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CNA Capital
Select(SM)
Variable Universal Life
Annual Report
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE
ISSUED BY THE
VALLEY FORGE LIFE INSURANCE
COMPANY
DECEMBER 31, 1997
CNA
FOR ALL THE COMMITMENTS YOU MAKE (R)
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Dear Policyowner:
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CNA Capital Select Variable Universal Life offers you and other
policyowners two primary benefits. The first is insurance -- quality life
insurance that will follow you through time and leave your beneficiaries with
financial security when they need it. The other is capital accumulation -- a
place for your money to grow now and into the future. In the following pages we
present the Annual Report for CNA Capital Select Variable Universal Life, which
is issued by Valley Forge Life Insurance Company, one of the CNA insurance
companies.
This report summarizes investments (from inception through December 31,
1997) under each of the 18 variable fund subaccounts available through CNA
Capital Select Variable Universal Life. The subaccounts are offered by six
widely recognized fund managers:
- Federated Advisors
- Fidelity Management & Research Company
- Fred Alger Management, Inc.
- Massachusetts Financial Services Company (MFS)
- Societe Generale Asset Management Corporation (SoGen)
- Van Eck Associates Corporation
The full list of subaccounts is found in the Notes to Financial Statements,
Note 1. Organization, included within this report.
In addition to a broad variety of fund choices, CNA Capital Select Variable
Universal Life offers a number of additional benefits that make it popular:
- Tax deferral allows all of your money to work for you (instead of just an
after-tax portion);
- Free transfers (up to a total of 12 per year) are available among
subaccounts; one of the 12 transfers can involve the guaranteed-interest
fund (this fund allows transfer of up to 25% of the account value). The
minimum transfer amount is $500, and at least $500 must remain in any
subaccount;
- Flexibility: You can change the amount and frequency of premium payments
according to your changing needs;
- Special features: Features like Automatic Subaccount Rebalancing and
Dollar Cost Averaging allow you to maintain the kind of fund mix you
prefer. Other user-friendly features include access to your cash, as well
as telephone exchange privileges.
If you need more information about these or other components of your
universal life product, please refer to your prospectus. If you can't find it or
need an additional copy, your agent will be happy to order one for you. If you
have other needs, as well as questions or suggestions, call your agent -- or let
us hear from you directly. We'll do everything we can to help, because we want
our ongoing relationship to be as positive for you as it is for us. Again, thank
you for purchasing a CNA Capital Select Variable Universal Life, one of the many
quality products available through the CNA family of products.
Sincerely,
ALAN S. LURTY
Alan S. Lurty, FLMI
Senior Vice President and Chief Operating Officer, Annuities
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1
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STATEMENT OF ASSETS AND LIABILITIES
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
================================================================================
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FIDELITY
PRIME MONEY UTILITY HIGH INCOME FIDELITY ASSET FIDELITY FIDELITY
DECEMBER 31, 1997 FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series $65,595 $13,779 $4,131
Variable Insurance Products Fund $26,621
Variable Insurance Products Fund
II $7,491 $40,348 $22,720
The Alger American Fund
MFS Variable Insurance Trust
SoGen Variable Funds, Inc.
Van Eck Worldwide Insurance
Trust
------- ------- ------ ------- ------ ------- -------
TOTAL INVESTMENTS 65,595 13,779 4,131 26,621 7,491 40,348 22,720
------- ------- ------ ------- ------ ------- -------
TOTAL ASSETS 65,595 13,779 4,131 26,621 7,491 40,348 22,720
LIABILITIES - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY--NET ASSETS $65,595 $13,779 $4,131 $26,621 $7,491 $40,348 $22,720
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements
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2
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<TABLE>
<CAPTION>
MFS SOGEN VAN ECK VAN ECK
ALGER ALGER MFS GROWTH MFS OVERSEAS WORLDWIDE WORLDWIDE
SMALL ALGER MID-CAP EMERGING MFS WITH LIMITED MFS VARIABLE HARD EMERGING
CAP GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY TOTAL RETURN FUND ASSETS MARKETS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$15,548 $34,134 $11,475
$26,721 $20,542 $26,897 $11,351 $1,967
$13,189
$5,902 $6,757
------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
15,548 34,134 11,475 26,721 20,542 26,897 11,351 1,967 13,189 5,902 6,757
------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
15,548 34,134 11,475 26,721 20,542 26,897 11,351 1,967 13,189 5,902 6,757
- - - - - - - - - - -
-------------------------------------------------------------------------------------------------------------------------
$15,548 $34,134 $11,475 $26,721 $20,542 $26,897 $11,351 $1,967 $13,189 $5,902 $6,757
=========================================================================================================================
<CAPTION>
ALGER
SMALL
CAP TOTAL
------- --------
<S> <C>
$ 83,505
26,621
70,559
$15,548 61,157
87,478
13,189
12,659
------- --------
15,548 355,168
------- --------
15,548 355,168
- -
--------------------------
$15,548 $355,168
=======
</TABLE>
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3
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STATEMENT OF OPERATIONS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
================================================================================
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FIDELITY
FOR THE PERIOD FROM INCEPTION TO PRIME MONEY UTILITY HIGH INCOME FIDELITY ASSET FIDELITY FIDELITY
DECEMBER 31, 1997 FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ---------------------------------------------------------------------------------------------------------------------------------
MAY 1, JUNE 10, APRIL 8, JUNE 10, JUNE 10, APRIL 8, APRIL 8,
INCEPTION DATE 1997 1997 1997 1997 1997 1997 1997
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<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 279 $ 51 $ 2 $- $- $ - $ -
------- ------- ----- ------- ----- ------- -------
279 51 2 - - - -
------- ------- ----- ------- ----- ------- -------
Expenses:
Mortality and expense risk
charges 48 46 6 56 28 75 27
Policy and issue fees/cost of
insurance 1,663 476 227 1,777 409 3,947 1,593
------- ------- ----- ------- ----- ------- -------
1,711 522 233 1,833 437 4,022 1,620
------- ------- ----- ------- ----- ------- -------
NET INVESTMENT INCOME
(LOSS) (1,432) (471) (231) (1,833) (437) (4,022) (1,620)
------- ------- ----- ------- ----- ------- -------
Investment gains (losses):
Net realized gains (losses) - 163 (1) 433 19 445 61
Net unrealized gains (losses) - 1,465 56 873 402 1,172 206
------- ------- ----- ------- ----- ------- -------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS
(LOSSES) - 1,628 55 1,306 421 1,617 267
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING
FROM OPERATIONS $(1,432) $ 1,157 $(176) $ (527) $ (16) $(2,405) $(1,353)
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements
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4
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<TABLE>
<CAPTION>
MFS SOGEN VAN ECK VAN ECK
ALGER ALGER MFS GROWTH MFS MFS OVERSEAS WORLDWIDE WORLDWIDE
SMALL ALGER MID-CAP EMERGING MFS WITH LIMITED TOTAL VARIABLE HARD EMERGING
CAP GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN FUND ASSETS MARKETS
- ---------------------------------------------------------------------------------------------------------------------------
FEB. 24, FEB. 24, MAY 29, FEB. 24, APRIL 8, APRIL 8, SEPT. 16, FEB. 24, FEB. 24, APRIL 8, APRIL 2,
1997 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8 $ 1 $ - $ - $ - $ 623 $ 652 $- $ - $- $-
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
8 1 - - - 623 652 - - - -
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
20 87 18 28 33 30 11 3 31 7 6
1,189 2,394 678 1,704 1,669 1,328 247 315 1,799 282 612
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
1,209 2,481 696 1,732 1,702 1,358 258 318 1,830 289 618
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
(1,201) (2,480) (696) (1,732) (1,702) (735) 394 (318) (1,830) (289) (618)
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
(30) 889 (53) 45 (44) 199 13 19 (319) (67) (207)
(56) (1,200) (400) 317 332 11 (611) 50 (424) (297) (129)
- ------- ------- ------- ------- ------- ------- ----- ----- ------- ----- -----
(86) (311) (453) 362 288 210 (598) 69 (743) (364) (336)
- ---------------------------------------------------------------------------------------------------------------------------
$(1,287) $(2,791) $(1,149) $(1,370) $(1,414) $ (525) $(204) $(249) $(2,573) $(653) $(954)
===========================================================================================================================
<CAPTION>
ALGER
SMALL
CAP TOTAL
- -------- --------
FEB. 24,
1997
- -------- --------
<S> <C>
$ 8 $ 1,616
- ------- --------
8 1,616
- ------- --------
20 560
1,189 22,309
- ------- --------
1,209 22,869
- ------- --------
(1,201) (21,253)
- ------- --------
(30) 1,565
(56) 1,767
- ------- --------
(86) 3,332
- --------
$(1,287) $(17,921)
========
</TABLE>
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5
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STATEMENT OF CHANGES IN NET ASSETS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
================================================================================
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FIDELITY
FOR THE PERIOD FROM INCEPTION TO PRIME MONEY UTILITY HIGH INCOME FIDELITY ASSET FIDELITY FIDELITY
DECEMBER 31, 1997 FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ---------------------------------------------------------------------------------------------------------------------------------
MAY 1, JUNE 10, APRIL 8, JUNE 10, JUNE 10, APRIL 8, APRIL 8,
INCEPTION DATE 1997 1997 1997 1997 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1,432) $ (471) $ (231) $ (1,833) $ (437) $(4,022) $ (1,620)
Net realized gains (losses) - 163 (1) 433 19 445 61
Net unrealized gains (losses) - 1,465 56 873 402 1,172 206
--------- ------- ------ -------- ------ ------- --------
Change in net assets resulting
from operations (1,432) 1,157 (176) (527) (16) (2,405) (1,353)
From capital transactions:
Net premiums 97,987 10,230 2,941 21,697 7,428 34,213 18,058
Transfers among sub-accounts and
with the Fixed Account -- net (30,960) 2,392 1,366 5,451 79 8,540 6,015
--------- ------- ------ -------- ------ ------- --------
Changes in net assets resulting
from capital transactions 67,027 12,622 4,307 27,148 7,507 42,753 24,073
Increase in net assets during period 65,595 13,779 4,131 26,621 7,491 40,348 22,720
Net assets at beginning of period - - - - - - -
--------- ------- ------ -------- ------ ------- --------
NET ASSETS AT END OF PERIOD $ 65,595 $13,779 $4,131 $ 26,621 $7,491 $40,348 $ 22,720
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 14.29 $10.95 $ 24.28 $18.01 $114.39 $ 19.94
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 65,595.1 964.3 377.3 1,096.4 415.9 352.7 1,139.4
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements
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6
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<TABLE>
<CAPTION>
MFS SOGEN VAN ECK VAN ECK
ALGER ALGER MFS GROWTH MFS OVERSEAS WORLDWIDE WORLDWIDE
SMALL ALGER MID-CAP EMERGING MFS WITH LIMITED MFS VARIABLE HARD EMERGING
CAP GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY TOTAL RETURN FUND ASSETS MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
APRIL
FEB. 24, FEB. 24, MAY 29, FEB. 24, APRIL 8, 8, SEPT. 16, FEB. 24, FEB. 24, APRIL 8, APRIL 2,
1997 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(1,201) $(2,480) $ (696) $(1,732) $(1,702) $ (735) $ 394 $ (318) $(1,830) $ (289) $ (618)
(30) 889 (53) 45 (44) 199 13 19 (319) (67) (207)
(56) (1,200) (400) 317 332 11 (611) 50 (424) (297) (129)
- ------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
(1,287) (2,791) (1,149) (1,370) (1,414) (525) (204) (249) (2,573) (653) (954)
14,166 35,288 8,051 18,949 12,643 11,690 6,149 2,216 14,325 4,423 7,649
2,669 1,637 4,573 9,142 9,313 15,732 5,406 - 1,437 2,132 62
- ------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
16,835 36,925 12,624 28,091 21,956 27,422 11,555 2,216 15,762 6,555 7,711
15,548 34,134 11,475 26,721 20,542 26,897 11,351 1,967 13,189 5,902 6,757
- - - - - - - - - - -
- ------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
$15,548 $34,134 $11,475 $26,721 $20,542 $26,897 $11,351 $1,967 $13,189 $5,902 $6,757
- ------------------------------------------------------------------------------------------------------------------------------
$ 43.75 $ 42.76 $24.18 $ 16.14 $ 15.79 $ 16.44 $ 10.01 $16.63 $ 9.77 $15.72 $11.00
==============================================================================================================================
355.4 798.3 474.6 1,655.6 1,300.9 1,636.1 1,134.0 118.3 1,350.0 375.4 614.3
==============================================================================================================================
<CAPTION>
- --------
FEB. 24,
1997
- --------
<S> <C>
$(1,201) $(21,253)
(30) 1,565
(56) 1,767
- ------- --------
(1,287) (17,921)
14,166 328,103
2,669 44,986
- ------- --------
16,835 373,089
15,548 355,168
- -
- ------- --------
$15,548 $355,168
- --------
$ 43.75
========
355.4
========
</TABLE>
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7
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NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
================================================================================
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. The assets of the Variable Account are
segregated from VFL's general account and its other separate accounts. 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 84% of the outstanding common stock of CNA.
The Variable Account currently offers 18 sub-accounts each of which invests
in shares of a corresponding fund (i.e., investment portfolios), wherein the
policyowners 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 a registered investment advisor. The
sub-accounts are as follows:
INSURANCE SERIES:
Federated Prime Money
Fund II
Federated Utility Fund II
Federated High Income
Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
Fidelity VIP Equity-
Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity VIP II Asset
Manager Portfolio
Fidelity VIP II Index 500
Portfolio
Fidelity VIP II Contrafund
Portfolio
ALGER AMERICAN FUND:
Alger American Small
Capitalization Portfolio
Alger American Growth
Portfolio
Alger American Mid-Cap
Growth Portfolio
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth
Series
MFS Research Series
MFS Growth With Income
Series
MFS Limited Maturity
Series
MFS Total Return Series
SOGEN VARIABLE FUNDS, INC.:
SoGen Overseas Variable Fund
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Hard
Assets Fund
Van Eck Worldwide
Emerging Markets Fund
The Fixed Account is part of the general account of VFL and is an
investment option available to policyowners. The policyowner (before the
maturity day, while the policyowner 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 the policyowner's balance in the
Fixed Account to any subaccount(s). 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. As a result, the
accompanying financial statements do not reflect amounts invested in the Fixed
Account.
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8
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NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
================================================================================
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
VALUATION OF INVESTMENTS -- Investments consist of shares in the portfolios
of the funds and are stated at fair value based on quoted market prices.
RECOGNITION OF INVESTMENT INCOME -- Investment income consists of dividends
declared by the portfolio managers of the funds which are recognized on the date
of record.
REALIZED GAINS AND LOSSES -- Realized investment gains and losses represent
the difference between the proceeds from sales of shares by the Variable Account
and the cost of such shares, which are determined using the average cost method.
POLICYOWNER VARIABLE ACCOUNT ACTIVITY -- Variable Account activity is
reflected in individual policyowner accounts on a daily basis.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to policyowners generally
upon distribution. Accordingly, no provision for income taxes has been recorded.
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.
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9
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NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
================================================================================
NOTE 3. INVESTMENTS
- --------------------------------------------------------------------------------
At December 31, 1997, the investments of the respective subaccounts of the
Variable Life Separate Account are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE SERIES:
Federated Prime Money Fund II 65,595 $65,595 $65,595
Federated Utility Fund II 964 12,314 13,779
Federated High Income Bond Fund II 377 4,075 4,131
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income 1,096 25,748 26,621
VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager 416 7,089 7,491
Index 500 353 39,176 40,348
Contrafund 1,139 22,514 22,720
THE ALGER AMERICAN FUND:
Small Capitalization 355 15,604 15,548
Growth 798 35,334 34,134
MidCap Growth 475 11,875 11,475
MFS VARIABLE INSURANCE TRUST:
Emerging Growth 1,656 26,404 26,721
Research 1,301 20,210 20,542
Growth With Income 1,636 26,886 26,897
Limited Maturity 1,134 11,962 11,351
Total Return 118 1,917 1,967
SOGEN VARIABLE FUNDS, INC.:
Overseas 1,350 13,613 13,189
VAN ECK WORLDWIDE INSURANCE TRUST:
Hard Assets 375 6,199 5,902
Emerging Markets 614 6,886 6,757
</TABLE>
- --------------------------------------------------------------------------------
10
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
================================================================================
- --------------------------------------------------------------------------------
NOTE 4. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of Insurance
Series, VIP Fund, VIP Fund II, Alger American Fund, MFS Variable Insurance
Trust, SoGen Variable Funds, Inc. and Van Eck Worldwide Insurance Trust shares
from the date of inception to December 31, 1997, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASES SALES
- ---------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE SERIES:
Federated Prime Money Fund II $145,193 $79,877
Federated Utility Fund II 18,819 6,718
Federated High Income Bond Fund II 7,919 3,845
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income 42,621 17,306
VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager 7,528 458
Index 500 59,865 21,134
Contrafund 43,658 21,205
THE ALGER AMERICAN FUND:
Small Capitalization 28,590 12,964
Growth 44,379 9,935
MidCap Growth 22,938 11,010
MFS VARIABLE INSURANCE TRUST:
Emerging Growth 41,571 15,212
Research 29,976 9,723
Growth With Income 45,455 19,391
Limited Maturity 26,273 14,976
Total Return 2,345 447
SOGEN VARIABLE FUNDS, INC.:
Overseas 19,038 5,106
VAN ECK WORLDWIDE INSURANCE TRUST:
Hard Assets 12,851 6,585
Emerging Markets 8,457 1,364
</TABLE>
- --------------------------------------------------------------------------------
11
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
================================================================================
NOTE 5. CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
A monthly deduction is made from each policy to compensate VFL for
administration expenses associated with the policies and the Variable Account.
These expenses relate to premium billing and collection, recordkeeping,
processing death benefit claims, policy loans, policy changes, reporting and
overhead costs, processing applications and establishing policy records. The
policy fee is $6.00 per month. The issue fee is $20.00 per month during the
first policy year and is $10.00 per month for the first 12 months after an
increase in the specified amount. A monthly deduction is made from each policy
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. These monthly charges are deducted proportionately from the value of each
Variable sub-account and/or the Fixed Account option.
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 approximately equal to an annual rate of 0.90% of the net
assets of the Variable Account during the first 10 policy years and an
approximate 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 to cover
federal tax liabilities and state and local premium taxes.
VFL permits 12 free transfers between and among the sub-accounts (one of
which can be applied to the Fixed Account) per policy year. For each additional
transfer, VFL charges $25 at the time each such transfer is processed. The fee
is deducted from the amount being transferred.
- --------------------------------------------------------------------------------
NOTE 6. DIVERSIFICATION REQUIREMENTS
- --------------------------------------------------------------------------------
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 funds'
prospectuses, that the funds satisfy the requirement of the regulations.
- --------------------------------------------------------------------------------
12
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- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Policyowners of Valley Forge Life Insurance Company Variable 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
Valley Forge Life Insurance Company Variable Life Separate Account (a separate
account of the Valley Forge Life Insurance Company, which is a wholly-owned
subsidiary of Continental Assurance Company, which is a wholly-owned subsidiary
of Continental Casualty Company, which is wholly-owned by CNA Financial
Corporation, an affiliate of Loews Corporation) as of December 31, 1997, and the
related statements of operations and changes in net assets for the period from
inception through December 31, 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities held at December 31, 1997. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Valley Forge Life
Insurance Company Variable Life Separate Account as of December 31, 1997, and
the results of its operations and the changes in its net assets for the period
from inception through December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 23, 1998
- --------------------------------------------------------------------------------
13
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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 CNA Financial
Corporation. CNA Capital Select Variable Universal Life is issued by the Valley
Forge Life Insurance Company, one of the CNA insurance companies.
CNA is a registered service mark of 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
FOR ALL THE COMMITMENTS YOU MAKE (R)
AG-127396--B 2/98 Printed in USA
