Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Valley Forge Life Insurance Company Variable Life Separate Account
(Exact Name of Trust)
B. Valley Forge Life Insurance Company
(Name of Depositor)
C. CNA Plaza, 43 South
Chicago, Illinois 60685
(Complete address of depositor's principal executive offices)
D. Name and complete address of agent for service:
Jonathan D. Kantor
Senior Vice President, General Counsel and Secretary
Valley Forge Life Insurance Company
CNA Plaza, 43 South
Chicago, Illinois 60685
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
E. Flexible Premium Variable Life Insurance Policies and
Flexible Premium Variable Last to Die Life Insurance Policies
(Title and amount of securities being registered)
F. Proposed maximum aggregate offering price to the public of the
securities being registered:
Continuous offering
G. Amount of Filing Fee: Not Applicable
H. Approximate date of proposed public offering:
As soon as practicable after the effective date of this filing.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
------------ ------------------------------
1(a) Other Information
(b) The Variable Life Insurance Policies
2 The Company
3 Not Applicable
4 Other Information
5 Other Information
6(a) Not Applicable
(b) Not Applicable
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Purchases; Investment Choices; Access to Your Money
11 Investment Choices
12 Investment Choices
13 Expenses
14 Purchases
15 Purchases
16 Purchases; Investment Choices
17 Access to Your Money
18 Access to Your Money
19 Reports to Owners
20 Not Applicable
21 Access to Your Money
22 Not Applicable
23 Not Applicable
24 Other Information
25 The Company
26 Expenses
27 The Company
28 Executive Officers and Directors
29 The Company
30 The Company
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Other Information
36 Not Applicable
37 Not Applicable
38 Other Information
39 Other Information
40 Not Applicable
41 Not Applicable
42 Not Applicable
43 Not Applicable
44 Purchases
45 Investment Choices; Other Information
46 Purchases; Access to Your Money
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Other Information; Purchases; The Company; The Variable
Life Insurance Policies
52 Investment Choices
53 Other Information
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
FLEXIBLE PREMIUM VARIABLE AND FIXED LAST TO DIE LIFE INSURANCE
POLICY
ISSUED BY
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE
ACCOUNT
AND
VALLEY FORGE LIFE INSURANCE COMPANY
This prospectus describes the Flexible Premium Variable and Fixed Life Insurance
Policy and the Flexible Premium Variable and Fixed Last to Die Life Insurance
Policy that we (Valley Forge Life Insurance Company) are offering.
The policies are variable benefit policies. We have designed the policies for
use in estate and retirement planning and other insurance needs of individuals.
You, the policyowner, have a number of investment choices in the policy you
purchase. These investment choices include fixed account options as well as
several investment options described below. When you buy a policy and allocate
funds to the investment options you are subject to investment risk. This means
that the value of your policy may increase or decrease depending upon the
investment performance of the investment option(s) you select. Under some
circumstances, the death benefit and the duration of your policy (how long a
policy will remain in force) will also increase or decrease depending upon
investment performance.
Federated Insurance Series
Advised by Federated Investment Management
Company
Federated High Income Bond Fund II
Federated Prime Money Fund II
Federated Utility Fund II
The Alger American Fund
Advised by Fred Alger Management, Inc.
Alger American Growth Portfolio
Alger American Mid-Cap Growth Portfolio
Alger American Small Capitalization Portfolio
Alger American Leveraged AllCap Portfolio
Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II
(VIP II), Initial Class
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund(R) Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Index 500 Portfolio
MFS Variable Insurance Trust
Advised by MFS Investment Management
MFS Emerging Growth Series
MFS Growth With Income Series
MFS Research Series
MFS Total Return Series
Janus Aspen Series, Institutional Shares
Advised by 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 Variable Products Series Fund, Class B
Shares
Advised by Alliance Capital Management L.P.
Alliance Premier Growth Portfolio
Alliance Growth and Income Portfolio
American Century Variable Portfolios, Inc.
Advised by American Century Investment
Management, Inc.
American Century VP Income & Growth Fund
American Century VP Value Fund
Franklin Templeton Variable Insurance Products
Trust, Class 2 Shares
Advised by Templeton Asset Management Ltd.
Templeton Developing Markets Securities Fund
Advised by Templeton Investment Counsel, Inc.
Templeton Asset Strategy Fund
Lazard Retirement Series
Advised by Lazard Asset Management
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
The Universal Institutional Funds, Inc.
Advised by Morgan Stanley Asset Management, Inc.
Morgan Stanley International Magnum Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Flexible Premium Variable
and Fixed Life Insurance Policy and Flexible Premium Variable and Fixed Last to
Die Life Insurance Policy. The Securities and Exchange Commission (SEC)
maintains a Web site (http://www.sec.gov) that contains information regarding
companies that file electronically with the SEC.
The policies:
o are not bank deposits.
o are not federally insured.
o are not endorsed by any bank or government agency.
The policies are subject to investment risk. You may be subject to loss of
principal.
The Securities and Exchange Commission has not approved or disapproved these
securities nor has it determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the policies. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Date: _______, 2000
<PAGE>
TABLE OF CONTENTS
Page
HIGHLIGHTS......................................................................
THE COMPANY.....................................................................
THE VARIABLE LIFE INSURANCE POLICIES............................................
EXPENSES........................................................................
PURCHASES.......................................................................
INVESTMENT CHOICES..............................................................
DEATH BENEFIT...................................................................
TAXES...........................................................................
ACCESS TO YOUR MONEY............................................................
OTHER INFORMATION...............................................................
MORE INFORMATION................................................................
Executive Officers and Directors.......................................
Voting ..............................................................
Disregard of Voting Instructions.......................................
Legal Opinions.........................................................
Our Right to Contest...................................................
Federal Tax Status.....................................................
Reports to Owners......................................................
Legal Proceedings......................................................
Experts ..............................................................
Financial Statements...................................................
APPENDIX A - Illustrations of Policy Values.....................................
APPENDIX B - Example of Additional Insurance Rider (AIR)........................
APPENDIX C - Rates of Return....................................................
<PAGE>
INDEX OF SPECIAL TERMS
This prospectus is written in plain English to make it as understandable as
possible. However, by the very nature of the policies, certain technical words
or terms are unavoidable. We have identified some of these words or terms. For
some we have provided you with a definition below. For the remainder, we believe
that you will find an adequate discussion in the text. We have identified these
terms and provided you with a page number that indicates where you will find the
explanation for the word or term. The word or term on the page is in italics.
Death Proceeds: The amount of money payable to the beneficiary if the insured
(or the last insured) dies while a policy is in force.
Debt: Any amount you owe us as the result of a policy loan. This includes any
accrued loan interest.
General Account: Our assets other than those allocated to the Variable Account
or any other separate account.
Investment Option: An investment choice within the Valley Forge Life Insurance
Company Variable Life Separate Account available under the policies.
Policy Loan Account: That portion of the cash value resulting from a policy
loan.
Riders: An endorsement that is incorporated into your policy.
Specified Amount: A dollar amount used to determine the death benefit of your
policy. This amount is chosen by you. The minimum specified amount is $100,000.
Page
Beneficiary, Contingent Beneficiary
Business Day
Cash Value, Net Cash Value, Cash Surrender Value
Fixed Account I, Fixed Account II
Insured
Last Insured
Monthly Date
Owner, Joint Owner, Contingent Owner
Policy Year, Policy Anniversary
Policy Date
<PAGE>
HIGHLIGHTS
The Variable Life Insurance Policies
The variable life insurance policies are contracts between you, the owner, and
us, an insurance company. The Flexible Premium Variable and Fixed Life Insurance
Policy described in this prospectus provides for life insurance coverage on the
named insured. If you purchase the Flexible Premium Variable and Fixed Last to
Die Life Insurance Policy (Last to Die Policy) described in this prospectus
there will be two persons insured and the death benefit will be paid once the
last insured dies. Both policies have cash values, a death benefit, surrender
rights, loan privileges and other characteristics associated with traditional
and universal life insurance, and are nearly identical except for the fact that
there are two lives insured in the last to die version. Since the policies are
variable life insurance policies, the value of your policy will increase or
decrease depending upon the investment experience of the investment option(s)
you choose. The death benefit associated with the policies are distributed free
from federal income taxes to the named beneficiary(s). However, estate taxes may
apply. We will issue the policies as an individual policy in most states, and as
a certificate under a group life insurance policy in other states.
Expenses
The policies have both insurance and investment features, and there are costs
related to each that reduce the return on your investment. We deduct:
o a premium charge from each premium payment;
o an expense charge daily from amounts allocated to the investment options;
o a monthly deduction from the policies for the cost of insurance.
o daily investment option charges which apply to the average daily value of
the investment options.
We may assess a surrender charge if you take out money from your policy. If you
make more than 12 transfers in any policy year, unless the transfer is
pre-scheduled, we will charge a transfer fee. Also, for the first 12 months
after an increase in the specified amount, we will deduct $10 each month from
your policy.
Upon the insured's 95th birthday, we will no longer deduct the monthly
deduction. If the policy is a Last to Die Policy, we will not deduct the
insurance related charges after the younger insured's 95th birthday. There are
also fees and expenses which are deducted from the assets of the investment
options.
Purchases
You purchase a policy by completing the proper forms. In some circumstances, we
may contact you for additional information regarding the insured(s). We may
require the insured(s) to provide us with medical records, physicians'
statements or a complete paramedical examination.
<PAGE>
The minimum initial premium payment we accept is computed for you based on the
specified amount you request. The policies are designed for the payment of
subsequent premiums. The minimum subsequent premium payment you can make is $50.
Your registered representative can help you fill out the proper forms.
Investment Choices
You can put your money in any of the fixed account options and/or in any of the
investment options. Currently, you may invest in all investment choices at any
one time. However, we reserve the right to limit this in the future.
Death Benefit
The amount of the death benefit depends on:
o the specified amount of insurance of your policy;
o any debt that you may have;
o any due and unpaid monthly deductions that are incurred as a result of
your policy; entering into a grace period; and
o under some circumstances, your cash value.
Taxes
Your policy has been designed to comply with the definition of life insurance in
the Internal Revenue Code. As a result, the death proceeds paid under the policy
should be excludable from the gross income of your beneficiary. Any earnings in
your policy are not taxed until you take them out. The tax treatment of the loan
proceeds and surrender proceeds will depend on whether the policy is considered
a Modified Endowment Contract (MEC). Proceeds taken out of a MEC are considered
to come from earnings first and are includible in taxable income. If you are
younger than 59 1/2 when you take money out of a MEC, you may also be subject to
a 10% federal tax penalty on the earnings withdrawn.
Access to Your Money
You can make a total surrender of your policy at any time and we will pay you
the net cash value. You may make a partial surrender at any time after the end
of your first policy year. When you make a total or partial surrender, a
surrender charge may be assessed.
You can also borrow some of your net cash value.
Other Information
Free Look. You can cancel the policy within 10 days after you receive it (or
whatever period is required in your state). We will refund an amount equal to
the cash value plus fees or charges deducted from the premium payments less
any debt (or we will refund an amount equal to all premiums paid less any debt
if required in your state).
Additional Features. The following additional features are offered:
o You can arrange to have a regular amount of money automatically
transferred from the dollar cost averaging account to selected
investment options each month, theoretically giving you a lower average
cost per unit over time than a single one time purchase. We call this
feature the dollar cost averaging option.
o You can arrange to have us automatically rebalance amounts in selected
investment options and Fixed Account I to return to your original
percentage allocations. We call this feature the automatic transfer
option.
o We also offer a number of additional riders that are common to life
insurance policies.
These features may not be available in your state and may not be suitable for
your particular situation.
Inquiries
If you need more information about buying a policy, please contact us at:
Valley Forge Life Insurance Company
100 CNA Drive
Nashville, TN 37214
(800) 262-1755
THE COMPANY
Valley Forge Life Insurance Company, with its administrative office located at
100 CNA Drive, Nashville, TN 37214, 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 as of December 31, 1999.
We are principally engaged in the sale of life insurance and annuities. We are
licensed in the District of Columbia, Guam, Puerto Rico and all states except
New York, where we are only admitted as a reinsurer.
THE VARIABLE LIFE INSURANCE POLICIES
The variable life insurance policies offered by this prospectus are contracts of
insurance between you, the owner, and us, an insurance company. The policies
described in this prospectus are flexible premium variable life insurance
policies. The policies are "flexible" because:
o the frequency and amount of premium can vary;
o you can choose between death benefit options; and
o you can increase or decrease the amount of insurance coverage, all within
the same policy of insurance.
The policies are "variable" because the cash value, when allocated to the
investment options, may increase or decrease depending upon the investment
results of the selected investment options. Under certain circumstances, the
death benefit and the duration of your policy may also vary. The death benefit
may vary because investment performance of the selected investment options may
be sufficient to result in the death benefit being greater than the specified
amount. The duration of your policy is also affected by investment performance
because charges under the policies, when coupled with poor performance, may mean
that at some time there may not be enough cash value in your policy to pay the
charges and your policy will terminate unless you make a premium payment(s).
While your policy is in force, you can surrender the policy for all or part of
its net cash value. You may also obtain a policy loan using the policy as
security and by properly assigning it to us.
We also make available a number of riders to meet a variety of your estate
planning needs. To the extent you select any of the investment options, you bear
the investment risk. If your net cash value is insufficient to pay the monthly
deductions, your policy may terminate.
Because the policies are like traditional and universal life insurance, they
provide a death benefit which is paid to your named beneficiary. The proceeds
from the death benefit should be excludable from the gross income of the
beneficiary, however estate taxes may apply. The tax-free death proceeds makes
this an excellent way to accumulate money you do not think you will use in your
lifetime. It is also a tax-efficient way to provide for those you leave
behind. If you need access to your money, you can borrow from your policy or
make a total or partial surrender. We will issue the policy as an individual
policy in most states, and as a group certificate under a group life insurance
policy in other states. As used in this prospectus, the term policy refers to
either the individual life policy or to the certificate issued under a group
life policy.
There are two versions of the policy offered: a single life version and a last
to die version (which covers two lives). Unless otherwise indicated any
discussion applies equally to both versions of the policy.
Purchasing Considerations
The policies are designed for individuals and businesses that have a need for
death protection but who also desire to potentially increase the values in their
policies through investments in the investment options. The policies offer the
following to individuals:
o create or conserve one's estate;
o supplement retirement income; and
o access to funds through loans and surrenders.
If you currently own a variable life insurance policy on the life of the
insured(s), you should consider whether the purchase of one of the policies
described in this prospectus is appropriate. Replacement of an existing policy
with one of the policies described in this prospectus may not be advantageous to
your situation.
EXPENSES
There are charges and other expenses associated with the policies that reduce
the return on your investment in a policy. The charges and expenses are
described below.
Premium Charge
We deduct a premium charge from each premium payment you make to reimburse us
for the expenses associated with selling the policy and for tax charges and
costs we incur. The premium charge is 4% of premium payments.
Monthly Deduction
Each monthly date, we will make certain deductions from the cash value of your
policy. The monthly deduction is for the cost of insurance for the following
month. The first monthly deduction will be determined as of the policy date.
We determine the monthly cost of insurance rate each year as of the policy
anniversary. The rate will be charged for the next policy year. The monthly cost
of insurance rate will not exceed the maximum guaranteed monthly cost of
insurance rate shown on the policy schedule of your policy.
<PAGE>
The monthly cost of insurance is determined as (1) times (2) where:
(1) is the net amount at risk which is equal to the death benefit divided by the
monthly equivalent of the guaranteed interest rate (currently 4%), minus the
policy's cash value before charges, all divided by $1,000; and
(2) is the monthly cost of insurance rate per $1,000 of coverage on the monthly
date.
When a Last to Die version of the Policy is purchased we will determine the
monthly cost of insurance based upon the lives of both insureds.
The cost of insurance rate for a policy month will be uniform for all specified
amounts of insurance that:
o are in the same specified amount band, sex, and risk classification;
o take effect when the insureds are the same age; and
o have been in force the same length of time.
We may charge less than the maximum cost of insurance rates shown in your policy
from time to time based on our expectations as to future cost elements such as:
investment earnings, mortality, persistency, expenses and taxes. Any change we
make will apply to all specified amount portions in the same risk
classification.
Since the mortality tables used with the policies distinguish between males and
females, the cost of insurance and the benefits payable will differ between
males and females of the same age. Employers, employee plans and employee
organizations should seek legal advice to determine whether the Civil Rights Act
of 1964, Title VII, or other applicable law prohibits the use of sex distinct
mortality tables. We will offer the policy based upon unisex mortality tables
where required.
Expense Charge
We deduct an expense charge from each investment option each business day. The
expense charge is currently equal to:
Policy Years 1-10: Approximately 0.90%, on an annual basis, of
the cash value of each investment option.
Policy Years 11 and later: Approximately 0.45%, on an annual basis, of
the cash value of each investment option.
This charge compensates us for some of the mortality risks we assume, and the
risk that we will experience costs above that for which we are compensated. It
also compensates us for some of the administrative costs in administering the
policy. We expect to profit from the charge.
Surrender Charges
A surrender charge may be deducted if you make a full or partial surrender. A
surrender charge may also be applicable when you reduce the specified amount.
The surrender charge varies by issue age, specified amount, sex, smoking status,
and contract duration. The surrender charge is a percentage of specified amount
of insurance. The charge grades down to zero over 10 years - single life; 15
years - last to die.
Single Life Policy
100% of the surrender charge in policy year 1
100% of the surrender charge in policy year 2
100% of the surrender charge in policy year 3
100% of the surrender charge in policy year 4
100% of the surrender charge in policy year 5
80% of the surrender charge in policy year 6
60% of the surrender charge in policy year 7
40% of the surrender charge in policy year 8
20% of the surrender charge in policy year 9
No surrender charge in policy years 10 and later
Last to Die Policy
100% of the surrender charge in policy years 1 - 6
80% of the surrender charge in policy year 7
70% of the surrender charge in policy year 8
60% of the surrender charge in policy year 9
50% of the surrender charge in policy year 10
40% of the surrender charge in policy year 11
30% of the surrender charge in policy year 12
20% of the surrender charge in policy year 13
10% of the surrender charge in policy year 14
No surrender charge in policy years 15 and later
Free Partial Surrender Amount
Each policy year, after the first, you can surrender a portion of your cash
value free from any surrender charge. The free partial surrender amount for any
policy year, after the first policy year, is 10% of the cash value and is
determined at the time of the first partial surrender in a policy year. If the
entire free partial surrender amount for a policy year is not taken in the first
partial surrender of a policy year, the free partial surrender amount available
for any other partial surrender in a policy year is the free partial surrender
amount for that policy year less the total prior free partial surrender amounts
withdrawn in the same policy year.
Transfer Fee
You may transfer values from one investment option to another, or to or from the
fixed accounts. The first 12 transfers in a policy year are free. The fee for
each additional transfer is currently $25. The transfer fee is deducted from the
amount which is transferred. Prescheduled dollar cost averaging transfers or
automatic transfers are not counted when we determine transfer fees. Each
transfer is considered to be one request regardless of the number of investment
options or any fixed account involved in the transfer.
Monthly Specified Amount Increase Fee
If you increase the specified amount of your policy, we will deduct $10 each
month for the first 12 months following the increase.
Income Tax Charge
We do not currently assess any charge for income taxes. We reserve the right to
assess a charge for such taxes against the investment options or your cash value
if we determine that such taxes will be incurred.
Waiver of Monthly Deduction Rider
If you choose the waiver of monthly deduction rider, we will waive monthly
deductions if an insured becomes totally disabled, as defined in the rider. The
waiver will begin on the latest date when:
o we have been notified of the onset of a total disability;
o we have received due proof of total disability; and
o total disability has continued for 6 consecutive months.
If you choose this feature, the monthly cost of this rider is shown on your
policy schedule. The rider will terminate:
o on the first policy anniversary on or after the insured 65th birthday;
o if you give us written notice to terminate it; or
o when the policy terminates.
This benefit may not be available in your state and is not available in
conjunction with Total Disability Waiver of Premium Rider.
If you own the Last to Die Policy, and choose the waiver of monthly deduction
rider, each insured must qualify for his/her own rider.
<PAGE>
Charges after the Insured's 95th birthday.
Once the insured turns 95, we will no longer deduct the insurance related
charges, but will continue to deduct the asset based charges. If the policy is a
Last to Die Policy, we will not deduct the insurance related charges after the
younger insured's 95th birthday.
Investment Option Annual Expenses
(as a percentage of average daily net assets of an investment option)
The annual expenses of the portfolios for the year ended December 31, 1999 below
are based on data provided by the respective fund groups. We have not
independently verified such data. Future expenses may be greater or less than
those shown.
<TABLE>
<CAPTION>
Other Expenses Total Annual
(after waivers Expenses (after
and/or waivers and/or
reimbursements reimbursements
with respect to with respect to
certain certain
Management 12b-1 investment investment
(Advisory Fees) Fees options) options)
------------------------------------------ ------------------- ----------- ---------------------- ---------------------
<S> <C> <C> <C>
Federated Insurance Series
(See Note 1)
Federated High Income Bond
Fund II . . . . . . . . . . . . . . . . 0.60% -- 0.19% 0.79%
Federated Prime Money Fund II . . . . 0.50% -- 0.23% 0.73%
Federated Utility Fund II . . . . . . . . . . 0.75% -- 0.19% 0.94%
The Alger American Fund
Alger American Growth Portfolio . . . 0.75% -- 0.04% 0.79%
Alger American Mid-Cap Growth
Portfolio . . . . . . . . . . . . . . . 0.80% -- 0.05% 0.85%
Alger American Small Capitalization 0.85%
Portfolio . . . . . . . . . . . . . . . . . . . . -- 0.05% 0.90%
Alger American Leveraged AllCap 0.85% -- 0.08% 0.93%
Portfolio (See Note 2) . . . . . . . . . .
Variable Insurance Products Fund
(VIP) and Variable Insurance
Products Fund II (VIP II), Initial
Class (See Note 3)
Fidelity VIP II Asset Manager
Portfolio . . . . . . . . . . . . . . . . . . 0.53% -- 0.10% 0.63%
Fidelity VIP II Contrafund Portfolio . . 0.58% -- 0.09% 0.67%
Fidelity VIP Equity-Income Portfolio. . 0.48% -- 0.09% 0.57%
Fidelity VIP II Index 500 Portfolio 0.24% -- 0.04% 0.28%
MFS Variable Insurance Trust (See
Note 4)
MFS Emerging Growth Series . . . . . 0.75% -- 0.09% 0.84%
MFS Growth With Income Series . . . 0.75% -- 0.13% 0.88%
Other Expenses Total Annual
(after waivers Expenses (after
and/or waivers and/or
reimbursements reimbursements
with respect to with respect to
certain certain
Management 12b-1 investment investment
(Advisory Fees) Fees options options.
MFS Research Series . . . . . . . . . . . . . 0.75% -- 0.11% 0.86%
MFS Total Return Series . . . . . . . . . . 0.75% -- 0.15% 0.90%
Janus Aspen Series, Institutional
Shares (See Note 5)
Janus Aspen Series Capital
Appreciation Portfolio . . . . . . . . . . 0.65% -- 0.04% 0.69%
Janus Aspen Series Growth Portfolio . . . . 0.65% -- 0.02% 0.67%
Janus Aspen Series Balanced Portfolio 0.65% -- 0.02% 0.67%
Janus Aspen Series Flexible Income 0.65%
Portfolio . . . . . . . . . . . . . . 0.65% -- 0.07% 0.72%
Janus Aspen Series International
Growth Portfolio . . . . . . . . . . . . . 0.65% -- 0.11% 0.76%
Janus Aspen Series Worldwide
Growth Portfolio . . . . . . . . . . . . . 0.65% -- 0.05% 0.70%
Alliance Variable Products Series
Fund, Class B Shares
Alliance Premier Growth Portfolio . . . . . 1.00% 0.25% 0.04% 1.29%
<PAGE>
Alliance Growth and Income
Portfolio . . . . . . . . . . . . . . 0.63% 0.25% 0.09% 0.97%
American Century Variable
Portfolios, Inc. (See Note 6) . . . .
American Century VP Income &
Growth Fund . . . . . . . . . . . . . 0.70% -- 0.00% 0.70%
American Century VP Value Fund . . . 1.00% -- 0.00% 1.00%
Franklin Templeton Variable
Insurance Products Trust, Class 2
Shares (See Note 7)
Templeton Developing Markets
Securities Fund (see Note 8) . . . . 1.25% 0.25% 0.31% 1.81%
Other Expenses Total Annual
(after waivers Expenses (after
and/or waivers and/or
reimbursements reimbursements
with respect to with respect to
certain certain
Management 12b-1 investment investment
(Advisory Fees) Fees options options.
Templeton Asset Strategy Fund (see
Note 8) . . . . . . . . . . . . . . . 0.60% 0.25% 0.18% 1.03%
Lazard Retirement Series (See
Note 9)
Lazard Retirement Equity Portfolio . . . 0.75% 0.25% 0.25% 1.25%
Lazard Retirement Small Cap
Portfolio . . . . . . . . . . . . . 0.75% 0.25% 0.25% 1.25%
The Universal Institutional Funds,
Inc. (See Note 10)
Morgan Stanley International
Magnum Portfolio . . . . . . . . . . . 0.29% -- 0.87% 1.16%
Morgan Stanley Emerging Markets
Equity Portfolio . . . . . . . . . 0.42% -- 1.37% 1.79%
</TABLE>
1. The Fund did not pay or accrue the shareholder services fee during the
fiscal year ended December 31, 1999. The Fund has no present intention
of paying or accruing the shareholder services fee during the fiscal
year ending December 31, 2000. The maximum shareholder services fee is
0.25%.
2. Included in other expenses of the Alger American Leveraged AllCap
Portfolio is .01% of interest expense.
3. A portion of the brokerage commissions that certain funds pay was used
to reduce fund expenses. In addition, through arrangements with certain
funds, or FMR on behalf of certain funds, custodian credits realized as
a result of uninvested cash balances were used to reduce a portion of
each applicable fund's expenses. Including these reductions, the total
operating expenses presented in the table would have been .59% for
Equity-Income Portfolio, and .65% for Asset Manager Portfolio. FMR
agreed to reimburse a portion of the Index 500 Portfolio's expenses
during the period. Without this reimbursement, the Portfolio's
management fee, other expenses and total expenses would have been .24%,
.10% and .34%, respectively.
4. Each of these funds has an expense offset arrangement which reduces its
custodian fee based upon the amount of cash it maintains with its
custodian and dividend disbursing agent, and may enter into such
arrangements and directed brokerage arrangements (which would also have
the effect of reducing its expenses). Any such fee reductions are not
reflected above under "Other Expenses" and therefore are higher than
the actual expenses of the series.
5. Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for the
Growth, Capital Appreciation, International Growth, Worldwide Growth,
and Balanced Portfolios. All expenses are shown without the effect of
expense offset arrangements.
6. The funds of American Century Variable Portfolios, Inc. have a stepped
fee schedule. As a result, the funds' management fees generally
decrease as the funds' assets increase.
7. The fund's class 2 distribution plan or "rule 12b-1 plan" is described
in the fund's prospectus. While the maximum amount payable under the
fund's class 2 rule 12b-1 plan is 0.35% per year of the fund's average
daily net assets, the Board of Trustees of Franklin Templeton Variable
Insurance Products Trust has set the current rate at 0.25% per year.
8. On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with a similar fund of the Franklin Templeton
Variable Insurance Products Trust ("VIP"). VIP shareholders approved
new management fees, which apply to the combined fund effective 5/1/00.
The table shows restated total expenses based on the new fees and the
assets of the fund as of 12/31/99, and not the assets of the combined
fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after 5/1/00 would be estimated
as: Templeton Developing Markets Securities Fund - Management Fees
1.25%, 12b-1 fees 0.25%, Other Expenses 0.29%, and Total Annual
Expenses 1.79%; Templeton Asset Strategy Fund - Management Fees 0.60%,
12b-1 fees 0.25%, Other Expenses 0.14% and Total Annual Expenses 0.99%.
The fund's class 2 distribution plan or "rule 126-1 plan" is described
in the fund's prospectus.
9. Effective May 1, 1999, Lazard Asset Management, the Fund's investment
adviser, has agreed to waive its fee and/or reimburse the Portfolios
through December 31, 2000 to the extent total annual portfolio
expenses exceed 1.25% of the Portfolio's average daily net assets.
Absent such an agreement, the other expenses and total annual portfolio
expenses for the year ended December 31, 1999 would have been 4.63%
and 5.63% for the Lazard Retirement Equity Portfolio and 6.31% and
7.31% for the Lazard Retirement Small Cap Portfolio. The fund's class
2 distribution plan or "rule 12b-1 plan" is described in the fund's
prospectus.
10. With respect to the Universal Institutional Funds, Inc. portfolios, the
investment adviser has voluntarily waived a portion or all of the
management fees and reimbursed other expenses of the portfolios to the
extent total operating expenses exceed the following percentages:
Emerging Markets Equity Portfolio 1.75%, International Magnum Portfolio
1.15%. The adviser may terminate this voluntary waiver at any time at
its sole discretion. Absent such reductions, the "Management Fees" and
"Other Expenses" would have been as follows: 1.25% and 1.37%,
respectively for the Emerging Markets Equity Portfolio; and 0.80% and
0.87%, respectively for the International Magnum Portfolio.
<PAGE>
PURCHASES
Premiums
The initial premium is due on the policy date. The policy date is the date
coverage under the policy becomes effective. Other premiums may be required. All
premiums must be sent to us at our administrative office. Before we send out the
policy, the application and the premium must be in good order as determined by
our administrative rules.
Your first policy year starts on the day the coverage is effective under your
policy (the policy date). The twelve month period beginning on the policy date
and ending the day before the same date in the next calendar year (and each
succeeding twelve month period) is referred to as a policy year. Future policy
years start on the same day and month in each subsequent year. We call that date
a policy anniversary. Your monthly date is the same day as the policy date for
each succeeding month.
Subsequent Premiums
The policies are designed to allow you to make subsequent premium payments. You
can make premium payments until the policy anniversary nearest the insured's
95th birthday or until the policy anniversary nearest the younger insured's 95th
birthday under a Last to Die policy. You may change the amount and frequency of
premiums. We have the right to limit the amount of any increase. Each premium
after the initial premium must be for at least $50. Unless specified, any
payments received will be considered premiums and not loan repayments.
Application for a Policy
In order to purchase a policy, you must submit an application to us that
provides information about the proposed insured(s). In some cases, we may
contact you for additional information. We may request that the insured(s)
provide us with medical records, a physician's statement or possibly require
other medical tests.
Allocation of Premium
The initial premium is due on the policy date and will be allocated to the
investment options on the latest of:
o 2 business days after the policy date;
o 2 business days after our receipt of your initial premium at our
administrative office; or
o the date our underwriters approve your policy.
Additional premium payments will be credited to your policy as of the business
day they are received.
Your premium is allocated to the available fixed accounts or one or more of the
investment options, as selected by you. This allocation is not subject to the
transfer fee provision (see "Transfer Fee"). Currently, you can select as many
investment options as you wish. However, we reserve the right to limit this in
the future. All allocation percentages must be in whole numbers and at least 1%.
You may change the allocation of future premiums by providing us with written
notice. The change will be effective on the date we receive your request at our
administrative office.
Our Right to Reject or Return a Premium Payment
In order to receive the tax treatment for life insurance under the Internal
Revenue Code (Code), a policy must initially qualify and continue to qualify as
life insurance under the Code. To maintain this qualification, we have reserved
the right under the policy to return any premiums paid which we have determined
will cause the policy to fail as life insurance. We also have the right to make
changes in the policy or to make a distribution to the extent we determine this
is necessary to continue to qualify the policy as life insurance. Such
distributions may have current income tax consequences to you.
If subsequent premiums will cause your policy to become a Modified Endowment
Contract (MEC), we will contact you prior to applying the premium to your
policy. If you elect to have the premium applied, we require that you
acknowledge in writing that you understand the tax consequences of a MEC before
we will apply the premiums.
Grace Period
If the net cash value on any business day is not sufficient to cover any expense
charges which are due but unpaid, a grace period of 61 days will be allowed for
the payment of a sufficient premium to keep your policy in force. We will send
you a notice at the start of the grace period to your last known address and to
any assignee. A minimum payment of an amount equal to 2 monthly deductions must
be paid during this period to prevent your policy from terminating without
value. If the insured (or last insured) dies during the grace period, we will
pay the death proceeds. If the lapse prevention guarantee period described below
is in effect, the grace period will not apply until the beginning of the policy
year following the lapse guarantee period.
Reinstatement
If your policy terminated at the end of a grace period and you have not
surrendered it for its cash surrender value, you can request that we reinstate
it (restore your insurance coverage). To reinstate your policy you must:
o submit a written request for reinstatement at any time within 3 years after
the end of the grace period;
o submit proof of insurability satisfactory to us;
o pay an amount large enough to cover the next 2 monthly deductions;
o pay any negative cash surrender value that existed at the end of the grace
period; and
o repay or reinstate any debt which existed at the end of the grace period.
<PAGE>
The effective date of a reinstatement is the monthly date on or following the
day we approve the request for reinstatement.
If a surrender charge was applied when the policy lapsed, the surrender charge
applied will be credited to the cash value of your policy. The surrender charge
on the date of reinstatement is equal to the surrender charge on the date of
lapse. To determine the surrender charge on any date after the effective date of
reinstatement, we will not consider the period the policy was lapsed. Unless you
tell us otherwise, the allocation of the amount of the surrender charge,
additional premiums and loan repayments will be based on the allocations in
effect at the start of the grace period.
Lapse Prevention Guarantee
We guarantee that your policy will not lapse during the selected lapse
prevention guarantee period if throughout that period, (a) equals or exceeds (b)
where:
(a) is the aggregate premium payments made less the amount of any
surrenders (including applicable surrender charges) less any loan
amount; and
(b) is the minimum monthly lapse prevention guarantee premium multiplied by
the number of complete months since the policy date, including the
current month.
There are six lapse prevention guarantee periods you may select:
o 5 years (the default option)
o 10 years
o 20 years
o Until you are 65
o Until you are 85
o Life Option
Cash Value
The cash value is the sum of the value in each investment option, any fixed
account and the policy loan account. On the policy date, the cash value in each
investment option is equal to the portion of the initial premium allocated to
the investment option. After the policy date the cash value equals the sum of
the value in the fixed accounts and in the investment options you have selected.
The cash value reflects:
o net premiums paid;
o the monthly deductions;
o the investment experience of the investment options selected;
o any interest credited on any fixed account selected;
o any interest earned or interest charged on amounts allocated to the
policy loan account; and
o any deductions due as a result of a transfer or a partial surrender.
Cash Surrender Value and Net Cash Value
Your cash surrender value equals your cash value less the surrender charge. Your
net cash value equals the cash surrender value less any debt.
While your policy is in force, you may:
o take loans based on the net cash value;
o make partial surrenders (after the end of the first policy year); or
o surrender the policy for its net cash value.
Method of Determining Your Policy Account Allocated to an Investment Option
The value of your policy will go up or down depending upon the investment
performance of the investment option(s) you choose and the charges and
deductions made against your cash value. In order to keep track of the value of
your cash value, we use a unit of measure we call an accumulation unit. (An
accumulation unit works like a share of a mutual fund.)
Every business day we determine the value of an accumulation unit. We do this by
multiplying the accumulation unit value for the immediately preceding business
day by a factor for the investment option for the current business day.
The factor is determined by:
o dividing the value of an investment option at the end of the current business
day by the value of the investment option for the previous business day; and
o subtracting the expense charge.
The value of an accumulation unit may go up or down from business day to
business day.
When you make a premium payment, we credit your policy with accumulation units.
The number of accumulation units credited is determined by dividing the amount
of premiums allocated to the investment option by the value of the accumulation
unit for that investment option. When we assess any charges we do so by
deducting accumulation units from your policy. When you take a loan we reduce
the number of the accumulation units in your policy and transfer the amount to
the loan account.
Our business day is each day that the New York Stock Exchange is open for
business. Our business day closes when the New York Stock Exchange closes,
usually 4:00 p.m. Eastern Time.
<PAGE>
INVESTMENT CHOICES
The policies offer investment options which invest in various funds. The
following investment options listed below are currently available in connection
with the policies we are offering here.
You should read this prospectus and the prospectuses for the investment options
carefully before investing. Certain portfolios contained in the investment
options' prospectuses may not be available under the policies offered by this
prospectus.
The investment objectives and policies of certain investment options are similar
to the investment objectives and policies of other mutual funds that the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the investment options may be higher or lower than the
results of such other mutual funds. The investment advisers cannot guarantee,
and make no representations, that the results of similar funds will be
comparable even though the funds have the same advisers.
An investment option's performance may be affected by risks specific to certain
types of investments, such as foreign securities, derivative investments,
non-investment grade debt securities, initial public offerings (IPOs) or
companies with relatively small market capitalizations. IPOs and other
investment techniques may have a magnified performance impact on an investment
option with a small asset base. An investment option may not experience similar
performance as its assets grow.
Federated Insurance Series
Advised by Federated Investment Management Company
Federated High Income Bond Fund II
Federated Prime Money Fund II
Federated Utility Fund II (seeks high current income and moderate capital
appreciation by investing in securities of utility companies)
The Alger American Fund
Advised by Fred Alger Management, Inc.
Alger American Growth Portfolio
Alger American Mid-Cap Growth Portfolio
Alger American Small Capitalization Portfolio
Alger American Leveraged AllCap Portfolio
Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II),
Initial Class
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio (seeks long-term capital appreciation)
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Index 500 Portfolio
<PAGE>
MFS Variable II Insurance Trust
Advised by MFS Investment Management
MFS Emerging Growth Series
MFS Growth With Income Series
MFS Research Series (seeks long-term capital growth and future income)
MFS Total Return Series
Janus Aspen Series, Institutional Shares
Advised by 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 Variable Products Series Fund, Class B Shares
Advised by Alliance Capital Management L.P.
Alliance Premier Growth Portfolio
Alliance Growth and Income Portfolio
American Century Variable Portfolios, Inc.
Advised by American Century Investment Management, Inc.
American Century VP Income & Growth Fund
American Century VP Value Fund
Franklin Templeton Variable Insurance Products Trust*, Class 2 Shares
Advised by Templeton Asset Management Ltd.
Templeton Developing Markets Securities Fund
Advised by Templeton Investment Counsel, Inc.
Templeton Asset Strategy Fund
*Effective May 1, 2000, the funds of Templeton Variable Products Series Fund
were merged into similar funds of Franklin Templeton Variable Insurance Products
Trust.
Lazard Retirement Series
Advised by Lazard Asset Management
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
The Universal Institutional Funds, Inc.
Advised by Morgan Stanley Asset Management, Inc.
Morgan Stanley International Magnum Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
<PAGE>
Shares of the investment options may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which may or may not be affiliated with us. Certain
investment options may also be sold directly to qualified plans. The funds
believe that offering their shares in this manner will not be disadvantageous to
you.
We may enter into certain arrangements under which we are reimbursed by the
investment options advisors, distributors, and/or affiliates for the
administrative services which we provide to the funds.
Substitution and Limitations on Further Investments
We may substitute one of the investment options you have selected with another
investment option. We will not do this without the prior approval of the
Securities and Exchange Commission. We may also limit further investment in an
investment option. We will give you notice of our intention to do this.
Fixed Account Options
You may allocate premiums and cash values to one of our fixed account options.
Fixed Account I is part of our general account, and will offer a uniform
interest rate guaranteed for one policy year by us. At our discretion, we may
declare an excess interest rate for this account. Fixed Account II offers
various interest rates and time periods to select from. We have segregated our
assets in Fixed Account II from our general account. The interest rates offered
by Fixed Account II will depend on the time period you select. In certain
circumstances, if you make a surrender from Fixed Account II before the
expiration of the time period, you may be subject to an interest adjustment. The
adjustment may be positive or negative. We also offer a dollar cost averaging
option from our general account (see below).
Transfers
You can make transfers as described below. We have the right to terminate or
modify these transfer provisions.
You can make transfers by telephone. If you own the policy with a joint owner,
unless we are instructed otherwise, we will accept instructions from either you
or the other owner. We will use reasonable procedures to confirm that
instructions given to us by telephone are genuine. If we fail to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. However, we will not be liable for following telephone
instructions that we reasonably believe to be genuine. We may tape record
telephone instructions.
Transfers are also subject to the following:
o Currently, you can make 12 transfers every policy year
without charge.
o We will assess a $25 transfer fee for each transfer in excess
of the free 12 transfers allowed per policy year. Transfers
made pursuant to the dollar cost averaging option and the
automatic transfer option will not be counted in determining
the application of any transfer fee.
o The minimum amount which you can transfer is $250 or your
entire value in the investment option or any fixed account
option, if it is less. This requirement is waived if the
transfer is made in connection with the dollar cost averaging
option or the automatic transfer option.
o You may transfer up to 25% of the value of Fixed Account I
from that account to any other account, subject to the $250
minimum amount of a transfer.
o You may not make a transfer until after the end of the free
look period.
o A transfer will be effected as of the end of a business day
when we receive a transfer request that contains all the
information that is necessary for us to process the request.
o We are not liable for a transfer made in accordance with your
instructions.
o Your right to make transfers is subject to modification if we
determine, in our sole opinion, that the exercise of the right
by one or more owners is, or would be, to the
disadvantage of other owners. Restrictions may be applied
in any manner reasonably designed to prevent any use of the
transfer right which is considered by us to be to the
disadvantage of other owners. A modification could be
applied to transfers to, or from, one or more of the
investment options and could include, but is not limited to:
a. the requirement of a minimum time period between each
transfer;
b. not accepting a transfer request from an agent acting
under a power of attorney on behalf of more than one
owner; or
c. limiting the dollar amount that may be transferred
between investment options by an owner at any one
time.
o Transfers do not change your allocation instructions for any
future premium payments.
DOLLAR COST AVERAGING
Dollar cost averaging allows you to systematically transfer a set amount
each month from a source account to any of the investment options or Fixed
Account I. By allocating amounts on a regularly scheduled basis as opposed to
allocating the total amount at one particular time, you may be less susceptible
to the impact of market fluctuations. Dollar cost averaging may not be available
in your state.
We offer two different Dollar Cost Averaging (DCA) riders. You can have
only one DCA account at a time. When you select a DCA option, we will open a
dollar cost averaging account for you. If you select DCA Rider I, you must have
at least $1,000 in the Federated Prime Money Fund II in order to participate in
the dollar cost averaging option. The minimum amount which can be transferred
each month is $100. If you select DCA Rider II, which is only available at
issue, you must commit at least $5,000 to the DCA account. Your DCA account II
is part of our general account assets and will be credited interest. You can
select either a 6 or 12 month period when you elect DCA Rider II.
Dollar cost averaging transfers will begin on the date you request, but no
sooner than 7 business days after we receive the request provided the transfers
do not begin until 30 days after the effective date of your policy. All dollar
cost averaging transfers are made effective the same day each month. However,
this day may not be later than the 28th of each month. If the calendar day
selected is not a business day, transfers are made as of the next business day.
Dollar cost averaging will terminate when any of the following occurs:
* at the end of the selected month period you designate; or
* within 7 days of your written request to terminate these transfers.
If your DCA option is terminated, all money remaining in the dollar cost
averaging account will be transferred to the Federated Prime Money Fund II. We
have the right to modify, discontinue or suspend the dollar cost averaging
option. If you participate in the dollar cost averaging option, the transfers
made under the program are not taken into account in determining any transfer
fee. There is no additional charge for this option.
Dollar cost averaging does not assure a profit and does not protect against
loss in declining markets. Dollar cost averaging involves continuous investment
in the selected investment option(s) regardless of fluctuating price levels of
the investment option(s). You should consider your financial ability to continue
the dollar cost averaging option through periods of fluctuating price levels.
Automatic Transfer Option
Once your money has been allocated among the investment choices, the performance
of the elected options may cause your allocation to shift. You can direct us to
automatically rebalance your cash value in selected investment options and Fixed
Account I to return to your original percentage allocations by selecting our
automatic transfer option. The automatic transfer option may not be available in
your state.
You have the choice of rebalancing quarterly, semi-annually or annually. All
transfers must take place before the 28th of the month. Allocation percentages
must be in whole numbers.
If you participate in the automatic transfer option, the transfers made under
the program are not taken into account in determining any transfer fee.
You may stop the automatic transfer option at any time by written notice. We
must receive your written notice at least seven business days before the first
business day in a new period. Once automatic transfer has been elected, any
subsequent transfer instructions that differ from the then current instructions
are treated as a request to change the automatic transfer allocation. All
changes must be by written notice.
<PAGE>
Example:
Assume that you want your initial premium split between 2 investment
options. You want 80% to be in the MFS Growth With Income Series and
20% to be in the Janus International Growth Portfolio. Over the next 2
1/2 months the domestic market does very well while the international
market performs poorly. At the end of the quarter, the MFS Growth With
Income Series now represents 86% of your holdings because of its
increase in value. If you had chosen to have your holdings rebalanced
quarterly, on the first day of the next quarter, we would sell some of
your units in the MFS Growth With Income Series to bring its value back
to 80% and use the money to buy more units in the Janus International
Growth Portfolio to increase those holdings to 20%.
DEATH BENEFIT
The amount of the death benefit depends on the total specified amount of
insurance, and under some circumstances, your cash value on the date of the
insured's (or last insured's) death and the death benefit option (Option 1 or
Option 2) in effect at that time. The initial specified amount is shown on the
schedule page of your policy and the insured person or persons whose life is
covered by your policy. If you purchase the Last to Die Policy, there will be
two insured persons and the death benefit proceeds will be paid as soon as we
receive due proof that the death of the last insured occurred. The insured(s)
are named on the schedule page of your policy. The actual amount we pay the
beneficiary will be reduced by any outstanding debt and any due and unpaid
charges.
The initial specified amount and the death benefit option in effect on the
policy date (the date when the insured(s) life is covered under the policy) are
shown on the schedule page of your policy.
Option 1. The amount of the death benefit under Option 1 is the greater of:
o the specified amount; or
o the applicable percentage of the cash value on the date of the
insured's (or last insured's) death.
Option 2. The amount of the death benefit under Option 2 is the greater of:
o the specified amount plus the cash value on the date of death of the
insured (or last insured); or
o the applicable percentage of the cash value on the date of the
insured's (or last insured's) death.
<PAGE>
Death Proceeds
The death proceeds equal:
o the death benefit provided by your policy; plus
o any insurance that may be provided by riders to your policy; less
o any debt; less
o any due and unpaid monthly deductions during the Grace Period.
We will pay the death proceeds after we receive due proof of death and any other
information that we reasonably require. The death proceeds may be adjusted under
certain conditions.
Change in Specified Amount
You may change the specified amount after this policy has been in force for 1
year subject to the following:
o You must request the change in writing.
o A decrease will be applied first against prior increases, if any, on a
last-in, first-out basis, then against the initial specified amount. A
decrease in specified amount will not reduce the specified amount lower
than $100,000. A prorata share of any applicable surrender charge may
apply.
o An increase in specified amount will require proof of insurability.
o Any change in the specified amount must be for at least $25,000.
If you increase the specified amount, we will deduct a $10.00 monthly specified
amount increase fee for the first 12 months after the increase.
A change will be effective on the monthly date following our approval or
recording of the change. We will show the effective date of any change in
specified amount in a supplemental policy schedule we will send you.
Change in Death Benefit Option
You may change the death benefit option subject to the following:
o You must request the change in writing.
o If you want to change death benefit Option 1 to Option 2, you must
submit proof of insurability satisfactory to us. The specified amount
will be reduced by the amount of cash value so that the death benefit
is not increased as of the date of change.
o If you want to change death benefit Option 2 to Option 1, the specified
amount will be increased by the amount of cash value.
RIDERS
<PAGE>
Additional Insurance Rider
You can elect the additional insurance rider. This rider provides that we will
pay the additional insurance death benefit when we receive due written proof of
the death of the insured. The additional insurance death benefit will be the
additional insurance specified amount shown on the schedule page of your policy
less the excess, if any, of 1 over 2 or 3, where:
1. is the cash value on the date of death times the applicable percentage of
cash value shown on the schedule page of your policy;
2. is the specified amount, if death benefit option 1 is shown on the schedule
page of your policy; and
3. is the specified amount plus the cash value, if death benefit option 2 is
shown on the schedule page of your policy.
To help you understand how this benefit works, we have set out some examples in
Appendix B.
This rider terminates when you give us written notice to terminate it; or on the
policy anniversary on or after the insured's age 95; or when the policy
terminates.
We require an additional premium for this rider as shown on the schedule page of
your policy.
THE ADDITIONAL INSURANCE RIDER IS ONLY AVAILABLE ON THE FLEXIBLE PREMIUM
VARIABLE AND FIXED LIFE INSURANCE POLICY, AND NOT ON THE LAST TO DIE POLICY.
Term Insurance on Children Rider
You can elect the term insurance on children rider pursuant to our underwriting
guidelines and state laws. This rider provides that we will pay the beneficiary
an amount per unit of coverage if a covered child's (as defined in the rider)
death occurs while the rider is in force or within a certain period as described
below:
o $250 per unit if the covered child's death occurs after he/she is 14
days old and before he/she is 6 months old; or
o $1,000 per unit if the covered child's death occurs on or after he/she
turns 6 months old and before the policy anniversary nearest the
covered child's 22nd birthday.
If the policy terminates because the insured dies, existing coverage on any
child under this rider will be continued as fully paid-up insurance until the
child's 22nd birthday. At age 22, conversion will be allowed as provided in the
rider.
<PAGE>
This rider terminates when you give us written notice to terminate it and send
us the policy to show the change; or on the policy anniversary on or nearest the
insured's age 65; or when the policy terminates.
The cost for this rider, as shown on the schedule page of your policy, will be
added to the monthly deduction.
THE TERM INSURANCE ON CHILDREN RIDER IS ONLY AVAILABLE ON THE FLEXIBLE PREMIUM
VARIABLE AND FIXED LIFE INSURANCE POLICY, AND NOT ON THE LAST TO DIE POLICY.
Accelerated Benefit Rider
You can elect the accelerated benefit rider. There is no additional charge
if you elect the accelerated benefit rider. This rider provides that you may
elect to receive an advance of the death benefit proceeds of the policy if the
insured is terminally ill, as defined in the rider. Receipt of an accelerated
death benefit may be a taxable event. You should contact your personal tax or
financial adviser for specific information.
The maximum accelerated death benefit advance will be the lesser of:
(1) 75% of the policy death benefit on the day we receive the request; or
(2) $250,000 from all policies in force with us.
If payments are made in other than a lump sum, the minimum amount of
any payment will be $500. Surrender charges will not be assessed against any
benefits paid under this rider.
This rider terminates on the earliest of: the date the policy terminates;
or the date you give us written notice to terminate this rider; or the date that
the benefit advance plus accrued interest equals the policy death benefit less
all debt.
Death benefits, cash values, and loan values, if any, will be reduced if a
benefit is paid pursuant to this rider. Also, the receipt of an accelerated
death benefit amount may adversely affect the recipient's eligibility for
Medicaid or other government benefits or entitlements.
THE ACCELERATED BENEFIT RIDER IS ONLY AVAILABLE ON THE FLEXIBLE PREMIUM VARIABLE
AND FIXED LIFE INSURANCE POLICY, AND NOT ON THE LAST TO DIE POLICY.
Accidental Death Benefit Rider
You can elect the accidental death benefit rider. This rider provides that
if the insured dies accidentally (as defined in the rider), we will pay the
accidental benefit amount shown on the schedule page of your policy. The injury
that caused death must occur after attained age one and before the policy
anniversary on or immediately following the insured's 70th birthday.
<PAGE>
This rider terminates on the policy anniversary on or after the insured's
age 70; or if you give us written notice to terminate it; or when the policy
terminates.
THE ACCIDENTAL DEATH BENEFIT RIDER IS ONLY AVAILABLE ON THE FLEXIBLE PREMIUM
VARIABLE AND FIXED LIFE INSURANCE POLICY, AND NOT ON THE LAST TO DIE POLICY.
Other Insured Term Insurance Rider
You can elect the other insured term insurance rider. This rider provides
that we will pay the other insured (unless changed, the other insured is the
person named in the application for this rider) the specified amount shown on
the schedule page of your policy as soon as we receive proof of the other
insured's death.
Under certain conditions, you can change the other insured's specified
amount at any time after this rider is one year old by written notice to us.
This rider terminates at the earliest of: the policy date on or after the
other insured's 70th birthday; the date you give us written notice to terminate
it; or the date the policy terminates.
We require an additional premium for this rider as shown on your Policy
Schedule.
THE OTHER INSURED TERM INSURANCE RIDER IS ONLY AVAILABLE ON THE FLEXIBLE PREMIUM
VARIABLE AND FIXED LIFE INSURANCE POLICY, AND NOT ON THE LAST TO DIE POLICY.
Total Disability Waiver of Premium Rider
You can elect the total disability waiver of premium rider. This rider
provides that during a period of total disability, we will credit a premium to
this policy. The amount of monthly premium to be credited will be the lesser of:
o one-twelfth of the waiver of premium amount shown in the schedule page
of your policy; or
o the monthly average of premiums paid on this policy over the
last thirty-six policy months.
Benefits will begin on the latest date when:
o we have been notified of the onset of total disability; and
o we have received due proof of total disability;
o total disability has continued for six consecutive months.
No benefits will be paid after the insured ceases to be totally
disabled or after the policy has terminated.
<PAGE>
This rider terminates: on the first policy anniversary on or after the
insured attains age 65; if you give us written notice to terminate it; or when
the policy terminates.
We require an additional premium for this rider as shown on the
schedule page of your policy.
If you elect this rider in connection with the Last to Die Policy, each
insured under the policy must have his/her own rider in order to qualify.
Four Year Term Rider
You can elect the four year term rider. This rider provides that we will
pay the Four Year Term Rider death benefit shown on the schedule page of your
policy if the death of the last insured to die occurs within the first four
years following the policy date. This rider must be in effect at the time of the
death of the last insured to die.
This rider terminates: on the policy anniversary nearest the younger
insured's attained age 70; if you give us written notice to terminate it; or
when the policy terminates.
We require an additional premium for this rider as shown on the Policy
Schedule.
If you elect this rider in connection with the Last to Die Policy, the
rider will be issued on both insureds under the policy.
THE FOUR YEAR TERM RIDER IS ONLY AVAILABLE ON THE LAST TO DIE POLICY, AND NOT ON
THE FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE POLICY.
Split Policy Option Rider
You can elect the split policy option rider. This rider provides that we
will exchange the original policy without evidence of insurability for two new
policies, one on the life of each of the insureds. The exchange is subject to
the terms of the rider and rules with regard to insurable interest. There are
certain specified conditions which must be met in order for the policy to be
exchanged, as well as certain terms which will apply to the new policy.
We will allow an exchange of the policy if:
o A final decree of divorce is issued terminating a marriage of the two insureds
to each other; or
o There is a change in the federal estate tax law which results in either:
(a) an end to the unlimited marital deduction available to the insureds
if they were to die; or
(b) a 50% or more reduction in the maximum federal estate tax rate.
The exercise of this option, to split the policy, may under certain
circumstances, result in adverse tax consequences. Please consult your tax
adviser before exercising any options under this rider.
This rider terminates on the earliest of: the date of death of either
insured; the date the original policy is exchanged under the terms of this
rider; the date the policy terminates; and the monthly date following receipt by
us of your written notice canceling this rider.
We require an additional premium for this rider as shown on the schedule
page of your policy.
If you elect this rider in connection with the Last to Die Policy, the
rider will be issued on both insureds under the policy.
THE SPLIT POLICY OPTION RIDER IS ONLY AVAILABLE ON THE LAST TO DIE POLICY, AND
NOT ON THE FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE POLICY.
YOU SHOULD READ THE RIDERS CAREFULLY FOR THE TERMS AND CONDITIONS
OF EACH SPECIFIC RIDER.
Settlements
When your policy becomes a claim because of the death of the insured (or last
insured), settlement will be made upon due proof of death. If the proceeds are
not paid within 30 days of receipt of due proof of death, the payment will
include interest at the legal rate from the date of the insured (or last
insured) until the date the claim is paid.
Proceeds may be paid in a lump sum, or under any other mutually agreed upon
payment option.
TAXES
Note: We have prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your tax adviser about your own circumstances. We have included an
additional discussion regarding taxes under the section "More Information."
Life Insurance in General
Life insurance, such as this policy, is a means of providing for death
protection and setting aside money for future needs. Congress recognized the
importance of such planning and provided special rules in the Internal Revenue
Code (Code) for life insurance.
<PAGE>
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your life insurance policy until you take the money out.
Beneficiaries generally are not taxed when they receive the death proceeds upon
the death of the insured (or last insured). However, estate taxes may apply.
Taking Money Out of Your Policy
You, as the owner, will not be taxed on increases in the value of your policy
until a distribution occurs either as a surrender or as a loan. However, if your
policy is a MEC, any loans or surrenders from the policy will be treated as
first coming from earnings which are included in income and then from your
investment in the policy. Consequently, these distributed earnings are included
in taxable income.
The Code also provides that any amount received from a MEC which is included in
income may be subject to a 10% penalty. The penalty will not apply if the income
received is:
1) paid on or after the taxpayer reaches age 59 1/2;
2) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code); or
3) in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer.
If your policy is not a MEC, any surrender proceeds will be treated as first a
recovery of the investment in the policy and to that extent will not be included
in taxable income. Furthermore, any loan will be treated as indebtedness under
the policy and not as a taxable distribution. See "Federal Tax Status" in the
section "More Information" for more details including an explanation of whether
your policy is a MEC.
Diversification
The Code provides that the underlying investments for a variable life policy
must satisfy certain diversification requirements in order to be treated as a
life insurance contract. We believe that the investment options are being
managed so as to comply with such requirements.
Under current federal tax law, it is unclear as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, and not us would be considered the owner of the shares of the
investment options. If you are considered the owner of the investments, it will
result in the loss of the favorable tax treatment for the policy. It is unknown
to what extent owners are permitted to select investment options, to make
transfers among the portfolios or the number and type of investment options
owners may select from without being considered the owner of the shares. If
guidance from the Internal Revenue Service is provided which is considered a new
position, the guidance would generally be applied prospectively. However, if
such guidance is considered not to be a new position, it may be applied
retroactively. This would mean that you, as the owner of the policy, could be
treated as the owner of the investment options. Due to the uncertainty in this
area, we reserve the right to modify the policy in an attempt to maintain
favorable tax treatment.
ACCESS TO YOUR MONEY
Policy Loans
You may obtain a loan at any time while your policy is in force. Your request
for a loan must be in writing. The amount of the loan and all existing loans may
not be more than 90% of the net cash value as of the date of the loan. The
amount of the loan may not be less than $500. A loan will only be made upon the
proper assignment of your policy to us with the policy as the sole security for
the loan.
When you take a policy loan, we will transfer an amount equal to the policy loan
from the investment option(s) or Fixed Account I to the policy loan account.
Unless you state otherwise, transfers from the investment options to the policy
loan account will be on a pro-rata basis as of the loan date. If you do not have
a sufficient amount in the investment option(s), we will transfer any remaining
amount from Fixed Account I. We will also transfer any loan interest that
becomes due and unpaid in the same manner. Amounts transferred to the policy
loan account will earn interest daily from the date of transfer. Policy loans
may also have federal tax consequences (see "Federal Tax Status").
Effect of a Loan
Policy loans will have a permanent effect on any death benefit and cash
surrender value of your policy. The effect may be favorable or unfavorable. If
loans are not repaid, the debt will reduce the amount of any death proceeds.
Loans have a permanent effect on the policy because the amount transferred to
the policy loan account will not share in the investment results of the
investment options while the loan is outstanding. If the policy loan account
earnings rate is less than the performance of the selected investment options
and/or Fixed Account I, the values and benefits under the policy will be reduced
(and the policy may even terminate) as a result of the loan.
Loan Interest
The loan interest rate charged is currently 8%. The loan interest credited to
your policy is currently 6%. Interest is charged daily and is payable at the end
of each policy year. Unpaid interest will be added to the existing debt as of
the due date and will be charged interest at the same rate as the rest of the
loan.
We will credit a higher effective annual interest rate in the following
circumstances:
o for amounts borrowed up to an amount equal to cash value less the
aggregate premium payments made to date (preferred loans); and
o for all loans against policies that are in the 11th policy year or
later.
<PAGE>
Preferred loans include the amount of any outstanding policy loan transferred in
a tax-free exchange.
Repaying Policy Debt
The debt, or any part, may be repaid at any time as long as the policy is in
force. Any debt outstanding will be deducted before any benefit proceeds are
paid. When you repay part or all of the loan, we will transfer an amount equal
to the amount you repay from the policy loan account to an investment option or
to any fixed account.
If a policy loan is outstanding, any payments received will be considered
premiums and not loan repayments unless otherwise specified. If total debt
equals or exceeds the cash value less the surrender charge, your policy will
terminate without value. A termination of the policy with a loan outstanding may
have federal income tax consequences (see "More Information - Federal Tax
Status").
Partial Surrenders
You may make a partial surrender at any time after the first policy year by
written notice.
When you make a partial surrender, we will reduce the cash value by the partial
surrender amount and any surrender charges. We will require that any partial
surrender amounts be first deducted from the cash value in the investment
options proportionately among all accounts unless the owner specifically
requests otherwise. We will also reduce the specified amount. The reduction in
specified amount will be a dollar for dollar reduction in cash value due to the
partial surrender.
The minimum partial surrender amount is currently $500. We may assess a
surrender charge on the amount surrendered. See "Surrender Charges" above.
Partial surrenders will be allowed only if the policy continues to qualify as a
contract of life insurance under the Code. We will also limit the maximum amount
of all partial surrenders you can make in a policy year to the greater of:
o 10% of the total premium payments; or
o cash value less total premiums paid less any policy debt.
Full Surrenders
You may completely surrender your policy and receive the net cash value at any
time while the policy is in force. If you make a full surrender, we may require
that you return your policy.
The date of surrender will be the date we receive your written request. The net
cash value will be determined as of the end of the normal business day during
which your written request is received. All coverage will end on the date of
surrender.
<PAGE>
Partial and full surrenders may have federal tax consequences (see "Federal Tax
Status").
For your protection, a request for surrender, policy loan, or a change in
ownership must be by written notice. We may require the signature to be
guaranteed by a member firm of the New York, Boston, Midwest, Philadelphia, or
Pacific Stock Exchanges or by a commercial bank (not a savings bank), which is a
member of the Federal Deposit Insurance Corporation. In some cases, we may
require additional documentation of a customary nature.
OTHER INFORMATION
The Variable Account
We established a variable account, Valley Forge Life Insurance Company Variable
Life Separate Account (Variable Account), to hold the assets that underlie the
policies. Our Board of Directors adopted a resolution to establish the Variable
Account under Illinois insurance law on February 12, 1996. We have registered
the Variable Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940.
The assets of the Variable Account are held in our name on behalf of the
Variable Account and legally belong to us. However, those assets that underlie
the policies, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts we may issue.
We reserve the right to modify the structure or operation of the Variable
Account. However, we guarantee that a modification will not affect the value of
your policy.
Distributor
The policy is sold by licensed insurance agents, where the policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
CNA Investor Services, Inc. ("CNA/ISI") serves as the distributor for the
policies. CNA/ISI is located at CNA Plaza, Chicago, Illinois 60685.
Broker-dealers will be paid commissions on the sale of the policies.
Suspension of Payments or Transfers
We may be required to suspend or postpone any payments or transfers for any
period when:
1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2) trading on the New York Stock Exchange is restricted;
3) an emergency exists as a result of which disposal of shares of the
portfolios is not reasonably practicable or we cannot reasonably value the
shares of the portfolios;
4) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
We have the right to defer payment of any surrender or transfer of any fixed
account value for not more than 6 months from the date we receive your written
notice, unless otherwise provided by your state.
Ownership
Owner. You, as the owner of the policy or certificate, have all of the rights
under the policy while the insured (or last insured) is living. Your rights in
the policy belong to your estate if you die before the insured (or last insured)
dies and there is no joint owner or contingent owner.
Joint Owner. The policy can be owned by joint owners. Joint owners have equal
ownership rights. Authorization of both joint owners is required for all policy
changes except for transfers and allocations.
Contingent Owner. The contingent owner, if any, is named in the application,
unless changed. You may name a contingent owner at any time while the insured is
living by providing us with written notice. Once recorded, the designation will
be effective as of the date the written notice was signed. Such change will not
affect any payment we make or action we take before it was recorded.
The contingent owner, if any, will become the owner if the named owner dies
before the date of the insured's (or last insured's) death. If there are joint
owners, the contingent owner will become the owner if both named joint owners
die before the insured (or last insured).
Beneficiary. The beneficiary is the person or entity you name to receive any
death proceeds. The primary beneficiary is the person who will be paid death
proceeds when the insured (or last insured) dies. The contingent beneficiary, if
any, will become the beneficiary if no primary beneficiary is living on the date
of the insured's (or last insured's) death. More than one primary and contingent
beneficiary can be named. If there is more than one primary beneficiary alive
when the insured (or last insured) dies, we will pay the primary beneficiaries
in equal shares unless you provide otherwise.
The primary beneficiary and contingent beneficiary on the policy date are named
in the application. While the insured is alive, you may change any beneficiary.
Any change must be by written notice. Once recorded, the change will take effect
as of the date you signed it. Such change will not affect any payment we make or
action we take before it was recorded. An irrevocable beneficiary must consent
in writing to any change in beneficiary.
If any beneficiary dies before the insured (or last insured), that beneficiary's
interest in the death benefit will end. If any beneficiary dies at the same time
as the insured (or last insured), or within 30 days of the insured (or last
insured), that beneficiary's interest in the death benefit will end if no
benefits have been paid to that beneficiary. If the interest of all designated
beneficiaries has ended when the insured (or last insured) dies, we will pay the
death benefit to you, or your estate if you are not living.
Proceeds payable to a beneficiary will be free from the claims of creditors, to
the extent allowed by law.
Assignment
You can assign any or all rights under your policy while the insured (or last
insured) is living. Assignment of all rights is a change of ownership. An
irrevocable beneficiary must consent in writing to any assignment. We are not
responsible for the sufficiency or validity of any assignment. An assignment
will not affect any payments or actions we have taken before we received notice
of the assignment.
An assignment may be a taxable event. You should consult a tax adviser if you
wish to assign the policy.
MORE INFORMATION
Executive Officers and Directors
The name, age, positions and office, term as director, and business experience
during the past five years for VFL's directors executive offices are listed in
the following table:
<TABLE>
<CAPTION>
Officers of VFL
Position(s)
Held Principal Occupation(s)
Name and Address Age With VFL During Past Five Years
----------------------------------- ---------- ----------------- ------------------------------------------------------
<S> <C> <C> <C>
Bernard L. Hengesbaugh.... 52 Director, Chairman of the Board and Chief Executive
CNA Plaza Chairman of Officer of CNA since February, 1999. Prior
Chicago, IL 60685 the Board thereto, Mr. Hengesbaugh was Executive Vice
and Chief President and Chief Operating Officer of CNA
Executive since February, 1998. Prior thereto, Mr.
Officer Hengesbaugh was Senior Vice President of CNA
since November, 1990. Mr. Hengesbaugh has
served as a Director of VFL since February, 1999.
Peter E. Jokiel . . . . . . . . . . . . 51 Senior Vice Senior Vice President of CNA since November,
CNA Plaza President 1990. Chief Financial Officer of CNA from
Chicago, IL 60685 November, 1990 through October, 1997. Mr.
Jokiel served as Director of VFL from July,
1992 through
October, 1997.
Jonathan D. Kantor . . . . . . . . . 43 Senior Vice Senior Vice President, Secretary and General
CNA Plaza President, Counsel of CNA since April, 1997. Group Vice
Chicago, IL 60685 Secretary, President of CNA General since April, 1994. Prior
General thereto, Mr. Kantor was a partner at the law firm
Counsel and of Shea & Gould.* Mr. Kantor has served as a
Director Director of VFL Since April, 1997.
Robert V. Deutsch . . . . . . . . . 39 Senior Vice Senior Vice President, Chief Financial Officer, and
CNA Plaza President, Director since August 16, 1998. Prior thereto,
Chicago, IL 60685 Chief Officer for Executive Risk, Inc.
Financial
Officer,
Director
Thomas Pontarelli . . . . . . . . . 51 Senior Vice Senior Vice President, Human Resources since
CNA Plaza President, April, 2000. Prior thereto, Group Vice President,
Chicago, IL 60685 Director Human Resources. From May 1974 to December,
1997, series of positions culminating in
the position of Chairman, CEO and President
of Washington National Insurance Company.
Donald P. Lofe, Jr. . . . . . . . . . 42 Group Vice Group Vice President, Corporate Finance
CNA Plaza President, Department since October, 1998. Prior thereto,
Chicago, IL 60685 Director partner-in-charge of PricewaterhouseCoopers LLP.
Thomas F. Taylor. . . . . . . . . . Executive Executive Vice President of CNA since 1992.
CNA Plaza Vice Director since October 1999.
Chicago, IL 60685 President,
Director
-----------------------------------
* Shea & Gould declared bankruptcy in 1995.
</TABLE>
Each director is elected to serve until the next annual meeting of stockholders
or until his or her successor is elected and shall have qualified. Some
directors hold various executive positions with insurance company affiliates of
Valley Forge. Executive officers serve at the discretion of the Board of
Directors.
Voting
Pursuant to our view of present applicable law, we will vote the shares of the
portfolios at special meetings of shareholders in accordance with instructions
received from all owners having a voting interest. We will vote shares for which
we have not received instructions and any shares that are ours in the same
proportion as the shares for which we have received instructions.
If the Investment Company Act of 1940 or any regulation thereunder is amended or
if the present interpretation of the Act changes so as to permit us to vote the
shares in our own right, we may elect to do so.
Disregard of Voting Instructions
We may, when required to do so by state insurance authorities, vote shares of
the portfolios without regard to instructions from owners. We will do this if
such instructions would require the shares to be voted to cause a portfolio to
make, or refrain from making, investments which would result in changes in the
sub-classification or investment objectives of the portfolio. We may also
disapprove changes in the investment policy initiated by owners or
trustees/directors of the portfolios, if such disapproval:
o is reasonable and is based on a good faith determination by us that the change
would violate state or federal law;
o the change would not be consistent with the investment objectives of the
portfolios; or
o which varies from the general quality and nature of
investments and investment techniques used by other portfolios
with similar investment objectives underlying other variable
contracts offered by us or of an affiliated company.
In the event we do disregard voting instructions, a summary of this action and
the reasons for such action will be included in the next semi-annual report to
owners.
Legal Opinions
<PAGE>
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the policies.
Our Right to Contest
We cannot contest your policy after it has been in force during the lifetime of
the insured (each insured under the Last to Die Policy) for two years from the
policy date; nor can we contest any increased benefit or reinstatement after it
has been in force, while the insured (or last insured) is alive, for two years
after the effective date of such increase or reinstatement.
We cannot contest this policy, any reinstatement or any increase in benefits
after the effective date of the policy, reinstatement, or increase in benefits
unless:
o an answer in the application for the policy, reinstatement or increase in
benefits was not true or complete; and
o if we had known the truth, we would not have issued or reinstated the
policy as we did or increased the benefits.
Any statement made by the insured(s) will not be used in any contest unless a
copy is furnished to the beneficiary.
Federal Tax Status
Note: The following description is based upon our understanding of current
federal income tax law applicable to life insurance in general. We cannot
predict the probability that any changes in such laws will be made. Purchasers
are cautioned to seek competent tax advice regarding the possibility of such
changes. Section 7702 of the Internal Revenue Code of 1986, as amended ("Code"),
defines the term "life insurance contract" for purposes of the Code. We believe
that the policies to be issued will qualify as "life insurance contracts" under
section 7702. We do not guarantee the tax status of the policies. Purchasers
bear the complete risk that the policies may not be treated as "life insurance"
under federal income tax laws. Purchasers should consult their own tax advisers.
It should be further understood that the following discussion is not exhaustive
and that special rules not described in this prospectus may be applicable in
certain situations.
Introduction. The discussion contained herein is general in nature and is not
intended as tax advice. Each person concerned should consult a competent tax
adviser. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion herein is based upon our understanding of current
federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of those current federal income
tax laws or of the current interpretations by the Internal Revenue Service.
We are taxed as a life insurance company under the Code. For federal income tax
purposes, the Variable Account is not a separate entity from us and its
operations form a part of us.
<PAGE>
Diversification. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable life insurance policies. The Code
provides that a variable life insurance policy will not be treated as life
insurance for any period (and any subsequent period) for which the investments
are not, in accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification of
the policy as a life insurance contract would result in imposition of federal
income tax to the owner with respect to earnings allocable to the policy prior
to the receipt of payments under the policy. The Code contains a safe harbor
provision which provides that life insurance policies, such as these policies,
will meet the diversification requirements if, as of the close of each quarter,
the underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five (55%) percent of the total assets
consist of cash, cash items, U.S. Government securities and securities of other
regulated investment companies. There is an exception for securities issued by
the U.S. Treasury in connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.Section
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the policies. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these regulations, all securities of the same
issuer are treated as a single investment. The Code provides that, for purposes
of determining whether or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of the Code have been
met, "each United States government agency or instrumentality shall be treated
as a separate issuer." We intend that each portfolio underlying the policies
will be managed by the investment managers in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the separate account will cause the owner to be treated as the
owner of the assets of the separate account, thereby resulting in the loss of
favorable tax treatment for the policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of owner control which may be exercised under the policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the policyowner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the owner to be
considered the owner of the assets of the Variable Account.
<PAGE>
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in you being retroactively
determined to be the owner of the assets of the separate account.
Due to the uncertainty in this area, we reserve the right to modify the policy
in an attempt to maintain favorable tax treatment.
Tax Treatment of the Policy. The policy has been designed to comply with the
definition of life insurance contained in Section 7702 of the Code. Although
some interim guidance has been provided and proposed regulations have been
issued, final regulations have not been adopted. Section 7702 of the Code
requires the use of reasonable mortality and other expense charges. In
establishing these charges, we have relied on the interim guidance provided in
IRS Notice 88-128 and proposed regulations issued on July 5, 1991. Currently,
there is even less guidance as to a policy issued on a substandard risk basis
and thus it is even less clear whether a policy issued on such basis would meet
the requirements of Section 7702 of the Code.
While we have attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with our interpretations of Section 7702 that were made
in determining such compliance. In the event the policy is determined not to so
comply, it would not qualify for the favorable tax treatment usually accorded
life insurance policies. You should consult your own tax advisers with respect
to the tax consequences of purchasing the policy.
Policy Proceeds. The tax treatment accorded to loan proceeds and/or surrender
payments from the policies will depend on whether the policy is considered to be
a MEC. (See "Tax Treatment of Loans and Surrenders.") Otherwise, we believe that
the policy should receive the same federal income tax treatment as any other
type of life insurance. As such, the death benefit thereunder is excludable from
the gross income of the beneficiary under Section 101(a) of the Code. Also, you
are not deemed to be in constructive receipt of the net cash value, including
increments thereon, under a policy until there is a distribution of such
amounts.
Federal, state and local, estate, inheritance and other tax consequences of
ownership, or receipt of policy proceeds, depend on the circumstances of each
owner or beneficiary.
Tax Treatment of Loans And Surrenders. Section 7702A of the Code sets forth the
rules for determining when a life insurance policy will be deemed to be a MEC. A
MEC is a contract which is entered into or materially changed on or after June
21, 1988 and fails to meet the 7-pay test. A policy fails to meet the 7-pay test
when the cumulative amount paid under the policy at any time during the first 7
policy years exceeds the sum of the net level premiums which would have been
paid on or before such time if the policy provided for paid-up future benefits
after the payment of seven (7) level annual premiums. A material change would
include any increase in the future benefits or addition of qualified additional
benefits provided under a policy unless the increase is attributable to: (1) the
payment of premiums necessary to fund the lowest death benefit and qualified
additional benefits payable in the first seven policy years; or (2) the
crediting of interest or other earnings (including policyholder dividends) with
respect to such premiums.
Furthermore, any policy received in exchange for a policy classified as a MEC
will be treated as a MEC regardless of whether it meets the 7-pay test. However,
an exchange under Section 1035 of the Code of a life insurance policy entered
into before June 21, 1988 for the policy will not cause the policy to be treated
as a MEC if no additional premiums are paid.
Due to the flexible premium nature of the policy, the determination of whether
it qualifies for treatment as a MEC depends on the individual circumstances of
each policy.
If the policy is classified as a MEC, then surrenders and/or loan proceeds are
taxable to the extent of income in the policy. Such distributions are deemed to
be on a last-in, first-out basis, which means the taxable income is distributed
first. Loan proceeds and/or surrender payments, including those resulting from
the lapse of the policy, may also be subject to an additional 10% federal income
tax penalty applied to the income portion of such distribution. The penalty
shall not apply, however, to any distributions: (1) made on or after the date on
which the taxpayer reaches age 59 1/2; (2) which are attributable to the
taxpayer becoming disabled (within the meaning of Section 72(m)(7) of the Code);
or (3) which ares part of a series of substantially equal periodic payments made
not less frequently than annually for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of such taxpayer and
his beneficiary.
If a policy is not classified as a MEC, then any surrenders shall be treated
first as a recovery of the investment in the policy which would not be received
as taxable income. However, if a distribution is the result of a reduction in
benefits under the policy within the first fifteen years after the policy is
issued in order to comply with Section 7702, such distribution will, under rules
set forth in Section 7702, be taxed as ordinary income to the extent of income
in the policy.
Any loans from a policy which is not classified as a MEC, will be treated as
indebtedness of the owner and not a distribution. Upon complete surrender or
lapse of the policy, if the amount received plus loan indebtedness exceeds the
total premiums paid that are not treated as previously surrendered by the policy
owner, the excess generally will be treated as ordinary income.
Personal interest payable on a loan under a policy owned by an individual is
generally not deductible. Furthermore, no deduction will be allowed for interest
on loans under policies covering the life of any employee or officer of the
taxpayer or any person financially interested in the business carried on by the
taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Policy owners should seek competent tax advice on the tax consequences of taking
loans, distributions, exchanging or surrendering any policy.
Tax Treatment of Settlement Options. Under the Code, a portion of the
settlement option payments which are in excess of the death benefit
proceeds are included in the beneficiary's taxable income. Under a
settlement option payable for the lifetime of the beneficiary, the death
benefit proceeds are divided by the beneficiary's life expectancy and
proceeds received in excess of these prorated amounts are included in
taxable income. The value of the death benefit proceeds is reduced by the
value of any period certain or refund guarantee. Under a fixed payment or
fixed period option, the death benefit proceeds are prorated by dividing
the proceeds over the payment period under the option. Any payments in
excess of the prorated amount will be included in taxable income.
Multiple Policies. The Code further provides that multiple MECs which are issued
within a calendar year period to the same owner by one company or its affiliates
are treated as one MEC for purposes of determining the taxable portion of any
loans or distributions. Such treatment may result in adverse tax consequences
including more rapid taxation of the loans or distributed amounts from such
combination of contracts. You should consult a tax adviser prior to purchasing
more than one MEC in any calendar year period.
Tax Treatment of Assignments. An assignment of a policy or the change of
ownership of a policy may be a taxable event. You should therefore consult a
competent tax adviser should you wish to assign or change the owner of your
policy.
Qualified Plans. The policies may be used in conjunction with certain Qualified
Plans. Because the rules governing such use are complex, you should not do so
until you have consulted a competent Qualified Plans consultant.
Income Tax Withholding. All distributions or the portion thereof which is
includible in gross income of the policy owner are subject to federal income tax
withholding. However, in most cases you may elect not to have taxes withheld.
You may be required to pay penalties under the estimated tax rules, if
withholding and estimated tax payments are insufficient.
Reports to Owners
At least once every policy year, we will send you a report showing current cash
values and other information required by laws and regulations. We will mail this
report to you at your last known address.
Legal Proceedings
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. We are
not involved in any litigation that is of material importance in relation to our
total assets or that relates to the Variable Account.
Experts
The financial statements for Valley Forge Life Insurance Company as of December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999 included in this prospectus which is part of this registration
statement have been audited by _____________, independent auditors, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements for each of the subaccounts that comprise the Valley
Forge Life Insurance Company Variable Life Separate Account as of and for the
year ended December 31, 1999 (for the two years ended December 31, 1999 with
respect to the statements of changes in net assets) included in this prospectus
which is part of this registration statement and have been audited by
____________, independent auditors, as stated in their report appearing in the
registration statement; and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by
_________________ whose opinion is filed as an exhibit to the registration
statement.
Financial Statements
Our financial statements included herein should be considered only as bearing
upon our ability to meet our obligations under the policies.
(Financial statements will be filed by Amendment)
<PAGE>
APPENDIX A
ILLUSTRATIONS OF POLICY VALUES
The following tables have been prepared to illustrate hypothetically how certain
values under a policy change with investment performance over an extended period
of time. The tables illustrate how policy values, cash surrender values and
death benefits under a policy covering an insured (or joint insureds in the case
of Last to Die Policy) of a given age on the policy date, would vary over time
and the return on the assets in each portfolio with an assumed uniform gross
annual rate of 0%, 6% and 12%. The values would be different from those shown if
the returns averaged 0%, 6% or 12 % but fluctuated over and under those averages
throughout the years shown. The tables assume that only a single premium has
been paid. The tables also show the single premium accumulated at 5% interest
compounded annually. The hypothetical investment rates of return are
illustrative only and should not be considered a representation of past or
future investment rates of return. Actual rates of return for a particular
policy may be more or less than the hypothetical investment rates of return
illustrated and will depend on a number of factors including the investment
allocations you make and prevailing rates. These illustrations assume that the
premium is allocated equally among the 31 investment options available under the
policy, and that no amounts are allocated to the fixed account options.
The illustrations reflect the fact that the net investment returns on the assets
held in the investment options is lower than the gross after tax return of the
selected underlying portfolios. The tables assume a simple arithmetic average
annual expense ratio of ____% of the average daily net assets of the portfolios
available. The tables also assume that the waivers and/or reimbursements, if
any, for the available portfolios will continue for the periods shown.
In addition, the illustrations reflect a daily charge assessed against the
investment options for assuming certain mortality and expense risks (expense
charges), which are equivalent to an effective annual charge of 0.90% during
policy years 1-10 and 0.45% during policy years 11 and later. After deduction of
portfolio expenses and the mortality and expense charges, the illustrated gross
annual investment rates of return 0%, 6% and 12% would correspond to approximate
net annual rates of - , -, and - , respectively during policy years 1-10 and - ,
- , and - during policy years 11 and later.
The illustration also reflects the deduction of the monthly deduction for the
hypothetical insured. The surrender charge is reflected in the cash surrender
value column. Our current cost of insurance charges and the guaranteed maximum
cost of insurance charges that we have a contractual right to charge, are
reflected in separate illustrations on each of the following pages. All the
illustrations reflect the fact that no charges for federal or state income taxes
are currently made against the Variable Account and assumes no loan amount or
partial withdrawals/ surrenders or charges for supplemental and/or rider
benefits.
The illustrations are based on our Preferred Nonsmoker risk class. Upon request,
you will be furnished with a comparable illustration based on the proposed
insured's individual circumstances. Such illustrations may assume different
hypothetical rates of return than those illustrated in the following tables.
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Male Issue Age 55
Preferred Non-Smoker
$25,000 Single Premium
Face Amount
Using Guaranteed Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation
of past or future investment results. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations by you, prevailing rates and rates of inflation. The
death benefit and cash values for a policy would be different from those
shown if the actual rates of return averaged 0%, 6% or 12% over a period of
years but also fluctuated above or below those averages for individual
policy years. No representation can be made by us or the funds that these
hypothetical rates of return can be achieved for any one year or sustained
over any period of years.
ILLUSTRATION OF POLICY VALUES VALLEY FORGE LIFE
INSURANCE COMPANY
Male Issue Age 55
Preferred Non-Smoker
$25,000 Single Premium
Face Amount
Using Current Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Male Issue Age 55
Preferred Non-Smoker
$100,000 Single Premium
Face Amount
Using Guaranteed Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Male Issue Age 55
Preferred Non-Smoker
$100,000 Single Premium
Face Amount
Using Current Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse. (1) Assumes that
no policy loans have been made and no withdrawals have been made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Joint Lifes
Male Issue Age 55
Female Issue Age 55
Preferred Non-Smoker
$25,000 Single Premium
Face Amount
Using Guaranteed Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Joint Lifes
Male Issue Age 55
Female Issue Age 55
Preferred Non-Smoker
$25,000 Single Premium
Face Amount
Using Current Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
</TABLE>
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Joint Lifes
Male Issue Age 55
Female Issue Age 55
Preferred Non-Smoker
$100,000 Single Premium
Face Amount
Using Guaranteed Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
</TABLE>
<PAGE>
ILLUSTRATION OF POLICY VALUES
VALLEY FORGE LIFE INSURANCE COMPANY
Joint Lifes
Male Issue Age 55
Female Issue Age 55
Preferred Non-Smoker
$100,000 Single Premium
Face Amount
Using Current Cost of Insurance
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
End of Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
Policy at 5%
Year Per Year
------------------------------------- ------------------------------- -------------------------------
Policy Surrender Death Policy Surrender Death Policy Surrender Death
Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- --------------
* In the absence of additional premium, the Policy would lapse.
(1) Assumes that no policy loans have been made and no withdrawals have been
made.
The hypothetical investment rates shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The death benefit
and cash values for a policy would be different from those shown if the actual
rates of return averaged 0%, 6% or 12% over a period of years but also
fluctuated above or below those averages for individual policy years. No
representation can be made by us or the funds that these hypothetical rates of
return can be achieved for any one year or sustained over any period of years.
</TABLE>
<PAGE>
Appendix B
Example of Additional Insurance Rider (AIR)
(AVAILABLE ONLY ON THE FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE
POLICY, AND NOT ON THE LAST TO DIE POLICY)
Definitions
Excess Calculation under Death Benefit Option 1
Cash Value * Applicable Percentage less Specified Amount
Excess Calculation under Death Benefit Option 2
Cash Value * Applicable Percentage less Specified Amount plus Cash Value.
General
For purposes of administrative processing, excess is subtracted first from the
AIR rider specified amount and then from the base policy specified amount, to
the extent necessary.
Examples
(A) Example without Excess
Insured's Age = 57
Death Benefit = Option 2
Base Policy Specified Amount = $100,000
Additional Insured Specified Amount = $50,000
Cash Value = $75,000
Cash Value * Applicable Percentage (1.42) = $106,500
Additional Insurance Death Benefit will be the Additional Insured Specified
Amount less the excess, if any, of (1) over (3), where:
(1) . . . . . . . . . . $106,500 - cash value * applicable percentage
(3) . . . . . . . . . . $175,000 - base policy specified amount + cash value
(1) less (3) . . . . . -$68,000 (No Excess)
Therefore, the Additional Insurance Death Benefit = $50,000
(B) Example with Excess - Death Benefit Option 1
Insured's Age = 58
Death Benefit = Option: 1
Base Policy Specified Amount = $100,000
Additional Insurance Specified Amount = $25,000
Cash Value = $75,000
Cash Value * Applicable Percentage (1.38) = $103,500
Additional Insurance Death Benefit will be the Additional Insured Specified
Amount less the excess, if any, of (1) over (2) where:
(1) . . . . . . . . . . . $103,500 - cash value * applicable percentage
(2) . . . . . . . . . . . $100,000 - base policy specified amount
(1) less (2) . . . . . . $3,500 (Amount of Excess)
Therefore, the Additional Insurance Death Benefit = $25,000 - $3,500 = $21,500.
(C) Example with Excess - Death Benefit Option 2
Insured's Age = 70
Death Benefit Option: 2
Base Policy Specified Amount = $100,000
Additional Insurance Specified Amount = $75,000
Cash Value = $1,000,000
Cash Value * Applicable Percentage (1.15) = $1,150,000
Additional Insurance Death Benefit will be the Additional Insured Specified
Amount less the excess, if any, of (1) over (3), where:
(1) . . . . . . . . . $1,150,000 - cash value * applicable percentage
(3) . . . . . . . . . $1,100,000 - base policy specified amount + cash value
(1) less (3) . . . . $50,000 (Amount of Excess)
Therefore, the Additional Insurance Death Benefit = $75,000 - $50,000 = $25,000.
<PAGE>
APPENDIX C
RATES OF RETURN
From time to time, we may report different types of historical performance for
the investment options available under the policy. We may report the average
annual total returns of the funds over various time periods. Such returns will
reflect the operating expenses (including management fees) of the funds, but not
deductions at the Variable Account or policy level for the expense charge and
other policy expenses, which if included, would reduce performance.
At the request of a purchaser, Valley Forge Life Insurance Company will
accompany the returns of the funds with at least one of the following: (i)
returns, for the same periods as shown for the funds, which include deductions
under the Variable Account for the expense charge in addition to the deductions
of fund expenses, but does not include other charges under the policy; or (ii)
an illustration of cash values and cash surrender values as of the performance
reporting date for a hypothetical insured of given age, gender, risk
classification, premium level and initial specified amount. The illustration
will be based either on actual historic fund performance or on a hypothetical
investment return between 0% and 12% as requested by the purchaser. The cash
surrender value figures will assume all fund charges, the expense charge, and
all other policy charges are deducted. The cash value figures will assume all
charges except the surrender charge are deducted.
We may also distribute sales literature comparing the percentage change in the
net asset values of the funds or in the accumulation unit values for any of the
investment options to established market indices, such as the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average. We may
also make comparisons to the percentage change in values of other mutual funds
with investment objectives similar to those of the investment options being
compared.
The chart below shows the Effective Annual Rates of Return of the funds based on
the actual investment performance (after the deduction of investment management
fees and direct operating expenses of the funds). These rates do not reflect the
expense charge assessed. The rates do not reflect deductions from premiums or
Monthly Deductions assessed against the cash value of the policy, nor do they
reflect the policy's surrender charges. Therefore, these rates are illustrative
of how actual investment performance will affect the benefits under the policy.
These rates of return shown are not indicative of future performance. These
rates of return may be considered, however, in assessing the competence and
performance of the investment advisers.
Returns for the periods ended 12/31/99:
<PAGE>
<TABLE>
<CAPTION>
10
Portfolio Years/Since
Investment Option Inception Date 1 Year 5 Years Inception
<S> <C> <C> <C> <C> <C> <C>
Federated Insurance Series
Federated High Income Bond
Fund II . . . . . . . . . . . . . . . . . . . . . . . . 03/01/1994 2.31 10.48 8.22
Federated Prime Money Fund II . . . . . . . . . . . . . 11/21/1994 4.63 4.89 4.88
Federated Utility Fund II . . . . . . . . . . . . . . . 2/10/1994 1.69 15.25 12.15
The Alger American Fund
Alger American Growth Portfolio . . . . . . . . . . . . 1/ 9 /1989 33.74 30.94 23.05
Alger American Mid-Cap Growth Portfolio . . . . . . . . 5/ 3 /1993 31.85 26.14 24.72
Alger American Small Capitalization
Portfolio . . . . . . . . . . . . . . . . . . . . 9/21/1988 43.42 22.64 20.86
Alger American Leveraged AllCap Portfolio . . . . . . 01/25/1995 78.06 NA 46.44
Variable Insurance Products Fund (VIP) &
Variable Insurance Products Fund II
(VIP II)
Fidelity VIP II Asset Manager Portfolio . . . . . . . . 9/6/1989 11.09 15.63 13.14
Fidelity VIP II Contrafund(R)Portfolio . . . . . . . . . 1/3/1995 24.25 NA 27.73
Fidelity VIP Equity-Income Portfolio . . . . . . . . . . 10/9/1986 6.33 18.61 14.49
Fidelity VIP II Index 500 Portfolio . . . . . . . . . . 8/27/1992 20.52 28.16 21.07
MFS Variable Insurance Trust
MFS Emerging Growth Series . . . . . . . . . . . . . . 7/24/1995 76.71 NA 36.44
MFS Growth With Income Series . . . . . . . . . . . . . 10/9/1995 6.69 NA 21.12
MFS Research Series . . . . . . . . . . . . . . . . . . 7/26/1995 24.05 NA 22.86
MFS Total Return Series . . . . . . . . . . . . . . . . 1/3/1995 3.08 NA 15.42
Janus Aspen Series, Institutional Shares
Janus Aspen Series Capital Appreciation
Portfolio . . . . . . . . . . . . . . . . . . . . 5/2/1997 67.00 NA 57.18
Janus Aspen Series Balanced Portfolio . . . . . . . . . 9/13/1993 26.76 24.68 20.62
Janus Aspen Series Growth Portfolio . . . . . . . . . . 9/13/1993 43.98 29.89 24.28
Janus Aspen Series Flexible Income
Portfolio . . . . . . . . . . . . . . . . . . . . 9/13/1993 1.60 10.88 8.50
Janus Aspen Series International Growth
Portfolio . . . . . . . . . . . . . . . . . . . . 5/2/1994 82.27 33.25 28.19
Janus Aspen Series Worldwide Growth
Portfolio . . . . . . . . . . . . . . . . . . . . 9/13/1993 64.45 33.60 29.71
Alliance Variable Products Series Fund,
Class B Shares
Alliance Premier Growth Portfolio . . . . . . . . . . . 06/26/1992 32.32 36.03 26.31
Alliance Growth and Income Portfolio . . . . . . . . . 01/14/1991 11.37 23.91 15.48
American Century Variable Portfolios, Inc.
American Century VP Income & Growth
Fund . . . . . . . . . . . . . . . . . . . . . . . 10/30/1997 18.02 NA 16.96
American Century VP Value Fund . . . . . . . . . . . . . 05/01/1996 -0.85 NA 11.10
Franklin Templeton Variable Insurance
Products Trust, Class 2 Shares
Templeton Developing Markets Securities
Fund . . . . . . . . . . . . . . . . . . . . . . . 03/04/1996 53.27 NA -5.45
Templeton Asset Strategy Fund . . . . . . . . . . . . . 05/01/1997 22.54 16.92 13.01
Lazard Retirement Series
Lazard Retirement Equity Portfolio . . . . . . . . . . 3/18/1998 8.16 NA 10.68
Lazard Retirement Small Cap Portfolio . . . . . . . . 11/04/1997 5.13 NA 0.13
The Universal Institutional Funds, Inc.
Morgan Stanley International Magnum
Portfolio . . . . . . . . . . . . . . . . . . . . 01/22/1997 25.19 NA 13.57
Morgan Stanley Emerging Markets Equity
Portfolio . . . . . . . . . . . . . . . . . . . . 10/1/1996 95.68 NA 12.31
</TABLE>
PART II
UNDERTAKING TO FILE REPORTS
a. Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority confined in that section.
b. Pursuant to Investment Company Act Section 26(e), Valley Forge Life Insurance
Company ("Company") hereby represents that the fees and charges deducted under
the Policy described in the Prospectus, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The registrant has no officers, directors or employees. The depositor and the
registrant do not indemnify the officers, directors or employees of the
depositor. CNA Financial Corporation, ("CNAFC") a parent of the depositor,
indemnifies the depositor's officers, directors and employees in their capacity
as such.
CNAFC indemnifies any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of CNAFC) by reason of the fact that he is or was a director,
officer, employee or agent of CNAFC, or was serving at the request of CNAFC as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of CNAFC, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
CNAFC indemnifies any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of CNAFC to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of CNAFC, or was serving at the
request of CNAFC as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of CNAFC. No indemnification is made, however, in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to CNAFC
unless and only to the extent that a court determines that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court deems proper.
<PAGE>
To the extent that any person referred to above is successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above, or in
defense of any claim, issue or matter, therein, CNAFC will indemnify such person
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith. CNAFC may advance to such a person, expenses
incurred in defending a civil or criminal action, suit or proceeding as
authorized by CNAFC's board of directors upon receipt of an undertaking by (or
on behalf of) such person to repay the amount advanced unless it is ultimately
determined that he is entitled to be indemnified.
Indemnification and advancement of expenses described above (unless pursuant to
a court order) is only made as authorized in the specific case upon a
determination that such indemnification or advancement of expenses is proper in
the circumstances because he has met the applicable standard of conduct. Such
determination must be made by a majority vote of a quorum of CNAFC's board of
directors who are not parties to the action, suit or proceeding or by
independent legal counsel in a written opinion or by CNAFC's stockholders.
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement comprises the papers and documents:
The facing sheet
The Prospectus consisting of 70 pages.
Undertakings to file reports.
The signatures.
The following exhibits.
1.A. Copies of all exhibits required by paragraph A of instructions for Exhibits
in Form N-8B-2.
1. Resolution of the Board of Directors of Valley Forge Life Insurance
Company (the "Company") establishing Valley Forge Life Insurance
Company Variable Life Separate Account (the "Variable Account")**
2. Copy of Agreement for Lockbox Services*
3.(a) Not Applicable
(b) Form of underwriting/distribution agreement between the Company
and CNA Investor Services, Inc. (to be filed by amendment)
(c) Schedule of Sales Commissions (to be filed by amendment)
4. Not applicable
5. (a) Flexible Premium Variable and Fixed Life Insurance Policy
(b) Flexible Premium Variable and Fixed Last to Die Life
Insurance Policy
(c) Form of Accelerated Benefit Rider
(d) Form of Accidental Death Benefit Rider
(e) Form of Additional Insurance Rider
(f) Form of Term Insurance on Children Rider
(g) Form of Other Insured Term Insurance Rider
(h) Form of Total Disability Waiver of Premium Rider
(i) Form of Waiver of Monthly Deduction Rider
(j) Form of Four Year Term Rider
(k) Form of Split Policy Option Rider
6. (a) Amended and restated Articles of Incorporation of the Company**
(b) By-laws of the Company**
7. Not applicable
8. (a) Form of participation agreement between The Alger American
Fund and the Company*
(b) Form of participation agreement between Variable Insurance
Products Fund and the Company*
(c) Form of participation agreement between Variable Insurance
Products Fund II and the Company*
(d) Form of participation agreement between MFS Variable
Insurance Trust and the Company*
(e) Form of participation agreement between Insurance
Management Series and the Company*
(f) Form of participation agreement between Janus Aspen Series
and the Company.****
(g) Form of participation agreement among the Company, CNA
Investor Services, Inc., Lazard Asset Management and Lazard
Retirement Series, Inc.****
(h) Form of participation agreement among Templeton Variable
Products Series Fund, Franklin Templeton Distributors, Inc.
and the Company.****
(i) Form of participation agreement among the Company, CNA
Investor Services, Inc., Alliance Capital Management L.P.
and Alliance Fund Distributors, Inc.****
(j) Form of participation agreement between the Company and
American Century Investment Management, Inc.****
(k) Form of participation agreement between the Company and
Morgan Stanley Dean Witter Universal Funds, Inc.****
9. Not applicable
10. Form of Policy Application (to be filed by amendment)
11. Description of issuance, transfer and redemption procedures***
B. Not applicable
C. Not applicable
2. Opinion and Consent of Counsel (to be filed by Amendment)
3. Not applicable
4. Not applicable
5. Not Applicable
6. Consent of Actuary (to be filed by Amendment)
7. Consent of Independent Auditors (to be filed by Amendment)
* Incorporated by reference to the Form N-4 Registration Statement filed
electronically with the Securities and Exchange Commission on September 4,
1996 (File No.333-1087).
** Incorporated by reference to the N-4 Registration Statement filed
electronically with the Securities and Exchange Commission on February 20,
1996 (File No. 333-1087)
*** Incorporated by reference to the registrant's Pre-Effective Amendment No.1
filing electronically on Form S-6 on September 4, 1996 (File No.
333-01949).
****Incorporated by reference to the registrant's Post-Effective Amendment No.7
on Form S-6 on April 25, 2000 (File No. 333-01949).
SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of Chicago, State of Illinois, on this 16th day of
October, 2000.
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: /s/DONALD P. LOFE, JR.
-----------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
Attest:/s/WILLIAM K. BORLAND By:/s/DONALD P. LOFE, JR.
------------------------------ ------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/BERNARD L. HENGESBAUGH Chairman of the Board, 10/17/00
------------------------------ Chief Executive Officer and ---------
Bernard L. Hengesbaugh Director
/s/ROBERT V. DEUTSCH Chief Financial Officer and 10/18/00
----------------------------- Director ---------
Robert V. Deutsch
/s/JONATHAN D. KANTOR Senior Vice President, General 10/18/00
------------------------------ Counsel, Secretary, ---------
Jonathan D. Kantor Director
/s/DONALD P. LOFE, JR. Group Vice President 10/30/00
---------------------------- Director ---------
Donald P. Lofe, Jr.
<PAGE>
/s/THOMAS F. TAYLOR Executive Vice President 10/30/00
---------------------------- Director ---------
Thomas F. Taylor
/s/THOMAS PONTARELLI Senior Vice President 10/17/00
---------------------------- Director ---------
Thomas Pontarelli
</TABLE>
INDEX TO EXHIBITS
EX-99.A.5.a. Flexible Premium Variable and Fixed Life Insurance Policy
EX-99.A.5.b. Flexible Premium Variable and Fixed Last to Die Life
Insurance Policy
EX-99.A.5.c. Form of Accelerated Benefit Rider
EX-99.A.5.d. Form of Accidental Death Benefit Rider
EX-99.A.5.e. Form of Additional Insurance Rider
EX-99.A.5.f. Form of Term Insurance on Children Rider
EX-99.A.5.g. Form of Other Insured Term Insurance Rider
EX-99.A.5.h. Form of Total Disability Waiver of Premium Rider
EX-99.A.5.i. Form of Waiver of Monthly Deduction Rider
EX-99.A.5.j. Form of Four Year Term Rider
EX-99.A.5.k. Form of Split Policy Option Rider
