<PAGE> 1
CNA
CAPITAL SELECT
VARIABLE
UNIVERSAL LIFE
Annual Report
issued by the
Valley Forge
Life Insurance Company,
one of the CNA
companies
December 31, 1999
[CNA LOGO]
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February 24, 2000
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Dear Contractholder:
This Annual Report includes the statements of assets and liabilities as of
December 31, 1999, statements of operations for the year then ended, statements
of changes in net assets for the two years ended December 31, 1999 and the
Independent Auditors' Report thereon for each of the subaccounts available
through your CNA Capital Select(R) Variable Life contract/policy.*
These subaccounts are managed by widely recognized portfolio managers such
as Federated, Fidelity, Fred Alger, MFS and others. It's worth noting that
during 1999, CNA added Janus to this list of popular portfolio managers when we
made six Janus portfolios available to you and other contractowners.
In addition to performance information, a full list of the subaccounts
currently available (complete with information detailing the total shares and
market value held by CNA Capital Select VUL contract owners in aggregate),
contractual information about the separately held subaccounts, and other notes
of interest.
CNA Capital Select Variable Universal Life Insurance is issued by Valley
Forge Life Insurance Company, one of the CNA companies.
For more than a century, CNA has been helping people across America meet
their insurance and financial needs. We hope that CNA Capital Select Variable
Universal Life -- with its multiple investment options,** flexible premium
schedules and competitive cost of insurance -- will continue to help you meet
your needs, as well.
To that end, I encourage you to read the enclosed annual report fully. If
you have questions, please contact your CNA representative. Or call our
administrative offices, toll-free, at 1-800-827-2621.
Thanks again for doing business with CNA.
Sincerely,
David M. Chermow
David M. Chernow
Senior Vice President & Chief Operating Officer
CNA Investment Products
*Although a guaranteed-interest option is available in connection with CNA
Capital Select Variable Universal Life Insurance, financial reports regarding
this fixed-interest fund are not included in this report.
**As with many investment products, performance results will vary, and the
cash value of your contract might show an increase or decrease when you withdraw
your money. It's important to remember that taxes will be due to the extent that
any earnings are withdrawn. And, in certain circumstances, withdrawals prior to
age 59 1/2 can result in government-imposed penalties and other charges.
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1
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
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<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value (see
supplemental cost information
below) $1,337,536 $123,711 $107,312 $628,527 $266,010 $1,819,650 $1,141,432
---------- -------- -------- -------- -------- ---------- ----------
TOTAL ASSETS 1,337,536 123,711 107,312 628,527 266,010 1,819,650 1,141,432
---------- -------- -------- -------- -------- ---------- ----------
LIABILITIES:
Payable for fund withdrawals and
surrenders (26,564) (867) -- (13,051) -- -- (601,696)
---------- -------- -------- -------- -------- ---------- ----------
TOTAL LIABILITIES (26,564) (867) -- (13,051) -- -- (601,696)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,310,972 $122,844 $107,312 $615,476 $266,010 $1,819,650 $ 539,736
=================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost $1,310,972 $122,453 $109,593 $623,780 $247,427 $1,879,231 $1,080,717
=================================================================================================================================
</TABLE>
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS
VAN ECK ASPEN JANUS JANUS ASPEN ASPEN
EMERGING CAPITAL ASPEN ASPEN FLEXIBLE INTERNATIONAL
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH
DECEMBER 31, 1999 FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value (see
supplemental cost information below) $ 85,808 $231,654 $118,851 $ 12,165 $ 217 $31,404
-------- -------- -------- -------- -------- -------
TOTAL ASSETS 85,808 231,654 118,851 12,165 217 31,404
-------- -------- -------- -------- -------- -------
LIABILITIES:
Payable for fund withdrawals and
surrenders -- -- -- (23) (1) (14)
-------- -------- -------- -------- -------- -------
TOTAL LIABILITIES -- -- -- (23) (1) (14)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 85,808 $231,654 $118,851 $ 12,142 $ 216 $31,390
=========================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost $ 60,834 $192,395 $102,538 $ 11,102 $ 215 $26,521
=========================================================================================================================
<CAPTION>
JANUS
ASPEN
WORLD WIDE
GROWTH
DECEMBER 31, 1999 PORTFOLIO
- ------------------------------------------ ----------
<S> <C>
ASSETS:
Investments, at market value (see
supplemental cost information below) $ 94,996
--------
TOTAL ASSETS 94,996
--------
LIABILITIES:
Payable for fund withdrawals and
surrenders --
--------
TOTAL LIABILITIES --
- ------------------------------------------
NET ASSETS $ 94,996
==========================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost $ 77,201
==========================================
</TABLE>
See accompanying Notes to Financial Statements.
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2
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<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS VAN ECK
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS MFS SOGEN WORLDWIDE
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL OVERSEAS HARD
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$306,155 $1,359,820 $457,509 $915,394 $428,976 $502,242 $77,690 $341,613 $288,735 $23,391
-------- ---------- -------- -------- -------- -------- ------- -------- -------- -------
306,155 1,359,820 457,509 915,394 428,976 502,242 77,690 341,613 288,735 23,391
-------- ---------- -------- -------- -------- -------- ------- -------- -------- -------
(14,699) -- (3,400) (8) (2,698) (373) (4,181) -- -- (26)
-------- ---------- -------- -------- -------- -------- ------- -------- -------- -------
(14,699) -- (3,400) (8) (2,698) (373) (4,181) -- -- (26)
- --------------------------------------------------------------------------------------------------------------------------
$291,456 $1,359,820 $454,109 $915,386 $426,278 $501,869 $73,509 $341,613 $288,735 $23,365
==========================================================================================================================
$253,752 $1,193,861 $387,900 $686,138 $348,548 $466,568 $77,882 $350,610 $247,934 $22,339
==========================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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3
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500 CONTRAFUND
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 34,277 $ 5,412 $ 6,010 $ 18,590 $13,097 $ 8,382 $ 16,984
-------- ------- -------- -------- ------- --------- ---------
34,277 5,412 6,010 18,590 13,097 8,382 16,984
-------- ------- -------- -------- ------- --------- ---------
Expenses:
Mortality and expense risk charges 6,667 803 750 4,465 1,936 9,965 6,231
Policy fees/Cost of insurance 75,698 10,867 12,804 52,685 20,302 135,236 78,259
-------- ------- -------- -------- ------- --------- ---------
82,365 11,670 13,554 57,150 22,238 145,201 84,490
-------- ------- -------- -------- ------- --------- ---------
NET INVESTMENT INCOME (LOSS) (48,088) (6,258) (7,544) (38,560) (9,141) (136,819) (67,506)
Investment gains and (losses):
Net realized gains (losses) - 750 (2,687) 4,507 6,698 69,785 142,245
Net unrealized gains (losses) - (3,365) (2,743) (22,236) 11,758 (105,956) (584,391)
-------- ------- -------- -------- ------- --------- ---------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) - (2,615) (5,430) (17,729) 18,456 (36,171) (442,146)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(48,088) $(8,873) $(12,974) $(56,289) $ 9,315 $(172,990) $(509,652)
=================================================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
JANUS JANUS JANUS JANUS
VAN ECK ASPEN JANUS JANUS ASPEN ASPEN ASPEN
EMERGING CAPITAL ASPEN ASPEN FLEXIBLE INTERNATIONAL WORLD WIDE
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income - - - - - - -
------- ------- ------- ------- ---- ------- -------
- - - - - - -
------- ------- ------- ------- ---- ------- -------
Expenses:
Mortality and expense risk charges $ 167 $ 453 $ 133 $ 12 - $ 58 $ 157
Policy fees/Cost of insurance 6,146 1,330 684 137 $ 38 293 651
------- ------- ------- ------- ---- ------- -------
6,313 1,783 817 149 38 351 808
------- ------- ------- ------- ---- ------- -------
NET INVESTMENT INCOME (LOSS) (6,313) (1,783) (817) (149) (38) (351) (808)
Investment gains and (losses):
Net realized gains (losses) 6,510 23,381 (237) 11 - 11,007 11,697
Net unrealized gains (losses) 25,767 39,259 16,313 1,040 1 4,869 17,795
------- ------- ------- ------- ---- ------- -------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) 32,277 62,640 16,076 1,051 1 15,876 29,492
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $25,964 $60,857 $15,259 $ 902 $(37) $15,525 $28,684
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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4
<PAGE> 6
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<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS VAN ECK
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS MFS SOGEN WORLDWIDE
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL OVERSEAS HARD
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$16,693 $ 62,822 $38,874 - $ 2,935 $ 1,986 $ 4,218 $ 12,074 $ 3,304 $ 190
------- -------- ------- -------- -------- -------- ------- -------- -------- -------
16,693 62,822 38,874 - 2,935 1,986 4,218 12,074 3,304 190
------- -------- ------- -------- -------- -------- ------- -------- -------- -------
1,619 7,580 2,650 $ 4,133 3,363 3,016 586 2,243 2,004 154
21,221 90,363 30,100 58,872 36,824 39,310 8,706 26,801 31,183 2,422
------- -------- ------- -------- -------- -------- ------- -------- -------- -------
22,840 97,943 32,750 63,005 40,187 42,326 9,292 29,044 33,187 2,576
------- -------- ------- -------- -------- -------- ------- -------- -------- -------
(6,147) (35,121) 6,124 (63,005) (37,252) (40,340) (5,074) (16,970) (29,883) (2,386)
23,168 77,813 9,208 23,492 10,097 5,229 (210) 4,670 38,990 760
27,800 122,720 43,822 188,807 59,131 18,997 (3,124) (14,859) 42,033 1,839
------- -------- ------- -------- -------- -------- ------- -------- -------- -------
50,968 200,533 53,030 212,299 69,228 24,226 (3,334) (10,189) 81,023 2,599
- ----------------------------------------------------------------------------------------------------------------------------------
$44,821 $165,412 $59,154 $149,294 $31,976 $(16,114) $(8,408) $(27,159) $ 51,140 $ 213
==================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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5
<PAGE> 7
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (48,088) $ (6,258) $ (7,544) $(38,560) $ (9,141) $ (136,819) $(67,506)
Net realized and unrealized
investment gains (losses) - (2,615) (5,430) (17,729) 18,456 (36,171) (442,146)
---------- -------- -------- -------- -------- ---------- --------
Change in net assets resulting
from operations (48,088) (8,873) (12,974) (56,289) 9,315 (172,990) (509,652)
---------- -------- -------- -------- -------- ---------- --------
From capital transactions:
Net premiums/deposits 1,215,907 85,733 78,714 410,539 148,962 1,212,597 672,068
Surrenders and withdrawals (1,542) 19 (941) 1,122 (523) (9,452) (3,707)
Transfers in (out of) subaccounts,
net -- Note 1 (702,832) (3,776) (22,988) (39,350) 22,540 369,492 53,687
---------- -------- -------- -------- -------- ---------- --------
Change in net assets resulting
from capital transactions 511,533 81,976 54,785 372,311 170,979 1,572,637 722,048
---------- -------- -------- -------- -------- ---------- --------
Increase in net assets 463,445 73,103 41,811 316,022 180,294 1,399,647 212,396
Net assets at beginning of period 847,527 49,741 65,501 299,454 85,716 420,003 327,340
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $1,310,972 $122,844 $107,312 $615,476 $266,010 $1,819,650 $539,736
=================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 14.35 $ 10.24 $ 25.71 $ 18.67 $ 167.41 $ 29.15
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 1,310,972 8,561 10,480 23,939 14,248 10,869 18,516
=================================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ (14,476) $ (3,056) $ (5,532) $(22,666) $ (6,180) $ (38,788) $(22,765)
Net realized and unrealized
investment gains (losses) - 3,330 192 11,559 6,583 46,453 46,063
---------- -------- -------- -------- -------- ---------- --------
Change in net assets resulting
from operations (14,476) 274 (5,340) (11,107) 403 7,665 23,298
---------- -------- -------- -------- -------- ---------- --------
From capital transactions:
Net premiums/deposits 1,100,864 36,000 58,181 263,891 61,909 327,244 246,088
Surrenders and withdrawals (572) (83) (165) (2,423) (129) (6,058) (1,201)
Transfers in (out of) subaccounts,
net -- Note 1 (303,884) (229) 8,694 22,472 16,042 50,804 36,435
---------- -------- -------- -------- -------- ---------- --------
Change in net assets resulting
from capital transactions 796,408 35,688 66,710 283,940 77,822 371,990 281,322
---------- -------- -------- -------- -------- ---------- --------
Increase (decrease) in net assets 781,932 35,962 61,370 272,833 78,225 379,655 304,620
Net assets at beginning of period 65,595 13,779 4,131 26,621 7,491 40,348 22,720
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $ 847,527 $ 49,741 $ 65,501 $299,454 $ 85,716 $ 420,003 $327,340
=================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 15.27 $ 10.92 $ 25.42 $ 18.16 $ 141.25 $ 24.44
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 847,527 3,257 5,998 11,780 4,720 2,973 13,394
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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6
<PAGE> 8
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<TABLE>
<CAPTION>
THE ALGER THE ALGER
AMERICAN THE ALGER AMERICAN MFS
SMALL AMERICAN MIDCAP EMERGING MFS
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (6,147) $ (35,121) $ 6,124 $(63,005) $(37,252)
50,968 200,533 53,030 212,299 69,228
-------- ---------- -------- -------- --------
44,821 165,412 59,154 149,294 31,976
-------- ---------- -------- -------- --------
149,226 813,146 190,974 344,008 187,325
(1,485) (25,742) (972) (3,708) (1,274)
(32,320) 126,761 36,116 139,533 2,955
-------- ---------- -------- -------- --------
115,421 914,165 226,118 479,833 189,006
-------- ---------- -------- -------- --------
160,242 1,079,577 285,272 629,127 220,982
$131,214 280,243 168,837 286,259 205,296
- -----------------------------------------------------------------
$291,456 $1,359,820 $454,109 $915,386 $426,278
=================================================================
$ 55.15 $ 64.38 $ 32.23 $ 37.94 $ 23.34
=================================================================
5,285 21,122 14,090 24,127 18,264
=================================================================
- -----------------------------------------------------------------
$ (3,424) $ (6,097) $ (9,436) $(22,642) $(15,787)
4,449 44,836 22,499 40,816 18,836
-------- ---------- -------- -------- --------
1,025 38,739 13,063 18,174 3,049
-------- ---------- -------- -------- --------
88,005 171,948 119,140 214,349 173,364
(313) (1,636) (1,360) (734) (2,718)
26,949 37,058 26,519 27,749 11,059
-------- ---------- -------- -------- --------
114,641 207,370 144,299 241,364 181,705
-------- ---------- -------- -------- --------
115,666 246,109 157,362 259,538 184,754
15,548 34,134 11,475 26,721 20,542
- -----------------------------------------------------------------
$131,214 $ 280,243 $168,837 $286,259 $205,296
=================================================================
$ 43.97 $ 53.22 $ 28.87 $ 21.47 $ 19.05
=================================================================
2,984 5,266 5,848 13,333 10,777
=================================================================
<CAPTION>
MFS VAN ECK
GROWTH MFS MFS SOGEN WORLDWIDE VAN ECK
WITH LIMITED TOTAL OVERSEAS HARD EMERGING
INCOME MATURITY RETURN VARIABLE ASSETS MARKETS
SERIES SERIES SERIES FUND FUND FUND
- ---
<S> <C> <C> <C> <C> <C> <C>
$(40,340) $(5,074) $(16,970) $(29,883) $(2,386) $ (6,313)
24,226 (3,334) (10,189) 81,023 2,599 32,277
-------- -------- -------- -------- ------- --------
(16,114) (8,408) (27,159) 51,140 213 25,964
-------- -------- -------- -------- ------- --------
301,314 42,954 243,333 94,031 14,568 40,337
(2,829) (315) (547) 2,448 (75) (1,098)
8,922 (14,192) (2,322) 6,797 (1,744) 1,766
-------- -------- -------- -------- ------- --------
307,407 28,447 240,464 103,276 12,749 41,005
-------- -------- -------- -------- ------- --------
291,293 20,039 213,305 154,416 12,962 66,969
210,576 53,470 128,308 134,319 10,403 18,839
- ---
$501,869 $73,509 $341,613 $288,735 $23,365 $ 85,808
===
$ 21.31 $ 9.81 $ 17.75 $ 14.18 $ 10.96 $ 14.26
===
23,551 7,493 19,245 20,362 2,132 6,017
===
- ---
$(18,580) $(4,763) $ (5,524) $(14,549) $ (417) $ (3,614)
12,276 (499) 6,093 (3,210) (3,800) (3,708)
-------- -------- -------- -------- ------- --------
(6,304) (5,262) 569 (17,759) (4,217) (7,322)
-------- -------- -------- -------- ------- --------
141,269 47,751 97,181 135,934 9,690 20,390
(2,367) (363) (194) (2,482) (156) (296)
51,081 (7) 28,785 5,437 (816) (690)
-------- -------- -------- -------- ------- --------
189,983 47,381 125,772 138,889 8,718 19,404
-------- -------- -------- -------- ------- --------
183,679 42,119 126,341 121,130 4,501 12,082
26,897 11,351 1,967 13,189 5,902 6,757
- ---
$210,576 $53,470 $128,308 $134,319 $10,403 $ 18,839
===
$ 20.11 $ 10.16 $ 18.12 $ 10.07 $ 9.20 $ 7.12
===
10,471 5,263 7,081 13,339 1,131 2,646
===
</TABLE>
See accompanying Notes to Financial Statements.
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7
<PAGE> 9
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS JANUS
ASPEN JANUS JANUS ASPEN ASPEN ASPEN
CAPITAL ASPEN ASPEN FLEXIBLE INTERNATIONAL WORLD WIDE
APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
FOR THE YEAR ENDED DECEMBER 31, 1999 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1,783) $ (817) $ (149) $ (38) $ (351) $ (808)
Net realized and unrealized investment gains
(losses) 62,640 16,076 1,051 1 15,876 29,492
-------- -------- ------- ------- ------- -------
Change in net assets resulting from operations 60,857 15,259 902 (37) 15,525 28,684
-------- -------- ------- ------- ------- -------
From capital transactions:
Net premiums/deposits 170,800 103,592 11,240 253 15,865 66,312
Surrenders and withdrawals - - - - - -
Transfers in (out of) subaccounts, net -- Note 1 (3) - - - - -
-------- -------- ------- ------- ------- -------
Change in net assets resulting from capital
transactions 170,797 103,592 11,240 253 15,865 66,312
-------- -------- ------- ------- ------- -------
Increase in net assets 231,654 118,851 12,142 216 31,390 94,996
Net assets at beginning of period - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $231,654 $118,851 $12,142 $ 216 $31,390 $94,996
=================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 33.17 $ 33.65 $ 27.92 $ 11.42 $ 38.67 $ 47.75
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 6,984 3,532 435 19 812 1,989
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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8
<PAGE> 10
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
- --------------------------------------------------------------------------------
Valley Forge Life Insurance Company Variable Life Separate Account
("Variable Account"), a unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, is a Separate
Account of Valley Forge Life Insurance Company ("VFL"). The Variable Account
began operations on February 24, 1997. VFL is a wholly-owned subsidiary of
Continental Assurance Company ("Assurance"). Assurance is a wholly-owned
subsidiary of Continental Casualty Company ("Casualty"), which is wholly-owned
by CNA Financial Corporation ("CNA"). Loews Corporation owns approximately 86%
of the outstanding common stock of CNA.
VFL sells a wide range of life insurance products, including the Capital
Select variable life policy ("Policy"). Under the terms of the Policy,
policyowners select where the net premium payments of the Policy are invested.
The policyowner may choose to invest in either the Variable Account, the fixed
account ("Fixed Account") or both the Variable Account and Fixed Account.
Policyholders who invest in the Variable Account are hereinafter referred to as
the contractholder.
The Variable Account currently offers 24 subaccounts each of which invests
in shares of a corresponding fund ("Fund"), in which the contractholders bear
all of the investment risk. Each Fund is either an open-end diversified
management investment company or a separate investment portfolio of such a
company and is managed by an investment advisor ("Investment Advisor") which is
registered with the Securities and Exchange Commission. The Investment Advisors
and subaccounts are identified here.
- ------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
- ------------------------------------------------------------
FEDERATED ADVISERS:
Federated Prime Money Fund II
Federated Utility Fund II
Federated High Income Bond Fund II
FIDELITY MANAGEMENT & RESEARCH COMPANY:
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio
("Fidelity Equity-Income Portfolio")
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio
("Fidelity Asset Manager Portfolio")
Fidelity Variable Insurance Products Fund II
Index 500 Portfolio ("Fidelity Index 500 Portfolio")
Fidelity Variable Insurance Products Fund II
Contrafund Portfolio
("Fidelity Contrafund Portfolio")
FRED ALGER MANAGEMENT, INC.:
The Alger American Small Capitalization Portfolio
The Alger American Growth Portfolio
The Alger American MidCap Growth Portfolio
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INVESTMENT ADVISOR:
FUND/SUBACCOUNT
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MASSACHUSETTS FINANCIAL SERVICES COMPANY:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS Limited Maturity Series (closed to
new investments)
MFS Total Return Series
SOCIETE GENERALE ASSET MANAGEMENT CORP.:
SoGen Overseas Variable Fund
VAN ECK ASSOCIATES CORPORATION:
Van Eck Worldwide Hard Assets Fund
Van Eck Emerging Markets Fund
JANUS CAPITAL CORPORATION --
INSTITUTIONAL CLASS
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen International Growth Portfolio
Janus Aspen World Wide Growth Portfolio
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1999
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NOTE 1. ORGANIZATION (CONTINUED)
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The Fixed Account is part of the general account of VFL and is an
investment option available to contractholders. The Fixed Account has not been
registered under the Securities Act of 1933 nor has the Fixed Account been
registered as an investment company under the Investment Company Act of 1940.
The accompanying financial statements do not reflect amounts invested in the
Fixed Account.
The assets of the Variable Account are segregated from VFL's general
account and other separate accounts. The contractholder (before the maturity
date, while the contractholder is still living or the policy is in force), may
transfer all or part of any subaccount value to another subaccount(s) or to the
Fixed Account, or transfer all or part of amounts in the Fixed Account to any
subaccount(s). The MFS Limited Maturity Series subaccount is not available to
receive transfers from new participants as of May 1, 1999.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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VALUATION OF INVESTMENTS -- Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices. Changes in the
difference between market value and cost are reflected as net unrealized gains
(losses) in the statement of operations.
INVESTMENT INCOME -- Investment income consists of dividends declared by
the Funds which are recognized on the date of record.
REALIZED INVESTMENT GAINS AND LOSSES -- Realized investment gains and
losses represent the difference between the proceeds from sales of shares of the
Funds held by the Variable Account and the cost of such shares, which are
determined using the first-in first-out cost method.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to contractholders generally
upon distribution. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of Variable Account's management, these statements include all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position, results of operations and
changes in net assets in the accompanying financial statements.
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NOTE 3. CHARGES AND DEDUCTIONS
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Monthly deductions are made from each contractholder's account under the
terms of the Policy to compensate VFL for certain administration expenses. The
policy fee is $6 per month. In addition, in the first year of a policy another
$20 per month is deducted. Furthermore, in the event of an increase to the death
benefit of the Policy, an additional fee of $10 per month is deducted for the
twelve months subsequent to the death benefit increase. A
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1999
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NOTE 3. CHARGES AND DEDUCTIONS (CONTINUED)
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deduction is also made for the cost of insurance and any charges for
supplemental riders. The cost of insurance charge is based on the sex, attained
age, issue age, risk class, and number of years that the policy or increment of
specified amount has been in force. All of the foregoing charges are deducted
from the contractholder's investment in the Fixed Account and the subaccounts of
the Variable Account in proportion to the contractholder's investments in such
accounts.
VFL deducts a daily charge from the assets of the Variable Account to
compensate it for mortality and expense risks that it assumes under the policy.
The daily charge is equal to an annual rate of 0.90% of the net assets of the
Variable Account during the first 10 policy years and an annual rate of 0.45% of
the net assets of the Variable Account during policy years 11 and thereafter.
VFL deducts an amount equal to 3.5% from each premium payment (deposit)
made by the contractholder to cover federal tax liabilities and state and local
premium taxes. An additional deduction for sales charges is made from premium
payments (deposits). Such deduction is made under the terms of the Policy and
ranges from 2% to 4% of the premium payments (deposits). Net premiums after
these deductions are invested in the mutual funds.
VFL permits 12 transfers between and among the subaccounts (one of which
can be applied to the Fixed Account) per policy year without an assessment of a
fee. For each additional transfer, VFL charges $25 at the time each such
transfer is processed. The fee is deducted from the amount being transferred.
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NOTE 4. DIVERSIFICATION REQUIREMENTS
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Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable life insurance policy will not be treated as life
insurance under Section 7702 of the Code for any period for which the
investments of the segregated asset account on which the policy is based are not
adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of the Treasury. VFL believes, based on the prospectuses of
each of the Funds that the Variable Account participates in, that the mutual
funds satisfy the diversification requirement of the regulations.
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INDEPENDENT AUDITORS' REPORT
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To the Contractholders of Valley Forge Life Insurance Company Variable Universal
Life Separate Account and the Board of Directors of Valley Forge Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
subaccounts of Valley Forge Life Insurance Company Variable Life Separate
Account (the "Account") as of December 31, 1999, the statements of operations
for the year ended December 31, 1999, and changes in net assets for the two
years ended December 31, 1999. The subaccounts that collectively comprise the
Account are the Federated Prime Money Fund II, Federated Utility Fund II,
Federated High Income Bond Fund II, Fidelity Variable Insurance Products Fund
Equity-Income Portfolio, Fidelity Variable Insurance Products Fund II Asset
Manager Portfolio, Fidelity Variable Insurance Products Fund II Index 500
Portfolio, Fidelity Variable Insurance Products Fund II Contrafund Portfolio,
The Alger American Fund Small Capitalization Portfolio, The Alger American
Growth Portfolio, The Alger American MidCap Growth Portfolio, MFS Emerging
Growth Series, MFS Research Series, MFS Growth with Income Series, MFS Limited
Maturity Series, MFS Total Return Series, SoGen Overseas Variable Fund, Van Eck
Worldwide Hard Assets, Van Eck Emerging Markets Fund, Janus Aspen Capital
Appreciation Portfolio, Janus Aspen Growth Portfolio, Janus Aspen Balanced
Portfolio, Janus Aspen Flexible Income Portfolio, Janus Aspen International
Growth Portfolio and Janus Aspen World Wide Growth Portfolio. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the subaccounts that comprise the
Account as of December 31, 1999, the results of their operations for the year
ended December 31, 1999, and the changes in their net assets for the two years
ended December 31, 1999, are in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
February 24, 2000
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MANAGEMENT'S DISCUSSION OF IMPACT OF YEAR 2000 ON VARIABLE ACCOUNT
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Separate Account does not maintain any systems, it relies on the systems of
CNA and the systems of other business partners.
CNA believes that it has successfully resolved the Year 2000 issue. There
were no problems observed that would affect the normal processing of CNA
business. No significant processing or other computer problems related to Year
2000 have arisen at CNA nor in any of the systems of the Separate Account
business partners. Going forward, CNA does not expect any Year 2000 systems
processing problems that would have a material impact on the results of
operations or equity of CNA or of the Separate Account.
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The principal underwriter of this product is CNA Investor Services, Inc., a
registered broker-dealer and member of the National Association of Securities
Dealers. CNA Investor Services, Inc., is an affiliate of the CNA Financial
Corporation. CNA Capital Select Variable Universal Life is issued by the Valley
Forge Life Insurance Company, one of the CNA companies.
CNA is a registered service mark of the CNA Financial Corporation. The policy
form numbers for this product are: V100-1132-A Series, V100-1133-A Series. CNA
Capital Select Variable Universal Life is not available in all states.
MAILING ADDRESS:
CNA Insurance Companies
Variable Product Team
P.O. Box 305139
Nashville TN 37230-5139
[CNA LOGO]
AG-132667-B 2/00 Printed in USA