<PAGE>
As Filed with the Securities and Exchange Commission on March 1, 1999
1933 Act Registration No.33-77470
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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. 7
SEPARATE ACCOUNT VUL-2
of
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
(Exact Name of Trust)
THE AMERICAN FRANKLIN LIFE ELIZABETH E. ARTHUR, ESQ.
INSURANCE COMPANY Associate General Counsel
(Name of Depositor) and Assistant Secretary
#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 III flexible premium variable life policies.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on _______________, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/X/ on April 30, 1999 pursuant to paragraph (a) (1) 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. 7
Reconciliation and Tie
---------------------
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- ----------------------
<S> <C>
1. . . . . . . . . . . . . . . . . . . . . .Cover Page.
2. . . . . . . . . . . . . . . . . . . . . .Cover Page.
3. . . . . . . . . . . . . . . . . . . . . .Inapplicable.
4. . . . . . . . . . . . . . . . . . . . . .Distribution of the Policies.
5, 6,. . . . . . . . . . . . . . . . . . . .Variable Account Investment Choices - The Separate Account
and Its Investment Divisions.
7, 8 . . . . . . . . . . . . . . . . . . . .Inapplicable.
9. . . . . . . . . . . . . . . . . . . . . .Legal Proceedings.
10(a). . . . . . . . . . . . . . . . . . . .The Beneficiary; Assignment of A Policy.
10(b). . . . . . . . . . . . . . . . . . . .Policy Account Value - Determination of the Unit Value;
Dividends.
10(c), 10(d) . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Death
Benefits, - Maturity Benefit, - Changing the Face Amount of
Insurance; Variable Account Investment Choices - Right to
Change Operations; Deductions and Charges - Surrender Charge,
- Other Transaction Charges, - Allocation of Policy Account
Charges; Policy Account Transactions - Changing Premium and
Deduction Allocation Percentages, - Transfers of Policy
Account Value Among Investment Divisions, - Borrowing from the
Policy Account, - Withdrawing Money from the Policy Account, -
Surrendering the Policy for Its Net Cash Surrender Value;
Additional Information About EquiBuilder III-TM- Policies -
Right To Examine; Payment of Proceeds; The Guaranteed Interest
Division - Transfers from the Guaranteed Interest Division.
10(e). . . . . . . . . . . . . . . . . . . .Additional Information About EquiBuilder III-TM- Policies -
Lapse, - Reinstatement.
10(f). . . . . . . . . . . . . . . . . . . .Variable Account Investment Choices - The Funds, - Right to
Change Operations; Voting Rights of a Policy Owner.
10(g)(1), 10(g)(2), 10(h)(1), 10(h)(2) . . .Variable 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- ----------------------
<S> <C>
10(i). . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Changes in
EquiBuilder III-TM- Policies, - Flexible Premium Payments, -
Additional Benefits; Variable Account Investment Choices;
Policy Account Value; Payment Options; Payment of Proceeds.
11 . . . . . . . . . . . . . . . . . . . . .Variable Account Investment Choices - The Funds, - Investment
Policies of the Funds, - Ownership of the Assets of the
Separate Account.
12(a), 12(c), 12(d). . . . . . . . . . . . .Variable Account Investment Choices - The Funds.
12(b), 12(e) . . . . . . . . . . . . . . . .Inapplicable.
13(a). . . . . . . . . . . . . . . . . . . .Summary - Investment Choices of EquiBuilder III-TM- Policies,
- Charges and Deductions.
13(b), 13(c), 13(d), 13(e), 13(g). . . . . .Inapplicable.
13(f). . . . . . . . . . . . . . . . . . . .Distribution of the Policies.
14 . . . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Policy Issuance
Information; Limits On American Franklin's Rights To Challenge
A Policy; Distribution of the Policies - Applications.
15 . . . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Flexible
Premium Payments; Variable Account Investment Choices
(Introduction); Deductions and Charges - Deductions from
Premiums; Policy Account Transactions - Changing Premium and
Deduction Allocation Percentages.
16 . . . . . . . . . . . . . . . . . . . . .Variable Account Investment Choices - (Introduction), - The
Separate Account and Its Investment Divisions, - The Funds;
Policy Account Value - Amounts in the Separate Account; Policy
Account Transactions - Changing Premium and Deduction
Allocation Percentages, - Transfers of Policy Account Value
Among Investment Divisions, - Loan Requests, - Repaying the
Loan; The Guaranteed Interest Division - Transfers from the
Guaranteed Interest Division; Additional Information About
EquiBuilder III-TM- Policies - Policy Periods, Anniversaries,
Dates and Ages.
17(a), 17(b), 17(c). . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Death Benefits,
- Maturity Benefit, - Changing the Face Amount of Insurance, -
Changes in EquiBuilder III-TM- Policies, - Flexible Premium
Payments, - Additional Benefits; Variable 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- ----------------------
<S> <C>
Policy for Its Net Cash Surrender Value; The Guaranteed
Interest Division - Transfers from the Guaranteed Interest
Division; Additional Information About EquiBuilder III-TM-
Policies - Right To Examine the Policy, - Lapse, -
Reinstatement; Payment Options; Payment of Proceeds.
18(a). . . . . . . . . . . . . . . . . . . .Policy Account Value - Determination of the Unit Value.
18(b), 18(d) . . . . . . . . . . . . . . . .Inapplicable.
18(c). . . . . . . . . . . . . . . . . . . .Summary; Variable 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).
19 . . . . . . . . . . . . . . . . . . . . .Reports to Policy Owners; Distribution of the Policies; Voting
Rights of a Policy Owner.
20(a). . . . . . . . . . . . . . . . . . . .Variable 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). . . . . . . . . . . . . . . . . . . .Variable 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.
21(b), 21(c) . . . . . . . . . . . . . . . .Inapplicable.
22 . . . . . . . . . . . . . . . . . . . . .Limits on American Franklin's Right To Challenge a Policy.
23 . . . . . . . . . . . . . . . . . . . . .Inapplicable.
24 . . . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- ----------------------
<S> <C>
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 III-TM- Policies - Death Benefits,
- Maturity Benefit, - Changes in EquiBuilder III-TM- Policies;
Variable Account Investment Choices - (Introduction), - The
Separate Account and Its Investment Divisions, - The Funds, -
Right to Change Operations; Deductions and Charges; Policy
Account Value; Policy Account Transactions - Changing Premium
and Deduction Allocation Percentages, - Transfers of Policy
Account Value Among Investment Divisions, - Borrowing from the
Policy Account, - Loan Requests, - Repaying the Loan, -
Withdrawing Money from the Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value; The Guaranteed
Interest Division - Transfers from the Guaranteed Interest
Division; Additional Information About EquiBuilder III-TM-
Policies - Right To Examine, - Policy Periods, Anniversaries,
Dates and Ages; Payment of Proceeds.
44(a)(4) . . . . . . . . . . . . . . . . . .Deductions and Charges - Charges Against the Separate Account
- Tax Reserve.
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 Variable Investment Division, - Determination of the Unit
Value.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- -----------------------
<S> <C>
44(b). . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Death Benefits,
- Maturity Benefit, - Changes in EquiBuilder III-TM- Policies;
Variable Account Investment Choices (Introduction), - The
Separate Account and Its Investment Divisions, - The Funds, -
Right to Change Operations; Deductions and Charges; Policy
Account Value; Policy Account Transactions - Changing Premium
and Deduction Allocation Percentages, - Transfers of Policy
Account Value Among Investment Divisions, - Borrowing from the
Policy Account, - Loan Requests, - Repaying the Loan, -
Withdrawing Money from the Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value; The Guaranteed
Interest Division - Transfers from the Guaranteed Interest
Division; Additional Information About EquiBuilder III-TM-
Policies - Right To Examine the Policy, - Policy Periods,
Anniversaries, Dates and Ages; Tax Effects; Payment of
Proceeds.
44(c). . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Death Benefits,
- Maturity Benefit, - Changes in EquiBuilder III-TM- Policies,
- Flexible Premium Payments; Variable 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 III-TM-
Policies - Right To Examine, - Policy Periods, Anniversaries,
Dates and Ages; Payment of Proceeds.
45 . . . . . . . . . . . . . . . . . . . . .Inapplicable.
46(a). . . . . . . . . . . . . . . . . . . .The Features of EquiBuilder III-TM- Policies - Death Benefits,
- Maturity Benefit, - Changes in EquiBuilder III-TM- Policies;
Variable Account Investment Choices - (Introduction), - The
Separate Account and Its Investment Divisions, - the Funds, -
Right to Change Operations; Deductions and Charges; Policy
Account Value; Policy Account Transactions - Changing Premium
and Deduction Allocation Percentages, - Transfers of Policy
Account Value Among Investment Divisions, - Borrowing from the
Policy Account, - Loan Requests, - Repaying the Loan, -
Withdrawing Money from the Policy Account, - Surrendering the
Policy for Its Net Cash Surrender Value; The Guaranteed
Interest Division - Transfers from the Guaranteed Interest
Division; Additional Information About EquiBuilder III-TM-
Policies - Right To Examine, - Policy Periods, Anniversaries,
Dates and Ages; Payment of Proceeds.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Registration Item
of Form N-8B-2 Location in Prospectus
- -------------- -----------------------
<S> <C>
46(b), 47, 48, 49, 50. . . . . . . . . . . .Inapplicable.
51(a) - (j). . . . . . . . . . . . . . . . .Summary; Detailed Information About American Franklin and
EquiBuilder III-TM- Policies; Additional Information.
52(a). . . . . . . . . . . . . . . . . . . .Variable Account Investment Choices - The Funds, - Right to
Change Operations.
52(b), 52(d) . . . . . . . . . . . . . . . .Inapplicable.
52(c). . . . . . . . . . . . . . . . . . . .Variable 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). . . . . . . . . . . . . . . . . . . .Payment Options; Assignment of a Policy; Employee Benefit
Plans.
53(b), 54, 55, 56, 57, 58. . . . . . . . . .Inapplicable.
59 . . . . . . . . . . . . . . . . . . . . .Financial Statements.
</TABLE>
<PAGE>
EQUIBUILDER III-TM-
POLICIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
through
Separate Account VUL-2
This Prospectus describes EquiBuilder III-TM- flexible premium variable life
insurance policies issued by The American Franklin Life Insurance Company
("American Franklin"). EquiBuilder III-TM- 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
same meanings as they have in the Prospectus. EquiBuilder III-TM- is a
trademark of American Franklin.
EquiBuilder III-TM- pays a death benefit to a beneficiary you designate when the
person you insure dies. You choose one of two death benefit options. Whichever
option you choose, we will pay a death benefit of a percentage of the Policy
Account as of the day the Insured Person dies, if that benefit would be greater
than the death benefit under the option you picked.
PROSPECTUS
APRIL 30, 1999
We deposit your net premium in your Policy Account. You may allocate amounts to
our Guaranteed Interest Division (which is part of our General Account and pays
interest at a declared rate) or to one or more of the variable investment
divisions of the Separate Account, or both. (For the first fifteen days after
we issue your policy, we require premiums to be invested in the VIP Money Market
division.)
The variable investment divisions each purchase shares of a corresponding
portfolio of the Variable Insurance Products Fund ("VIP"), the Variable
Insurance Products Fund II ("VIP II") or the MFS Variable Insurance Trust (each
available portfolio, a "Fund," and collectively, the "Funds"). The Prospectuses
of the Funds, attached to this Prospectus, describe the investment objectives,
policies and risks of each Fund.
* Fidelity VIP Money Market
* Fidelity VIP High Income
* Fidelity VIP Equity-Income
* Fidelity VIP Growth
* Fidelity VIP Overseas
* Fidelity VIPII Investment Grade Bond
* Fidelity VIPII Asset Manager
* Fidelity VIPII Index 500
* Fidelity VIPII Asset Manager: Growth
* Fidelity VIPII Contrafund
* MFS Emerging Growth
* MFS Research
* MFS Growth With Income
* MFS Total Return
* MFS Utilities
* MFS Capital Opportunities
Each of these portfolios is available through an investment division.
The Policy Account value allocated to a variable investment division depends on
the investment performance of the corresponding Fund. We do not guarantee any
minimum cash value for amounts allocated to the variable investment divisions.
If the Fund investments go down, the value of a Policy can decline. The value
of the Guaranteed Interest Division will depend on the interest rates that we
declare.
After you pay the first premium, you decide, within limits, the amount and
frequency of your premium payments. You can also increase or decrease the
amount of insurance protection, within limits.
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the EquiBuilder III-TM-
variable life insurance policy, which is issued by:
The American Franklin Life Insurance Company
# 1 Franklin Square
Springfield, Illinois 62713-0001
Telephone No. 800/528-2011
The SEC maintains an Internet website (http://www.sec.gov) that contains
material incorporated by reference into this prospectus and other information.
<PAGE>
VARIABLE LIFE INSURANCE POLICIES INVOLVE CERTAIN RISKS, AND YOU MAY LOSE SOME OR
ALL OF YOUR INVESTMENT.
- - WE DO NOT GUARANTEE HOW ANY OF THE VARIABLE INVESTMENT DIVISIONS WILL
PERFORM.
- - THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF ANY BANK, AND NO BANK ENDORSES
OR GUARANTEES THE POLICY.
- - NEITHER THE U.S. GOVERNMENT NOR ANY FEDERAL AGENCY INSURES YOUR INVESTMENT
IN THE POLICY.
THERE IS NO GUARANTEED CASH SURRENDER VALUE FOR AMOUNTS ALLOCATED TO THE
VARIABLE INVESTMENT DIVISIONS.
IF THE NET CASH SURRENDER VALUE (THE CASH SURRENDER VALUE REDUCED BY ANY LOAN
BALANCE) IS INSUFFICIENT TO COVER THE CHARGES DUE UNDER THE POLICY, THE POLICY
MAY TERMINATE WITHOUT VALUE.
BUYING THIS POLICY MIGHT NOT BE A GOOD WAY OF REPLACING YOUR EXISTING INSURANCE
OR ADDING MORE INSURANCE IF YOU ALREADY OWN A FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICY.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ii -
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Detailed Information About American Franklin and EquiBuilder III-TM- Policies. . . .5
The American Franklin Life Insurance Company . . . . . . . . . . . . . . . . . . .5
The Features of EquiBuilder III-TM- Policies . . . . . . . . . . . . . . . . . . . .5
How EquiBuilder III-TM- Policies Differ from Whole Life Insurance. . . . . . . . .5
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Policy Issuance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Maturity Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Changes in EquiBuilder III-TM- Policies. . . . . . . . . . . . . . . . . . . . . .7
Changing the Face Amount of Insurance. . . . . . . . . . . . . . . . . . . . . . .8
Changing Death Benefit Options . . . . . . . . . . . . . . . . . . . . . . . . . .9
When Face Amount and Death Benefit Changes Go Into Effect. . . . . . . . . . . . .9
Flexible Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Additional Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Variable Investment Division Investment Choices. . . . . . . . . . . . . . . . . . 11
The Separate Account and Its Investment Divisions. . . . . . . . . . . . . . . . 12
The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Investment Policies of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 13
Ownership of the Assets of the Separate Account. . . . . . . . . . . . . . . . . 15
Right to Change Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Deductions From Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Charges Against the Policy Account . . . . . . . . . . . . . . . . . . . . . . . 18
Charges Against The Separate Account . . . . . . . . . . . . . . . . . . . . . . 19
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Other Transaction Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Allocation of Policy Account Charges . . . . . . . . . . . . . . . . . . . . . . 23
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Amounts in the Variable Investment Divisions . . . . . . . . . . . . . . . . . . 23
Determination of the Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . 24
Policy Account Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Changing Premium and Deduction Allocation Percentages. . . . . . . . . . . . . . 25
Transfers of Policy Account Value Among Investment Divisions . . . . . . . . . . 25
Borrowing from the Policy Account. . . . . . . . . . . . . . . . . . . . . . . . 26
Loan Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Policy Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
When Interest is Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Repaying the Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The Effects of a Policy Loan on the Policy Account . . . . . . . . . . . . . . . 27
Withdrawing Money from the Policy Account. . . . . . . . . . . . . . . . . . . . 29
Surrendering the Policy for Its Net Cash Surrender Value . . . . . . . . . . . . 30
The Guaranteed Interest Division . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
- iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Amounts in the Guaranteed Interest Division. . . . . . . . . . . . . . . . . . . 30
Interest on Amounts in the Guaranteed Interest Division. . . . . . . . . . . . . 31
Transfers from the Guaranteed Interest Division. . . . . . . . . . . . . . . . . 31
Additional Information About EquiBuilder III-TM- Policies. . . . . . . . . . . . . 32
Right to Examine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Lapse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Policy Periods, Anniversaries, Dates and Ages. . . . . . . . . . . . . . . . . . 33
Federal Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Tax Treatment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . 35
Possible Charges for American Franklin's Taxes . . . . . . . . . . . . . . . . . 37
Illustrations of Death Benefits, Policy Account and
Cash Surrender Values, and Accumulated Premiums. . . . . . . . . . . . . . . . . 37
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Voting Rights of a Policy Owner. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Voting Privileges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Reports To Policy Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Limits On American Franklin's Right To Challenge A Policy. . . . . . . . . . . . . 50
Payment Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
The Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Assignment of A Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Payment of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Administrative Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Year 2000 Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
- iv -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Other Policies and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
- ------------------------------------------------------------------------------
This prospectus generally describes only the variable portion of the policy,
except where the fixed account is specifically mentioned.
- v -
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This 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, WE, OUR-The American Franklin Life Insurance Company, an
Illinois stock life insurance company and the issuer of the EquiBuilder III-TM-
individual flexible premium variable life insurance policies described in this
Prospectus.
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.
FUND(S)-Portfolio(s) of the Variable Insurance Products Fund, the Variable
Insurance Products Fund II, and MFS Variable Insurance Trust, which are all
"series" type mutual funds. Each portfolio is referred to as a Fund, and
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.
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.
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, YOU-The person designated as Policy Owner 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.
REGISTER DATE-The date we issue a policy or the date we receive a full initial
premium payment, whichever is earlier.
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 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 III-TM- policy is shown on the Policy Information page of
the policy.
- vi -
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This is a summary of some of the more important points that you should know and
consider before purchasing the EquiBuilder III-TM- variable life insurance
policy.
THE POLICY
The EquiBuilder III-TM- variable life insurance policy is an individual flexible
premium variable life insurance policy issued by The American Franklin Life
Insurance Company. Among other things, the policy:
(a) provides insurance protection on the life of the insured until the policy's
maturity date.
(b) allows you to vary the amount and timing of the premiums you pay, within
limits, and to change the amount of the death benefit payable under the
policy, within specified guidelines.
(c) provides the opportunity for cash value build-up on a tax-deferred basis,
depending on investment performance of the underlying mutual fund
portfolios (or Funds). However, there is no guaranteed policy value and
you bear the risk of poor investment performance.
(d) permits you to borrow against the policy value, to make partial surrenders,
or to surrender the policy completely. Loans and partial surrenders will
affect the policy value and may affect the death benefit and termination of
the policy.
In addition to providing life insurance, the policy provides a means of
investing for long-term purposes. Tax deferral allows the entire amount you
have invested (net of charges) to remain in the policy where it can continue to
produce an investment return. Therefore, your money could grow faster than in a
comparable taxable investment where current income taxes would be due each year.
You may divide account value among the guaranteed interest division and sixteen
variable investment divisions which invest in portfolios of the Variable
Insurance Products Fund, Variable Insurance Products Fund II, and MFS Variable
Insurance Trust. We guarantee the principal and a minimum interest rate you
will receive from the guaranteed interest division. However, the value of what
you allocate to the sixteen variable investment divisions is not guaranteed.
Instead, your investment in the variable investment divisions will go up or down
with the performance of the particular Funds you select (and the deduction of
charges). You will lose money on account value allocated to the variable
investment divisions if performance is not sufficiently positive to cover the
charges under the policy.
PAYMENT OF PREMIUMS
Although you select planned periodic premiums, you are not required to pay
them. (The minimum initial premium and planned periodic premium depend on age,
sex, and risk class of the insured, on the Face Amount of the policy, and on any
supplemental benefit riders to the policy.) Within limits, you can vary the
frequency and amount of premium payments and can skip planned periodic premiums.
HOWEVER, EXTRA PREMIUMS MAY BE REQUIRED TO PREVENT POLICY TERMINATION UNDER
CERTAIN CIRCUMSTANCES.
FUNDING CHOICES
We deduct a sales expense charge and premium taxes from each premium payment,
and then we allocate the net premium among the variable investment divisions and
the guaranteed interest division according to your written instructions.
You may allocate each net premium (and your existing policy value) among
variable investment divisions which invest in the following sixteen portfolios:
* Fidelity VIP Money Market
* Fidelity VIP High Income
* Fidelity VIP Equity-Income
* Fidelity VIP Growth
* Fidelity VIP Overseas
* Fidelity VIPII Investment Grade Bond
* Fidelity VIPII Asset Manager
* Fidelity VIPII Index 500
* Fidelity VIPII Asset Manager: Growth
* Fidelity VIPII Contrafund
* MFS Emerging Growth
* MFS Research
* MFS Growth With Income
* MFS Total Return
* MFS Utilities
- 1 -
<PAGE>
* MFS Capital Opportunities
You may also allocate each net premium (and your existing account value) to the
guaranteed interest division. We guarantee your guaranteed interest division
allocation will earn at least 4 1/2% interest per year.
CHARGES AND DEDUCTIONS
We deduct a 5% sales expense charge (up to the "target" premium) and applicable
premium taxes from each premium payment. Premium taxes vary by state, and are
up to 5%.
We also make certain periodic deductions from your policy value. Each month, we
deduct from your policy value:
(a) the cost of insurance charge;
(b) the monthly administrative charge (currently $6, plus $24 per month for the
first 12 policy months); and
(c) any additional benefit charges.
Each day, we deduct a charge from the assets in the variable investment
divisions for certain mortality and expense risks we bear under the policy.
This charge is at an effective annual rate of 0.75% of those assets.
In addition, investment management fees and other expenses are deducted from
each portfolio of the underlying funds. See the table below for a summary of
these portfolio expenses.
FUND ANNUAL EXPENSES
(% of average daily net assets)
<TABLE>
<CAPTION>
Manage- Other Total
ment 12b-1 Ex- Fund
Fund Fee Fees penses(1) Expenses
- ---- ------ ----- --------- --------
<S> <C> <C> <C> <C>
Fidelity VIP
Money Market
Fidelity VIP
High Income
Fidelity VIP
Equity-Income
Fidelity VIP
Growth
Fidelity VIP
Overseas
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Manage- Other Total
ment 12b-1 Ex- Fund
Fund Fee Fees penses(1) Expenses
- ---- ------ ----- --------- --------
<S> <C> <C> <C> <C>
Fidelity VIPII
Investment
Grade Bond
Fidelity VIPII
Asset Manager
Fidelity VIPII
Index 500
Fidelity VIPII
Asset Manager:
Growth
Fidelity VIPII
Contrafund
MFS Emerging
Growth
MFS Research
MFS Growth
with Income
MFS Total
Return
MFS Utilities
MFS Capital
Opportunities
</TABLE>
(1)Fund Annual Expenses are those incurred for the year ended December 31, 1998.
ACTUAL EXPENSES OF A FUND MAY BE GREATER OR LESS THAN THOSE SHOWN.
We deduct a surrender charge on a full surrender of the policy during the first
10 policy years. The surrender charge is approximately 50% of one "target"
premium as shown in your policy. It varies with the insured's age on the
policy's effective date. The surrender charge is constant for the first six
policy years, and then decreases annually to zero at the end of the 10th policy
year.
We deduct a partial surrender charge if you reduce the Face Amount during the
first 10 policy years. The partial surrender charge is a pro rata portion of
the then-applicable surrender charge. We also charge the lesser of $25 or 2% of
the partial surrender amount.
We impose an administrative charge for each Face Amount increase, equal to $1.50
for each $1,000 increase, up to $300. We also charge a transfer fee of up to
$25 for each transfer in excess of four each policy year. We also may charge
for illustrations you request.
TAXES
We intend for the policy to satisfy the definition of life insurance under
the Internal Revenue Code. Therefore, the death benefit generally should be
excludable from the gross income of its recipient. However, there is some
uncertainty as to whether a policy issued on a substandard basis will satisfy
the Internal Revenue Code definition of life insurance. Under certain
circumstances, a policy could be treated as a modified endowment contract.
See "Tax Considerations" for a discussion of when withdrawals and loans from
policy value could be subject to Federal income tax and penalty tax.
CASH BENEFITS
Your Policy Account is the sum of the amounts allocated to the variable
investment divisions and the amount allocated to the guaranteed interest
division. The cash surrender value (the account value less any applicable
surrender charges) may be substantially less than the premiums paid, especially
in early policy years.
POLICY LOANS. You may take loans in the aggregate amount of up to 90% of the
policy's cash surrender value. The minimum loan amount is usually $500. Policy
loans reduce the amount available for allocations and transfers.
FULL SURRENDER. You may surrender the policy at any time for its net cash
surrender value. The net cash surrender value is the cash surrender value less
any outstanding loan and loan interest due.
PARTIAL SURRENDER. You generally may make a partial surrender of the policy at
any time during the insured's life and after the policy has been in force one
year, provided that the policy has sufficient net cash surrender value
remaining.
DEATH BENEFIT
You must select one of two death benefit options under the policy:
Option A - the greater of the policy's Face Amount or a multiple of its Policy
Account value on the date of death; or
- 3 -
<PAGE>
Option B - the greater of (i) the policy's Face Amount plus its account value or
(ii) a multiple of its Policy Account value on the date of death.
Subject to certain limits, you may change the Face Amount and death benefit.
The policy's minimum Face Amount is $50,000.
TERMINATION
There is no minimum guaranteed Policy Account value. The policy value may
decrease if the investment performance of the variable investment divisions (to
which you have allocated Policy Account value) is not sufficiently positive to
cover the charges deducted under the policy.
IF THE NET CASH SURRENDER VALUE BECOMES INSUFFICIENT TO COVER THE MONTHLY
DEDUCTION WHEN DUE, THE POLICY WILL TERMINATE WITHOUT VALUE AFTER A GRACE
PERIOD, EVEN IF YOU PAY ALL PLANNED PERIODIC PREMIUMS IN FULL AND ON SCHEDULE.
Additional premium payments will be necessary during the grace period to keep
the policy in force.
OTHER INFORMATION
FREE LOOK: For a limited time after the policy's effective date, you may cancel
the policy and receive a full refund of all premiums paid.
SUPPLEMENTAL BENEFITS. Your policy may have one or more supplemental benefits
which are attached to the policy by rider. Each has its own requirements for
eligibility, and generally has its own charge. Among the benefits currently
available under the policy are:
(a) accelerated benefit settlement option rider;
(b) accidental death benefit rider;
(c) children's term insurance rider;
(d) additional insured term insurance rider; and
(e) disability waiver benefit rider.
Other supplemental benefits may also be available.
TRANSFERS: Within certain limits, you may transfer all or part of your policy
value among the variable investment divisions and the guaranteed interest
division. We may charge for transfers in excess of four in a policy year.
There are special limits on transfers from the Guaranteed Interest Division.
ILLUSTRATIONS: Sample illustrations of hypothetical death benefits and Policy
Account values are in this prospectus. These may help you:
(a) understand (i) the long-term effects of different levels of investment
performance and (ii) the charges and deductions under the policy; and
(b) compare the policy to other life insurance policies.
The illustrations also show the value of annual premiums accumulated with
interest and demonstrate that the Policy Account value may be low (compared to
the premiums plus accumulated interest) if the policy is surrendered in the
early policy years. Therefore, the policy should not be purchased as a
short-term investment.
FINANCIAL INFORMATION: Our financial statements, and financial statements for
the variable investment divisions, are in Appendix E to this prospectus.
INQUIRIES
If you have questions about your policy or need to make changes, contact your
financial representative who sold you the policy, or contact us at:
The American Franklin Life Insurance Company
# 1 Franklin Square
Springfield, Illinois 62713-0001
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The policy is not available in all states. THIS PROSPECTUS DOES NOT OFFER
THE POLICIES IN ANY JURISDICTION WHERE THEY CANNOT BE LAWFULLY SOLD. YOU SHOULD
RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR THAT WE HAVE
REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT.
- 4 -
<PAGE>
NOTE: Because this is a summary, it does not contain all the information
that may be important to you. You should read this entire prospectus and the
prospectuses for the Fidelity Variable Insurance Products Fund, the Fidelity
Variable Insurance Products Fund II, and the MFS Variable Insurance Trust
carefully before investing.
- 5 -
<PAGE>
DETAILED INFORMATION ABOUT AMERICAN FRANKLIN AND EQUIBUILDER III-TM- 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 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 American General
Corporation ("American General"), 2929 Allen Parkway, Houston, Texas 77019-2155.
American General is one of the largest diversified financial services
organizations in the United States. It is a publicly held company whose stock
is traded on the New York Stock Exchange.
THE FEATURES OF EQUIBUILDER III-TM- POLICIES
HOW EQUIBUILDER III-TM- POLICIES DIFFER FROM WHOLE LIFE INSURANCE
We designed EquiBuilder III-TM- policies to provide life insurance coverage
with flexibility in death benefits, premium payments and investment choices.
EquiBuilder III-TM- policies are different from traditional whole life insurance
in that you are not required to pay scheduled premiums and may, within limits,
choose the amount and frequency of premium payments. EquiBuilder III-TM-
policies also provide for two different types of death benefit options, and you
may change options. You generally have the ability to increase or decrease the
Face Amount without purchasing a new policy. However, we may require evidence
of insurability. In addition, you may direct the investment of net premiums,
which will determine, in part, the value of the Policy Account.
DEATH BENEFITS
We will pay the death benefit (less any policy loan and loan interest and
any overdue charges) to your beneficiary when the Insured Person dies. You may
choose from two death benefit options: Option A and Option B. Option A pays the
Face Amount of the policy. Except as described below, the Option A benefit is
fixed. Option B pays the Face Amount of the policy plus the amount in the
Policy Account on the day the Insured Person dies. The value of the benefit
under Option B is variable and fluctuates with the amount in the Policy Account.
Insurance under Option B costs more per month than under Option A. The value of
the Policy Account and the net cash surrender value of the policy under Option B
will be lower than under Option A, 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
-6-
<PAGE>
loan and loan interest) than the option you selected. This benefit is a
percentage multiple of the amount in your 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 proportionately for each full year.
TABLE OF DEATH BENEFITS
BASED ON POLICY ACCOUNT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINIMUM DEATH BENEFIT AS
PERCENTAGE
INSURED PERSON'S AGE OF THE POLICY ACCOUNT
- --------------------------------------------------------------------------------
<S> <C>
40 or under 250%
45 215
50 185
55 150
60 130
65 120
70 115
75 to 90 105
95 100
</TABLE>
For example, if the Insured Person is 40 years old and the amount in the
Policy Account is $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 we deduct
the charges that maintain the policy from the Policy Account, coverage will last
as long as the net cash surrender value can cover these deductions. (See
"Additional Information about EquiBuilder III-TM- Policies-Lapse of the Policy,"
below.) The investment experience (which may be either positive or negative) of
any amounts in the variable investment divisions and the interest earned in the
Guaranteed Interest Division 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.
If you prefer to have insurance coverage that varies with the investment
experience of your Policy Account, you should choose Option B. The death benefit
under Option B will always be at least the Face Amount of the policy or the
alternate death benefit described above (in either case, less any outstanding
policy loan and loan interest), whichever is greater. If you prefer to have
insurance coverage that does not vary in amount and that has lower cost of
insurance charges, you should choose Option A.
-7-
<PAGE>
POLICY ISSUANCE INFORMATION
When you complete an application for a policy, it is submitted to us. We
make the decision to issue a policy based on the information in the application
and our standards for issuing insurance and classifying risks. If we decide not
to issue a policy, we will refund any premium paid.
We will not issue a new policy having a Face Amount that is less than
$50,000, nor will we issue a policy for an Insured Person who is older than 75.
No insurance under a policy will take effect: (a) until we deliver a policy
and you pay the full initial premium while the Insured Person is living and (b)
unless the information in the application continues to be true and complete,
without material change, as of the time you pay the premium.
See "The Features of EquiBuilder III-TM- 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, we will pay you the Policy Account value net of any
outstanding loan and loan interest. The policy will then end.
CHANGES IN EQUIBUILDER III-TM- POLICIES
EquiBuilder III-TM- policies provide you flexibility to choose from a
variety of strategies, described in the sections that follow, that enable you to
increase or decrease your insurance protection.
A reduction in Face Amount lessens emphasis on the policy's insurance
coverage by reducing both the death benefit and the amount at risk (the
difference between the current death benefit under the policy and the amount of
the Policy Account). The reduced amount at risk results in lower cost of
insurance charges against the Policy Account. See "The Features of EquiBuilder
III-TM- Policies-Changing the Face Amount of Insurance," below.
A partial withdrawal of net cash surrender value reduces the Policy Account
and death benefit and may reduce the policy's Face Amount, while providing a
cash payment. It 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
-8-
<PAGE>
thereby increase cost of insurance charges) while leaving the death benefit
unchanged. Under Option B, it will decrease the death benefit while leaving
the amount at risk and the cost of insurance charge unchanged. See "The
Features of EquiBuilder III-TM- Policies-Flexible Premium Payments," below.
Increases in the Face Amount emphasize insurance coverage by increasing
both the death benefit and the amount at risk. See "The Features of EquiBuilder
III-TM- Policies-Changing the Face Amount of Insurance," below.
Additional premium payments may increase the Policy Account, which has
the effect, under Option A, of reducing the amount at risk and cost of
insurance charge while leaving the death benefit unchanged, or, under Option
B, of increasing the death benefit while leaving the amount at risk and cost
of insurance charge unchanged. See "The Features of EquiBuilder III-TM-
Policies-Flexible Premium Payments," below.
CHANGING THE FACE AMOUNT OF INSURANCE
Any time after the first policy year while a policy is in force, you may
change your policy's Face Amount. You can do this by sending a written request
to us. Any change will be subject to our approval and the following conditions:
For increases in the Face Amount, we must have satisfactory evidence that
the Insured Person is still insurable. Our current procedure if the Insured
Person has become a more expensive risk is to ask you to confirm that you will
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, we will assess a one-time administrative charge for each increase
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.
You may not reduce the Face Amount below the minimum we require to issue a
policy at the time of the reduction. We will lower monthly charges against the
Policy Account for the cost of insurance if you reduce the Face Amount. If you
reduce the Face Amount during the first ten policy years, we will assess a pro
rata share of the applicable surrender charge against the Policy Account. See
"Deductions and Charges-Surrender Charge," below.
We currently disapprove a requested decrease in the Face Amount if it would
trigger the alternate death benefit requirement. (This is the federal tax law
provision that can require us to pay as a death benefit a percentage multiple of
the Policy Account.) Instead, we will ask you to make a partial withdrawal of
net cash surrender value from the Policy Account, and then we decrease the Face
Amount. See "The Features of EquiBuilder III-TM- Policies-Death Benefits,"
above.
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<PAGE>
Currently, if you request a Face Amount decrease when you have previously
increased the Face Amount, we will apply the decrease first against the most
recent increase in the Face Amount. We will then apply decreases 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" or may have other adverse tax consequences. See "Federal Tax
Considerations," below.
CHANGING DEATH BENEFIT OPTIONS
Any time after the first policy year while a policy is in force, you may
change the death benefit option by sending us a written request. If you change
the death benefit from Option A to Option B, the Face Amount will go down by the
amount in the Policy Account on the date of the change. We will not allow this
change if it would reduce the Face Amount below the minimum we require to issue
a policy at the time of the reduction. If you change the death benefit from
Option B to Option A, the Face Amount of insurance will go up by the amount in
the Policy Account on the date of the change. These increases and decreases in
the Face Amount are made so that the amount of the death benefit remains the
same on the date of the change. When the death benefit remains the same, there
is no change in the net amount at risk, which is the amount on which cost of
insurance charges are based (see "Deductions and Charges-Charges Against the
Policy Account-Cost of Insurance Charge," below).
Changing the death benefit option may have adverse tax consequences. You
should consult a tax adviser before changing the death benefit option.
We will not require evidence of insurability for the increase in the Face
Amount when you change from Option B to Option A, nor will we charge for this
increase. We will not assess a surrender charge for the decrease in the Face
Amount when you change from Option A to Option B.
WHEN FACE AMOUNT AND DEATH BENEFIT CHANGES GO INTO EFFECT
Any change in the Face Amount or death benefit option of a policy is
effective at the beginning of the policy month following the date we approve the
request. After we approve the request, we will send you a written notice of the
approval showing each change. You should attach this notice to your policy. We
may also request that you return your policy to us so that we can make the
appropriate changes.
In some cases, we may not approve a change you request because it might
disqualify the policy as life insurance under applicable federal tax law. We
will send you a written notice of our decision to disapprove any requested
change for this reason. See "Federal Tax Considerations," below.
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FLEXIBLE PREMIUM PAYMENTS
You may choose the amount and frequency of your 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. You determine the planned premium, within limits we set when
you apply for a policy. Planned premiums may not equal the amount of premiums
that will keep your policy in effect. Planned premiums are generally the amount
you decide you want to pay and you can change them at any time.
You must pay a minimum initial premium on or before the date on which we
deliver the policy. The insurance will not go into effect until we receive this
minimum initial premium. We determine 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 you select. Make the first
premium payment by check or money order payable to "The American Franklin Life
Insurance Company." Pay any additional premiums by check or money order payable
to "The American Franklin Life Insurance Company" and send them to our
Administrative Office.
We will send you premium reminder notices based on your planned premium
unless you request that we not do so in your application, or by writing to our
Administrative Office. Nevertheless, you may make the planned payment, skip the
planned payment or change the frequency or the amount of the payment.
Generally, you may pay other premiums at any time and in any amount, as
long as each payment is at least $100. (In some states, policies may have
different minimum premium payments.) We may increase this minimum upon 90 days'
written notice. We 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 you stop paying premiums temporarily or permanently, the policy will
continue in effect until the net cash surrender value no longer covers the
monthly charges against the Policy Account for the benefits selected. PLANNED
PREMIUMS MAY NOT BE SUFFICIENT TO MAINTAIN A POLICY BECAUSE OF INVESTMENT
EXPERIENCE, POLICY CHANGES OR OTHER FACTORS.
The tables set forth below under "Illustrations of Death Benefits, Policy
Account and Cash Surrender Values, and Accumulated Premiums" illustrate how the
key financial elements of EquiBuilder III-TM- policies work. The tables show
death benefits and Policy Account and cash surrender values with Face Amounts
and planned annual premiums of different amounts for Insured Persons of
different ages.
ADDITIONAL BENEFITS
You may add additional benefits to your policy. We will assess a monthly
charge against the Policy Account for each additional benefit, other than the
accelerated benefit settlement option rider. You can cancel these benefits at
any time. Your policy will have more details if you select any of these
benefits. The following additional benefits are currently available:
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<PAGE>
DISABILITY WAIVER BENEFIT. With this benefit, we waive monthly charges
from the Policy Account 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, we will waive monthly charges for life as long
as the disability continues. If the disability starts after that, we will waive
monthly charges only up to the policy anniversary nearest the Insured Person's
65th birthday (as long as the disability continues).
ACCIDENTAL DEATH BENEFIT. We 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. Coverage lasts only until the Insured Person reaches age 65 or the
child reaches age 25, whichever happens first.
TERM INSURANCE ON AN ADDITIONAL INSURED PERSON. You may obtain term
insurance for another person, such as the Insured Person's spouse. We will
deduct a separate charge for each additional Insured Person.
ACCELERATED BENEFIT SETTLEMENT OPTION RIDER. This rider allows you to
receive an accelerated benefit in the event the Insured Person becomes
terminally ill or is confined to a nursing facility, as those terms are defined
in the rider. In determining the accelerated benefit, we will adjust the death
benefit to reflect the payment option you select, the Insured Person's sex and
age, the length of time the policy has been in force, our current assumptions as
to the Insured Person's life expectancy, interest rates, cost of insurance
rates, and administrative charges, and a processing charge of not over $200.
This rider is available with EquiBuilder III-TM- policies in those states
where the rider has been approved. You can get information on approval of this
rider in a particular state from us or from a registered representative
authorized to sell the policies. There is no premium charge for this rider, and
you may not add the rider after we have issued a policy. Receipt of an
accelerated benefit may be subject to income tax; you should seek assistance
from your personal tax advisor before electing a payment option under this
rider.
VARIABLE INVESTMENT DIVISION INVESTMENT CHOICES
After we deduct certain amounts from each premium, we put the balance,
called the "net premium," into the Policy Account established for each policy.
We credit the net premium to the Policy Account as of the date we receive it,
or, if later, the Register Date. We credit the net premium to the Policy
Account before deducting any charges against the Policy Account due on that
date. See "Deductions and Charges-Deductions from Premiums," below.
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<PAGE>
We will invest the Policy Account in the Money Market division until the
fifteenth day after we issue the policy, or if that is not a business day, until
the following business day. We will then allocate the Policy Account to the
Guaranteed Interest Division or to one or more of the variable investment
divisions or both, according to your directions in the policy application.
These instructions will apply to any subsequent premium until you provide us
with new instructions. Premium allocation percentages may be any whole number
from zero to 100, but the sum must equal 100.
THE SEPARATE ACCOUNT AND ITS INVESTMENT DIVISIONS
We established the Separate Account on April 9, 1991 under the insurance
law of the State of Illinois. It 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 variable 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. Currently, you may invest premium payments in variable
investment divisions investing in the following Funds:
- Fidelity VIP Money Market
- Fidelity VIP High Income
- Fidelity VIP Equity-Income
- Fidelity VIP Growth
- Fidelity VIP Overseas
- Fidelity VIPII Investment Grade Bond
- Fidelity VIPII Asset Manager
- Fidelity VIPII Index 500
- Fidelity VIPII Asset Manager: Growth
- Fidelity VIPII Contrafund
- MFS Emerging Growth
- MFS Research
- MFS Growth With Income
- MFS Total Return
- MFS Utilities
- MFS Capital Opportunities
THE FUNDS
Each of the Funds is a portfolio of 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. Currently, you may invest amounts in any combination of
sixteen portfolios, each of which has different investment objectives, policies
and risks.
The Funds do not impose a sales charge or "load" for buying and selling
their shares. The Separate Account buys and sells the Funds' shares at net
asset value pursuant to agreements between us and the Funds.
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<PAGE>
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 we will take 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.
You can find out more about the Funds, their investment policies, risks,
expenses and all other aspects of their operations by reading their
Prospectuses, which are attached to this Prospectus, and their Statements of
Additional Information.
INVESTMENT POLICIES OF THE FUNDS
Each of the Funds has a different investment objective and separate
investment policies. The objectives and policies of each Fund will affect its
return and its risks. The investment experiences of the variable investment
divisions depend on the performances of the corresponding Funds. The investment
objectives and policies of certain of the Funds 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 Funds, however, may be higher
or lower than the results of such other funds. We make no assurance or
representation that the investment results of any of the Funds will be
comparable to the investment results of any other fund, even if the other fund
has the same investment adviser.
Following is a summary of the policies and objectives of the Funds of the
Variable Insurance Products Fund:
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-yield, 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, see the Prospectus for the Funds, which is
attached to this 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. The portfolio may also invest in other types of
securities including bonds and preferred stocks.
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<PAGE>
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.
Following is a summary of the policies and objectives of the Funds of the
Variable Insurance Products Fund II:
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 the investment
adviser believes is not fully recognized by the public, that are undervalued or
are out of favor.
Following is a summary of the policies and objectives of the Funds of the
MFS Variable Insurance Trust:
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 primarily 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.
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<PAGE>
MFS UTILITIES PORTFOLIO seeks capital growth and current income (income
above that available from a portfolio invested entirely in equity securities).
MFS CAPITAL OPPORTUNITIES PORTFOLIO seeks capital appreciation.
We do not guarantee that any Fund will achieve its objective. In addition,
no single Fund or division, by itself, constitutes a balanced investment plan.
Except for the VIP MONEY MARKET, VIPII INVESTMENT GRADE BOND, VIPII INDEX
500 and MFS GROWTH WITH INCOME Funds, the Funds can purchase lower-quality
bonds, also known as "junk bonds". Junk bonds are highly speculative. They
provide poor protection for payment of principal and interest, and are often in
default. Changes in an issuer's creditworthiness can cause greater risks of
default or price changes than the risks typically associated with higher-rated
securities. For a discussion of the risks of investing in junk bonds, see the
Prospectuses for the Funds, which are attached to this Prospectus.
BEFORE YOU SELECT ANY DIVISION, you should carefully read the Funds'
Prospectuses. To get more copies of the Funds' Prospectuses, contact us.
Affiliates of the Funds compensate us for administering the Funds as
variable funding options for the EquiBuilder III-TM- policies. Currently,
Massachusetts Financial Services Company ("MFS"), the investment adviser for MFS
Variable Insurance Trust, pays us a fee equal, on an annualized basis, to a
percentage of the aggregate net assets of each Fund of the MFS Variable
Insurance Trust attributable to the EquiBuilder III-TM- policies and certain
other variable contracts we issue. This fee will not be paid by the Funds, their
shareholders or the Policy Owners.
Affiliates of Fidelity Management & Research Company ("FMR"), the
investment adviser for the Variable Insurance Products Fund and the Variable
Insurance Products Fund II, may compensate us or an affiliate for
administrative, distribution, or other services relating to the Funds. Such
compensation is generally based on assets of the Funds attributable to the
EquiBuilder III-TM- policies and certain other variable contracts we issue.
OWNERSHIP OF THE ASSETS OF THE SEPARATE ACCOUNT
Under Illinois law, we own the assets of the Separate Account and we use
them to support EquiBuilder III-TM- policies, other existing variable life
policies and other variable life policies we 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. In addition to premiums from EquiBuilder III-TM- policies, we 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. We may also permit charges
owed us to stay in the Separate Account. Thus, we may also participate
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proportionately in the Separate Account. These accumulated amounts belong to
us and we may transfer them from the Separate Account to our General Account
at any time.
RIGHT TO CHANGE OPERATIONS
We reserve the right to change or add investment companies in which Policy
Accounts will be invested and to modify how we operate or how the Separate
Account operates. We intend to comply with applicable law in making any changes
and, if necessary, will seek your approval. We have the right to:
- add variable investment divisions to, or remove variable investment
divisions from, the Separate Account, combine two or more divisions
within the Separate Account, or withdraw assets relating to EquiBuilder
III-TM- policies from one investment division and put them into another;
- register or end the registration of the Separate Account under the
Investment Company Act of 1940;
- 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 "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; and
- modify the provisions of the policies to assure qualification under the
pertinent provisions of federal income tax laws or to comply with other
applicable federal or state laws.
If any changes result in a material change in the underlying investments of an
investment division, you will be notified as required by law. We 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, you then
wish to transfer your Policy Account in one variable investment division to
another variable investment division or to the Guaranteed Interest Division, you
may do so without charge, by giving us written instructions. At the same time,
you may change the manner in which we allocate net premiums and deductions.
DEDUCTIONS AND CHARGES
We deduct 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 cost of providing the services or benefits
indicated by the designation of the charge or associated with the particular
Policy. For example, the sales expense deduction and the surrender charge may
not fully cover all of the sales and distribution expenses we actually incur,
and we may use proceeds from other charges, including the mortality and expense
risk charge and the cost of insurance charge, to cover such expenses.
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<PAGE>
DEDUCTIONS FROM PREMIUMS
We will treat any payment we receive before the final policy date as a
premium, unless a policy loan is outstanding and along with the payment we
receive written instructions that it is a 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. We
deduct applicable taxes, and a sales expense deduction (subject to limits) from
all premiums. We place the balance of each premium (the "net premium") 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%. We deduct the applicable tax from each premium
payment. This is a tax to American Franklin, so you cannot deduct it on your
income tax return. The amount of the tax will vary depending on where you live.
Since the tax deduction is a percentage of your premium, the amount of the tax
deduction will also vary with the amount of the premium. We will increase or
decrease this deduction to reflect any changes in the applicable taxes. In
addition, if you change your place of residence, we will change the deduction to
match the new tax rate. You should notify us if you move.
We deduct a sales expense of 5% of each premium paid during any policy year
until the total premiums for the policy year equal the Target Premium. (See
"Definitions," above, and "Deductions and Charges-Surrender Charge," below, for
more information on the Target Premium). We do not deduct a sales expense
charge for premiums above a Target Premium that you pay during that policy year.
During the next policy year, we will again deduct a sales expense charge of 5%
until total premiums paid during that policy year equal the Target Premium. You
can reduce aggregate sales expense deductions by concentrating premium payments
in a few policy years so that the premiums paid in each of those years exceed a
target premium. However, concentrating premium payments during a policy's early
policy years, and in particular during the first policy year, may increase the
contingent deferred sales charge if you surrender your policy or, in some
instances, if you reduce your policy's Face Amount or let it lapse during the
first ten policy years. See "Deductions and Charges - Surrender Charge," below.
In addition, concentrating premium payments during the first seven policy years
can increase the likelihood that a policy will be considered a modified
endowment contract. See "Federal Tax Considerations - Policy Proceeds," below.
We deduct sales expenses to recover some expenses of distributing the
EquiBuilder III-TM- policies. These expenses include agents' commissions and
printing EquiBuilder III-TM- prospectuses and sales literature. We also recover
sales expenses through a contingent deferred sales charge, which we impose if
the policy is surrendered or, in some instances, if the Face Amount of the
policy is reduced or the policy is permitted to lapse during the first ten
policy years. The amount of sales expense deductions and contingent deferred
sales charges in any policy year might not equal the actual sales expenses in
that year. See "Deductions and Charges-Surrender Charge," and "Distribution of
the Policies," below.
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CHARGES AGAINST THE POLICY ACCOUNT
At the beginning of each policy month, we deduct the following charges from
each Policy Account.
ADMINISTRATIVE CHARGE. The current charge is $6 per month. We deduct this
charge to cover the continuing costs of maintaining the EquiBuilder III-TM-
policies, such as premium billing and collection, claim processing, policy
transactions, record keeping, communications with Policy Owners and other
expenses and overhead. We may raise this charge to reflect higher costs, but we
guarantee 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, we will also deduct an administrative charge of $24 per month. We
use this charge to recover costs of issuing and placing the policy such as
application processing, medical examinations, establishment of policy records
and underwriting costs (determining insurability and assigning the Insured
Person to a risk class).
COST OF INSURANCE CHARGE. The monthly cost of insurance is our 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 rises due to the requirements of federal tax
law (see "The Features of EquiBuilder III-TM- Policies-Death Benefits," above),
the amount at risk for the month will also rise.
For this purpose we determine the amount of each Policy Account before
deducting the cost of insurance charge, but after all other charges due on that
date. 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.
We base the cost of insurance rate on the Insured Person's sex, age and
risk class and the Face Amount size of the policy at the time of the charge. We
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. We base the maximum
charges 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 various states legislatures 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. Employers and Employee Organizations
should consider the impact of Title VII of the Civil Rights Act of 1964 on
the purchase of an EquiBuilder III-TM- policy in connection with an
employment-related insurance or benefit plan. See "Employee Benefit Plans,"
below. Where required, we will provide cost of insurance charges that do not
distinguish between males and females.
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ILLUSTRATIVE TABLE OF MONTHLY COST OF INSURANCE RATES FOR
MALE NON-TOBACCO (ROUNDED) PER $1,000 OF AMOUNT AT RISK
<TABLE>
<CAPTION>
$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 .48 .88 .42
65 2.14 1.16 2.14 1.05
</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 a 5% sales expense and the current administrative charges ($6 per month plus
the additional charge of $24 per month that applies for the first 12 policy
months) and uses the current cost of insurance rate ($.11 per $1,000).
CHARGES FOR ADDITIONAL BENEFITS. We will deduct the cost of any additional
benefits on a monthly basis. We may change these charges, but each policy
contains tables showing the guaranteed maximum rates for all of these insurance
costs.
CHANGES IN MONTHLY CHARGES. We will make any changes in the cost of
insurance, charges for additional benefits or administrative charges by class of
Insured Person, and we will base them 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
MORTALITY AND EXPENSE RISKS. We deduct a charge from the variable
investment divisions for assuming mortality and expense risks. The mortality
risk that we assume is that insured persons will live for shorter periods than
estimated. When this happens, we have to pay a larger death benefit than
expected in relation to the cost of insurance charges we received. The expense
risk we assume is that the cost of issuing and administering policies will be
greater than we expected. We assess a daily charge for mortality and expense
risks at an effective annual rate of .75% of the value of the assets in the
Separate Account attributable to EquiBuilder III-TM- policies. This charge
affects the unit values for the variable investment divisions. See "Policy
Account Value-Determination of Unit Value", below.
TAX RESERVE. We reserve the right to assess a charge for taxes or to build
reserves set aside for taxes. This will reduce the investment income of the
variable investment divisions. See "Federal Tax Considerations," below.
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CHARGES AGAINST THE FUNDS. The Separate Account purchases shares of the
Funds at net asset value. That price reflects investment management fees and
other direct expenses that have already been deducted from the assets of the
Funds. The Funds do not impose a sales charge. See "Summary--Charges and
Deductions."
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 you totally surrender your policy or, in some instances, if you reduce
the Face Amount of your policy or let it lapse during the first ten policy
years, we assess a surrender charge to recover sales expenses. The amount of
the surrender charge will vary depending on the policy year in which you
surrender your policy and the amount of premium you have paid. We will not
assess any surrender charge after the tenth policy year.
We base surrender charges on Target Premiums. Target Premiums are not the
same thing as the "planned" premium you determine. See "The Features Of
EquiBuilder III-TM- Policies - Flexible Premium Payments." We base Target
Premiums 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. Paying the
Target Premium does not guarantee that the policy will remain in effect.
Your Policy Information page shows the maximum surrender charge, which will
equal 50% of one Target Premium. This maximum will not vary with 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 will decrease by 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, we calculate the surrender charge
based on actual premium payments. The surrender charge equals 25% of premium
payments you make during the first policy year up to the amount of one Target
Premium and 9% of any additional premiums you pay 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 you do not pay more than approximately five Target
Premiums 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. In addition, paying less premiums may increase
cost of insurance charges (which are based on amount at risk).
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Assume 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:
<TABLE>
<CAPTION>
DURING PREMIUM CHARGE PREMIUM CHARGE PREMIUM CHARGE
YEAR
<S> <C> <C> <C> <C> <C> <C>
1 $3000 $ 635 $2280 $ 570 $1140 $ 285
2 3000 905 2280 775 3420 593
3 3000 1140 2280 980 2280 790
4 3000 1140 2280 1140 2280 1003
5 3000 1140 2280 1140 2280 1140
6 3000 1140 2280 1140 2280 1140
7 3000 912 2280 912 2280 912
8 3000 684 2280 684 2280 684
9 3000 456 2280 456 2280 456
10 3000 228 2280 228 2280 228
</TABLE>
We reduce the maximum surrender charge by the amount of any pro rata
surrender charge we previously imposed in connection with a decrease in the Face
Amount.
During the first ten policy years, we will treat a decrease in the Face
Amount of a policy as a partial surrender, and we will deduct a portion of the
surrender charge. If the Face Amount of a policy increases and then decreases,
a surrender charge will apply only to a decrease below the original Face Amount
(i.e., the Face Amount when we issue the policy). Generally, we determine the
pro rata surrender charge for a partial surrender 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 that would apply to a total surrender.
For example, assume that we issue a policy for a male age 40 with a Face
Amount of $200,000. In the third policy year, you decide to decrease this Face
Amount by $100,000. Assume also that you paid an annual premium of $3,000 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)
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Then multiply this fraction by the maximum surrender charge in effect
before the decrease.
Pro rata surrender charge = .5 x $1,140 = $570.
Thus, you 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 you might pay in the future would be reduced proportionately.
We would send you a new Policy Information page that shows the new maximum
charges. You will pay the maximum only if you surrender the policy or let the
policy lapse after you pay enough premiums to reach the maximum.
OTHER TRANSACTION CHARGES
In addition to the deductions and charges described above, we charge fees
for certain policy transactions 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 you make a partial withdrawal. See "Policy
Account Transactions-Withdrawing Money from the Policy Account," below.
INCREASE IN THE FACE AMOUNT OF INSURANCE. There is an administrative
charge that is currently $1.50 for each $1,000 of increase up to a maximum
charge of $300. See "The Features of EquiBuilder III-TM- Policies-Changes in
EquiBuilder III-TM- Policies," above.
TRANSFERS. If you make more than four transfers of Policy Account value in
a policy year among variable investment divisions, we will charge up to $25 for
each additional transfer in that policy year. However, if you transfer all of
the assets to the Guaranteed Interest Division, we will not impose any transfer
charge. See "Policy Account Transactions-Transfers of Policy Account Value Among
Investment Divisions," below. We will consider a request for transfer involving
the simultaneous transfer of funds from or to more than one investment division
to be one transfer.
ILLUSTRATIONS. If, after a policy is issued, you request more than one
illustration of projected death benefits and Policy Account and cash surrender
values in a policy year, we may charge a fee. See "Illustrations of Death
Benefits, Policy Account and Cash Surrender Values and Accumulated Premiums,"
below.
We guarantee that the fees for partial withdrawals, increases in Face
Amounts and for transfers will never exceed the amounts that we set out above.
See also "Deductions and Charges-Surrender Charge," above.
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ALLOCATION OF POLICY ACCOUNT CHARGES
Generally, we allocate monthly charges or certain transaction fees among
the variable investment divisions and the unloaned portion of the Guaranteed
Interest Division in accordance with the deduction allocation percentages you
specify in your application, or in accordance with your subsequent instructions.
However, we generally make deductions for the first policy month from the Money
Market division. See "Variable Investment Division Investment Choices."
Allocation percentages for deductions may be any whole numbers (from zero
to one hundred) which add up to one hundred. You may change deduction
allocation percentages by giving us instructions. Changes will be effective as
of the date we receive them.
We will subtract charges for partial withdrawals of net cash surrender
value and transfers of Policy Account values equally among the divisions from
which the transactions were made. If we cannot make the charge this way, we
will make it based on the proportion of the unloaned amounts in the Guaranteed
Interest Division, if any, and the amounts in the variable investment divisions,
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 variable investment divisions. The
amount in a Policy Account also reflects various deductions and charges. We
deduct monthly charges on the first day of each policy month. We deduct
transaction charges or surrender charges on the effective date of the
transaction.
Charges against the Separate Account are reflected daily. Any amount you
allocate to a variable investment division will increase or decrease depending
on the investment experience of that division, and there is no guaranteed
minimum cash value. We guarantee the value of amounts in a Policy Account you
allocate to the Guaranteed Interest Division, and interest credited to those
amounts. See "The Guaranteed Interest Division," below.
AMOUNTS IN THE VARIABLE INVESTMENT DIVISIONS
We use amounts you allocate, transfer or add to the variable investment
divisions to purchase units representing undivided interests in the various
divisions. The value of the units we credit to the Policy Account for a
division represents the amount in that division. We calculate the number of
units purchased or redeemed in a variable investment division by dividing the
dollar amount of the transaction by the division's unit value next calculated at
the close of business on the effective date of the transaction. (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 changes only when you purchase or redeem them, but the
value of a unit will change with the investment performance of the corresponding
Fund. The value of a unit
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also reflects charges we assess against the Separate Account. On any given
day, the value your Policy Account has in a variable investment division is
the unit value times the number of units you have in that division. The
units of each variable investment division have different unit values.
You purchase units of a variable investment division when you allocate
premiums, repay loans or transfer amounts to that division. You redeem or sell
units when you make withdrawals or transfer amounts from a variable investment
division (including transfers for loans) or when we pay a death benefit when the
Insured Person dies. We also redeem units for monthly charges or other charges
from the Separate Account.
DETERMINATION OF THE UNIT VALUE
We determine unit values for each variable investment division at the end
of each business day. Generally, a business day is any day we are open and the
New York Stock Exchange is open for trading. We 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, we are
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 equals the unit value for the
preceding business day multiplied by the net investment factor for that division
on that business day.
We determine a net investment factor for each variable investment division
every business day as follows:
- First, we determine the value of the shares belonging to the division in
the corresponding Fund at the close of business that day (before giving
effect to any policy transactions for that day, such as premium payments
or surrenders). For this purpose, we use the share value reported to us
by the Fund;
- Next, we add any dividends or capital gains distributions paid for the
corresponding Fund on that day;
- Then, we divide this sum 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, we subtract a daily mortality and expense risk charge for each
calendar day between business days. (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%;
- Finally, we subtract any daily charge for taxes or amounts set aside as
a reserve for taxes.
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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 we describe below may have different effects on the Policy
Account, death benefit, Face Amount or cost of insurance. You should consider
the net effects before requesting Policy Account transactions. See "The
Features of EquiBuilder III-TM- Policies-Changes in EquiBuilder III-TM-
Policies," above. Certain transactions also entail charges. For information
regarding other charges, see "Deductions And Charges," above.
CHANGING PREMIUM AND DEDUCTION ALLOCATION PERCENTAGES
You may change the allocation percentages of your net premiums or your
monthly deductions by giving instructions to us. These changes will go into
effect as of the date we receive the request, and they will affect transactions
on and after that date.
TRANSFERS OF POLICY ACCOUNT VALUE AMONG INVESTMENT DIVISIONS
You may transfer amounts from any variable investment division to any other
variable investment division or to the Guaranteed Interest Division. You may
make up to four transfers of Policy Account value among variable investment
divisions in each policy year without charge. Depending on the overall cost of
performing these transactions, we may charge up to $25 for each additional
transfer, except that we will impose no charge for a transfer of all amounts in
the variable investment divisions to the Guaranteed Interest Division. To make a
transfer, give us instructions at our Administrative Office.
If there is a charge for making a transfer, we 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 a variable investment division will take effect as of the
business day we receive instructions to make the transfer. The minimum amount
we 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
variable investment division or be transferred to any one variable investment
division as long as the total amount transferred that day equals or exceeds the
minimum. However, we will transfer the entire amount in any variable investment
division even if it is less than the minimum specified in a policy. Note that
we will allocate future premiums and deductions to variable investment divisions
or the Guaranteed Interest Division in accordance with existing allocations
unless you also instruct us to change them.
Special rules apply to transfers from the Guaranteed Interest Division.
See "The Guaranteed Interest Division-Transfers From The Guaranteed Interest
Division," below.
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BORROWING FROM THE POLICY ACCOUNT
At any time that a policy has a net cash surrender value, you may borrow
money from us using only your policy as security for the loan. The maximum
aggregate amount that we will loan is 90% of the cash surrender value of the
policy on the business day we receive the request for a loan. 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 we expect 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
Send requests for loans to us. You may specify how much of the loan should
be taken from the unloaned amount, if any, of your Policy Account allocated to
the Guaranteed Interest Division and how much should be taken from the amounts
allocated to the variable investment divisions. If you request a loan from a
variable investment division, we will redeem units sufficient to cover that part
of the loan and transfer the amount to the loaned portion of the Guaranteed
Interest Division. We determine the amounts in each division as of the day we
receive the request for a loan.
If you do not specify how to allocate a loan, we will allocate it according
to your deduction allocation percentages. If we cannot allocate it based on
these percentages, we will allocate it based on the proportions of the unloaned
amount, if any, of your Policy Account allocated to the Guaranteed Interest
Division and the respective amounts allocated to each variable investment
division to the unloaned value of the Policy Account.
POLICY LOAN INTEREST
Interest on a policy loan accrues daily at an adjustable interest rate. We
determine 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.
We will notify you of the current rate when you request a loan. We determine
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.
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If this average is no longer published, we will use any successor or the
average established by the insurance supervisory official of the jurisdiction in
which we delivered the policy.
We will not charge more than the maximum rate permitted by applicable law.
We 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%. We 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 you do not pay interest
when it is due, we will add it to the outstanding loan and allocate it based on
the deduction allocation percentages for the Policy Account then in effect.
This means that we make an additional loan to pay the interest, and transfer
amounts from the variable investment divisions and the unloaned portion of the
Guaranteed Interest Division to make the loan. If we cannot allocate the
interest based on these percentages, we will allocate it as described above for
allocating the loan.
REPAYING THE LOAN
You may repay all or part of a policy loan 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, we will
apply all amounts we receive in respect to that policy as a premium unless you
include with the payment written instructions that we should apply it to
repayment of the policy loan.
We 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 you borrowed $500 from the Guaranteed Interest Division and $500
from the VIP Equity-Income Division, we will not allocate repayments to the VIP
Equity-Income Division until the $500 borrowed from the Guaranteed Interest
Division is repaid. After you have repaid this amount, you may specify how we
should allocate subsequent repayments. If you do not give us instructions, we
will allocate repayments based on current premium allocation percentages at the
time you make the repayment.
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 you repay
it. When we make a loan against a policy, the amount of the loan is set aside in
the Guaranteed Interest Division where it earns a
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declared rate for loaned amounts. The loan amount will not be available for
investment in the variable investment divisions or in the unloaned portion of
the Guaranteed Interest Division.
We expect the interest rate credited to loaned amounts in the Guaranteed
Interest Division to be different from the rate that applies to unloaned amounts
in the Guaranteed Interest Division. The interest rate for loaned amounts in
all years in the Guaranteed Interest Division will never be less than 4-1/2%.
Currently, (1) for the first ten policy years, it will be 2% less than the
interest rate charged on the loan, minus any charge for taxes or reserves for
taxes, and (2) after the tenth policy year, (a) the interest rate applied to
Preferred Loan amounts (as defined in the following paragraph) in the Guaranteed
Interest Division will be equal to the interest rate charged on the loan, minus
any charge for taxes or reserves for taxes and (b) the interest rate for other
loaned amounts in the Guaranteed Interest Division will be as set forth in
clause (1) above. Each month, we add this interest to unloaned amounts of the
Policy Account in the Guaranteed Interest Division.
"Preferred Loans" are policy loans made after the tenth policy year which
do not in the aggregate exceed a specified percentage of the cash surrender
value. The following table shows the maximum amount eligible for Preferred Loan
status for the applicable policy year:
<TABLE>
<CAPTION>
POLICY YEAR MAXIMUM AGGREGATE AMOUNT ELIGIBLE FOR
PREFERRED LOAN STATUS AS A PERCENTAGE OF THE
CASH SURRENDER VALUE
<S> <C>
11 10%
12 20%
13 30%
14 40%
15 50%
16 60%
17 70%
18 80%
19 and thereafter 90%
</TABLE>
The percentage limits set forth in the table above are cumulative (not per
policy year) limits, and are also subject to the overall maximum aggregate
amount that will be loaned, which is 90% of the cash surrender value of the
policy.
The impact of a loan on a Policy Account will depend, on one hand, on the
investment experience of the variable investment divisions 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.
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 you cannot use the loaned amount to
cover monthly charges against the Policy Account.
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This may have negative tax consequences. If the monthly 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, you may have to pay additional premium payments to keep the
policy in force if you borrowed the maximum amount. For more information
about these provisions, see "Additional Information About EquiBuilder III-TM-
Policies-Lapse of the Policy," below.
WITHDRAWING MONEY FROM THE POLICY ACCOUNT
After a policy has been in effect for a year, you may request a partial
withdrawal of the net cash surrender value by sending us a written request. The
withdrawal and any reductions in Face Amount and net cash surrender value will
be effective as of the business day we receive the request for them. 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 we 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 law.
You may specify how much of the withdrawal you want taken from each
investment division. If you do not give us instructions, we will make the
withdrawal on the basis of the then-current deduction allocation percentages. If
we cannot withdraw the amount based on your directions or on the deduction
allocation percentages, we 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 variable
investment divisions to the total unloaned value of the Policy Account. For
example, if 50% of a Policy Account were in the Guaranteed Interest Division and
50% were in the Money Market Division and you wanted to withdraw $1,000, we
would take $500 from each division.
When you make a partial withdrawal of net cash surrender value, we
assess a current expense charge of $25 or 2% of the amount withdrawn,
whichever is less, against the Policy Account. We will allocate this charge
equally among the divisions from which the withdrawal was made. If we cannot
allocate the charge in this manner, we will allocate it as described under
"Deductions And Charges-Allocation of Policy Account Charges," above.
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 III-TM- Policies-Death Benefits," above.
If you have death benefit Option A, we will also reduce the Face Amount of
the policy so there will be no change in the amount at risk. We will not deduct
any pro rata surrender charge
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in connection with a reduction in Face Amount we make in connection with a
partial withdrawal of net cash surrender value. We will send you an
endorsement to reflect this change. We may ask you to return the policy to us
so that we can make a change. A partial withdrawal will not affect the Face
Amount of the policy if death benefit Option B is in effect. 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 your 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 the same. Especially during the
initial policy years, the applicable surrender charge may be a substantial
portion of the premiums paid.
You may surrender a policy for its net cash surrender value at any time
while the Insured Person is living. You can do this by sending to us the policy
and a written request in a form satisfactory to us. The net cash surrender
value of the policy equals the cash surrender value minus any outstanding loan
and loan interest. We will compute the net cash surrender value as of the
business day we receive a request for surrender and the policy, 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
You may allocate some or all of your Policy Account to the Guaranteed
Interest Division, which is part of our General Account and pays interest at a
declared rate guaranteed by us for each policy year. We also guarantee the
principal, after charges. The General Account supports our insurance and annuity
obligations. Because of applicable exemptive and exclusionary provisions, we
have not registered interests in the Guaranteed Interest Division under the
Securities Act of 1933, and we have registered neither the Guaranteed Interest
Division nor the General Account 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. We have 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 laws which
require statements in a prospectus to be accurate and complete.
AMOUNTS IN THE GUARANTEED INTEREST DIVISION
You may accumulate amounts in the Guaranteed Interest Division by:
- Allocating net premiums and loan repayments;
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- Transferring amounts from the variable investment divisions; or
- Earning interest on amounts already allocated to the Guaranteed Interest
Division.
The amount in the Guaranteed Interest Division at any time is the sum of
all net premiums and loan repayments and transfers you have allocated to that
division and earned interest, plus amounts securing any outstanding policy
loans. This amount is reduced by amounts you transfer or withdraw from and
charges you allocate to this division.
INTEREST ON AMOUNTS IN THE GUARANTEED INTEREST DIVISION
We pay a declared interest rate on all amounts in the Guaranteed Interest
Division. At policy issuance and prior to each policy anniversary, we declare
the rates that will apply to amounts in the Guaranteed Interest Division for the
following policy year. We pay different rates 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, we will credit interest to amounts in the
Guaranteed Interest Division in the following way:
- We credit amounts in the Guaranteed Interest Division during the entire
policy month with interest from the beginning to the end of the month;
- We credit amounts added to the Guaranteed Interest Division during the
month from net premiums or loan repayments with interest from the date
we receive them, except for the initial net premium payment;
- We credit amounts you transfer to the Guaranteed Interest Division with
interest from the date of the transfer to the end of the month; and
- We credit amounts charged against or withdrawn from the Guaranteed
Interest Division with interest from the beginning of the policy month
to the date of the charge or withdrawal.
We allocate interest credited to any loaned amounts in the Guaranteed
Interest Division to the unloaned portion of the Guaranteed Interest Division.
TRANSFERS FROM THE GUARANTEED INTEREST DIVISION
You may request a transfer of unloaned amounts in the Guaranteed Interest
Division to one or more of the variable investment divisions. We will make the
transfer as of the date we receive a written request for it, BUT WE WILL ONLY
PROCESS A TRANSFER OUT OF THE GUARANTEED INVESTMENT DIVISION IF WE RECEIVE IT
WITHIN 30 DAYS AFTER A POLICY ANNIVERSARY. The maximum amount that you may
transfer is the greater of 25% of the unloaned value in the Guaranteed
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Interest Division on the date the transfer takes effect or the minimum
transfer amount shown in the policy when we issued it. The smallest amount
that you may transfer is the lesser of the unloaned value in the Guaranteed
Interest Division on the date the transfer takes effect or the minimum
transfer amount shown in the policy.
ADDITIONAL INFORMATION ABOUT EQUIBUILDER III-TM- POLICIES
RIGHT TO EXAMINE
You have a right to examine your policy. If for any reason you are not
satisfied with it, you may cancel the policy within the time limits described
below by sending it to us with a written request to cancel.
A request to cancel the policy must be postmarked no later than the latest
of the following two dates:
10 days after you receive your policy; or
45 days after you sign Part 1 of the policy application.
If you cancel the policy, we 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 you send a request for cancellation.
LAPSE
If the net cash surrender value 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, we will start procedures to
terminate the policy. We will notify you and any assignee shown on our 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. In either case, we will notify you that a grace
period has begun during which you must pay an additional premium to prevent
lapse of the policy, and that you must pay a specified amount of premium that
will cover estimated monthly charges for three months, to avoid lapse of the
policy. The grace period extends for 61 days beginning on the day we send you
notice that it is starting.
If we receive at least the specified amount before the end of the grace
period, we will use the payment to satisfy the overdue charges. We will place
any remaining balance in the Policy Account, and will allocate it in the same
manner as previous premium payments. We will apply a payment of less than the
specified amount we receive before the end of the grace period to overdue
charges. This will not prevent lapse of the policy.
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If we do not receive at least the specified payment within the 61 days, the
policy will lapse without value. We will withdraw any amount left in the Policy
Account and apply this amount to the charges owed us, including any applicable
surrender charge.
If the Insured Person dies during the grace period, we will pay the
insurance benefits to the beneficiary, minus any outstanding policy loan and
loan interest and overdue charges.
REINSTATEMENT
You may reinstate your policy within three years after it lapses if:
- You provide evidence that the Insured person is still insurable; and
- You send us a premium payment sufficient to keep the policy in force for
three months after the date it is reinstated.
The effective date of the reinstated policy will be the beginning of the
policy month which coincides with or follows the date we approve the
reinstatement application. Upon reinstatement, we will reduce the maximum
surrender charge for the policy by the amount of all surrender charges
previously imposed on the policy, and for purposes of determining any future
surrender charges on the policy, we will deem the policy to have been in effect
since the original Register Date. We will not reinstate previous loans.
POLICY PERIODS, ANNIVERSARIES, DATES AND AGES
We measure policy years, policy months and policy anniversaries 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, we are 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 we receive a check for the full
initial premium. The issue date, shown on the Policy Information page of each
policy, is the date we actually issue a policy, 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.
We will put the initial net premium in the Policy Account as of the date of
payment. We will allocate it to the Money Market division of the Separate
Account, regardless of your premium allocation percentages, until the first
business day 15 days after the issue date. We will allocate any other net
premium we receive during that period to the Money Market division. On the
first business day 15 days after the issue date, we will reallocate the amount
in the Policy Account in accordance with your premium allocation percentages.
We first assess charges and deductions under the policy as of the Register Date.
See "The Features of EquiBuilder III-TM- Policies-Death Benefits," above,
regarding the commencement of insurance coverage.
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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 the EquiBuilder III-TM- policies and does not
purport to be complete or to cover all tax situations. This discussion is not
intended as tax advice. Counsel or other competent tax advisors should be
consulted for more complete information. This discussion is based upon our
understanding of the present Federal income tax laws. No representation is made
as to the likelihood of continuation of the present Federal income tax laws or
as to how they may be interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a life insurance policy must satisfy certain
requirements which are set forth in the Internal Revenue Code. Guidance as to
how these requirements are to be applied is limited. Nevertheless, we believe
that EquiBuilder III-TM- policies issued on the basis of a standard rate class
should satisfy the applicable requirements. There is less guidance, however,
with respect to EquiBuilder III-TM- policies issued on a substandard basis
(I.E., a premium class involving higher than standard mortality risk) and it is
not clear whether such EquiBuilder III-TM- policies will in all cases satisfy
the applicable requirements. If it is subsequently determined that an
EquiBuilder III-TM- policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the policy into compliance with such
requirements and we reserve the right to modify an EquiBuilder III-TM- policy in
order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the EquiBuilder III-TM- policies, such as the flexibility of Policy
Owners to allocate premiums and Policy Accounts, have not been explicitly
addressed in published rulings. While we believe that the EquiBuilder III-TM-
policies do not give Policy Owners investment control over Separate Account
assets, we reserve the right to modify the EquiBuilder III-TM- policies as
necessary to prevent Policy Owners from being treated as the owners of the
Separate Account assets supporting their policies.
-35-
<PAGE>
In addition, federal income tax laws (the "Code") require that the
investments of the variable investment divisions be "adequately diversified" in
order for the EquiBuilder III-TM- policies to be treated as life insurance
contracts for Federal income tax purposes. It is intended that the investment
divisions, through the Funds, will satisfy these diversification requirements.
The following discussion assumes that the EquiBuilder III-TM- policies will
qualify as life insurance contracts for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under an EquiBuilder III-TM-
policy should be excludible from the gross income of the beneficiary. Federal,
state and local estate, inheritance, transfer, and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
Policy Owner or beneficiary. A tax advisor should be consulted on these
consequences.
Generally, the Policy Owner of an EquiBuilder III-TM- policy will not be
deemed to be in constructive receipt of the Policy Account until there is a
distribution. When distributions from a policy occur, or when loans are taken
out from or secured by a policy, the tax consequences depend on whether the
policy is classified as a "modified endowment contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain
life insurance contracts are classified as "modified endowment contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the EquiBuilder III-TM- policies as to premiums and benefits, the
individual circumstances of each EquiBuilder III-TM- policy will determine
whether it is classified as a modified endowment contract. The rules are too
complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven policy years. Certain changes in a policy after it
is issued could also cause it to be classified as a modified endowment contract.
A current or prospective Policy Owner should consult with a competent advisor to
determine whether a policy transaction will cause the policy to be classified as
a modified endowment contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS.
EquiBuilder III-TM- policies classified as modified endowment contracts are
subject to the following tax rules:
(1) All distributions other than death benefits from a modified endowment
contract, including distributions upon surrender and withdrawals, will
be treated first as distributions of gain taxable as ordinary income
and as tax-free recovery of the Policy Owner's investment in the
policy only after all gain has been distributed.
(2) Loans taken from or secured by a policy classified as a modified
endowment contract are treated as distributions and taxed accordingly.
-36-
<PAGE>
(3) A 10 percent additional income tax is imposed on the amount subject
to tax except where the distribution or loan is made when the
Policy Owner has attained age 59 1/2 or is disabled, or where the
distribution 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 or designated beneficiary.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from EquiBuilder
III-TM- policies that are not classified as modified endowment contracts are
generally treated first as a recovery of the Policy Owner's investment in the
policy and only after the recovery of all investment in the policy as taxable
income. However, certain distributions which must be made in order to enable
the policy to continue to qualify as a life insurance contract for Federal
income tax purposes if policy benefits are reduced during the first 15 policy
years may be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences
associated with Preferred Loans are less clear and a tax adviser should be
consulted about such loans.
Finally, neither distributions from nor loans from or secured by a policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
INVESTMENT IN THE POLICY. Your investment in the policy is generally your
aggregate premiums. When a distribution is taken from the policy, your
investment in the policy is reduced by the amount of the distribution that is
tax-free.
POLICY LOANS. In general, interest on a Policy Loan will not be
deductible. Before taking out a Policy Loan, you should consult a tax adviser
as to the tax consequences.
MULTIPLE POLICIES. All modified endowment contracts that are issued by us
(or our affiliates) to the same Policy Owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
OTHER POLICY OWNER TAX MATTERS. Businesses can use the EquiBuilder
III-TM- policies in various arrangements, including nonqualified deferred
compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such plans may vary
depending on the particular facts and circumstances. If you are purchasing an
EquiBuilder III-TM- policy for any arrangement the value of which depends in
part on its tax consequences, you should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
EquiBuilder III-TM- policy or a change in an existing EquiBuilder III-TM- policy
should consult a tax adviser.
-37-
<PAGE>
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
EquiBuilder III-TM- policy could change by legislation or otherwise. Consult a
tax adviser with respect to legislative developments and their effect on the
EquiBuilder III-TM- policy.
POSSIBLE CHARGES FOR AMERICAN FRANKLIN'S TAXES
At the present time, American Franklin makes no charge for any Federal,
state or local taxes (other than the charge for state premium taxes) that may be
attributable to the variable investment divisions or to the EquiBuilder III-TM-
policies. We reserve the right to charge the variable investment divisions for
any future taxes or economic burden we may incur.
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT AND
CASH SURRENDER VALUES, AND ACCUMULATED PREMIUMS
We intend for the tables below 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 variable investment divisions 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 variable
investment divisions. The tables are for male non-tobacco users. We assume
that planned premium payments are 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 we guarantee 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 variable investment divisions. This charge includes a
.75% annual charge against the variable investment divisions 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 Fund and may vary from year to year.
During 1998 the aggregate actual charge for management fees and direct expenses
incurred by certain Funds as a percentage of average daily net assets exceeded
the figures assumed.
-38-
<PAGE>
Fidelity Management has voluntarily agreed to reimburse the management fees
and other expenses above a specified percentage of average net assets of some of
the Funds and to use a portion of the brokerage commissions paid by certain
Funds to reduce their total expenses. Each MFS Fund has an expense offset
arrangement which reduces the Fund's custodian fee, and the investment adviser
has agreed to bear expenses for each MFS Fund 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 Fund's
yield.
The tables reflect a deduction from each premium for taxes (a 2% deduction
is assumed) and a sales expense deduction of 5% of each premium paid during any
policy year until total premiums for that policy year equal the Target Premium.
There are tables for both Death Benefit Option A and Death Benefit Option B and
we illustrate each option 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, we assume
deduction of the current additional monthly administrative charge of $24 per
month to cover costs of establishing a policy in each of the first 12 policy
months. The tables reflect the fact that we currently do not deduct anything
for federal or state income taxes. If we deduct charges 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, we 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 we will also provide an illustration of future policy
benefits based on both guaranteed and current cost factor assumptions and actual
Policy Account value. If you request illustrations more than once in any policy
year, we may assess a charge.
-39-
<PAGE>
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 40
Age 40, Option A-Guaranteed Charges $3,000 41
Age 40, Option B-Current Charges $3,000 42
Age 40, Option B-Guaranteed Charges $3,000 43
INITIAL FACE AMOUNT $100,000 MALE NON-TOBACCO
PREMIUM PAGE
Age 40, Option A-Current Charges $1,500 44
Age 40, Option A-Guaranteed Charges $1,500 45
Age 40, Option B-Current Charges $1,500 46
Age 40, Option B-Guaranteed Charges $1,500 47
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III -TM- 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 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
(1)
<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 2,146 2,246 2,345 2,445 1,512 1,611 1,710 1,810
2 6,458 200,000 200,000 200,000 200,000 4,524 4,817 5,118 5,427 3,620 3,912 4,213 4,522
3 9,930 200,000 200,000 200,000 200,000 6,845 7,432 8,050 8,702 5,705 6,292 6,910 7,562
4 13,577 200,000 200,000 200,000 200,000 9,111 10,091 11,153 12,301 7,971 8,951 10,013 11,161
5 17,406 200,000 200,000 200,000 200,000 11,320 12,795 14,436 16,257 10,180 11,655 13,296 15,117
6 21,426 200,000 200,000 200,000 200,000 13,477 15,548 17,915 20,613 12,337 14,408 16,775 19,473
7 25,647 200,000 200,000 200,000 200,000 15,552 18,322 21,574 25,383 14,640 17,410 20,662 24,471
8 30,080 200,000 200,000 200,000 200,000 17,551 21,122 25,429 30,615 16,867 20,438 24,745 29,931
9 34,734 200,000 200,000 200,000 200,000 19,475 23,949 29,496 36,363 19,019 23,493 29,040 35,907
10 39,620 200,000 200,000 200,000 200,000 21,324 26,804 33,790 42,685 21,096 26,576 33,562 42,457
11 44,751 200,000 200,000 200,000 200,000 23,101 29,690 38,330 49,646 23,101 29,690 38,330 49,646
12 50,139 200,000 200,000 200,000 200,000 24,833 32,635 43,158 57,344 24,833 32,635 43,158 57,344
13 55,796 200,000 200,000 200,000 200,000 26,488 35,610 48,267 65,833 26,488 35,610 48,267 65,833
14 61,736 200,000 200,000 200,000 200,000 28,071 38,618 53,680 75,208 28,071 38,618 53,680 75,208
15 67,972 200,000 200,000 200,000 200,000 29,581 41,662 59,422 85,570 29,581 41,662 59,422 85,570
16 74,521 200,000 200,000 200,000 200,000 31,014 44,739 65,513 97,031 31,014 44,739 65,513 97,031
17 81,397 200,000 200,000 200,000 200,000 32,332 47,815 71,951 109,698 32,332 47,815 71,951 109,698
18 88,617 200,000 200,000 200,000 200,000 33,558 50,911 78,784 123,732 33,558 50,911 78,784 123,732
19 96,198 200,000 200,000 200,000 200,000 34,684 54,024 86,040 139,295 34,684 54,024 86,040 139,295
20 104,158 200,000 200,000 200,000 209,788 35,701 57,147 93,751 156,558 35,701 57,147 93,751 156,558
25 150,340 200,000 200,000 200,000 333,556 38,817 72,721 140,551 273,407 38,817 72,721 140,551 273,407
</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
you pay premiums in different amounts or frequencies. 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 40 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III -TM- 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 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
(1)
<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 2,146 2,246 2,345 2,445 1,512 1,611 1,710 1,810
2 6,458 200,000 200,000 200,000 200,000 4,117 4,402 4,694 4,995 3,213 3,497 3,789 4,090
3 9,930 200,000 200,000 200,000 200,000 6,011 6,564 7,148 7,765 4,871 5,424 6,008 6,625
4 13,577 200,000 200,000 200,000 200,000 7,824 8,728 9,710 10,776 6,684 7,588 8,570 9,636
5 17,406 200,000 200,000 200,000 200,000 9,557 10,893 12,387 14,052 8,417 9,753 11,247 12,912
6 21,426 200,000 200,000 200,000 200,000 11,203 13,054 15,180 17,618 10,063 11,914 14,040 16,478
7 25,647 200,000 200,000 200,000 200,000 12,764 15,210 18,099 21,506 11,852 14,298 17,187 20,594
8 30,080 200,000 200,000 200,000 200,000 14,235 17,356 21,149 25,750 13,551 16,672 20,465 25,066
9 34,734 200,000 200,000 200,000 200,000 15,613 19,489 24,336 30,386 15,157 19,033 23,880 29,930
10 39,620 200,000 200,000 200,000 200,000 16,894 21,603 27,666 35,457 16,666 21,375 27,438 35,229
11 44,751 200,000 200,000 200,000 200,000 18,072 23,694 31,147 41,010 18,072 23,694 31,147 41,010
12 50,139 200,000 200,000 200,000 200,000 19,136 25,747 34,777 47,090 19,136 25,747 34,777 47,090
13 55,796 200,000 200,000 200,000 200,000 20,072 27,751 38,559 53,753 20,072 27,751 38,559 53,753
14 61,736 200,000 200,000 200,000 200,000 20,868 29,691 42,496 61,063 20,868 29,691 42,496 61,063
15 67,972 200,000 200,000 200,000 200,000 21,508 31,550 46,587 69,088 21,508 31,550 46,587 69,088
16 74,521 200,000 200,000 200,000 200,000 21,982 33,318 50,844 77,920 21,982 33,318 50,844 77,920
17 81,397 200,000 200,000 200,000 200,000 22,277 34,983 55,273 87,658 22,277 34,983 55,273 87,658
18 88,617 200,000 200,000 200,000 200,000 22,390 36,536 59,893 98,427 22,390 36,536 59,893 98,427
19 96,198 200,000 200,000 200,000 200,000 22,305 37,964 64,716 110,364 22,305 37,964 64,716 110,364
20 104,158 200,000 200,000 200,000 200,000 22,011 39,254 69,760 123,632 22,011 39,254 69,760 123,632
25 150,340 200,000 200,000 200,000 263,088 16,323 42,572 98,786 215,646 16,323 42,572 98,786 215,646
</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 you pay premiums in different amounts or frequencies. 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
polic 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
investment allocations to the variable investment divisions and the different
rates of return of the Funds, 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. WE CANNOT REPRESENT
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III-TM- 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 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 202,143 202,242 202,341 202,441 2,143 2,242 2,341 2,441 1,508 1,607 1,706 1,806
2 6,458 204,513 204,805 205,106 205,414 4,513 4,805 5,106 5,414 3,609 3,901 4,201 4,509
3 9,930 206,823 207,407 208,023 208,672 6,823 7,407 8,023 8,672 5,683 6,267 6,883 7,532
4 13,577 209,072 210,047 211,103 212,245 9,072 10,047 11,103 12,245 7,932 8,907 9,963 11,105
5 17,406 211,259 212,724 214,354 216,164 11,259 12,724 14,354 16,164 10,119 11,584 13,214 15,024
6 21,426 213,388 215,442 217,790 220,466 13,388 15,442 17,790 20,466 12,248 14,302 16,650 19,326
7 25,647 215,427 218,170 221,389 225,159 15,427 18,170 21,389 25,159 14,515 17,258 20,477 24,247
8 30,080 217,380 220,908 225,163 230,286 17,380 20,908 25,163 30,286 16,696 20,224 24,479 29,602
9 34,734 219,248 223,659 229,126 235,891 19,248 23,659 29,126 35,891 18,792 23,203 28,670 35,435
10 39,620 221,031 226,419 233,286 242,025 21,031 26,419 33,286 42,025 20,803 26,191 33,058 41,797
11 44,751 222,729 229,190 237,656 248,740 22,729 29,190 37,656 48,740 22,729 29,190 37,656 48,740
12 50,139 224,375 232,002 242,281 256,132 24,375 32,002 42,281 56,132 24,375 32,002 42,281 56,132
13 55,796 225,930 234,816 247,139 264,230 25,930 34,816 47,139 64,230 25,930 34,816 47,139 64,230
14 61,736 227,398 237,637 252,246 273,110 27,398 37,637 52,246 73,110 27,398 37,637 52,246 73,110
15 67,972 228,779 240,461 257,617 282,854 28,779 40,461 57,617 82,854 28,779 40,461 57,617 82,854
16 74,521 230,065 243,281 263,260 293,542 30,065 43,281 63,260 93,542 30,065 43,281 63,260 93,542
17 81,397 231,214 246,049 269,146 305,226 31,214 46,049 69,146 105,226 31,214 46,049 69,146 105,226
18 88,617 232,248 248,788 275,313 318,033 32,248 48,788 75,313 118,033 32,248 48,788 75,313 118,033
19 96,198 233,159 251,485 281,769 332,070 33,159 51,485 81,769 132,070 33,159 51,485 81,769 132,070
20 104,158 233,936 254,126 288,519 347,453 33,936 54,126 88,519 147,453 33,936 54,126 88,519 147,453
25 150,340 235,366 265,905 326,814 446,741 35,366 65,905 126,814 246,741 35,366 65,905 126,814 246,741
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 42 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III-TM- 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 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 202,143 202,242 202,341 202,441 2,143 2,242 2,341 2,441 1,508 1,607 1,706 1,806
2 6,458 204,099 204,382 204,673 204,973 4,099 4,382 4,673 4,973 3,194 3,477 3,768 4,068
3 9,930 205,970 206,518 207,099 207,711 5,970 6,518 7,099 7,711 4,830 5,378 5,959 6,571
4 13,577 207,752 208,646 209,618 210,672 7,752 8,646 9,618 10,672 6,612 7,506 8,478 9,532
5 17,406 209,443 210,761 212,234 213,877 9,443 10,761 12,234 13,877 8,303 9,621 11,094 12,737
6 21,426 211,037 212,857 214,946 217,341 11,037 12,857 14,946 17,341 9,897 11,717 13,806 16,201
7 25,647 212,535 214,929 217,758 221,091 12,535 14,929 17,758 21,091 11,623 14,017 16,846 20,179
8 30,080 213,930 216,973 220,670 225,151 13,930 16,973 20,670 25,151 13,246 16,289 19,986 24,467
9 34,734 215,219 218,980 223,682 229,546 15,219 18,980 23,682 29,546 14,763 18,524 23,226 29,090
10 39,620 216,396 220,943 226,792 234,303 16,396 20,943 26,792 34,303 16,168 20,715 26,564 34,075
11 44,751 217,456 222,853 230,002 239,454 17,456 22,853 30,002 39,454 17,456 22,853 30,002 39,454
12 50,139 218,383 224,691 233,297 245,022 18,383 24,691 33,297 45,022 18,383 24,691 33,297 45,022
13 55,796 219,163 226,440 236,669 251,032 19,163 26,440 36,669 51,032 19,163 26,440 36,669 51,032
14 61,736 219,782 228,080 240,104 257,515 19,782 28,080 40,104 57,515 19,782 28,080 40,104 57,515
15 67,972 220,222 229,587 243,584 264,497 20,222 29,587 43,584 64,497 20,222 29,587 43,584 64,497
16 74,521 220,473 230,945 247,100 272,019 20,473 30,945 47,100 72,019 20,473 30,945 47,100 72,019
17 81,397 220,521 232,134 250,638 280,118 20,521 32,134 50,638 80,118 20,521 32,134 50,638 80,118
18 88,617 220,362 233,142 254,191 288,848 20,362 33,142 54,191 88,848 20,362 33,142 54,191 88,848
19 96,198 219,984 233,948 257,743 298,259 19,984 33,948 57,743 98,259 19,984 33,948 57,743 98,259
20 104,158 219,375 234,534 261,279 308,406 19,375 34,534 61,279 108,406 19,375 34,534 61,279 108,406
25 150,340 211,880 232,763 277,437 371,809 11,880 32,763 77,437 171,809 11,880 32,763 77,437 171,809
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 43 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III-TM- 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 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,000 100,000 100,000 100,000 883 928 974 1,020 565 611 656 702
2 3,229 100,000 100,000 100,000 100,000 2,024 2,157 2,295 2,436 1,572 1,705 1,842 1,983
3 4,965 100,000 100,000 100,000 100,000 3,136 3,405 3,689 3,988 2,566 2,835 3,119 3,418
4 6,788 100,000 100,000 100,000 100,000 4,217 4,670 5,161 5,691 3,647 4,100 4,591 5,121
5 8,703 100,000 100,000 100,000 100,000 5,270 5,955 6,716 7,560 4,700 5,385 6,146 6,990
6 10,713 100,000 100,000 100,000 100,000 6,294 7,258 8,359 9,614 5,724 6,688 7,789 9,044
7 12,824 100,000 100,000 100,000 100,000 7,275 8,568 10,084 11,859 6,819 8,112 9,628 11,403
8 15,040 100,000 100,000 100,000 100,000 8,212 9,882 11,894 14,314 7,870 9,540 11,552 13,972
9 17,367 100,000 100,000 100,000 100,000 9,108 11,203 13,798 17,007 8,880 10,975 13,570 16,779
10 19,810 100,000 100,000 100,000 100,000 9,961 12,529 15,799 19,960 9,847 12,415 15,685 19,846
11 22,376 100,000 100,000 100,000 100,000 10,774 13,863 17,910 23,207 10,774 13,863 17,910 23,207
12 25,069 100,000 100,000 100,000 100,000 11,559 15,218 20,150 26,794 11,559 15,218 20,150 26,794
13 27,898 100,000 100,000 100,000 100,000 12,303 16,581 22,514 30,746 12,303 16,581 22,514 30,746
14 30,868 100,000 100,000 100,000 100,000 13,003 17,948 25,011 35,102 13,003 17,948 25,011 35,102
15 33,986 100,000 100,000 100,000 100,000 13,662 19,325 27,653 39,915 13,662 19,325 27,653 39,915
16 37,261 100,000 100,000 100,000 100,000 14,292 20,723 30,464 45,247 14,292 20,723 30,464 45,247
17 40,699 100,000 100,000 100,000 100,000 14,880 22,129 33,444 51,148 14,880 22,129 33,444 51,148
18 44,309 100,000 100,000 100,000 100,000 15,417 23,538 36,601 57,684 15,417 23,538 36,601 57,684
19 48,099 100,000 100,000 100,000 100,000 15,901 24,946 39,948 64,931 15,901 24,946 39,948 64,931
20 52,079 100,000 100,000 100,000 100,000 16,325 26,350 43,499 72,975 16,325 26,350 43,499 72,975
25 75,170 100,000 100,000 100,000 155,764 17,357 33,163 64,943 127,675 17,357 33,163 64,943 127,675
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 44 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III-TM- 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
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,000 100,000 100,000 100,000 883 928 974 1,020 565 611 656 702
2 3,229 100,000 100,000 100,000 100,000 1,799 1,928 2,060 2,197 1,347 1,475 1,608 1,744
3 4,965 100,000 100,000 100,000 100,000 2,677 2,928 3,193 3,473 2,107 2,358 2,623 2,903
4 6,788 100,000 100,000 100,000 100,000 3,516 3,926 4,373 4,857 2,946 3,356 3,803 4,287
5 8,703 100,000 100,000 100,000 100,000 4,315 4,923 5,603 6,361 3,745 4,353 5,033 5,791
6 10,713 100,000 100,000 100,000 100,000 5,072 5,915 6,884 7,994 4,502 5,345 6,314 7,424
7 12,824 100,000 100,000 100,000 100,000 5,786 6,901 8,219 9,772 5,330 6,445 7,763 9,316
8 15,040 100,000 100,000 100,000 100,000 6,455 7,880 9,611 11,709 6,113 7,538 9,269 11,367
9 17,367 100,000 100,000 100,000 100,000 7,079 8,848 11,061 13,821 6,851 8,620 10,833 13,593
10 19,810 100,000 100,000 100,000 100,000 7,654 9,804 12,572 16,127 7,540 9,690 12,458 16,013
11 22,376 100,000 100,000 100,000 100,000 8,179 10,745 14,146 18,647 8,179 10,745 14,146 18,647
12 25,069 100,000 100,000 100,000 100,000 8,645 11,662 15,782 21,401 8,645 11,662 15,782 21,401
13 27,898 100,000 100,000 100,000 100,000 9,048 12,550 17,480 24,412 9,048 12,550 17,480 24,412
14 30,868 100,000 100,000 100,000 100,000 9,381 13,402 19,240 27,707 9,381 13,402 19,240 27,707
15 33,986 100,000 100,000 100,000 100,000 9,635 14,208 21,060 31,317 9,635 14,208 21,060 31,317
16 37,261 100,000 100,000 100,000 100,000 9,805 14,963 22,943 35,280 9,805 14,963 22,943 35,280
17 40,699 100,000 100,000 100,000 100,000 9,885 15,659 24,891 39,639 9,885 15,659 24,891 39,639
18 44,309 100,000 100,000 100,000 100,000 9,873 16,293 26,911 44,449 9,873 16,293 26,911 44,449
19 48,099 100,000 100,000 100,000 100,000 9,761 16,856 29,005 49,768 9,761 16,856 29,005 49,768
20 52,079 100,000 100,000 100,000 100,000 9,542 17,342 31,181 55,667 9,542 17,342 31,181 55,667
25 75,170 100,000 100,000 100,000 118,171 6,300 18,030 43,357 96,861 6,300 18,030 43,357 96,861
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 45 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III-TM- 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
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,881 100,926 100,972 101,018 881 926 972 1,018 564 609 654 700
2 3,229 102,019 102,152 102,288 102,429 2,019 2,152 2,288 2,429 1,566 1,699 1,836 1,977
3 4,965 103,124 103,392 103,675 103,973 3,124 3,392 3,675 3,973 2,554 2,822 3,105 3,403
4 6,788 104,197 104,648 105,135 105,662 4,197 4,648 5,135 5,662 3,627 4,078 4,565 5,092
5 8,703 105,239 105,918 106,674 107,512 5,239 5,918 6,674 7,512 4,669 5,348 6,104 6,942
6 10,713 106,247 107,203 108,295 109,538 6,247 7,203 8,295 9,538 5,677 6,633 7,725 8,968
7 12,824 107,209 108,488 109,988 111,743 7,209 8,488 9,988 11,743 6,753 8,032 9,532 11,287
8 15,040 108,122 109,770 111,755 114,142 8,122 9,770 11,755 14,142 7,780 9,428 11,413 13,800
9 17,367 108,988 111,050 113,603 116,759 8,988 11,050 13,603 16,759 8,760 10,822 13,375 16,531
10 19,810 109,805 112,324 115,532 119,611 9,805 12,324 15,532 19,611 9,691 12,210 15,418 19,497
11 22,376 110,575 113,596 117,552 122,726 10,575 13,596 17,552 22,726 10,575 13,596 17,552 22,726
12 25,069 111,314 114,879 119,681 126,147 11,314 14,879 19,681 26,147 11,314 14,879 19,681 26,147
13 27,898 112,003 116,155 121,910 129,887 12,003 16,155 21,910 29,887 12,003 16,155 21,910 29,887
14 30,868 112,640 117,419 124,238 133,974 12,640 17,419 24,238 33,974 12,640 17,419 24,238 33,974
15 33,986 113,228 118,676 126,678 138,449 13,228 18,676 26,678 38,449 13,228 18,676 26,678 38,449
16 37,261 113,780 119,936 129,248 143,365 13,780 19,936 29,248 43,365 13,780 19,936 29,248 43,365
17 40,699 114,282 121,185 131,941 148,752 14,282 21,185 31,941 48,752 14,282 21,185 31,941 48,752
18 44,309 114,723 122,410 134,754 154,648 14,723 22,410 34,754 54,648 14,723 22,410 34,754 54,648
19 48,099 115,098 123,605 137,687 161,101 15,098 23,605 37,687 61,101 15,098 23,605 37,687 61,101
20 52,079 115,401 124,762 140,742 168,159 15,401 24,762 40,742 68,159 15,401 24,762 40,742 68,159
25 75,170 115,594 129,649 157,817 213,764 15,594 29,649 57,817 113,764 15,594 29,649 57,817 113,764
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 46 -
<PAGE>
<TABLE>
<CAPTION>
EquiBuilder III(TM) 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
Insurance Benefit(2) Policy Account(2) Cash Surrender Value(2)
Last Day Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
of Annual Investment Return of Annual Investment Return of Annual Investment Return of
Policy Accumulated
Year Premiums (1) 0% 4% 8% 12% 0% 4% 8% 12% 0% 4% 8% 12%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,881 100,926 100,972 101,018 881 926 972 1,018 564 609 654 700
2 3,229 101,790 101,918 102,050 102,186 1,790 1,918 2,050 2,186 1,338 1,466 1,598 1,734
3 4,965 102,658 102,907 103,170 103,448 2,658 2,907 3,170 3,448 2,088 2,337 2,600 2,878
4 6,788 103,483 103,889 104,330 104,810 3,483 3,889 4,330 4,810 2,913 3,319 3,760 4,240
5 8,703 104,263 104,863 105,533 106,281 4,263 4,863 5,533 6,281 3,693 4,293 4,963 5,711
6 10,713 104,996 105,825 106,777 107,868 4,996 5,825 6,777 7,868 4,426 5,255 6,207 7,298
7 12,824 105,681 106,773 108,063 109,583 5,681 6,773 8,063 9,583 5,225 6,317 7,607 9,127
8 15,040 106,316 107,704 109,391 111,435 6,316 7,704 9,391 11,435 5,974 7,362 9,049 11,093
9 17,367 106,899 108,616 110,761 113,437 6,899 8,616 10,761 13,437 6,671 8,388 10,533 13,209
10 19,810 107,426 109,502 112,172 115,599 7,426 9,502 12,172 15,599 7,312 9,388 12,058 15,485
11 22,376 107,896 110,360 113,622 117,936 7,896 10,360 13,622 17,936 7,896 10,360 13,622 17,936
12 25,069 108,301 111,179 115,106 120,455 8,301 11,179 15,106 20,455 8,301 11,179 15,106 20,455
13 27,898 108,633 111,951 116,617 123,169 8,633 11,951 16,617 23,169 8,633 11,951 16,617 23,169
14 30,868 108,885 112,667 118,148 126,088 8,885 12,667 18,148 26,088 8,885 12,667 18,148 26,088
15 33,986 109,049 113,313 119,690 129,222 9,049 13,313 19,690 29,222 9,049 13,313 19,690 29,222
16 37,261 109,119 113,882 121,237 132,589 9,119 13,882 21,237 32,589 9,119 13,882 21,237 32,589
17 40,699 109,088 114,364 122,781 136,204 9,088 14,364 22,781 36,204 9,088 14,364 22,781 36,204
18 44,309 108,955 114,752 124,318 140,088 8,955 14,752 24,318 40,088 8,955 14,752 24,318 40,088
19 48,099 108,713 115,037 125,839 144,262 8,713 15,037 25,839 44,262 8,713 15,037 25,839 44,262
20 52,079 108,356 115,208 127,336 148,748 8,356 15,208 27,336 48,748 8,356 15,208 27,336 48,748
25 75,170 104,359 113,669 133,768 176,483 4,359 13,669 33,768 76,483 4,359 13,669 33,768 76,483
</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
you pay premiums in different amounts or frequencies. 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 polic 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 investment allocations to the variable investment divisions and the
different rates of return of the Funds, 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. WE CANNOT REPRESENT THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
- 47 -
<PAGE>
ADDITIONAL INFORMATION
VOTING RIGHTS OF A POLICY OWNER
VOTING PRIVILEGES
We invest the variable investment divisions' assets in shares of the Funds.
We are the legal owner of the shares held in the variable account, and we have
the right to vote on certain issues. Among other things, we may:
- - vote to elect the Boards of Trustees of the Funds;
- - vote to ratify the selection of independent auditors for the Funds; and
- - vote on issues described in the Fund's current prospectus or requiring a vote
by shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how
to vote the number of shares attributable to your account value. We vote the
shares in accordance with your instructions at meetings of investment portfolio
shareholders. We vote any portfolio shares that are not attributable to
policies, and any investment portfolio shares where the owner does not give us
instructions, the same way we vote where we did receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations, or
their interpretations change to allow this.
You may only instruct us on matters relating to the investment
portfolios corresponding to divisions where you have invested assets as of
the record date set by the investment portfolio's Board for the portfolio's
shareholders meeting. We determine the number of investment portfolio shares
in each division that we attribute to your policy by dividing your account
value allocated to that division by the net asset value of one share of the
matching investment portfolio.
We count fractional shares. If you have a voting interest, we send you
proxy material and a form on which to give us your voting instructions.
All investment portfolio shares have the right to one vote. The votes of
all investment portfolios are cast together on a collective basis, except on
issues where the interests of the portfolios differ. In these cases, voting is
done on a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
- - changes in the fundamental investment policy of a particular investment
portfolio, or
- - approval of an investment advisory agreement.
- 48 -
<PAGE>
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the Funds, American Franklin, and other insurance
companies participating in the Funds have this same duty. There may be a
material conflict if:
- - state insurance law or federal income tax law changes;
- - investment management of an investment portfolio changes; or
- - voting instructions given by owners of variable life insurance policies and
variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general, or certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment
options. We may take other action to protect policy owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require us, we may ignore
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in the next semi-annual report to owners.
Under the Investment Company Act of 1940, we must get your approval for
certain actions involving our separate account. In this case, you have one vote
for every $100 of value you have in the variable divisions. We cast votes
credited to amounts in the variable divisions not credited to policies in the
same proportion as votes cast by owners.
REPORTS TO POLICY OWNERS
After the end of each policy year, we will send you a report that shows the
current death benefit for your policy, the value of your Policy Account,
information about the variable investment divisions, the cash surrender value of
your policy, the amount of any outstanding policy loans, the amount of any
interest you owe on the loan and information about the current loan interest
rate. The annual report will also show any transactions involving your Policy
Account that occurred during the year. Transactions include premium
allocations, deductions, and any transfers or withdrawals that you made in that
year. We will also send you semi-annual reports with financial information on
the Separate Account and the Funds, including a list of the
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<PAGE>
investments held by each portfolio. We will also include in reports any
information required by state law.
We will send you notices of transfers of amounts between variable
investment divisions and certain other policy transactions.
LIMITS ON AMERICAN FRANKLIN'S RIGHT TO CHALLENGE A POLICY
We can challenge the validity of an insurance policy (based on material
misstatements in the application or, with respect to any policy change, in the
application for the change) if it appears that the Insured Person is not
actually covered by the policy under our rules. However, there are some limits
on how and when we can challenge the policy.
Except on the basis of fraud, we 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, we 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.
We can challenge at any time an additional benefit that provides benefits
to the Insured Person in the event that the Insured Person becomes totally
disabled. We can also require proof of continuing disability.
If the Insured Person dies within the time that the validity of the policy
may be challenged, we may delay payment until we decide whether to challenge the
policy.
If the Insured Person's age or sex is misstated on any application, we can
provide the death benefit and any additional benefits that 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, we will limit the death benefit to
the total of all premiums that you 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 you
requested, we 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.)
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<PAGE>
PAYMENT OPTIONS
We can pay policy benefits or other payments, such as the net cash
surrender value or death benefit, immediately in one sum, or in another form of
payment described below. Payments under these options do not depend on the
investment experience of any variable investment division. Instead, interest
accrues pursuant to the options chosen. (Such interest will be appropriately
includable in federal gross income of the beneficiary). If you do not arrange
for a specific form of payment before the Insured Person dies, the beneficiary
will have the choice. However, if you make 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 our rules at the time of selection.
Currently, you can pick these alternate payment options only 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: We 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: We will pay
the money at agreed intervals as a definite number of equal payments and as
long thereafter as the payee lives. You (or the 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 us 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: We 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.
We guarantee interest under the foregoing options at the rate of 3% a year.
We may also pay or credit excess interest on the options from time to time.
We will determine the rate and manner of payment or crediting. Under the second
option we will pay no excess interest 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.
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<PAGE>
We 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 our 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.
You may change your 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 we pay 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
You must name a beneficiary when you apply for a policy. The beneficiary
is entitled to the insurance benefits of the policy. You may change the
beneficiary during the Insured Person's lifetime by sending us written notice
satisfactory to us. The change will take effect on the date the notice is
signed. However, the change will be subject to all payments made and actions we
took under the Policy before we received the notice. Changing the beneficiary
will cancel any previous arrangement made as to a payment option for benefits.
You can pick a payment option for the new beneficiary.
At the time of the Insured Person's death, we will pay the benefit 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, we will pay the death
benefit to you or to your executors or administrators.
ASSIGNMENT OF A POLICY
You may assign your rights in a policy to someone else as collateral for a
loan or for some other reason. In order to do so you must send a copy of the
assignment to us. We are not responsible for any payment made or any action
taken before we have 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 we described in this Prospectus.
EMPLOYEE BENEFIT PLANS
Employers and employee organizations should consider, in consultation with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the purchase
of EquiBuilder III-TM- policies in connection with an employment-related
insurance or benefit plan. The United States Supreme
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<PAGE>
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.
We did not design the EquiBuilder III-TM- policies for use in connection
with qualified plans or trusts under federal tax laws.
PAYMENT OF PROCEEDS
We will pay any death benefits, net cash surrender value or loan proceeds
within seven days after we receive the required form or request (and other
documents that may be required) at our Administrative Office. We determine
death benefits as of the date of death of the Insured Person. Subsequent
changes in the unit values of the variable investment divisions will not affect
death benefits. We will pay interest covering the period from the date of death
to the date of payment.
We may delay payment for one or more of the following reasons:
We contest the policy, or we are deciding whether or not to contest the
policy;
We 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 us to delay payment
to protect the Policy Owners.
We 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. We will pay interest of at least 3% a year from the date we receive a
request for withdrawal of net cash surrender value if payment from the
Guaranteed Interest Division is delayed more than 30 days.
DIVIDENDS
We pay no dividends on the policies offered by this Prospectus.
DISTRIBUTION OF THE POLICIES
Franklin Financial Services Corporation ("Franklin Financial"), #1 Franklin
Square, Springfield, Illinois 62713, a Delaware corporation and a wholly-owned
subsidiary of The Franklin Life Insurance Company, is the principal underwriter
of the EquiBuilder III-TM- policies for the Separate Account under a Sales
Agreement between Franklin Financial and the Separate Account.
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<PAGE>
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.
We sell our policies primarily through our insurance agents or brokers, who
are authorized by law to sell variable life insurance. Pursuant to an agreement
between us and Franklin Financial, Franklin Financial will employ and supervise
agents chosen by us to sell the policies and will use its best efforts to
qualify such persons as its registered representatives. The policies may also
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.
Registered representatives of Franklin Financial earn commissions on policy
sales of 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.
ADMINISTRATIVE SERVICES
While we are primarily responsible for administering the Policies, American
General Life Companies ("AGLC") has agreed (under a services agreement among
American General Corporation and almost all of its subsidiaries) to provide the
following administrative services in connection with the Policies: (1) the
purchase and redemption of shares of the Funds and (2) the determination of unit
values for each variable investment division. We and AGLC are parties to the
services agreement. Pursuant to such agreement, we reimburse AGLC for the costs
and expenses which AGLC incurs in providing such administrative services in
connection with the Policies, but neither we nor AGLC incur a loss or realizes a
profit by reason thereof.
STATE REGULATION
As a life insurance company organized and operated under Illinois law, we
are subject to statutory provisions governing such companies and to regulation
by the Illinois Director of Insurance. We file an annual statement with the
Director on or before March 1 of each year covering our operations for the
preceding year and our financial condition on December 31 of such year. Our
books and accounts are subject to review and examination by the Illinois
Insurance Department at all times, and the National Association of Insurance
Commissioners ("NAIC") periodically conducts a full examination of our
operations. The NAIC has divided the country into six geographic zones. A
representative of each such zone may participate in the examination.
We are subject to the insurance laws and regulations of the other states
where we operate. Generally, the insurance departments of those states apply the
law of Illinois in determining our permissible investments.
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<PAGE>
YEAR 2000
INTERNAL SYSTEMS. American Franklin's ultimate parent, American General
Corporation (AGC), has numerous technology systems that are managed on a
decentralized basis. AGC's Year 2000 readiness efforts are therefore being
undertaken by its key business units with centralized oversight. Each business
unit, including American Franklin, has developed and is implementing a plan to
minimize the risk of a significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of American Franklin's information
technology and non-information technology systems; (2) assess which items in the
inventory may expose American Franklin to business interruptions due to Year
2000 issues; (3) reprogram or replace systems that are not Year 2000 ready; (4)
test systems to prove that they will function into the next century as they do
currently; and (5) return the systems to operations. As of December 31, 1998,
substantially all of American Franklin's critical systems are Year 2000 ready
and have been returned to operations. However, activities (3) through (5) for
certain systems are ongoing, with vendor upgrades expected to be received during
the first half of 1999.
THIRD PARTY RELATIONSHIPS. American Franklin has relationships with
various third parties who must also be Year 2000 ready. These third parties
provide (or receive) resources and services to (or from) American Franklin and
include organizations with which American Franklin exchanges information. Third
parties include vendors of hardware, software, and information services;
providers of infrastructure services such as voice and data communications and
utilities for office facilities; investors; customers; distribution channels;
and joint venture partners. Third parties differ from internal systems in that
American Franklin exercises less, or no, control over Year 2000 readiness.
American Franklin has developed a plan to assess and attempt to mitigate the
risks associated with the potential failure of third parties to achieve Year
2000 readiness. The plan includes the following activities: (1) identify and
classify third party dependencies; (2) research, analyze, and document Year 2000
readiness for critical third parties; and (3) test critical hardware and
software products and electronic interfaces. As of December 31, 1998, AGC has
identified and assessed approximately 700 critical third party dependencies,
including those relating to American Franklin. A more detailed evaluation will
be completed during the first quarter 1999 as part of American Franklin's
contingency planning efforts. Due to the various stages of third parties' Year
2000 readiness, American Franklin's testing activities will extend through 1999.
CONTINGENCY PLANS. American Franklin has commenced contingency planning to
reduce the risk of Year 2000-related business failures. The contingency plans,
which address both internal systems and third party relationships, include the
following activities: (1) evaluate the consequences of failure of business
processes with significant exposure to Year 2000 risk; (2) determine the
probability of a year 2000-related failure for those processes that have a high
consequence of failure; (3) develop an action plan to complete contingency plans
for those processes that rank high in consequence and probability of failure;
and (4) complete the application action plans. American Franklin is currently
developing contingency plans and expects to substantially complete all
contingency planning activities by April 30, 1999.
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<PAGE>
RISKS AND UNCERTAINTIES. Based on its plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, American Franklin believes that it will experience at most
isolated and minor disruptions of business processes following the turn of the
century. Such disruptions are not expected to have a material effect on
American Franklin future results of operations, liquidity, or financial
condition. However, due to the magnitude and complexity of this project, risks
and uncertainties exist and American Franklin is not able to predict a most
reasonably likely worst case scenario. If conversion of American Franklin's
internal systems is not completed on a timely basis (due to non-performance by
significant third-party vendors, lack of qualified personnel to perform the Year
2000 work, or other unforeseen circumstances in completing American Franklin's
plans) or if critical third parties fail to achieve Year 2000 readiness on a
timely basis, the Year 2000 issues could have a material adverse impact on
American Franklin's operations following the turn of the century.
COSTS. Through December 31, 1998 American Franklin has incurred, and
anticipates that it will continue to incur, costs for internal staff,
third-party vendors, and other expenses to achieve Year 2000 readiness.
These costs are not passed to the divisions of the Account. The cost of
activities related to Year 2000 readiness has not had a material adverse
effect on American Franklin's results of operations or financial condition.
In addition, American Franklin has elected to accelerate the planned
replacement of certain systems as part of the Year 2000 plans. Costs of the
replacement systems are being capitalized and amortized over their useful
lives, in accordance with American Franklin's normal accounting policies.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided certain
advice on matters relating to the federal securities laws.
LEGAL PROCEEDINGS
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating to life insurance and sales
practices, and a number of these lawsuits have resulted in substantial
settlements. American Franklin is a defendant in such purported class action
lawsuits filed since 1996, asserting claims related to pricing and sales
practices. On December 16, 1998, AGC announced that certain of its life
insurance subsidiaries had entered into agreements to resolve the market conduct
class action lawsuits. The settlements are not final until approval by the
courts and until the respective time periods for filing appeals have been
finally resolved. If court approvals are obtained and appeals are not taken, it
is expected the settlements will be final in the third quarter of 1999. The
proposed settlements will not have a material impact on American Franklin's
financial condition or business operations.
The Company is a party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise
in jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon
information presently available, American Franklin believes that
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<PAGE>
the total amounts that will ultimately be paid, if any, arising from these
lawsuits and proceedings will not have a material adverse effect on American
Franklin's results of operations and financial position. However, it should
be noted that the frequency of large damage awards, including large punitive
damage awards, that bear little or no relation to actual economic damages
incurred by plaintiffs in jurisdictions like Alabama and Mississippi
continues to create the potential for an unpredictable judgment in any given
suit.
EXPERTS
The statement of net assets as of December 31, 1998 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 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon. The financial statements of American Franklin at
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report. 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.
Actuarial matters in this Prospectus have been examined by Robert M.
Beuerlein, who is Senior Vice President-Actuarial/Financial 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
We have filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered by this Prospectus. This Prospectus does not contain all the
information in the Registration Statement, its amendments and exhibits. Read
them for further information on American Franklin, the Separate Account and the
policies. Statements in this Prospectus as to the content of policies and other
legal instruments are summaries. For a complete statement of their terms, refer
to those instruments as we filed them.
OTHER POLICIES AND CONTRACTS
We 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 our EquiBuilder
II-TM- variable life insurance policies, which have policy features that are
similar to those of EquiBuilder III-TM- policies but which have a different
sales charge structure.
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<PAGE>
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 Life Insurance Company
("The Franklin") and Franklin Financial.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
Robert M. Beuerlein Senior Vice President-Actuarial/Financial and Director, Senior Vice President-
Treasurer, The Franklin, since December of 1998; Actuarial/Financial and Treasurer,
Senior Vice President-Actuarial, The Franklin, American Franklin.
prior thereto; Director, The Franklin.
Pauletta P. Cohn** Secretary, The Franklin, since ______________, Secretary, American Franklin.
199____; Associate General Counsel and Secretary,
American General Life Companies, Houston, Texas,
since ____________, 199____;
__________________________.
Brady W. Creel Senior Vice President, Chief Marketing Officer and Director, Senior Vice President
Director, The Franklin since September 3, 1996; and Chief Marketing Officer,
Regional Manger, The Franklin, prior to September, American Franklin.
1996.
Barbara Fossum Senior Vice President, The Franklin, since March Senior Vice President, American
20, 1998; Vice President, The Franklin, from June, Franklin.
1995, to March 20, 1998; Vice President, American
General Life Insurance Company, Houston, Texas,
prior to June, 1995.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
Ross D. Friend** Senior Vice President and Chief Compliance Officer, Senior Vice President and Chief
The Franklin, since December of 1998; Senior Vice Compliance Officer, American
President and Chief Compliance Officer, American Franklin and Franklin Financial.
General Life Companies, Houston, Texas, since
December of 1998; Senior Vice President and General
Counsel, The Franklin, from September, 1996 to
December, 1998; 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.
Rodney O. Martin, Jr.** Chairman, President and Chief Executive Officer, Director and Senior Chairman,
American General Life Companies, Houston, Texas, American Franklin.
since December of 1998; President and Chief
Executive Officer, American General Life Insurance
Company, Houston, Texas, August, 1996 to December
of 1998; 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
Jon P. Newton* Director and Vice Chairman, The Franklin, since Director and Vice Chairman,
January 31, 1996; Vice Chairman, American General American Franklin.
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.
Michael M. Nicholson Director and President, The Franklin, since August, Director and President, American
1998; Senior Vice President, General American Life Franklin
Insurance Company, from January, 1994 to August,
1998; self-employed insurance agent prior to
January, 1994.
Gary D. Reddick** Executive Vice President, American General Life Vice Chairman and Director,
Companies, Houston, Texas, since December, 1998; American Franklin; Director and
Director, The Franklin, since February, 1995; Vice Vice Chairman, Franklin Financial.
Chairman, The Franklin, since July 1, 1997;
Executive Vice President, The Franklin, from
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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
Richard W. Scott* Executive Vice President and Chief Investment Vice President and Chief
Officer, American General Corporation, Houston, Investment Officer, American
Texas, since February, 1998; Vice Chairman and Franklin.
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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
William A. Simpson Director and Chief Executive Officer, The Franklin, Director and Chief Executive
since September 5, 1997; President, The Franklin, Officer, American Franklin;
from September, 1997 to August, 1998; President and Director, Franklin Financial.
Chief 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 Franklin, since Director, Corporate Tax, American
February 3, 1997; Assistant Vice President and Tax Franklin.
Manager, First Colony Life, Lynchburg, Virginia,
prior to February, 1997.
Christian D. Weiss Controller, The Franklin, since June, 1997; Director-Controller, American
Assistant Controller, ReliaStar Financial Corp., Franklin.
Arlington, Virginia, from January, 1994 to June,
1997; Senior Manager, Ernst & Young LLP, Richmond,
Virginia, prior to January, 1994.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS POSITION HELD WITH AMERICAN
NAME DURING PAST 5 YEARS FRANKLIN AND FRANKLIN FINANCIAL
- ---- ------------------- -------------------------------
<S> <C> <C>
Diane S. Workman Vice President Administration, American Franklin. Vice President-Administration,
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.
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<PAGE>
Index To Financial Statements
<TABLE>
<CAPTION>
Page
The Separate Account:
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Audited Financial Statements:
Statement of Net Assets, December 31, 1998 . . . . . . . . . . . . . . . . . . . . . F-3-F-4
Statement of Operations for the year ended December 31, 1998. . . . . . . . . . . . .F-5--F-6
Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, 1998, 1997 and 1996 . . . . . . F-14
Balance Sheet, December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . F-15-F-16
Statement of Shareholder's Equity for the years ended
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996. . . . . . 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.
[TO BE FILED BY AMENDMENT]
<PAGE>
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
EQUIBUILDER III-TM-
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
AN AMERICAN GENERAL COMPANY
#1 FRANKLIN SQUARE,
SPRINGFIELD, ILLINOIS 62713-0001
EQUIBUILDER III IS A TRADEMARK OF THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<PAGE>
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.
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CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Reconciliation and tie.
The Prospectus consisting of __ 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, Senior Vice President-Actuarial/Financial and
Treasurer
Ernst & Young LLP
The following exhibits required by Article IX(A) of Form N-8B-2:
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* 1-A(1) Certified resolutions regarding organization of Separate
Account VUL-2.
1-A(2) Inapplicable.
*1-A(3)(a) Sales Agreement between Franklin Financial Services
Corporation ("Franklin Financial") and Separate Account
VUL-2 of The American Franklin Life Insurance Company, dated
as of January 31, 1995.
* 1-A(3)(b)(i) Specimen Regional Manager Registered Representative
Agreement between Franklin Financial and registered
representatives of Franklin Financial distributing
EquiBuilder III policies.
* 1-A(3)(b)(ii) Specimen Registered Representative Agreement between
Franklin Financial and registered representatives of
Franklin Financial distributing EquiBuilder III policies.
***1-A(3)(c) Schedule of Sales Commissions.
*1-A(4) Agreement between The American Franklin Life Insurance
Company ("American Franklin") and Franklin Financial,
dated March 31, l994, regarding supervision of agents.
* 1-A(5)(a) EquiBuilder III Flexible Premium Life Insurance Policy.
* 1-A(5)(b) Accidental Death Benefit Rider.
* 1-A(5)(c) Term Insurance Rider.
* 1-A(5)(d) Children's Term Insurance Rider.
* 1-A(5)(e) Disability Rider - Waiver of Monthly Deductions.
* 1-A(5)(f) Endorsement to EquiBuilder III Flexible Premium Life
Insurance policy when issued to a Policy Owner in the State
of Texas.
1-A(5)(g) Accelerated Benefit Settlement Option Rider is incorporated
herein by reference to Exhibit 1-A(5)(g) to Post-Effective
Amendment No. 5 on Form S-6 of Separate Account VUL-2 of The
American Franklin Life Insurance Company, filed February 27,
1998 (Reg. No. 33-77470).
**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. 3 on Form S-6 of Separate Account VUL-2 of The
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American Franklin Life Insurance Company, filed February 28,
1997 (Reg. No. 33-77470).
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.
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.
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* 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. 3 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed
February 28, 1997 (Reg. No. 33-77470).
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. 3 on Form S-6 of
Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 28, 1997
(Reg. No. 33-77470).
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. 3 on Form
S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 28, 1997
(Reg. No. 33-77470).
* 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. 5 on Form S-6 of
Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 27, 1998
(Reg. No. 33-77470).
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. 5 on Form
S-6 of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed February 27, 1998
(Reg. No. 33-77470).
*1-A(9) Administrative Service Agreement between The Franklin and
American Franklin, dated May 16, l988.
1-A(10) Application for EquiBuilder III Policy is 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 February 27, 1998 (Reg. No. 33-77470).
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, Senior Vice
President-Actuarial/Financial and Treasurer of American
Franklin.
4 Inapplicable.
5 Inapplicable.
*6(a) Consent of Ernst & Young LLP.
*6(b) Consent of Sutherland Asbill & Brennan LLP.
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7(a) Power of Attorney is 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 February 27, 1998
(Reg. No. 33-77470).
7(b) Power of Attorney.
***8 Description of American Franklin's Issuance, Transfer and
Redemption Procedures for EquiBuilder III Policies pursuant
to Rule 6e-3(T)(b)(12)(iii) under the Investment Company
Act of 1940.
* 9 Notice of Cancellation Right Pursuant to Rule 6e-3(T)(b)
(13)(viii) under the Investment Company Act of 1940.
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* To be filed by Amendment.
** Incorporated herein by reference to similarly designated exhibit to
Post-Effective Amendment No. 2 on Form S-6 of Separate Account VUL-2 of
The American Franklin Life Insurance Company, filed April 30, 1996
(Reg. No. 33-77470).
*** 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, 1998
(Reg. No. 33-77470).
II-5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Separate Account VUL-2 of The American Franklin Life Insurance Company has duly
caused this Post-Effective Amendment No. 7 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 26th day of February, 1999.
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
Chairman of the Board and
Chief Executive Officer
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 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 26 day of February, 1999.
THE AMERICAN FRANKLIN
LIFE INSURANCE COMPANY
By: /s/ William A. Simpson
--------------------------
William A. Simpson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form S-6 has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Robert M. Beuerlein* Director February 26, 1999
- ---------------------------
Robert M. Beuerlein
/s/ Brady W. Creel* Director February 26, 1999
- ---------------------------
Brady W. Creel
Director February__, 1999
- ---------------------------
Rodney O. Martin, Jr.
Director February__, 1999
- ---------------------------
Jon P. Newton
/s/ Michael M. Nicholson* Director February 26, 1999
- ---------------------------
Michael M. Nicholson
/s/ Philip K. Polkinghorn* Executive Vice President February 26, 1999
- --------------------------- and Chief Financial
Philip K. Polkinghorn Officer
Director February__, 1999
- ---------------------------
Gary D. Reddick
/s/ William A. Simpson* Chairman of the Board February 26, 1999
- --------------------------- and Chief Executive
William A. Simpson Officer
/s/ Elizabeth E. Arthur
- -----------------------------------------
*By Elizabeth E. Arthur, Attorney-in-Fact
II-7
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EXHIBIT INDEX
7(b) Power of Attorney.
II-8
<PAGE>
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated opposite their
respective names below, hereby constitute and appoint WAYNE A. ROBINSON and
ELIZABETH E. ARTHUR, and each of them, singularly, attorneys-in-fact of the
undersigned with full power to each of them to sign for and in the name of the
undersigned in the capacities indicated below (a) Post-Effective Amendment No. 7
to the Registration Statement under the Securities Act of 1933, as amended (the
"1933 Act"), on Form S-6 (Reg. No. 33-77470) of The American Franklin Life
Insurance Company and Separate Account VUL-2 of The American Franklin Life
Insurance Company in connection with the registration of units of interest in
Separate Account VUL-2 issued under EquiBuilder III-TM- flexible premium
variable life insurance policies, and (b) any and all amendments (including any
further Post-Effective Amendments) thereto, and to give any certification which
may be required in connection therewith pursuant to Rule 485 under the 1933 Act.
Signature Title Date
--------- ----- ----
/s/ Robert M. Beuerlein
- ------------------------------
Robert M. Beuerlein Director February 10, 1999
/s/ Brady W. Creel
- ------------------------------
Brady W. Creel Director February 10, 1999
- ------------------------------
Rodney O. Martin, Jr. Director ___________, 1999
- ------------------------------
Jon P. Newton Director ___________, 1999
/s/ Michael M. Nicholson
- ------------------------------
Michael M. Nicholson Director February 16, 1999
/s/ Philip K. Polkinghorn
- ------------------------------
Philip K. Polkinghorn Executive Vice President February 12, 1999
and Chief Financial
Officer (principal
financial officer and
principal accounting
officer)
- ------------------------------
Gary D. Reddick Director ___________, 1999
/s/ William A. Simpson
- ------------------------------
William A. Simpson Chairman of the Board February 16, 1999
and Chief Executive
Officer (principal
executive officer)
