 1994.

William A. Simpson Director, Chief Executive Chairman and President,
Officer and President, The American Franklin;
Franklin, since September 5, Director, Franklin
1997; President and Chief Financial.
Executive Officer, The Old
Line Life Insurance Company
of America, Milwaukee,
Wisconsin from May 1, 1990 to
September 8, 1997; President-
Life Insurance Division,
USLIFE Corporation, New York,
New York from February, 1996
to May, 1996; President and
Chief Executive Officer,
USLIFE Corporation from
January, 1995 to February,
1996; Vice Chairman and Chief
Executive Officer, All
American Life Insurance
Company, Chicago, Illinois
from October 25, 1994 to May
1, 1995; President and Chief
Executive Officer, All
American Life Insurance
Company, from April 16, 1990
to October 25, 1994.

T. Clayton Spires Director, Corporate Tax, The Director, Corporate Tax,
Franklin, since February 3, American Franklin.
1997; Assistant Vice
President and Tax Manager,
First Colony Life, Lynchburg,
Virginia, prior to February,
1997.

Timothy W. Still** Vice President, American Vice President and
General Life Insurance Administrative Officer,
Company, Houston, Texas, American Franklin.
since October of 1995; Vice
President, The Continuum
Company, Kansas City,
Missouri, prior to August of
1995.

48
<PAGE>

NAME PRINCIPAL OCCUPATIONS DURING POSITION HELD WITH
---- ---------------------------- ------------------
PAST 5 YEARS AMERICAN FRANKLIN AND
------------ ---------------------
FRANKLIN FINANCIAL
------------------
<S> <C> <C>
J. Alan Vala Director - Agency Secretary, Director - Agency
The Franklin. Secretary, American
Franklin.

Christian D. Weiss Controller, The Franklin, Controller, American
since June, 1997; Assistant Franklin.
Controller, ReliaStar
Financial Corp., Arlington,
Virginia, from January, 1994
to June, 1997; Senior
Manager, Ernst & Young LLP,
Richmond, Virginia, prior to
January, 1994.

Diane S. Workman Director-Administration, Director-Administration,
American Franklin. American Franklin.
</TABLE>

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 individual with two asterisks next to his name is 2727-A 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.

49
<PAGE>

Index To Financial Statements

Page
<S> <C>
The Separate Account:

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

Audited Financial Statements:

Statement of Net Assets, December 31, 1997 . . . . . . . . . . . . . . . . . F-3 - F-4

Statement of Operations for the year ended December 31, 1997 . . . . . . . . F-5 - F-6

Statements of Changes in Net Assets for the years ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-7 - F-8

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-9 - F-12

The American Franklin Life Insurance Company:*

Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13

Audited Financial Statements:

Statement of Operations for the years ended December 31, 1997 and 1996,
the eleven months ended December 31, 1995, and the one month ended
January 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

Balance Sheet, December 31, 1997 and 1996. . . . . . . . . . . . . . . . . F-15 - F-16

Statement of Shareholder's Equity for the years ended December 31, 1997
and 1996, the eleven months ended December 31, 1995, and the one month
ended January 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

Statement of Cash Flows for the years ended December 31, 1997 and 1996,
the eleven months ended December 31, 1995, and the one month ended
January 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-19 - F-35
</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, 1997, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years then ended. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1997 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
Divisions constituting Separate Account VUL-2 at December 31, 1997, and the
results of their operations for the year then ended and changes in net assets
for each of the two years then ended in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP

Chicago, Illinois
January 30, 1998

F-2

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
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: See below) $3,120,690 $39,861,417 $51,757,864 $9,219,983

LIABILITIES - Due to General Account (10,526) (18,723) (39,825) (5,705)
----------------------------------------------------------------

NET ASSETS $3,110,164 $39,842,694 $51,718,039 $9,214,278
----------------------------------------------------------------
----------------------------------------------------------------

Unit value, at December 31, 1997 $ 126.37 $ 291.45 $ 264.35 $ 170.08
----------------------------------------------------------------
----------------------------------------------------------------

Units outstanding, at December 31, 1997 24,611 136,705 195,644 54,175
----------------------------------------------------------------
----------------------------------------------------------------

Cost of Investments $3,135,250 $31,762,665 $39,803,529 $8,291,249
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

F-3

<PAGE>

<TABLE>
<CAPTION>
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> <C>
ASSETS - Investments in Variable Insurance
Products Fund and Variable Insurance
Products Fund II, at fair value
(Cost: See below) $2,416,480 $2,011,512 $26,502,212 $17,361,588 $4,078,334 $13,184,894

LIABILITIES - Due to General Account (1,582) (1,002) (20,601) (11,188) (2,773) (8,442)
-------------------------------------------------------------------------------------

NET ASSETS $2,414,898 $2,010,510 $26,481,611 $17,350,400 $4,075,561 $13,176,452
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

Unit value, at December 31, 1997 $ 165.81 $ 146.29 $ 200.91 $ 226.02 $ 165.92 $ 174.12
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

Units outstanding, at December 31, 1997 14,564 13,744 131,808 76,766 24,563 75,672
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

Cost of Investments $2,172,860 $1,877,304 $22,398,305 $14,359,056 $3,569,525 $11,294,540
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>

F-4
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME

Income
Dividends from Variable Insurance
Products Fund and Variable Insurance
Products Fund II $182,030 $2,548,247 $1,307,633 $606,526

Expenses
Mortality and expense risk charge 23,614 230,070 319,604 60,600
--------------------------------------------------------

Net investment income (expense) 158,416 2,318,177 988,029 545,926

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS

Net realized gain - 241,758 381,365 61,268

Net unrealized appreciation (depreciation):

Beginning of year (8,346) 4,288,372 6,366,508 786,945

End of year (14,560) 8,098,752 11,954,335 928,734
--------------------------------------------------------

Net change in unrealized appreciation
(depreciation) during the year (6,214) 3,810,380 5,587,827 141,789
--------------------------------------------------------

Net realized and unrealized gain (loss)
on investments (6,214) 4,052,138 5,969,192 203,057
--------------------------------------------------------

Net increase in net assets resulting
from operations $152,202 $6,370,315 $ 6,957,221 $748,983
--------------------------------------------------------
--------------------------------------------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

F-5
<PAGE>

Income
Dividends from Variable Insurance
Products Fund and Variable Insurance
Products Fund II $109,941 $100,671 $2,519,534 $ 247,126 $ 2,248 $ 174,269

Expenses
Mortality and expense risk charge 12,988 3,529 173,975 81,823 17,644 62,797
-----------------------------------------------------------------------------------

Net investment income (expense) 96,953 87,142 2,345,559 165,303 (15,396) 111,472

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS

Net realized gain 16,743 11,679 150,118 203,061 18,249 65,136

Net unrealized appreciation (depreciation):

Beginning of year 73,140 90,495 2,931,994 862,708 78,770 583,917

End of year 243,620 134,208 4,103,907 3,002,532 508,809 1,890,354
-----------------------------------------------------------------------------------

Net change in unrealized appreciation
(depreciation) during the year 170,480 43,713 1,171,913 2,139,824 430,039 1,306,437
-----------------------------------------------------------------------------------

Net realized and unrealized gain (loss)
on investments 187,223 55,392 1,322,031 2,342,885 448,288 1,371,573
-----------------------------------------------------------------------------------

Net increase in net assets resulting
from operations $284,176 $142,534 $3,667,590 $2,508,188 $432,892 $1,483,045
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>

F-6

<PAGE>

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

<TABLE>
<CAPTION>
MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
FOR THE YEAR ENDED DECEMBER 31, 1997 DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 158,416 $ 2,318,177 $ 988,029 $ 545,926
Net realized gain on investments - 241,758 381,365 61,268
Net change in unrealized appreciation
(depreciation) on investments (6,214) 3,810,380 5,587,827 141,789
----------------------------------------------------------
Net increase in net assets from operations 152,202 6,370,315 6,957,221 748,983
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 15,768,314 12,119,616 14,879,501 2,855,311
Transfers for policy related transactions (1,274,078) (5,951,910) (7,325,640) (1,502,429)
Transfers between Separate Account
VUL-2's Divisions, net (14,692,099) 3,478,823 2,739,351 369,757
----------------------------------------------------------
Net increase (decrease) in net assets
from policy related transactions (197,863) 9,646,529 10,293,212 1,722,639
----------------------------------------------------------

Increase (decrease) in net assets (45,661) 16,016,844 17,250,433 2,471,622
Net assets, beginning of year 3,155,825 23,825,850 34,467,606 6,742,656
----------------------------------------------------------

Net assets, end of year $ 3,110,164 $39,842,694 $51,718,039 $9,214,278
----------------------------------------------------------
----------------------------------------------------------

MONEY EQUITY-
MARKET INCOME GROWTH OVERSEAS
FOR THE YEAR ENDED DECEMBER 31, 1996 DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 90,006 $ 494,647 $ 1,305,736 $ 81,863
Net realized gain on investments - 119,363 217,472 72,428
Net change in unrealized appreciation
(depreciation) on investments 8,305 2,103,869 2,290,153 475,238
----------------------------------------------------------
Net increase in net assets from operations 98,311 2,717,879 3,813,361 629,529
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 14,105,404 8,358,063 11,727,262 2,440,157
Transfers for policy related transactions (745,614) (3,518,149) (5,082,906) (1,085,007)
Transfers between Separate Account VUL-2's
Divisions, net (12,247,504) 3,540,795 4,024,505 (158,617)
----------------------------------------------------------
Net increase in net assets from policy related
transactions 1,112,286 8,380,709 10,668,861 1,196,533
----------------------------------------------------------

Increase in net assets 1,210,597 11,098,588 14,482,222 1,826,062
Net assets, beginning of year 1,945,228 12,727,262 19,985,384 4,916,594
----------------------------------------------------------

Net assets, end of year $3,155,825 $23,825,850 $34,467,606 $6,742,656
----------------------------------------------------------
----------------------------------------------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
F-7

<PAGE>

<TABLE>
<CAPTION>
HIGH INVESTMENT ASSET INDEX ASSET CONTRA-
INCOME GRADE BOND MANAGER 500 MANAGER: FUND
FOR THE YEAR ENDED DECEMBER 31, 1997 DIVISION DIVISION DIVISION DIVISION GROWTH DIVISION DIVISION
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 96,953 $ 87,142 $ 2,345,559 $ 165,303 $ (15,396) $ 111,472
Net realized gain on investments 16,743 11,679 150,118 203,061 18,249 65,136
Net change in unrealized appreciation
(depreciation) on investments 170,480 43,713 1,171,913 2,139,824 430,039 1,306,437
--------------------------------------------------------------------------------------
Net increase in net assets from operations 284,176 142,534 3,667,590 2,508,188 432,892 1,483,045
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 936,633 525,371 5,954,601 6,747,739 1,946,149 6,031,891
Transfers for policy related transactions (374,337) (329,478) (3,858,162) (2,283,537) (707,474) (1,947,161)
Transfers between Separate Account
VUL-2's Divisions, net 339,645 (21,180) 109,203 3,935,049 1,105,963 2,638,620
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from policy related transactions 901,941 174,713 2,205,642 8,399,251 2,344,638 6,723,350
--------------------------------------------------------------------------------------

Increase (decrease) in net assets 1,186,117 317,247 5,873,232 10,907,439 2,777,530 8,206,395
Net assets, beginning of year 1,228,781 1,693,263 20,608,379 6,442,961 1,298,031 4,970,057
--------------------------------------------------------------------------------------

Net assets, end of year $2,414,898 $2,010,510 $26,481,611 $17,350,400 $4,075,561 $13,176,452
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

HIGH INVESTMENT ASSET INDEX ASSET CONTRA-
INCOME GRADE BOND MANAGER 500 MANAGER: FUND
FOR THE YEAR ENDED DECEMBER 31, 1996 DIVISION DIVISION DIVISION DIVISION GROWTH DIVISION DIVISION
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income (expense) $ 39,298 $ 56,393 $ 950,642 $ 33,984 $ 56,162 $ (6,210)
Net realized gain on investments 8,967 3,089 212,679 55,003 3,633 14,914
Net change in unrealized appreciation
(depreciation) on investments 39,105 (6,922) 1,427,096 753,837 83,858 580,665
--------------------------------------------------------------------------------------
Net increase in net assets from operations 87,370 52,560 2,590,417 842,824 143,653 589,369
FROM POLICY RELATED TRANSACTIONS:
Net contract purchase payments 533,704 486,742 5,498,237 2,673,909 654,319 2,330,711
Transfers for policy related transactions (192,712) (275,951) (3,080,444) (790,840) (178,249) (624,350)
Transfers between Separate Account
VUL-2's Divisions, net 360,417 107,298 (498,477 2,664,359 437,562 1,823,964
--------------------------------------------------------------------------------------
Net increase in net assets from policy
related transactions 701,409 318,089 1,919,316 4,547,428 913,632 3,530,325
--------------------------------------------------------------------------------------

Increase in net assets 788,779 370,649 4,509,733 5,390,252 1,057,285 4,119,694
Net assets, beginning of year 440,002 1,322,614 16,098,646 1,052,709 240,746 850,363
--------------------------------------------------------------------------------------

Net assets, end of year $1,228,781 $1,693,263 $20,608,379 $6,442,961 $1,298,031 $4,970,057
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>

F-8

<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. NATURE OF OPERATIONS

The American Franklin Life Insurance Company (American Franklin) is a
wholly-owned subsidiary of The Franklin Life Insurance Company. American
Franklin established Separate Account 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, 1997, American Franklin
had obtained the necessary state insurance department approvals for the
sale of the EquiBuilder III Policies in 46 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
and expense risk charges 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.

F-9
<PAGE>

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.

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); and cost of insurance, which
is based on the insured person's age, sex, risk class, amount of insurance,
and additional benefits, if any. In addition, American Franklin will make
charges for the following: a partial withdrawal of net cash surrender
value (currently $25 or 2% of the amount withdrawn, whichever is less); an
increase in the face amount of insurance (currently a $1.50 administrative
charge for each $1,000 increase up to a maximum charge of $300); and a
transfer between investment divisions in any policy year in which four
transfers have already been made (up to $25 for each additional transfer in
a given policy year). Charges may also be made for providing more than one
illustration of policy benefits to a given 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 $18,890,000 and
$12,166,000 in 1997 and 1996, respectively.

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-10
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

4. SUMMARY OF UNIT VALUES AND CHANGES IN OUTSTANDING UNITS

Unit value information and a summary of changes in outstanding units is
shown below:

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
MONEY EQUITY- HIGH
MARKET INCOME GROWTH OVERSEAS INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $120.68 $236.34 $223.47 $152.96 $141.63
----------------------------------------------------------------------
----------------------------------------------------------------------

Unit value, end of year $126.37 $291.45 $264.35 $170.08 $165.81
----------------------------------------------------------------------
----------------------------------------------------------------------

Number of units outstanding,
beginning of year 26,149 100,813 154,236 44,082 8,676

Net contract purchase payments 127,542 45,380 60,016 16,843 6,070

Transfers for policy related transactions (10,304) (22,424) (29,564) (8,917) (2,437)

Transfers between Separate Account
VUL-2's Divisions, Net (118,776) 12,936 10,956 2,167 2,255
----------------------------------------------------------------------

Number of units outstanding, end of year 24,611 136,705 195,644 54,175 14,564
----------------------------------------------------------------------
----------------------------------------------------------------------

INVESTMENT ASSET
GRADE ASSET INDEX MANAGER CONTRA-
BOND MANAGER 500 GROWTH FUND
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $135.81 $171.77 $178.33 $137.89 $145.66
----------------------------------------------------------------------
----------------------------------------------------------------------

Unit value, end of year $146.29 $200.91 $226.02 $165.92 $174.12
----------------------------------------------------------------------
----------------------------------------------------------------------

Number of units outstanding,
beginning of year 12,468 119,978 36,130 9,413 34,121

Net contract purchase payments 3,764 31,902 32,530 12,503 37,070

Transfers for policy related transactions (2,338) (20,496) (11,120) (4,526) (11,863)

Transfers between Separate Account
VUL-2's Divisions, Net (150) 424 19,226 7,173 16,344
----------------------------------------------------------------------

Number of units outstanding, end of year 13,744 131,808 76,766 24,563 75,672
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>

F-11
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997

5. REMUNERATION OF MANAGEMENT

The Account incurs no liability or expense 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-12
<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, (the Company), a wholly-owned subsidiary of The Franklin Life
Insurance Company, which is an indirect wholly-owned subsidiary of American
General Corporation, as of December 31, 1997 and 1996, and the related
statements of operations, shareholder's equity and cash flows for the years
ended December 31, 1997 and 1996, 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 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 at December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996,
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

Chicago, Illinois
February 23, 1998

F-13
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>

Benefits and expenses
Benefits paid or provided 2,450 2,767 2,597 330
Change in policy reserves 1,224 843 458 1,027
Commissions and allowances 20,096 14,843 9,323 706
Change in deferred policy acquisition
costs and cost of insurance purchased (15,351) (7,866) (4,558) (298)
Taxes, licenses and fees 1,484 1,369 988 96
General insurance expenses 8,151 7,175 4,713 312
----------------------------------------------------------------
Total benefits and expenses 18,054 19,131 13,521 2,173
----------------------------------------------------------------

Income (loss) before income taxes 3,734 (677) (1,461) (495)

Income tax expense (benefit)
Current 715 873 452 34
Deferred 244 (1,104) (961) (217)
----------------------------------------------------------------
Total income tax expense (benefit) 959 (231) (509) (183)
----------------------------------------------------------------

Net income (loss) $ 2,775 $ (446) $ (952) $ (312)
----------------------------------------------------------------
----------------------------------------------------------------

</TABLE>

See Notes to Financial Statements.

F-14
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands)

DECEMBER 31
------------------------
1997 1996
------------------------
<S> <C> <C>
ASSETS

Investments
Fixed maturity securities (amortized cost:
$21,305; $31,359) $ 22,565 $ 32,599
Policy loans 7,050 4,378
------------------------
29,615 36,977

Cash and cash equivalents 6,349 2,408

Accrued investment income 472 672

Amounts recoverable from reinsurers 8,885 6,139

Deferred policy acquisition costs 30,515 13,781

Cost of insurance purchased 10,549 12,212

Insurance premiums in course of settlement 1,286 238

Other assets 1,328 551

Assets held in Separate Accounts 223,529 119,850
------------------------

Total assets $ 312,528 $ 192,828
------------------------
------------------------
</TABLE>

See Notes to Financial Statements.

F-15
<PAGE>

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

DECEMBER 31
------------------------
1997 1996
------------------------
<S> <C> <C>
LIABILITIES

Insurance liabilities
Policy reserves, contract claims and
other policyholders' funds $ 13,051 $ 7,390
Universal life contracts 31,289 30,347
Annuity contracts 2,274 -
Unearned revenue 6,801 3,972
Income taxes
Current 380 185
Deferred (2,211) (2,458)
Accrued expenses and other liabilities 7,767 6,676
Liabilities related to Separate Accounts 223,529 119,850
------------------------

Total liabilities 282,880 165,962

SHAREHOLDER'S EQUITY
Common stock ($5 par value; 500,000
shares authorized, issued and outstanding) 2,500 2,500
Paid-in capital 25,373 25,373
Net unrealized gains on securities 398 391
Retained earnings (deficit) 1,377 (1,398)
------------------------

Total shareholder's equity 29,648 26,866
------------------------

Total liabilities and shareholder's equity $ 312,528 $ 192,828
------------------------
------------------------
</TABLE>

See Notes to Financial Statements.

F-16
<PAGE>

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands)

Balance at beginning of period 391 727 - (9)

Change during the period 10 (516) 1,118 (3)
Amounts applicable to deferred federal
income taxes (3) 180 (391) 1
Adjustment for the acquisition - - - 11
----------------------------------------------------------------
Balance at end of period 398 391 727 -
----------------------------------------------------------------

Retained earnings (deficit)

Balance at beginning of period (1,398) (952) - 2,876
Net income (loss) 2,775 (446) (952) (312)
Adjustment for the acquisition - - - (2,564)
----------------------------------------------------------------
Balance at end of period 1,377 (1,398) (952) -
----------------------------------------------------------------
Total shareholder's equity
at end of period $ 29,648 $ 26,866 $ 17,648 $ 17,873
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.

F-17
<PAGE>

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

Predecessor Basis
-----------------
Eleven Months One Month
Year Ended Year Ended Ended Ended
December 31 December 31 December 31 January 31
----------------------------------------------------------------
1997 1996 1995 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Net Income (loss) $ 2,775 $ (446) $ (952) $ (312)
Reconciling adjustments to net cash
used for operating activities
Policy reserves, claims and other
policyholders' funds 18,078 12,609 10,786 1,439
Realized investment (gains) losses (283) (90) 6 -
Deferred policy acquisition costs and
cost of insurance purchased (15,351) (7,866) (4,558) (298)
Charges on universal life contracts,
net of interest credited (17,369) (11,602) (8,166) (1,248)
Change in other assets and liabilities (2,939) (2,660) 2,806 (471)
----------------------------------------------------------------
Net cash used for operating activities (15,089) (10,055) (78) (890)
----------------------------------------------------------------
Investing activities
Investment purchases
Available-for-sale (6,900) (32,704) (5,859) (41)
Other (2,766) (2,107) - -
Investment calls, maturities and sales
Available-for-sale 17,699 26,096 4,426 -
Held-to-maturity - - - 12
----------------------------------------------------------------
Net cash provided by (used for)
investing activities 8,033 (8,715) (1,433) (29)
----------------------------------------------------------------
Financing activities
Policyholder account deposits 99,023 43,912 27,956 1,957
Policyholder account withdrawals (88,026) (39,565) (21,750) (1,305)
Proceeds from intercompany borrowings 15,320 4,742 1,425 -
Repayments of intercompany borrowings (15,320) (4,832) (1,335) -
Capital contribution - 10,000 - -
----------------------------------------------------------------
Net cash provided by financing
activities 10,997 14,257 6,296 652
----------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3,941 (4,513) 4,785 (267)
Cash and cash equivalents at beginning of
period 2,408 6,921 2,136 2,403
----------------------------------------------------------------

Cash and cash equivalents at end of period $ 6,349 $ 2,408 $ 6,921 $ 2,136
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

F-18
<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), headquartered in
Springfield, Illinois, sells and services variable universal life,
variable annuity 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).

The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities.
Ultimate results could differ from those estimates.

1.3 ACQUISITION

On January 31, 1995, AGC Life Insurance Company (AGCL), a subsidiary of
American General Corporation (AGC), acquired FLIC for $1.17 billion.
The purchase price consisted of $920 million cash and a $250 million
extraordinary cash dividend paid by FLIC to its former parent prior to
closing. The portion of the purchase price allocated to AMFLIC was
$17.9 million.

The acquisition 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 sheets at December 31, 1997 and 1996, and its
statements of operations, shareholder's equity and cash flows for the
years ended December 31, 1997 and 1996, and the eleven months ended
December 31, 1995, are reported under the purchase method of accounting
and, accordingly, are not consistent with the basis of presentation of
the "Predecessor Basis" statements of operations, shareholder's equity
and cash flows for the one month ended January 31, 1995.

F-19
<PAGE>

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

1.4 INVESTMENTS

FIXED MATURITY SECURITIES. All fixed maturity securities are classified
as available-for-sale and recorded at fair value. After adjusting
related balance sheet accounts as if unrealized gains (losses) had been
realized, the net 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.

INVESTMENT INCOME. Interest on fixed maturity securities and policy
loans 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.

1.5 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.

1.6 DEFERRED POLICY ACQUISITION COSTS (DPAC)

Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.

DPAC associated with interest-sensitive life insurance contracts and
insurance investment 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.

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

AMFLIC reviews the carrying amount of DPAC on at least an annual basis.
AMFLIC considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.

F-20
<PAGE>

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

1.7 COST OF INSURANCE PURCHASED (CIP)

The cost assigned to insurance contracts in force at January 31, 1995 is
reported as CIP. Interest is accreted on the unamortized balance of CIP
at rates of 6% to 8.5%. CIP is charged to expense and adjusted for the
impact of net unrealized gains 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.

1.8 SEPARATE ACCOUNTS

Separate Accounts are assets and liabilities associated with certain
contracts for which the investment risk lies solely with the contract
holder. Therefore, AMFLIC'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 statement of
operations. Assets held in Separate Accounts are primarily shares in
mutual funds, which are carried at fair value, based on the quoted net
asset value per share.

1.9 INSURANCE AND ANNUITY LIABILITIES

Substantially all of AMFLIC's insurance and annuity liabilities relate
to long-duration contracts. The contracts normally cannot be changed or
canceled by AMFLIC during the contract period.

For interest-sensitive life and insurance investment contracts, reserves
equal the sum of the policy account balance and deferred revenue
charges. Reserves for other contracts are based on estimates of the
cost of future policy benefits. Reserves are determined using the net
level premium method. Interest assumptions used to compute reserves
ranged from 3% to 9% at December 31, 1997.

1.10 PREMIUM RECOGNITION

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

F-21
<PAGE>

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

1.11 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.

1.12 RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.

1.13 NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, " Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. Beginning in 1998, AMFLIC must adopt this statement for all
periods presented. Application of this statement will not change
recognition or measurement of net income and, therefore, will not impact
AMFLIC's results of operations or financial position.

F-22
<PAGE>

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

2. Investments

2.1 INVESTMENT INCOME

Investment income was as follows:

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
------------------------------------------------------------
In thousands 1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities $ 2,291 $ 2,141 $ 2,097 $ 168
Policy loans 264 175 68 8
Other investments 12 369 - -
------------------------------------------------------------
Gross investment income 2,567 2,685 2,165 176
Investment expense 37 44 36 16
------------------------------------------------------------
Net investment income $ 2,530 $ 2,641 $ 2,129 $ 160
------------------------------------------------------------
------------------------------------------------------------
</TABLE>

2.2 REALIZED INVESTMENT GAINS (LOSSES)

Realized investment gains (losses) for fixed maturity securities, net of
DPAC and CIP amortization, were as follows:

<TABLE>
<CAPTION>
Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
------------------------------------------------------------
In thousands 1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities
Gross gains $ 564 $ 183 $ 153 $ -
Gross losses (10) (10) (171) -
------------------------------------------------------------
Total 554 173 (18) -
------------------------------------------------------------
Other (271) (83) 12 -
------------------------------------------------------------
Realized investment gains (losses) $ 283 $ 90 $ (6) $ -
------------------------------------------------------------
------------------------------------------------------------
</TABLE>

Voluntary sales of investments resulted in the following
realized gains (losses):

<TABLE>
<CAPTION>
Realized
In thousands Category Proceeds Gains Losses
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED AVAILABLE-FOR-SALE $ 9,992 $ 550 $ 8
DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------------------
Year Ended Available-for-sale $ 12,081 $ 171 $ 10
December 31, 1996
-------------------------------------------------------------------------------------------------------------------------
Eleven Months Ended Available-for-sale $ 1,517 $ - $ 72
December 31, 1995
</TABLE>

F-23
<PAGE>

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

2.3 FIXED MATURITY SECURITIES

VALUATION. Amortized cost and fair value of fixed maturity securities were
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
In thousands COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds
Investment grade $ 9,172 $ 678 $ 2 $ 9,848
Below investment grade 300 12 - 312
Public utilities 2,622 273 - 2,895
Mortgage-backed 1,897 131 - 2,028
U.S. government 7,111 155 - 7,266
States/political subdivisions 203 13 - 216
----------------------------------------------------------------
Total fixed maturity securities $ 21,305 $ 1,262 $ 2 $ 22,565
----------------------------------------------------------------
----------------------------------------------------------------

December 31, 1996
----------------------------------------------------------------
Cost or Cost Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds
Investment grade $ 16,860 $ 786 $ - $ 17,646
Below investment grade 955 25 - 980
Public utilities 3,326 244 - 3,570
Mortgage-backed 1,877 121 - 1,998
U.S. government 8,137 149 98 8,188
States/political subdivisions 204 13 - 217
----------------------------------------------------------------
Total fixed maturity securities $ 31,359 $ 1,338 $ 98 $ 32,599
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>

F-24
<PAGE>

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

2.3 FIXED MATURITY SECURITIES (CONTINUED)

MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1997 were as follows:

COST OR FAIR
In thousands AMORTIZED COST VALUE
---------------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities, due

In years two through five $ 4,805 $ 5,050

In years six through ten 13,442 14,180

After ten years 1,161 1,307

Mortgage-backed securities 1,897 2,028
------------------------------------
Total fixed maturity securities $ 21,305 $ 22,565
------------------------------------
------------------------------------
</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-25
<PAGE>

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

2.4 NET UNREALIZED GAINS ON SECURITIES

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

In thousands 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $ 1,262 $ 1,338
Gross unrealized losses (2) (98)
DPAC fair value adjustment (39) (33)
CIP fair value adjustment (609) (606)
Deferred federal income taxes (214) (210)
---------------------------------
Net unrealized gains on securities $ 398 $ 391
---------------------------------
---------------------------------
</TABLE>

2.5 INVESTMENTS ON DEPOSIT

At December 31, 1997 and 1996, fixed maturity securities carried at
$7,018,000 and $6,878,000, 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, 1997 and
1996, AMFLIC's largest investment in any one entity other than U.S.
government obligations was $1,000,000.

F-26
<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 AMFLIC'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 AMFLIC's assets
and liabilities, and (2) the reporting of investments at fair value without
a corresponding revaluation of related policyholder liabilities can be
misinterpreted.

1997 1996
--------------------------------------------------------
CARRYING FAIR Carrying Fair
In thousands AMOUNT VALUE Amount Value
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturity securities $ 22,565 $ 22,565 $ 32,599 $ 32,599

Liabilities
Insurance investment contracts $ 2,318 $ 2,193 - -
</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 1997 and 1996 was 7.17%.

INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment
contracts, which do not subject American Franklin to significant risks
arising from policyholder mortality or morbidity, was estimated using cash
flows discounted at market interest rates. Care should be exercised in
drawing conclusions from the estimated fair value, since the estimates are
based on assumptions regarding future economic activity.

F-27
<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:

Capitalization 18,223 9,861 4,328 445

Amortization (1,307) (343) - (147)

Effect of changes in unrealized
gains on securities (6) 195 (228) -

Effect of realized investment
(gains) losses (176) (33) 1 -

Adjustment for the
acquisition (a) - - - (16,838)
------------------------------------------------------------
End of period balance $ 30,515 $ 13,781 $ 4,101 $ -
------------------------------------------------------------
------------------------------------------------------------
</TABLE>

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

F-28
<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:

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
-----------------------------------------------------------
In thousands 1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of period balance $ 12,212 $ 13,621 $ 14,279 $ -

Interest accretion 1,054 1,400 1,073 -

Additions - - 1,844 -

Amortization (2,619) (3,052) (2,687) -

Effect of changes in unrealized
gains on securities (3) 293 (899) -

Effect of realized investment (gains) losses (95) (50) 11 -

Adjustment for the acquisition (a) - - - 14,279
-----------------------------------------------------------
End of period balance $ 10,549 $ 12,212 $ 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:

AMOUNT
YEAR (000's)
-----------------------------------------
<S> <C> <C>
1998 $1,367

1999 1,201

2000 1,054

2001 927

2002 820
</TABLE>

F-29
<PAGE>

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

6. Separate Account

AMFLIC administers three Separate Accounts in connection with the issuance
of its Variable Universal Life and Variable Annuity products.

7. Income Taxes

AMFLIC is subject to the life insurance company provisions of the federal
tax law and is part of a life/life consolidated return which also includes
FLIC.

The method of allocation of tax expense is subject to a written agreement.
Allocation is based upon separate return calculations with current credit
for net losses and tax credits. Consolidated alternative minimum tax,
excise tax or surtax, if any, is allocated separately. The tax liability
of AMFLIC under this agreement shall not exceed the amount AMFLIC would
have paid if it had filed on a separate return basis. Intercompany tax
balances are to be settled no later than thirty (30) days after the date of
filing the consolidated return.

7.1 DEFERRED TAXES

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

In thousands 1997 1996
--------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities, applicable to:
Basis differential of investments $ 341 $ 292
DPAC and CIP 9,213 5,483
Other 1,220 949
---------------------
Total deferred tax liabilities 10,774 6,724

Deferred tax assets, applicable to:
Policy reserves (12,438) (8,329)
Other (547) (853)
---------------------
Total deferred tax assets (12,985) (9,182)
---------------------

Net deferred tax assets $ (2,211) $ (2,458)
---------------------
</TABLE>

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

F-30
<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:

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
-----------------------------------------------------------
1997 1996 1995 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C>

Federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
State taxes, net - (0.3) (0.4) 0.4
Invested asset items (5.4) 0.1 0.2 -
Other (3.9) (0.7) - 1.6
-----------------------------------------------------------
Effective tax rate 25.7 % 34.1 % 34.8 % 37.0 %
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>

7.3 TAXES PAID

Federal income taxes paid during the years ended December 31, 1997 and
1996, and the eleven months ended December 31, 1995 were $519,000,
$228,000, and $1,031,000, respectively. State income taxes paid during the
year ended December 31, 1997, and the eleven months ended December 31, 1995
were $1,000 for each period. No state income taxes were paid during the
year ended December 31, 1996. There were no federal or state income taxes
paid during January 1995.

F-31
<PAGE>

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

8. Statutory Accounting

State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity. In addition, state regulators
may permit statutory accounting practices that differ from prescribed
practices. No significant permitted practices are used to prepare AMFLIC's
statutory financial statements.

At December 31, 1997 and 1996, AMFLIC had statutory stockholder's equity of
$17,727,000, and $18,055,000, respectively. AMFLIC's statutory net loss
was $648,000, $1,949,000, and $4,704,000 for the years ended December 31,
1997, 1996 and 1995, 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.
Under these restrictions, during 1998 no dividends may be paid out and,
loans and advances in excess of $4,432,000 may not be transferred without
the approval of the Illinois Insurance Department.

F-32
<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 statement of cash flows,
the following transactions, occurred:

Interest added to universal
life contracts and other
deposit funds $ 1,279 $ 1,267 $ 1,126 $ 111
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>

10. Related Party Transactions

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 years ended
December 31, 1997 and 1996, the eleven months ended December 31, 1995, and
the one month ended January 31, 1995 amounted to approximately $5,104,000,
$3,868,000, $3,277,000, and $204,000, respectively.

AMFLIC participates in a program of short-term borrowing with AGC to
maintain its long-term investment commitments. AMFLIC borrowed $15,320,000
and $4,742,000 and repaid $15,320,000 and $4,832,000 (relating to 1996 and
1995 borrowings) in 1997 and 1996, respectively. Interest was paid on the
outstanding balance based on the rate as stipulated in the program.

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,
including FLIC, that have strong claims-paying ability ratings. The
maximum retention on one life for individual life insurance is $100,000.

Effective January 1, 1997, AMFLIC entered into a modified coinsurance
agreement with FLIC covering the variable universal life product.

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-33
<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
the following:

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
-----------------------------------------------------------
In thousands 1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 1,169 $ 1,433 $ 361 $ 43
Other income 810 1,196 972 8
Benefits 1,329 1,810 1,166 145
Commission expense (59) (9) 54 6
Premium taxes - (6) 6 6
</TABLE>

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

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
-----------------------------------------------------------
In thousands 1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 5,226 $ 4,014 $ 2,648 $ 125
Expense allowances 4,965 4,394 2,463 186
Other 60 (561) 579 (6)
</TABLE>

AMFLIC also carries reinsurance for policy risks that exceed its retention
limit of $100,000. AMFLIC ceded the following amounts:

Eleven Months One Month
YEAR ENDED Year Ended Ended Ended
DECEMBER 31 December 31 December 31 January 31
-----------------------------------------------------------
In thousands 1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 7,994 $ 5,909 $ 4,129 $ 258
Change in policy reserves 7,804 5,924 4,155 3,347
</TABLE>

F-34
<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
$25,000, $31,000, $37,000, and $18,000 for the years ended December 31,
1997 and 1996, the eleven months ended December 31, 1995, and the one month
ended January 31, 1995, respectively. These amounts are assessed by state
life and health insurance guaranty funds to recoup past industry
insolvencies. These assessments are expected to be partially recovered
through credits against the payment of future premium taxes.

There was no liability accrued at December 31, 1997, or in 1996 as these
amounts were determined to be immaterial.

F-35
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

EQUIBUILDER II-TM-

Issued by

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
AN AMERICAN GENERAL COMPANY
#1 FRANKLIN SQUARE,
SPRINGFIELD, ILLINOIS 62713-0001

EquiBuilder II 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.

REPRESENTATION PURSUANT TO SECTION 26(e)

American Franklin hereby represents that the fees and charges deducted under the
flexible premium variable life insurance policies described in this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by
American Franklin.

II-1
<PAGE>

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and documents:

The facing sheet.

Reconciliation and tie.

The Prospectus, consisting of 94 pages..

Undertaking to file reports.

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

The signatures.

Written Consents of the following persons:

Sutherland, Asbill & Brennan LLP
Robert M. Beuerlein, Executive Vice President and Actuary
Ernst & Young LLP

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 II policies.

* 1-A(3)(b)(ii) Specimen Registered Representative Agreement between
Franklin Financial and registered representatives of
Franklin Financial distributing EquiBuilder II 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
July 15, l991, regarding supervision of agents.

* 1-A(5)(a) EquiBuilder II 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 II 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 are incorporated herein by
reference to Exhibit 1-A(6)(b) to Post-Effective Amendment
No. 7 on Form S-6 of Separate Account VUL-2 of The American
Franklin Life Insurance Company, filed February 28, 1997
(Reg. No. 33-41838).

1-A(7) Inapplicable.

* 1-A(8)(a)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund ("VIP") and Fidelity Distributors
Corporation ("FDC"), dated July 18, 1991.

II-2
<PAGE>

* 1-A(8)(a)(2) Amendment No. 1 to Participation Agreement among American
Franklin, VIP and FDC, effective as of November 1, 1991.

* 1-A(8)(a)(3) Participation Agreement among American Franklin, Variable
Insurance Products Fund II ("VIP II") and FDC, dated July
18, 1991.

* 1-A(8)(a)(4) Amendment No. 1 to Participation Agreement among American
Franklin, VIP 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, VIP and FDC, dated January 18, 1995.

** 1-A(8)(a)(7) Amendment No. 2 to Participation Agreement among American
Franklin, VIP II and FDC, dated January 18, 1995.

1-A(8)(a)(8) Amendment No. 3 to Participation Agreement among American
Franklin, VIP and FDC, dated July 1, 1996, is hereby
incorporated herein by reference to Exhibit 8(a)(4) to the
Registration Statement on Form N-4 (Reg. No. 333-10489) of
Separate Account VA-1 of American Franklin, filed August 20,
1996.

1-A(8)(a)(9) Amendment No. 3 to Participation Agreement among American
Franklin, VIP II and FDC, dated July 1, 1996, is hereby
incorporated herein by reference to Exhibit 8(b)(4) to the
Registration Statement on Form N-4 (Reg. No. 333-10489) of
Separate Account VA-1 of American Franklin, filed August 20,
1996.

1-A(8)(a)(10) Amendment No. 4 to Participation Agreement among American
Franklin, VIP and FDC, dated November, 1996, is hereby
incorporated herein by reference to Exhibit 8(a)(5) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-4 (Reg. No. 333-10489) of Separate Account VA-1 of
American Franklin, filed November 26, 1996.

1-A(8)(a)(11) Amendment No. 4 to Participation Agreement among American
Franklin, VIP II and FDC, dated November, 1996, is hereby
incorporated herein by reference to Exhibit 8(b)(5) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-4 (Reg. No. 333-10489) of Separate Account VA-1 of
American Franklin, filed November 26, 1996.

1-A(8)(b)(1) Participation Agreement among MFS Variable Insurance Trust,
American Franklin and Massachusetts Financial Services
Company ("MFS"), dated July 30, 1996 is incorporated herein
by reference to Exhibit 8(d)(1) to Form N-4 of Separate
Account VA-1 of The American Franklin Life Insurance
Company, filed August 20, 1996 (Reg. No. 333-10489).

1-A(8)(b)(2) Indemnification Agreement between American Franklin and MFS
dated July 30, 1996 is incorporated herein by reference to
Exhibit 8(d)(2) to Form N-4 of Separate Account VA-1 of The
American Franklin Life Insurance Company, filed August 20,
1996 (Reg. No. 333-10489).

1-A(8)(b)(3) Form of Amendment No. 1 dated November, 1996 to
Participation Agreement among MFS Variable Insurance Trust,
American Franklin and MFS is incorporated herein by
reference to Exhibit 8(d)(3) to Form N-4 of Separate Account
VA-1 of The American Franklin Life Insurance Company, filed
November 26, 1996 (Reg. No. 333-10489).

1-A(8)(b)(4) Amendment No. 2 to Participation Agreement among American
Franklin, MFS Variable Insurance Trust and MFS, dated
November, 1997.

* 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)(c)(2) Amendment No. 2 to Modified Coinsurance Agreement between
American Franklin and Integrity is incorporated herein by
reference to similarly designated exhibit to Post-Effective
Amendment No. 7 on Form S-6 of Separate Account VUL-2 of The
American Franklin Life Insurance Company, filed February 28,
1997 (Reg. No. 33-41838).

1-A(8)(c)(3) Amendment No. 3 to Modified Coinsurance Agreement between
American Franklin and Integrity effective April 1, 1989 is
incorporated herein by reference to similarly designated
exhibit to Post-Effective Amendment No. 7 on Form S-6 of
Separate Account VUL-2 of

II-3
<PAGE>

The American Franklin Life Insurance Company, filed February
28, 1997 (Reg. No. 33-41838).

1-A(8)(c)(4) Amendment No. 3 to Modified Coinsurance Agreement between
American Franklin, Integrity, and Phoenix Home Life Mutual
Insurance Company, assignee of Integrity, effective January
1, 1997 is incorporated herein by reference to similarly
designated exhibit to Post-Effective Amendment No. 7 on Form
S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 28, 1997 (Reg. No.
33-41838).

* 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(8)(e) Modified Coinsurance Agreement effective as of January 1,
1997 between American Franklin and The Franklin is
incorporated herein by reference to similarly designated
exhibit to Post-Effective Amendment No. 9 on Form S-6 of
Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 27, 1998 (Reg. No.
33-41838).

1-A(8)(e)(1) Amendment No. 1 effective September 1, 1997 to Modified
Coinsurance Agreement between American Franklin and The
Franklin is incorporated herein by reference to similarly
designated exhibit to Post-Effective Amendment No. 9 on Form
S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 27, 1998 (Reg. No.
33-41838).

* 1-A(9) Administrative Service Agreement between The Franklin and
American Franklin, dated May 16, l988.

1-A(10) Application for EquiBuilder II Policy is incorporated herein
by reference to similarly designated exhibit to
Post-Effective Amendment No. 9 on Form S-6 of Separate
Account VUL-2 of The American Franklin Life Insurance
Company, filed February 27, 1998 (Reg. No. 33-41838).

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, Executive Vice
President and Actuary of American Franklin.

4 Inapplicable.

5 Inapplicable.

6(a) Consent of Ernst & Young LLP.

6(b) Consent of Sutherland, Asbill & Brennan LLP.

7 Power of Attorney is incorporated herein by reference to
similarly designated exhibit to Post-Effective Amendment No.
9 on Form S-6 of Separate Account VUL-2 of The American
Franklin Life Insurance Company, filed February 27, 1998
(Reg. No. 33-41838).

8 Description of American Franklin's Issuance, Transfer and
Redemption Procedures for 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.

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

* 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).

II-4
<PAGE>

** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 5 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed March 2, 1995 (Reg.
No. 33-41838).

*** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 6 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed April 30, 1996 (Reg.
No. 33-41838).

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 1933 Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Post-Effective Amendment No. 10
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 28th of
April, 1998.

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

By: THE AMERICAN FRANKLIN
LIFE INSURANCE COMPANY,
Depositor

[SEAL] By: /s/ William A. Simpson
-----------------------------
William A. Simpson
President

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 1933
Act 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 28th day of April, 1998.

THE AMERICAN FRANKLIN
LIFE INSURANCE COMPANY

By /s/ William A. Simpson
-----------------------------
William A. Simpson
President

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> <C> <C>
/s/ Earl W. Baucom* Director, Senior Vice President, April 28 , 1998
- ------------------------------- Chief Financial Officer and Treasurer
Earl W. Baucom (principal financial officer and
principal accounting officer)

/s/ Robert M. Beuerlein* Director April 28, 1998
- -------------------------------
Robert M. Beuerlein

/s/ Brady W. Creel* Director April 28, 1998
- -------------------------------
Brady W. Creel

Director ______, 1998
- -------------------------------
James S. D'Agostino, Jr.

Director ______, 1998
- -------------------------------
Rodney O. Martin, Jr.

Director ______, 1998
- -------------------------------
Jon P. Newton

/s/ Gary D. Reddick* Director April 28, 1998
- -------------------------------
Gary D. Reddick

/s/ William A. Simpson Director and President (principal April 28, 1998
- ------------------------------- executive officer)
William A. Simpson

/s/ Elizabeth E. Arthur
- -------------------------------
*By Elizabeth E. Arthur,
Attorney-in-Fact
</TABLE>

II-7
<PAGE>
EXHIBIT INDEX

Page No.
--------

* 1-A(1) Certified resolutions regarding organization of Separate
Account VUL-2.

1-A(2) Inapplicable.

* 1-A(3)(b)(i) Specimen Regional Manager Registered Representative
Agreement between Franklin Financial and registered
representatives of Franklin Financial distributing
EquiBuilder II policies.

* 1-A(3)(b)(ii) Specimen Registered Representative Agreement between
Franklin Financial and registered representatives of
Franklin Financial distributing EquiBuilder II 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 July 15, l991, regarding supervision of agents.

* 1-A(5)(a) EquiBuilder II 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 II 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 are incorporated herein by
reference to Exhibit 1-A(6)(b) to Post-Effective Amendment
No. 7 on Form S-6 of Separate Account VUL-2 of The
American Franklin Life Insurance Company, filed February
28, 1997 (Reg. No. 33-41838).

1-A(7) Inapplicable.

* 1-A(8)(a)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund ("VIP") and Fidelity Distributors
Corporation ("FDC"), dated July 18, 1991.

* 1-A(8)(a)(2) Amendment No. 1 to Participation Agreement among American
Franklin, VIP and FDC, effective as of November 1, 1991.

* 1-A(8)(a)(3) Participation Agreement among American Franklin, Variable
Insurance Products Fund II ("VIP II") and FDC, dated July
18, 1991.

* 1-A(8)(a)(4) Amendment No. 1 to Participation Agreement among American
Franklin, VIP 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, VIP and FDC, dated January 18, 1995.

** 1-A(8)(a)(7) Amendment No. 2 to Participation Agreement among American
Franklin, VIP II and FDC, dated January 18, 1995.

<PAGE>

EXHIBIT INDEX
Page No.
- --------

1-A(8)(b)(1) Participation Agreement among MFS Variable Insurance
Trust, American Franklin and Massachusetts Financial
Services Company ("MFS"), dated July 30, 1996 is
incorporated herein by reference to Exhibit 8(d)(1) to
Form N-4 of Separate Account VA-1 of The American Franklin
Life Insurance Company, filed August 20, 1996 (Reg. No.
333-10489).

1-A(8)(b)(2) Indemnification Agreement between American Franklin and
MFS dated July 30, 1996 is incorporated herein by
reference to Exhibit 8(d)(2) to Form N-4 of Separate
Account VA-1 of The American Franklin Life Insurance
Company, filed August 20, 1996 (Reg. No. 333-10489).

1-A(8)(b)(3) Form of Amendment No. 1 dated November, 1996 to
Participation Agreement among MFS Variable Insurance
Trust, American Franklin and MFS is incorporated herein by
reference to Exhibit 8(d)(3) to Form N-4 of Separate
Account VA-1 of The American Franklin Life Insurance
Company, filed November 26, 1996 (Reg. No. 333-10489).

1-A(8)(b)(4) Amendment No. 2 to Participation Agreement among American
Franklin, MFS Variable Insurance Trust and MFS, dated
November, 1997.

* 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)(c)(2) Amendment No. 2 to Modified Coinsurance Agreement between
American Franklin and Integrity is incorporated herein by
reference to similarly designated exhibit to
Post-Effective Amendment No. 7 on Form S-6 of Separate
Account VUL-2 of The American Franklin Life Insurance
Company, filed February 28, 1997 (Reg. No. 33-41838).

1-A(8)(c)(4) Amendment No. 3 to Modified Coinsurance Agreement between
American Frankin, Integrity, and Phoenix Home Life Mutual
Insurance Company effective January 1, 1997 is
incorporated herein by reference to similarly designated
exhibit to Post-Effective Amendment No. 7 on Form S-6 of
Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 28, 1997 (Reg. No.
33-41838).

* 1-A(8)(d) Reinsurance Agreement between American Franklin and The
Franklin Life Insurance Company ("The Franklin"),
effective as of January 1, 1988.

<PAGE>

* 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(8)(e)(1) Amendment No. 1 effective September 1, 1997 to Modified
Coinsurance Agreement between American Franklin and The
Franklin is incorporated herein by reference to similarly
designated exhibit to Post-Effective Amendment No. 9 on
Form S-6 of Separate Account VUL-2 of The American
Franklin Life Insurance Company, filed February 27, 1998
(File No. 33-41838).

* 1-A(9) Administrative Service Agreement between The Franklin and
American Franklin, dated May 16, l988.

1-A(10) Application for EquiBuilder II Policy is incorporated
herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 9 on Form S-6 of Separate
Account VUL-2 of The American Franklin Life Insurance
Company, filed February 27, 1998 (File No. 33-41838).

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, Executive Vice
President and Actuary of American Franklin.

4 Inapplicable.

5 Inapplicable.

6(a) Consent of Ernst & Young LLP.

6(b) Consent of Sutherland, Asbill & Brennan LLP.

7 Power of Attorney is incorporated herein by reference to
similarly designated exhibit to Post-Effective Amendment
No. 9 on Form S-6 of Separate Account VUL-2 of The
American Franklin Life Insurance Company, filed February
27, 1998 (Reg. No. 33-41838).

8 Description of American Franklin's Issuance, Transfer and
Redemption Procedures for 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.

- -------------------------
* 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).

*** Incorporated hereby by reference to similarly designated exhibit to
Post-Effective Amendment No. 6 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed April 30, 1996 (Reg.
No. 33-41838).

<PAGE>
EXHIBIT 1-A(3)(c)

SCHEDULE OF SALES COMMISSIONS

For EquiBuilder II, individual flexible premium variable life insurance
policies.

<TABLE>
<CAPTION>
Policy Year Percent of Target Premiums*
----------- --------------------------
<S> <C>
1st 90%
2nd through 10th 3%
11th and later 1.5%
</TABLE>

After two years, trail commissions are earned at an annual rate of 0.25% on the
amount in the Policy Account that is in the Separate Account.

*First year and subsequent policy year allowances are generally applicable to a
target premium. For first year premiums in excess of such amount the
distribution allowance is 5%.

If the planned premium is less than the target premium, the first year rate will
be applied to the planned premium only.

The target premium is based on 75% of a net annual premium by using the 1980 CSO
mortality table (male and female, age nearest birthday) and a 4.5% interest
rate. It assumes the premium is paid annually at the beginning of the year
until the policy ends.

<PAGE>
EXHIBIT 1-A(8)(b)(4)

AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT

AMONG

MFS VARIABLE INSURANCE TRUST,

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY

AND

MASSACHUSETTS FINANCIAL SERVICES COMPANY

Amendment No. 2, dated as of November __, 1997, by and among THE AMERICAN
FRANKLIN LIFE INSURANCE COMPANY (the "Company"), MFS VARIABLE INSURANCE TRUST
(the "Trust") and MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS") to the
Participation Agreement, dated as of July 30, 1996, as amended by Amendment No.
1, dated as of November 21, 1996, by and among the Company, the Trust, and MFS
(the "Agreement"),

WHEREAS, the parties to the Agreement wish to amend the Agreement to revise
Schedule A to reflect new products offered by the Company and to change the
amount of administrative service fees paid by MFS to the Company:

NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:

1. Section 5.4 of the Agreement is hereby amended by substituting "0.20%"
for "0.15%" in the third line of such Section, such change to take effect on
April 30, 1998.

2. Schedule A of the Agreement is amended as attached hereto.

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto have executed this Amendment
No. 2 as of the date first above written.

THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By its authorized officer,

By /s/ William A. Simpson
---------------------------------
William A. Simpson
Title: President

MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,

By /s/ A. Keith Brodkin
---------------------------------
A. Keith Brodkin
Chairman

MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,

By /s/ Arnold D. Scott
---------------------------------
Arnold D. Scott
Senior Executive Vice President

<PAGE>

As of ___________

SCHEDULE A

ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT

- ---------------------------------------------------------------------------------------------
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY POLICIES FUNDED PORTFOLIOS
BOARD OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Separate Account VA-1 The Chairman combination Fixed Emerging Growth Series
May 22, 1996 and Variable Annuity Contracts Research Series
Growth with Income Series
Total Return Series
Utilities Series
Value Series

Separate Account VUL-2, EquiBuilder II Flexible Premium Emerging Growth Series
April 9, 1991 Variable Life Insurance Policies Research Series
Growth with Income Series

EquiBuilder III Flexible Premium Total Return Series
Variable Life Insurance Policies Utilities Series
Value Series
- ---------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
Exhibit 3(b)

April 20, 1998

The American Franklin Life
Insurance Company
#1 Franklin Square
Springfield, Illinois 62713

Gentlemen:

This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 10 to the Registration Statement on Form S-6 (Reg. No. 33-41838)
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 II
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 January 30, 1998, with respect to the financial
statements of Separate Account VUL-2 of The American Franklin Life Insurance
Company and our report dated February 23, 1998 with respect to the financial
statements of The American Franklin Life Insurance Company in this
Post-Effective Amendment No. 10 to the Registration Statement on Form S-6 (No.
33-41838) 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 28, 1998

<PAGE>

EXHIBIT 6(b)

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. 10 to
the Registration Statement under the Securities Act of 1933. In this consent,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.

/s/ Sutherland, Asbill & Brennan LLP

SUTHERLAND, ASBILL & BRENNAN LLP

Washington, D.C.
April 28, 1998

<PAGE>

Exhibit 8

Description of The American Franklin Life Insurance
Company's Issuance, Transfer
and Redemption Procedures for EquiBuilder II Policies
Pursuant to Rule 6e-3(T)(b)(12)(iii)
under the Investment Company Act of 1940

Set forth below is the information called for under Rule
6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 ("1940 Act"). That
rule provides an exemption for separate accounts, their investment advisers,
principal underwriters and sponsoring insurance companies from Sections 22(c),
22(d), and 22(e), and 27(c)(1) of the 1940 Act, and Rule 22(c)-1 promulgated
thereunder, for issuance, transfer and redemption procedures under flexible
premium variable life insurance policies to the extent necessary to comply with
Rule 6e-3(T), state administrative law or established administrative procedures
of the life insurance company. In order to qualify for the exemption,
procedures must be reasonable, fair and not discriminatory and they must be
disclosed in the registration statement filed by the separate account.

Net premiums received by The American Franklin Life Insurance Company
("American Franklin") under its EquiBuilder II-TM- flexible premium variable
life insurance policies (the "Policies") are invested in Separate Account VUL-2
(the "Account") of American Franklin. The Account is registered under the 1940
Act. Within the Account are investment divisions, which are as of April, 1997
the Money Market division, the High Income division, the Equity-Income division,
the Growth division, the Overseas division, the Investment Grade Bond division,
the Asset Manager division, the Index 500 division, the Contrafund division and
the Asset Manager: Growth division (the "investment divisions"). New investment
divisions may be added. Procedures apply equally to each investment division
and for purposes of this description are defined in terms of the Account, except
where a discussion of both the Account and its investment divisions is
necessary. Each current investment division 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"), each a "series" type of mutual fund registered under the 1940 Act.
The investment experience of the current investment divisions of the Account
depends on the market performance of the corresponding Fund portfolios.
Although the Policies may also provide for fixed benefits supported by American
Franklin's General Account, except as otherwise explicitly stated herein, this
description assumes that net premiums are allocated exclusively to the Account
and that all transactions involve only the investment divisions of the Account.

American Franklin believes its procedures meet the requirements of
Rule 6e-3(T)(b)(12)(iii) and states the following:

1. Because of the insurance nature of the Policies and due to the
requirements of state insurance laws, the procedures necessarily differ in
significant

<PAGE>

respects from procedures for mutual funds and contractual plans for which the
1940 Act was designed.

2. In structuring its procedures to comply with Rule 6e-3(T) and
state insurance laws, American Franklin has attempted to comply with the intent
of the 1940 Act, to the extent deemed feasible.

3. In general, state insurance laws require that American Franklin's
procedures be reasonable, fair and not discriminatory.

4. Because of the nature of the insurance product, it is often
difficult to determine precisely when American Franklin's procedures deviate
from those required under Sections 22(c), 22(d), 22(e) or 27(c)(1) of the 1940
Act or Rule 22c-1 thereunder. Accordingly, set out below is a summary of the
principal policy provisions and procedures which may be deemed to constitute,
either directly or indirectly, such a deviation. The summary, while
comprehensive, does not attempt to treat each and every procedure or variation
which might occur and does include certain procedural steps which do not
constitute deviations from the above-cited sections or rule.

I. "REDEMPTION PROCEDURES":
SURRENDER AND RELATED TRANSACTIONS

This section will outline those procedures which differ in certain
significant respects from redemption procedures for mutual funds and contractual
plans. American Franklin's Policies provide for the payment of monies to a
policy owner or beneficiary upon presentation of a Policy. Generally, except
for the payments of death benefits, the imposition of cost of insurance,
administrative and transaction charges and the effects of the surrender charge,
the payee will receive a pro rata or proportionate share of the Account's assets
within the meaning of the 1940 Act in any transaction involving "redemption
procedures." The amount received by the payee will depend upon the particular
benefit for which the Policy is presented, including, for example, the cash
surrender value or death benefit. There are also certain Policy provisions --
such as partial withdrawals and the loan privilege -- under which the Policy
will not be presented to American Franklin but which will affect the policy
owner's benefits and may involve a transfer of the assets supporting the policy
reserve out of the Account. Any combined transactions on the same day which
counteract the effect of each other will be allowed. American Franklin will
assume the policy owner is aware of the conflicting nature of these transactions
and desires their combined results. In addition, if a transaction is requested
which American Franklin will not allow (for example, a request for a decrease in
face amount which lowers the face amount below American Franklin's minimum)
American Franklin will reject the whole request and not just the portion which
causes the disallowance. Policy owners will be informed of the rejection and
will have an opportunity to give new instructions. Finally, state insurance
laws may require that certain requirements be met before American Franklin is
permitted to make payments to the payee.

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<PAGE>

a. SURRENDER FOR CASH VALUES

American Franklin will pay the net cash surrender value within seven
days after receipt, at its Administrative Office, of the Policy and a signed
request for surrender in form satisfactory to American Franklin. Computations
with respect to the investment experience of each investment division will be
made at the close of trading on the composite tape on each business day. This
will enable American Franklin to pay a net cash value on surrender as of the
date a request for surrender and the Policy are received based on the next
computed value after a request is received. The surrender is effective on the
date American Franklin receives the request at its administrative office and
insurance coverage ends on that day.

The Policy Account (which is equal to the cash surrender value PLUS
the surrender charge) may increase or decrease from day to day depending on the
investment experience of the Account. Calculation of the Policy Account for any
given day will reflect the actual premiums paid, expenses charged and deductions
taken.

American Franklin will deduct a charge for applicable taxes (which
will vary from jurisdiction to jurisdiction) from each premium payment. The
balance (net premium) is put into the Policy Account. The charge for applicable
taxes covers the tax American Franklin must pay to states and other
jurisdictions based on premiums received. Each month, American Franklin makes
charges against the Policy Account to cover the cost of insurance and
administrative expenses for the next month. During the first 12 policy months,
American Franklin will make an additional administrative charge, currently $24
per month, designed to recover the expenses incurred in issuing a new Policy.
Other possible charges against the Policy Account (which will occur on a
case-specific basis) include a charge for additional benefits which are added by
rider, a charge for partial withdrawals, a charge for increases in face amount
and a charge for certain transfers.

In calculating the cash surrender value, a contingent deferred sales
load (the "surrender charge") (equal to 30% of first year premiums paid up to
the level of a "target premium" plus 9% of all other premiums paid with a
maximum charge of 50% of one target premium) will be deducted from the Policy
Account during the first ten policy years. Target premiums are based on the age
and sex of the insured person and the initial face amount of the policy and are
generally equal to 75% of the applicable guideline annual premium for the Policy
determined in accordance with Section 7702 of the Internal Revenue Code. If the
face amount of the policy is reduced below the initial face amount, a pro-rata
portion of the surrender charge may be deducted from the Policy Account. The
maximum surrender charge begins to decline after the first six policy years and
is reduced to zero after ten policy years. No minimum amount of cash surrender
value is guaranteed.

American Franklin will make the payment of net cash surrender value
out of its General Account and, at the same time, transfer assets from the
Account to the General Account to an amount equal to the policy reserves in the
Account.

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<PAGE>

In lieu of payment of the net cash surrender value in a single sum
upon surrender of a Policy, an election may be made to apply all or a portion of
the proceeds under one of the fixed benefit payment options described in the
Policies. The election may be made by the policy owner during the insured
person's lifetime, or, if no election is in effect at the insured person's
death, by the beneficiary. An option in effect at death may not be changed to
another form of benefit after death. An option is currently available only if
the proceeds to be applied are $1,000 or more and would result in periodic
payments of at least $20. The settlement options are subject to the
restrictions and limitations set forth in the Policies.

The Policy contains a partial withdrawal feature after the first
policy year, subject to a minimum withdrawal amount and other conditions. Any
request for a partial withdrawal must be in writing to American Franklin's
Administrative Office, and will take effect as of the day it is received. A
partial withdrawal will reduce the death benefit, Policy Account and cash
surrender value associated with the Policy by the amount of the withdrawal plus
a charge for administrative expenses associated with it. The Policy after such
a withdrawal must meet minimum face amount requirements and must continue to
qualify as life insurance under applicable tax law.

b. DEATH CLAIMS

American Franklin will pay a death benefit to the beneficiary within
seven days after receipt, at its Administrative Office, of the Policy, due proof
of death of the insured, and all other requirements necessary (*) to make
payment.

The death benefit payable will depend on the option in effect at the
time of death. Under Option A, the death benefit is the greater of the face
amount of insurance and a percentage multiple (see below) of the amount in the
Policy Account. Under Option B, the death benefit is the greater of the face
amount of insurance PLUS the amount in the Policy Account and a percentage
multiple (see below) of the amount in the Policy Account. The percentage
referred to is the applicable percentage from the following table for the
insured person's age (as of his or her nearest birthday) at the beginning of the
policy year of determination.

- ------------------
(*)State insurance laws impose various requirements, such as receipt of a tax
waiver, before payment of the death benefit may be made. In addition, payment
of the death benefit is subject to the provisions of the Policies regarding
suicide and incontestability.

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<PAGE>

TABLE OF
APPLICABLE PERCENTAGES

For ages not shown, the applicable percentages will decrease by a
ratable portion for each full year.

Insured Insured
Person's Age Percentage Person's Age Percentage
-----------------------------------------------------------------
<S> <C> <C> <C>
40 and under 250% 65 120%
45 215 70 115
50 185 75 thru 90 105
55 150 95 100
60 130
</TABLE>

The proceeds payable to the beneficiary will be adjusted to reflect
any outstanding indebtedness and any overdue monthly charges if death occurs
during the grace period described below under "Default and Options on Lapse."
The proceeds payable on death also reflect interest from the date of death to
the date of payment.

American Franklin will make payment of the death benefit out of its
General Account, and will transfer assets from the Account to the General
Account in an amount equal to the reserve in that Account. The excess, if any,
of the death benefit over the amount transferred will be paid out of the General
Account reserve maintained for that purpose.

In lieu of payment of the death benefit in a single sum, a settlement
option may be selected as described immediately above with respect to cash
surrender values.

c. EXCHANGE OF POLICY

The Policies allow the policy owner, in lieu of a conversion
privilege, to transfer all the amounts in the investment divisions of the
Account to the Guaranteed Interest Division (which is part of American
Franklin's General Account and pays interest at a declared guaranteed rate)
without charge.

d. DEFAULT AND OPTIONS ON LAPSE

The duration of insurance coverage depends upon the net cash surrender
value of a Policy being sufficient to cover the monthly charges. If the net
cash surrender value at the beginning of a month is less than the charges for
that month, a grace period of 61 days will begin. Written notice will be sent
to the policy owner and any assignee on American Franklin's records stating that
such a grace period has begun and giving the approximate amount of premium
payment necessary to cover three monthly deductions. If this amount is not
received during the grace period, any amount in the Policy Account will

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<PAGE>

be withdrawn and applied to applicable charges and the Policy will end without
value. If the insured should die during the grace period, an amount sufficient
to cover the overdue monthly charges and other charges will be deducted from the
death benefit.

e. POLICY LOAN

American Franklin's Policies provide that a policy owner may take a
loan of up to 90% of the cash surrender value upon assignment to American
Franklin of the Policy as sole security. The cash surrender value for this
purpose will be that next computed after receipt, at American Franklin's
Administrative Office, of a signed loan request. Payment of the loan out of
American Franklin's General Account will be made to the policy owner within
seven days after such receipt.

Interest on a loan accrues daily at an effective annual interest rate
which is adjusted annually. A rate will be determined as of the beginning of
each policy year and will apply to a new or outstanding loan during that policy
year. The maximum annual loan interest rate for a policy year will be the
greater of 5 1/2% and the monthly Average Corporates Yield published by Moody's
Investors Service, Inc., for the month ending two months before the beginning of
the policy year. The loan interest rate for a policy year after the first will
be the same as it was for the immediately preceding policy year if the formula
above would produce a change of less than 1/2 of 1% from the rate for the
preceding year.

The amount of any outstanding loan plus accrued interest is called an
"indebtedness". A new loan will not be permitted unless it is at least $500
more than the existing indebtedness, if any. Outstanding indebtedness will be
added to the amount of any new loan request and the old loan amount will be
cancelled. When a loan is made, the portion of the assets in the Account (which
is a portion of the cash surrender value and which also constitutes a portion of
the reserves for the death benefit) equal to the indebtedness created thereby is
transferred by American Franklin from the Account to the Guaranteed Interest
Division, which is part of American Franklin's General Account. Allocation of
the loan among investment divisions will be according to the policy owner's
request. If this allocation is not specified or not possible, the loan will be
allocated according to the monthly deduction percentages then in effect. If the
loan cannot be allocated based on these percentages, it will be allocated based
on the proportion the values in each investment division of the Account bear to
the total unloaned value in the policy Account. American Franklin credits the
loaned portion of a Policy with a rate of interest which is up to 2% below the
interest rate charged on the loan, minus any charges for taxes or reserves for
taxes. Interest credited on loaned amounts in the Guaranteed Interest Division
is allocated to the unloaned portion of the Guaranteed Interest Division.
Because of the transfer, a portion of the policy is not variable during the loan
period (except in accordance with adjustments in the loan interest rate
described above) and, therefore, the death benefit and the cash surrender value
are permanently affected by any indebtedness, whether or not repaid in whole or
in part.

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<PAGE>

Loan interest is due on each policy anniversary. If not paid when
due, it is added to the existing indebtedness and bears interest at the loan
rate. Failure to repay a loan will not necessarily terminate the Policy. If
the net cash surrender value of the Policy is not sufficient to cover the
monthly charges for the cost of insurance and administrative expenses, the
Policy will go into a 61-day grace period, as described above.

f. TRANSFERS AMONG DIVISIONS

Amounts may be transferred, upon request, at any time from any
investment division of the Account to one or more other divisions of the
Account. The minimum amount allowed for a transfer is the lesser of the minimum
amount shown in a Policy (usually $500) and the total value in the investment
division. The first four transfers are free of charge; however, American
Franklin may make a charge for additional transfers in a policy year of up to
$25.

Transfer charges, if any, will be subtracted equally among the
divisions from which transfers are made.

Transfers from an investment division of the Account will take effect
as of the receipt of a request at American Franklin's Administrative Office.

g. RIGHT OF WITHDRAWAL PROCEDURES

The Policy provides that the policy owner may cancel it by returning
the Policy along with a written request for cancellation to American Franklin's
Administrative Office by 10 days after the policy owner receives the Policy.
The policy owner will receive a refund equal to the premium payments made under
the Policy.

II. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED
TRANSACTIONS -- SECTION 22(d) AND RULE 22c-1

This section outlines those principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. Because of the insurance nature of the
Policies, the procedures involved necessarily differ in certain significant
respects from the purchase procedures for mutual funds and contractual plans.
The chief differences revolve around the structure of the cost of insurance
charges and the insurance underwriting (I.E., evaluation of risk) process.
There are also certain Policy provisions -- such as reinstatement and loan
repayment -- which do not result in the issuance of a Policy but which require
certain payments by the policy owner and involve a transfer of assets supporting
the policy reserve into the Account.

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<PAGE>

a. INSURANCE CHARGES AND UNDERWRITING STANDARDS

Cost of insurance charges for American Franklin's Policies will not be
the same for all policy owners. The chief reason is that the principle of
pooling and distribution of mortality risks is based upon the assumption that
each policy owner pays a cost of insurance charge commensurate with the
insured's mortality risk which is actuarially determined based upon factors such
as age, sex and risk class. In the context of life insurance, a uniform
mortality charge (the "cost of insurance charge") for all insureds would
discriminate unfairly in favor of those insureds representing greater mortality
risks to the disadvantage of those representing lesser risks. Accordingly,
although there will be a uniform "public offering price" for all policy owners,
because premiums are flexible and amounts allocated to the Account will be
subject to the same charges (as described above), there will be a different
"price" for each actuarial category of policy owners because different cost of
insurance rates will apply. The "price" will also vary based on net amount at
risk. The Policies will be offered and sold pursuant to this cost of insurance
schedule and American Franklin's underwriting standards and in accordance with
state insurance laws. Such laws prohibit unfair discrimination among insureds,
but recognize that premiums must be based upon factors such as age, sex, health
and occupation. A table showing the maximum cost of insurance charges will be
delivered as part of the Policy.

b. APPLICATION AND INITIAL PREMIUM PROCESSING

Upon receipt of a completed application from a prospective policy
owner, American Franklin will follow certain insurance underwriting (I.E.,
evaluation of risks) procedures designed to determine whether the proposed
insured is insurable. This process may involve such verification procedures as
medical examinations and may require that further information be provided by the
proposed policy owner before a determination can be made. A policy cannot be
issued, I.E., physically issued through American Franklin's computerized issue
system, until this underwriting procedure has been completed.

The date as of which the insurance coverage of the proposed insured is
determined is referred to as the "register date". The register date is the
earlier of the date a Policy is actually issued ("issue date") and the date
American Franklin receives the full initial premium. The register date
represents the first day of the policy year and therefore determines the policy
anniversary. It marks the commencement of the variability of benefits, except
as noted below. The initial net premium is allocated to the Account as of the
later of the register date and the date American Franklin receives the premium
payment. The initial net premium is allocated to the Money Market division
until the first business day 15 days after the issue date, regardless of the
policy owner's premium allocation instructions. The issue date represents the
commencement of the suicide and contestable periods for purposes of the
Policies.

American Franklin will require that the Policy be delivered within a
specific delivery period to protect itself against anti-selection by the
prospective policy owner

8
<PAGE>

resulting from a deterioration of the health of the proposed insured.
Generally, the period will not exceed the shorter of 30 days from the date the
Policy is issued and 75 days from the date of Part 2 of the Application.

c. ANNIVERSARY AND PREMIUM PROCESSING

At each monthly anniversary, American Franklin will credit the
unloaned portion of the Guaranteed Interest Division of the Policy Account with
any interest accrued on loan amounts during the previous policy month. Charges
against the Policy Account for administrative expenses, additional benefits and
cost of insurance charges will also be made. These deductions cover the cost of
the Policy for the next month.

"Net premiums" are credited to the Policy Account as of the date the
premium payments are received by American Franklin. The initial net premium is
allocated to the Money Market division until 15 days after the issue date,
regardless of the policy owner's premium allocation instructions. Net premiums
are equal to the gross premiums minus deductions for applicable state and local
taxes.

Premium payments may be made at any time and for any amount, within
certain limits. Premium payments must be at least $100 (some states may have
lower limits) and may not be more than those allowed under the Internal Revenue
Code for the Policy to continue to qualify as life insurance. American Franklin
makes deductions from each premium for any applicable premium tax, the amount of
which varies from jurisdiction to jurisdiction.

d. REINSTATEMENT

If the Policy has lapsed, it may be reinstated while the insured
person is alive if the policy owner 1) requests reinstatement within 3 years
from the end of the grace period, 2) provides satisfactory evidence of
insurability and 3) makes a premium payment sufficient to keep the Policy in
force for at least 3 months after reinstatement. The effective date of the
reinstated Policy will be the beginning of the policy month which coincides with
or next follows the date American Franklin approves the reinstatement
application. Upon reinstatement, the maximum surrender charge for the policy
will be reduced by the amount of all surrender charges previously imposed on the
policy, and for purposes of determining any future surrender charges on the
policy, the policy will be deemed to have been in effect since the original
register date. No previous indebtedness will be reinstated.

e. REPAYMENT OF LOAN

9
<PAGE>

A loan made under the Policy may be repaid with an amount equal to the
original loan plus loan interest.

When a loan is made, American Franklin will transfer from each
investment division of the Account to the General Account an amount of that
division's cash surrender value equal to the loan amount form that division.
Since American Franklin will credit these assets with interest at a rate which
is up to 2% below the interest rate on the loan (minus any charges for taxes or
reserves for taxes), American Franklin will retain the difference between these
rates and the loan rates in order to cover certain expenses and contingencies.
Upon repayment of indebtedness, American Franklin will reduce its General
Account policy loan assets and transfer assets supporting corresponding reserves
to the divisions according to the policy owner's instruction or the premium
payment allocation percentages then in effect.

f. CORRECTION OF MISSTATEMENT OF AGE OR SEX

If American Franklin discovers that the age or sex of the insured has
been misstated, the death benefit and any rider benefits will be those which
would be purchased by the most recent deduction for the cost of insurance and
the cost of rider benefits at the correct age and sex.

g. CONTESTABILITY

The Policy is contestable for two years, measured from the issue date,
during the lifetime of the insured for material misstatements made in the
initial application for the Policy. Policy changes may be contested for two
years after the effective date of the change, and a reinstatement for two years
after the effective date of the reinstatement. No statement will be used to
contest a Policy unless it is contained in an application. American Franklin
may not be restricted by the foregoing time limitations in the event of fraud.

h. REDUCTION IN COST OF
INSURANCE RATE CLASSIFICATION

By administrative practice, American Franklin will reduce the cost of
insurance rate classification for an outstanding Policy if new evidence of
insurability demonstrates that the policy owner qualifies for a lower
classification. After the reduced rating is determined, the policy owner will
pay a lower monthly cost of insurance charge each month.