<PAGE> 1
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
Dear Policyholder:
Your CNA Capital Select(R) Variable Universal Life policy, issued by the
Valley Forge Life Insurance Company, one of the CNA companies, was designed to
be competitive with some of the best products in the industry -- and it
continues to improve. Within the past year, for instance, we have increased our
roster of fund managers and added a number of subaccounts (which are also called
portfolios) to give you even more flexibility with your investment choices.
This Semi-Annual Report takes a look at the subaccounts that are
represented in our product. It reflects each subaccount's assets and liabilities
at June 30, 2000, results of operations for the six month period ending June 30,
2000 and changes in net assets for the six month and twelve month periods ending
June 30, 2000 and December 31, 1999, respectively.*
These subaccounts are managed by widely recognized fund managers:
S Alliance Capital Management L.P.
S American Century Investment Management, Inc.
S Arnhold and S. Bleichroeder Advisors, Inc.
S Federated Investment Management Company
S Fidelity Management & Research Company
S Fred Alger Management, Inc.
S Janus Capital Corporation
S Lazard Asset Management
S Massachusetts Financial Services Company (MFS)
S Morgan Stanley Asset Management, Inc.
S Templeton Asset Management LTD.
S Templeton Investment Counsel, Inc.
S Van Eck Associates Corporation
The full list of subaccounts can be found in the Notes to Financial
Statements, Note 1, Organization, included within this report.
If you need additional information, please refer to your prospectus. If you
can't find it or need another copy, please contact your CNA representative -- or
let us hear from you directly. Thank you, once again, for selecting CNA Capital
Select(R) Variable Universal Life as a tool that can provide life insurance
protection while it also provides investment choices to help you reach your
long-term goals.**
Sincerely,
/s/ Kevin M. Hogan
Kevin M. Hogan
Senior Vice President & Chief Marketing Officer
CNA Investment Products
*Although a guaranteed-interest option is available in connection with CNA
Capital Select(R) Variable Universal Life, 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
<PAGE> 2
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
VIP II FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP ASSET VIP II VIP II
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value (cost
noted below): $1,087,401 $129,128 $110,852 $614,196 $269,338 $2,021,685 $1,371,588
---------- -------- -------- -------- -------- ---------- ----------
TOTAL ASSETS 1,087,401 129,128 110,852 614,196 269,338 2,021,685 1,371,588
---------- -------- -------- -------- -------- ---------- ----------
LIABILITIES - - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,087,401 $129,128 $110,852 $614,196 $269,338 $2,021,685 $1,371,588
=================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost $1,087,401 $132,288 $121,255 $648,243 $260,185 $2,179,898 $1,361,939
=================================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS JANUS
ASPEN JANUS JANUS ASPEN ASPEN ASPEN
VAN ECK SERIES ASPEN ASPEN SERIES SERIES SERIES
EMERGING CAPITAL SERIES SERIES FLEXIBLE INTERNATIONAL WORLD WIDE
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
JUNE 30, 2000 (UNAUDITED) FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value
(cost noted below): $101,365 $412,495 $343,989 $120,642 $1,566 $295,851 $318,883
-------- -------- -------- -------- ------ -------- --------
TOTAL ASSETS 101,365 412,495 343,989 120,642 1,566 295,851 318,883
-------- -------- -------- -------- ------ -------- --------
LIABILITIES - - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $101,365 $412,495 $343,989 $120,642 $1,566 $295,851 $318,883
=================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost $ 92,771 $427,622 $350,756 $128,093 $1,572 $313,765 $323,062
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
2
<PAGE> 3
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER MFS FIRST EAGLE
AMERICAN THE ALGER AMERICAN AMERICAN MFS GROWTH MFS MFS SOGEN
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS WITH LIMITED TOTAL OVERSEAS
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$530,175 $1,607,799 $687,478 - $1,222,936 $507,057 $439,317 $72,739 $382,590 $309,397
-------- ---------- -------- -------- ---------- -------- -------- ------- -------- --------
530,175 1,607,799 687,478 - 1,222,936 507,057 439,317 72,739 382,590 309,397
-------- ---------- -------- -------- ---------- -------- -------- ------- -------- --------
- - - - - - - - - -
------------------------------------------------------------------------------------------------------------------------------
$530,175 $1,607,799 $687,478 - $1,222,936 $507,057 $439,317 $72,739 $382,590 $309,397
==============================================================================================================================
$686,688 $1,603,868 $630,204 - $1,066,150 $413,711 $420,715 $69,814 $376,010 $276,452
==============================================================================================================================
<CAPTION>
VAN ECK
WORLDWIDE
HARD
ASSETS
FUND
--- ---------
<S> <C>
$28,237
-------
28,237
-------
-
---
$28,237
===
$26,558
===
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$27,396 $ 41 - - - - - - $ 44
------- ------- ------- ------- ------- ------- ------- ------- -------
27,396 41 - - - - - - 44
------- ------- ------- ------- ------- ------- ------- ------- -------
- - - - - - - - -
---------------------------------------------------------------------------------------------------------------------
$27,396 $ 41 - - - - - - $ 44
=====================================================================================================================
$29,386 $ 41 - - - - - - $ 41
=====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING MARKETS
EQUITY
PORTFOLIO
--- ----------------
<S> <C>
-
-------
-
-------
-
---
-
===
-
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
3
<PAGE> 4
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP VIP II FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET VIP II
PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 5,614 $ 3,552 $ 9,300 $ 10,019 $ 8,374 $ 20,161
-------- ------- ------- -------- -------- ---------
5,614 3,552 9,300 10,019 8,374 20,161
-------- ------- ------- -------- -------- ---------
Expenses:
Mortality and expense risk charges 3,992 555 451 2,683 1,209 9,327
Policy fees/Cost of insurance 48,273 7,036 6,129 28,574 12,276 95,583
-------- ------- ------- -------- -------- ---------
52,265 7,591 6,580 31,257 13,485 104,910
-------- ------- ------- -------- -------- ---------
NET INVESTMENT INCOME (LOSS) (46,651) (4,039) 2,720 (21,238) (5,111) (84,749)
Investment gains and (losses):
Net realized gains (losses) - (401) (1,580) (1,003) (1,175) 29,882
Net unrealized gains (losses) - (3,551) (8,122) (25,743) (9,430) (98,632)
-------- ------- ------- -------- -------- ---------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) - (3,952) (9,702) (26,746) (10,605) (68,750)
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $(46,651) $(7,991) $(6,982) $(47,984) $(15,716) $(153,499)
==============================================================================================================================
<CAPTION>
FIDELITY
VIP II
CONTRAFUND
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO
--------------------------------------------------
<S> <C>
Investment income:
Dividend income $ 4,017
--------
4,017
--------
Expenses:
Mortality and expense risk charges 5,268
Policy fees/Cost of insurance 57,278
--------
62,546
--------
NET INVESTMENT INCOME (LOSS) (58,529)
Investment gains and (losses):
Net realized gains (losses) 215
Net unrealized gains (losses) 550,630
--------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) 550,845
--------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $492,316
==================================================
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS
ASPEN JANUS JANUS ASPEN ASPEN
VAN ECK SERIES ASPEN ASPEN SERIES SERIES
EMERGING CAPITAL SERIES SERIES FLEXIBLE INTERNATIONAL
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income - $ 1,361 $ 13,156 $ 7,645 $ 67 $ 727
-------- -------- -------- ------- ----- --------
- 1,361 13,156 7,645 67 727
-------- -------- -------- ------- ----- --------
Expenses:
Mortality and expense risk charges $ 408 1,669 1,247 327 7 880
Policy fees/Cost of insurance 4,815 16,541 11,369 3,097 438 7,104
-------- -------- -------- ------- ----- --------
5,223 18,210 12,616 3,424 445 7,984
-------- -------- -------- ------- ----- --------
NET INVESTMENT INCOME (LOSS) (5,223) (16,849) 540 4,221 (378) (7,257)
Investment gains and (losses):
Net realized gains (losses) 2,974 44,668 14,362 456 (47) 10,878
Net unrealized gains (losses) (16,380) (54,386) (23,080) (8,491) (7) (22,783)
-------- -------- -------- ------- ----- --------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) (13,406) (9,718) (8,718) (8,035) (54) (11,905)
-------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $(18,629) $(26,567) $ (8,178) $(3,814) $(432) $(19,162)
===============================================================================================================================
<CAPTION>
JANUS
ASPEN
SERIES
WORLD WIDE
GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO
--------------------------------------------------
<S> <C>
Investment income:
Dividend income $ 4,385
--------
4,385
--------
Expenses:
Mortality and expense risk charges 986
Policy fees/Cost of insurance 9,529
--------
10,515
--------
NET INVESTMENT INCOME (LOSS) (6,130)
Investment gains and (losses):
Net realized gains (losses) 17,820
Net unrealized gains (losses) (21,974)
--------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) (4,154)
--------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $(10,284)
==================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
4
<PAGE> 5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER MFS FIRST EAGLE
AMERICAN THE ALGER AMERICAN AMERICAN MFS GROWTH MFS MFS SOGEN
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS WITH LIMITED TOTAL OVERSEAS
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - - - - $ 167 $ 2,022 - $ 9,305 -
--------- --------- -------- ------- -------- -------- -------- ------- ------- --------
- - - - - 167 2,022 - 9,305 -
--------- --------- -------- ------- -------- -------- -------- ------- ------- --------
$ 1,792 $ 6,729 $ 2,480 - $ 4,868 2,031 2,047 $ 303 1,641 $ 1,262
17,061 73,970 21,882 - 48,181 22,731 23,279 4,060 16,482 15,006
--------- --------- -------- ------- -------- -------- -------- ------- ------- --------
18,853 80,699 24,362 - 53,049 24,762 25,326 4,363 18,123 16,268
--------- --------- -------- ------- -------- -------- -------- ------- ------- --------
(18,853) (80,699) (24,362) - (53,049) (24,595) (23,304) (4,363) (8,818) (16,268)
165,344 216,641 81,414 - 36,795 11,847 15,976 (877) (2,754) 25,590
(194,217) (162,028) (8,935) - (72,462) 15,616 (16,699) 7,298 15,577 (7,856)
--------- --------- -------- ------- -------- -------- -------- ------- ------- --------
(28,873) 54,613 72,479 - (35,667) 27,463 (723) 6,421 12,823 17,734
--------------------------------------------------------------------------------------------------------------------------
$ (47,726) $ (26,086) $ 48,117 - $(88,716) $ 2,868 $(24,027) $ 2,058 $ 4,005 $ 1,466
==========================================================================================================================
<CAPTION>
VAN ECK
WORLDWIDE
HARD
ASSETS
FUND
---
<S> <C>
$ 259
-------
259
-------
115
1,399
-------
1,514
-------
(1,255)
215
653
-------
868
---
$ (387)
===
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,414 - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- --------
1,414 - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- --------
17 - - - - - - - -
138 $ 6 - - - - - - $ 6
------- ------- ------- ------- ------- ------- ------- ------- --------
155 6 - - - - - - 6
------- ------- ------- ------- ------- ------- ------- ------- --------
1,259 (6) - - - - - - (6)
(8) - - - - - - - -
(1,990) - - - - - - - 3
------- ------- ------- ------- ------- ------- ------- ------- --------
(1,998) - - - - - - - 3
---------------------------------------------------------------------------------------------------------------------
$ (739) $ (6) - - - - - - $ (3)
=====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING MARKETS
EQUITY PORTFOLIO
---
<S> <C>
-
-------
-
-------
-
-
-------
-
-------
-
-
-
-------
-
---
-
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
5
<PAGE> 6
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
VIP II FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP ASSET VIP II
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (46,651) $ (4,039) $ 2,720 $(21,238) $ (5,111) $ (84,749)
Net realized and unrealized investment gains
(losses) - (3,952) (9,702) (26,746) (10,605) (68,750)
---------- -------- -------- -------- -------- ----------
Change in net assets resulting from operations (46,651) (7,991) (6,982) (47,984) (15,716) (153,499)
---------- -------- -------- -------- -------- ----------
From capital transactions:
Net premiums/deposits 803,298 20,986 25,475 106,590 18,055 191,511
Surrenders and withdrawals (39,676) (3,221) (301) (5,265) (2,291) (16,711)
Transfers in (out of) subaccounts, net -- Note 1 (940,542) (3,490) (14,652) (54,621) 3,280 180,734
---------- -------- -------- -------- -------- ----------
Change in net assets resulting from capital
transactions (176,920) 14,275 10,522 46,704 19,044 355,534
---------- -------- -------- -------- -------- ----------
Increase in net assets (223,571) 6,284 3,540 (1,280) 3,328 202,035
Net assets at beginning of period 1,310,972 122,844 107,312 615,476 266,010 1,819,650
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $1,087,401 $129,128 $110,852 $614,196 $269,338 $2,021,685
==================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 1.00 $ 13.49 $ 9.12 $ 22.91 $ 16.54 $ 163.91
==================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 1,087,401 9,572 12,155 26,809 16,284 12,334
==================================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ (48,088) $ (6,258) $ (7,544) $(38,560) $ (9,141) $ (136,819)
Net realized and unrealized investment gains
(losses) - (2,615) (5,430) (17,729) 18,456 (36,171)
---------- -------- -------- -------- -------- ----------
Change in net assets resulting from operations (48,088) (8,873) (12,974) (56,289) 9,315 (172,990)
---------- -------- -------- -------- -------- ----------
From capital transactions:
Net premiums/deposits 1,215,907 85,733 78,714 410,539 148,962 1,212,597
Surrenders and withdrawals (1,542) 19 (941) 1,122 (523) (9,452)
Transfers in (out of) subaccounts, net -- Note 1 (702,832) (3,776) (22,988) (39,350) 22,540 369,492
---------- -------- -------- -------- -------- ----------
Change in net assets resulting from capital
transactions 511,533 81,976 54,785 372,311 170,979 1,572,637
---------- -------- -------- -------- -------- ----------
Increase (decrease) in net assets 463,445 73,103 41,811 316,022 180,294 1,399,647
Net assets at beginning of period 847,527 49,741 65,501 299,454 85,716 420,003
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $1,310,972 $122,844 $107,312 $615,476 $266,010 $1,819,650
==================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 1.00 $ 14.35 $ 10.24 $ 25.71 $ 18.67 $ 167.41
==================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 1,310,972 8,561 10,480 23,939 14,248 10,869
==================================================================================================================================
<CAPTION>
FIDELITY
VIP II
CONTRAFUND
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO
-------------------------------------------------- ----------
<S> <C>
From operations:
Net investment income (loss) $ (58,529)
Net realized and unrealized investment gains
(losses) 550,845
----------
Change in net assets resulting from operations 492,316
----------
From capital transactions:
Net premiums/deposits 263,511
Surrenders and withdrawals (11,183)
Transfers in (out of) subaccounts, net -- Note 1 87,208
----------
Change in net assets resulting from capital
transactions 339,536
----------
Increase in net assets 831,852
Net assets at beginning of period 539,736
--------------------------------------------------
NET ASSETS AT END OF PERIOD $1,371,588
==================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 25.09
==================================================
UNITS OUTSTANDING AT END OF PERIOD 54,667
==================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------
From operations:
Net investment income (loss) $ (67,506)
Net realized and unrealized investment gains
(losses) (442,146)
----------
Change in net assets resulting from operations (509,652)
----------
From capital transactions:
Net premiums/deposits 672,068
Surrenders and withdrawals (3,707)
Transfers in (out of) subaccounts, net -- Note 1 53,687
----------
Change in net assets resulting from capital
transactions 722,048
----------
Increase (decrease) in net assets 212,396
Net assets at beginning of period 327,340
--------------------------------------------------
NET ASSETS AT END OF PERIOD $ 539,736
==================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 29.15
==================================================
UNITS OUTSTANDING AT END OF PERIOD 18,516
==================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
6
<PAGE> 7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER
AMERICAN THE ALGER AMERICAN AMERICAN MFS
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(18,853) $ (80,699) $(24,362) - $ (53,049) $(24,595)
(28,873) 54,613 72,479 - (35,667) 27,463
-------- ---------- -------- ------ ---------- --------
(47,726) (26,086) 48,117 - (88,716) 2,868
-------- ---------- -------- ------ ---------- --------
155,284 308,465 107,949 - 270,460 102,274
(6,474) (8,465) (912) - (4,723) (4,940)
137,635 (25,935) 78,215 - 130,529 (19,423)
-------- ---------- -------- ------ ---------- --------
286,445 274,065 185,252 - 396,266 77,911
-------- ---------- -------- ------ ---------- --------
238,719 247,979 233,369 - 307,550 80,779
291,456 1,359,820 454,109 - 915,386 426,278
-------------------------------------------------------------------------------
$530,175 $1,607,799 $687,478 - $1,222,936 $507,057
===============================================================================
$ 32.26 $ 57.40 $ 32.15 $50.06 $ 35.05 $ 23.24
===============================================================================
16,434 28,010 21,383 - 34,891 21,818
===============================================================================
-------------------------------------------------------------------------------
$ (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
===============================================================================
<CAPTION>
MFS FIRST EAGLE 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>
$(23,304) $(4,363) $ (8,818) $(16,268) $(1,255) $ (5,223)
(723) 6,421 12,823 17,734 868 (13,406)
-------- -------- -------- -------- ------- --------
(24,027) 2,058 4,005 1,466 (387) (18,629)
-------- -------- -------- -------- ------- --------
65,478 8,196 37,552 47,176 5,531 20,920
(20,191) (60) (1,221) (3,709) (83) (282)
(83,812) (10,964) 641 (24,271) (189) 13,548
-------- -------- -------- -------- ------- --------
(38,525) (2,828) 36,972 19,196 5,259 34,186
-------- -------- -------- -------- ------- --------
(62,552) (770) 40,977 20,662 4,872 15,557
501,869 73,509 341,613 288,735 23,365 85,808
---
$439,317 $72,739 $382,590 $309,397 $28,237 $101,365
===
$ 21.15 $ 10.04 $ 17.33 $ 15.05 $ 11.26 $ 12.49
===
20,771 7,245 22,077 20,558 2,508 8,116
===
---
$(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
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
7
<PAGE> 8
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS
ASPEN JANUS JANUS ASPEN JANUS ASPEN
SERIES ASPEN ASPEN SERIES ASPEN SERIES SERIES
CAPITAL SERIES SERIES FLEXIBLE INTERNATIONAL WORLD WIDE
APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $(16,849) $ 540 $ 4,221 $ (378) $ (7,257) $ (6,130)
Net realized and unrealized investment gains
(losses) (9,718) (8,718) (8,035) (54) (11,905) (4,154)
-------- -------- -------- ------ -------- --------
Change in net assets resulting from operations (26,567) (8,178) (3,814) (432) (19,162) (10,284)
-------- -------- -------- ------ -------- --------
From capital transactions:
Net premiums/deposits 134,513 136,074 50,775 1,782 111,585 120,611
Surrenders and withdrawals - - - - - -
Transfers in (out of) subaccounts, net -- Note 1 72,895 97,242 61,539 - 172,038 113,560
-------- -------- -------- ------ -------- --------
Change in net assets resulting from capital
transactions 207,408 233,316 112,314 1,782 283,623 234,171
-------- -------- -------- ------ -------- --------
Increase in net assets 180,841 225,138 108,500 1,350 264,461 223,887
Net assets at beginning of period 231,654 118,851 12,142 216 31,390 94,996
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $412,495 $343,989 $120,642 $1,566 $295,851 $318,883
=================================================================================================================================
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 31.73 $ 32.89 $ 26.32 $11.25 $ 39.69 $ 48.03
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 13,000 10,459 4,584 139 7,454 6,639
=================================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------------------------------------
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 (decrease) 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 (Unaudited).
--------------------------------------------------------------------------------
8
<PAGE> 9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,259 $ (6) - - - - - - $ (6)
(1,998) - - - - - - - 3
------- ------ ----- ----- ----- ------ ------ ------ ------
(739) (6) - - - - - - (3)
------- ------ ----- ----- ----- ------ ------ ------ ------
47 47 - - - - - - 47
- - - - - - - - -
28,088 - - - - - - - -
------- ------ ----- ----- ----- ------ ------ ------ ------
28,135 47 - - - - - - 47
------- ------ ----- ----- ----- ------ ------ ------ ------
27,396 41 - - - - - - 44
- - - - - - - - -
--------------------------------------------------------------------------------------------------------------------
$27,396 $ 41 - - - - - - $ 44
====================================================================================================================
$ 39.50 $21.30 $7.67 $5.42 $6.37 $19.57 $11.47 $10.78 $13.45
====================================================================================================================
694 2 - - - - - - 3
====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING MARKETS
EQUITY PORTFOLIO
--- ----------------
<S> <C>
-
-
------
-
------
-
-
-
------
-
------
-
-
---
-
===
$13.18
===
-
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
9
<PAGE> 10
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 -- (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 operation 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 87% 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 the Fixed Account.
Policyholders who invest in the Variable Account are hereinafter referred to as
the contractholder.
The Variable Account currently offers 35* subaccounts each of which invests
in shares of 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 INVESTMENT MANAGEMENT COMPANY:
Federated Prime Money Fund II
Federated Utility Fund II
Federated High Income Bond Fund II
FIDELITY MANAGEMENT & RESEARCH COMPANY
Fidelity Equity-Income Portfolio V.I.P.
Fidelity Asset Manager Portfolio V.I.P. II
Fidelity Index 500 Portfolio V.I.P. II
Fidelity Contrafund(R) Portfolio V.I.P. II
FRED ALGER MANAGEMENT, INC.:
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Leveraged AllCap Portfolio
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
ARNHOLD AND S. BLEICHROEDER ADVISORS, INC.:
First Eagle SoGen Overseas Variable Fund
VAN ECK ASSOCIATES CORPORATION:
Van Eck Worldwide Hard Assets Fund
Van Eck Worldwide Emerging Markets Fund
------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
------------------------------------------------------------
JANUS CAPITAL CORPORATION:
Janus Aspen Series Capital Appreciation Portfolio
Janus Aspen Series Growth Portfolio
Janus Aspen Series Balanced Portfolio
Janus Aspen Series Flexible Income Portfolio
Janus Aspen Series International Growth Portfolio
Janus Aspen Series Worldwide Growth Portfolio
ALLIANCE CAPITAL MANAGEMENT L.P.:
Alliance Premier Growth Portfolio
Alliance Growth and Income Portfolio
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.:
American Century VP Income & Growth Fund
American Century VP Value Fund
TEMPLETON ASSET MANAGEMENT LTD.:
Templeton Developing Markets Securities Fund
TEMPLETON INVESTMENT COUNSEL, INC.:
Templeton Asset Strategy Fund
LAZARD ASSET MANAGEMENT:
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
MORGAN STANLEY ASSET MANAGEMENT INC.:
Morgan Stanley International Magnum Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
*The MFS Limited Maturity Series subaccount is no longer available for new
allocations as of May 1, 1999.
--------------------------------------------------------------------------------
10
<PAGE> 11
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 -- (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION (CONTINUED)
--------------------------------------------------------------------------------
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).
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
VALUATION OF INVESTMENTS -- Investments in the Variable Account 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 accompanying financial statements.
INVESTMENT INCOME -- Investment income consists of dividends declared by
the Funds and 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 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.
--------------------------------------------------------------------------------
NOTE 3. CHARGES AND DEDUCTIONS
--------------------------------------------------------------------------------
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 deduction is also made
for the cost of insurance and any charges for supplemental riders. The cost of
insurance
--------------------------------------------------------------------------------
11
<PAGE> 12
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 -- (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 3. CHARGES AND DEDUCTIONS (CONTINUED)
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
NOTE 4. 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 the regulations
issued by the Secretary of the Treasury. VFL believes, based on the prospectus
of each of the Funds that the Variable Account participates in, that the mutual
funds satisfy the diversification requirement of the regulations.
--------------------------------------------------------------------------------
NOTE 5. OTHER EVENTS
--------------------------------------------------------------------------------
On March 8, 2000, CNA announced that it was exploring the sale of the
individual life insurance and reinsurance businesses. On August 8, 2000, CNA
announced that it had completed exploring the sale of the individual life
insurance and life reinsurance businesses and that it would retain the
individual life, long term care and retirement services businesses. CNA
announced that it would continue to explore the separate sale of its life
reinsurance business. The sale of the life reinsurance business is not expected
to have any impact on results of operations or equity of the Variable Life
Separate Account or those of Valley Forge Life Insurance Company.
--------------------------------------------------------------------------------
12
<PAGE> 13
CNA CAPITAL SELECT(R)
Variable Universal Life
SEMI-ANNUAL REPORT
[PICTURE]
Dated June 30, 2000
Issued by the Valley Forge
Life Insurance Company,
one of the CNA companies
[CNA LOGO]
<PAGE> 14
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 life insurance products are issued by Valley Forge Life
Insurance Company, one of the CNA companies.
CNA is a registered service mark of CNA Financial Corporation. The policy form
number for this product is: V100-1132-A Series and V100-1133-A Series. CNA
Capital Select Variable Universal Life is not available in all states.
Mailing Addresses:
CNA Insurance Companies
Variable Support Center
P.O. Box 305153
Nashville, TN 37230-5153
CNA Insurance Companies
Variable Support Center
100 CNA Drive
Nashville, TN 37214-3439
www.CNAvariable.com
[CNA LOGO]
AG-139082-B 8/00 Printed in USA
