<PAGE> 1
CNA
CAPITAL SELECT(SM)
VARIABLE
ANNUITY
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
ISSUED BY THE
VALLEY FORGE
LIFE INSURANCE COMPANY,
ONE OF THE CNA
INSURANCE COMPANIES
JUNE 30, 1998
[CNA LOGO]
<PAGE> 2
June 30, 1998
- --------------------------------------------------------------------------------
Dear Contractholder:
- --------------------------------------------------------------------------------
I'm happy to present the Semi-Annual Report for the CNA Capital Select(SM)
Variable Annuity.
Your variable annuity (VA) was designed for the way you live. It's intended
to offer you lifetime income opportunities, while at the same time offering an
opportunity for tax-deferred accumulation to help pay for long-term goals like
college, retirement, vacations, home renovations and more. The CNA Capital
Select Variable Annuity offers you choice within a broad array of investment
options. In addition to five guaranteed-interest accounts, there are 18
stock-market-based accounts (referred to as subaccounts), managed by six fund
managers:
- Federated Advisors
- Fidelity Management and Research Company
- Fred Alger Management, Inc.
- Massachusetts Financial Services Company (MFS)
- Societe Generale Asset Management Corporation (SoGen)
- Van Eck Associates Corporation
The full list of fund managers and subaccounts is found in the Notes to
Financial Statements, Note 1. Organization, included within this report.
This VA is issued by Valley Forge Life Insurance Company (VFL), one of the
CNA insurance companies. VFL is a wholly-owned subsidiary of Continental
Assurance Company (CAC) and together form the CNA life companies, which rank
among the top 25 life organizations in the country.
One important aspect of your variable annuity is its use of a separate
account. A separate account is a pool of assets that provides an additional
measure of assurance that VFL's liabilities and obligations to you and other
contractholders will be satisfied. This is for your protection. The assets of a
separate account, equal to its reserves and other liabilities, are not
chargeable with liabilities that arise from any other business that VFL
conducts. In other words, the separate account is legally insulated from other
creditors' claims, giving you even more protection.
This report is created to share information about the financial results of
the VA separate account. Please take some time to look through the following
sections:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
If you need more specific information about the CNA Capital Select Variable
Annuity, please refer to your prospectus. Additional copies are available from
your CNA representative. Thank you again for purchasing the CNA Capital Select
Variable Annuity, one of the many quality products available through the CNA
family of products.
Sincerely,
ALAN S. LURTY
Alan S. Lurty, FLMI
Senior Vice President and Chief Operating Officer, Annuities
CNA Capital Select Variable Annuity contracts are issued by Valley Forge
Life Insurance Company (VFL), one of the CNA insurance companies. VFL and its
affiliate, Continental Assurance Company (CAC), together form the CNA life
companies. Although guaranteed-interest options are available in connection with
the CNA Capital Select Variable Annuity, financial reports regarding these
fixed-interest funds are not included in this report. It's important to remember
that any withdrawals prior to age 59 1/2 can result in government-imposed taxes
and tax penalties.
- --------------------------------------------------------------------------------
1
<PAGE> 3
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP II FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME VIP ASSET VIP II VIP II
JUNE 30, 1998 (UNAUDITED) FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series $5,030,171 $625,861 $1,882,537
Fidelity Variable Insurance
Products Fund $2,086,836
Fidelity Variable Insurance
Products Fund II $1,071,542 $6,018,692 $1,490,990
The Alger American Fund
MFS Variable Insurance Trust
SoGen Variable Funds, Inc.
Van Eck Worldwide Insurance
Trust
---------- -------- ---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENTS 5,030,171 625,861 1,882,537 2,086,836 1,071,542 6,018,692 1,490,990
---------- -------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 5,030,171 625,861 1,882,537 2,086,836 1,071,542 6,018,692 1,490,990
LIABILITIES - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $$5,030,171 $625,861 $1,882,537 $2,086,836 $1,071,542 $6,018,692 $1,490,990
=================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP II FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME VIP ASSET VIP II VIP II
DECEMBER 31, 1997 FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series $ 861,084 $ 50,683 $ 190,479
Variable Insurance Products
Fund $ 495,969
Variable Insurance Products
Fund II $ 267,366 $ 562,885 $ 329,066
The Alger American Fund
MFS Variable Insurance Trust
SoGen Variable Funds, Inc.
Van Eck Worldwide Insurance
Trust
---------- -------- ---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENTS 861,084 50,683 190,479 495,969 267,366 562,885 329,066
---------- -------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 861,084 50,683 190,479 495,969 267,366 562,885 329,066
LIABILITIES - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $ 861,084 $ 50,683 $ 190,479 $ 495,969 $ 267,366 $ 562,885 $ 329,066
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
2
<PAGE> 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH
SMALL AMERICAN MID-CAP EMERGING MFS WITH
JUNE 30, 1998 (UNAUDITED) CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME
- -------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series
Fidelity Variable Insurance
Products Fund
Fidelity Variable Insurance
Products Fund II
The Alger American Fund
MFS Variable Insurance Trust $1,230,454 $2,667,391 $478,455
SoGen Variable Funds, Inc. $938,370 $690,353 $1,210,296
Van Eck Worldwide Insurance Trust
---------- ---------- ------- ------- -------- ----------
TOTAL INVESTMENTS 1,230,454 2,667,391 478,455 938,370 690,353 1,210,296
---------- ---------- ------- ------- -------- ----------
TOTAL ASSETS 1,230,454 2,667,391 478,455 938,370 690,353 1,210,296
LIABILITIES - - - - - -
- -------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $1,230,454 $2,667,391 $478,455 $938,370 $690,353 $1,210,296
=============================================================================================================
<CAPTION>
VAN ECK VAN ECK
MFS MFS SOGEN WORLDWIDE WORLDWIDE
LIMITED TOTAL OVERSEAS HARD EMERGING
DECEMBER 31, 1997 MATURITY RETURN VARIABLE ASSETS MARKETS TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series $ 7,538,569
Variable Insurance Products Fund 2,086,836
Variable Insurance Products Fund II 8,581,224
The Alger American Fund 4,376,300
MFS Variable Insurance Trust $632,532 $1,149,056 4,620,607
SoGen Variable Funds, Inc. $2,090,899 2,090,899
Van Eck Worldwide Insurance Trust $91,892 $371,240 463,132
-------- ---------- ---------- ------- -------- -----------
TOTAL INVESTMENTS 632,532 1,149,056 2,090,899 91,892 371,240 29,757,567
-------- ---------- ---------- ------- -------- -----------
TOTAL ASSETS 632,532 1,149,056 2,090,899 91,892 371,240 29,757,567
LIABILITIES - - - - - -
- ------------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $632,532 $1,149,056 $2,090,899 $91,892 $371,240 $29,757,567
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH
SMALL AMERICAN MID-CAP EMERGING MFS WITH
JUNE 30, 1998 (UNAUDITED) CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME
- -------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series
Fidelity Variable Insurance
Products Fund
Fidelity Variable Insurance
Products Fund II
The Alger American Fund
MFS Variable Insurance Trust $ 195,731 $ 249,383 $42,427
SoGen Variable Funds, Inc. $141,648 $156,415 $ 219,017
Van Eck Worldwide Insurance Trust
---------- ---------- ------- ------- -------- ----------
TOTAL INVESTMENTS 195,731 249,383 42,427 141,648 156,415 219,017
---------- ---------- ------- ------- -------- ----------
TOTAL ASSETS 195,731 249,383 42,427 141,648 156,415 219,017
LIABILITIES - - - - - -
- -------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $ 195,731 $ 249,383 $42,427 $141,648 $156,415 $ 219,017
=============================================================================================================
<CAPTION>
VAN ECK VAN ECK
MFS MFS SOGEN WORLDWIDE WORLDWIDE
LIMITED TOTAL OVERSEAS HARD EMERGING
DECEMBER 31, 1997 MATURITY RETURN VARIABLE ASSETS MARKETS TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value:
Federated Insurance Series $ 1,102,246
Variable Insurance Products Fund 495,969
Variable Insurance Products Fund II 1,159,317
The Alger American Fund 487,541
MFS Variable Insurance Trust $ 81,706 $ 259,844 858,630
SoGen Variable Funds, Inc. $ 752,892 752,892
Van Eck Worldwide Insurance Trust $ 9,037 $ 16,890 25,927
-------- ---------- ---------- ------- -------- -----------
TOTAL INVESTMENTS 81,706 259,844 752,892 9,037 16,890 4,882,522
-------- ---------- ---------- ------- -------- -----------
TOTAL ASSETS 81,706 259,844 752,892 9,037 16,890 4,882,522
LIABILITIES - - - - - -
- ------------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY -- NET ASSETS $ 81,706 $ 259,844 $ 752,892 $ 9,037 $ 16,890 $ 4,882,522
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 5
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP II FIDELITY FIDELITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 PRIME MONEY UTILITY HIGH INCOME VIP ASSET VIP II VIP II
(UNAUDITED) FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $125,033 $11,976 $14,363 $37,196 $34,952 $ 53,264 $ 26,355
-------- ------- ------- ------- ------- -------- --------
125,033 11,976 14,363 37,196 34,952 53,264 26,355
-------- ------- ------- ------- ------- -------- --------
Expenses:
Mortality and expense risk and
administration charges 36,260 2,043 12,035 8,142 3,909 27,130 5,704
-------- ------- ------- ------- ------- -------- --------
36,260 2,043 12,035 8,142 3,909 27,130 5,704
-------- ------- ------- ------- ------- -------- --------
NET INVESTMENT INCOME (LOSS) 88,773 9,933 2,328 29,054 31,043 26,134 20,651
-------- ------- ------- ------- ------- -------- --------
Investment gains (losses):
Net realized gains (losses) - 2,627 4,580 11,632 (4,069) 68,113 22,377
Net unrealized gains (losses) - (2,394) (4,820) 11,609 4,422 257,397 61,744
-------- ------- ------- ------- ------- -------- --------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) - 233 (240) 23,241 353 325,510 84,121
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 88,773 $10,166 $ 2,088 $52,295 $31,396 $351,644 $104,772
==================================================================================================================================
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 4-MAR-97 17-MAR-97 1-MAY-97 21-FEB-97 21-FEB-97 17-MAR-97 21-FEB-97
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividend income $ 21,053 $ 82 $ 1,192 $- $ - $ - $ -
-------- ------- ------- ------- ------- -------- --------
21,053 82 1,192 - - - -
-------- ------- ------- ------- ------- -------- --------
Expenses:
Mortality and expense risk and
administration charges 5,938 150 647 1,842 1,397 1,805 917
-------- ------- ------- ------- ------- -------- --------
5,938 150 647 1,842 1,397 1,805 917
-------- ------- ------- ------- ------- -------- --------
NET INVESTMENT INCOME (LOSS) 15,115 (68) 545 (1,842) (1,397) (1,805) (917)
-------- ------- ------- ------- ------- -------- --------
Investment gains (losses):
Net realized gains (losses) - 85 1,461 18,226 11,160 9,302 3,732
Net unrealized gains (losses) - 4,190 3,915 6,272 1,593 19,813 4,074
-------- ------- ------- ------- ------- -------- --------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) - 4,275 5,376 24,498 12,753 29,115 7,806
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 15,115 $ 4,207 $ 5,921 $22,656 $11,356 $ 27,310 $ 6,889
==================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
4
<PAGE> 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 1998 SMALL AMERICAN MID-CAP EMERGING MFS WITH
(UNAUDITED) CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $128,450 $341,214 $25,115 $ 5,508 $ 7,886 $ -
-------- -------- ------- ------- ------- -------
128,450 341,214 25,115 5,508 7,886 -
-------- -------- ------- ------- ------- -------
Expenses:
Mortality and expense risk and
administration charges 3,866 7,603 1,342 5,790 2,158 4,218
-------- -------- ------- ------- ------- -------
3,866 7,603 1,342 5,790 2,158 4,218
-------- -------- ------- ------- ------- -------
NET INVESTMENT INCOME (LOSS) 124,584 333,611 23,773 (282) 5,728 (4,218)
-------- -------- ------- ------- ------- -------
Investment gains (losses):
Net realized gains (losses) (17,415) (4,304) 3,127 31,988 30,380 54,508
Net unrealized gains (losses) (44,730) (81,921) 4,050 33,694 3,031 8,778
------- -------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) (62,145) (86,225) 7,177 65,682 33,411 63,286
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 62,439 $247,386 $30,950 $65,400 $39,139 $59,068
=================================================================================================================
<CAPTION>
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 3-APR-97 17-JUN-97 21-FEB-97 21-FEB-97 21-FEB-97 13-MAR-97
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 51 $ - $ 89 $ - $ - $ 5,132
-------- -------- ------- ------- ------- -------
51 - 89 - - 5,132
Expenses: -------- -------- ------- ------- ------- -------
Mortality and expense risk and
administration charges 661 621 199 692 969 792
-------- -------- ------- ------- ------- -------
661 621 199 692 969 792
-------- -------- ------- ------- ------- -------
NET INVESTMENT INCOME (LOSS) (610) (621) (110) (692) (969) 4,340
-------- -------- ------- ------- ------- -------
Investment gains (losses):
Net realized gains (losses) 5,548 732 1,490 122 3,145 2,986
Net unrealized gains (losses) (13,637) (8,997) (1,453) 3,958 5,519 5,310
-------- -------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) (8,089) (8,265) 37 4,080 8,664 8,296
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ (8,699) $ (8,886) $ (73) $ 3,388 $ 7,695 $12,636
================================================================================================================
<CAPTION>
VAN ECK VAN ECK
MFS MFS SOGEN WORLDWIDE WORLDWIDE
FOR THE SIX MONTHS ENDED JUNE 30, 1998 LIMITED TOTAL OVERSEAS HARD EMERGING
(UNAUDITED) MATURITY RETURN VARIABLE ASSETS MARKETS TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ - $ 27,446 $ - $ 5,831 $ 783 $ 845,372
------- -------- -------- -------- -------- ----------
- 27,446 - 5,831 783 845,372
------- -------- -------- -------- -------- ----------
Expenses:
Mortality and expense risk and
administration charges 1,741 7,319 9,412 431 875 139,978
------- -------- -------- -------- -------- ----------
1,741 7,319 9,412 431 875 139,978
------- -------- -------- -------- -------- ----------
NET INVESTMENT INCOME (LOSS) (1,741) 20,127 (9,412) 5,400 (92) 705,394
------- -------- -------- -------- -------- ----------
Investment gains (losses):
Net realized gains (losses) 2,654 19,932 10,039 (2,996) (21,838) 211,335
Net unrealized gains (losses) 4,408 (16,074) 39,232 (13,522) (40,712) 224,192
------- -------- -------- -------- -------- ----------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) 7,062 3,858 49,271 (16,518) (62,550) 435,527
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 5,321 $ 23,985 $ 39,859 $(11,118) $(62,642) $1,140,921
===============================================================================================================
<CAPTION>
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 1-MAY-97 21-FEB-97 3-FEB-97 3-APR-97 11-APR-97
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 3,140 $ - $ - $ - $ - $ 30,739
------- -------- -------- -------- -------- ----------
3,140 - - - - 30,739
Expenses: ------- -------- -------- -------- -------- ----------
Mortality and expense risk and
administration charges 470 1,259 8,364 20 94 26,837
------- -------- -------- -------- -------- ----------
470 1,259 8,364 20 94 26,837
------- -------- -------- -------- -------- ----------
NET INVESTMENT INCOME (LOSS) 2,670 (1,259) (8,364) (20) (94) 3,902
------- -------- -------- -------- -------- ----------
Investment gains (losses):
Net realized gains (losses) 1,202 5,264 7,592 11 (404) 71,654
Net unrealized gains (losses) (1,986) 11,648 (34,846) (189) (4,665) 519
------- -------- -------- -------- -------- ----------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) (784) 16,912 (27,254) (178) (5,069) 72,173
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 1,886 $ 15,653 $(35,618) $ (198) $ (5,163) $ (76,075)
==============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE> 7
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY VIP II FIDELITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 PRIME MONEY UTILITY HIGH INCOME VIP ASSET VIP II
(UNAUDITED) FUND II FUND II BOND FUND II EQUITY-INCOME MANAGER INDEX 500
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 88,773 $ 9,933 $ 2,328 $ 29,054 $ 31,043 $ 26,134
Net realized gains (losses) - 2,627 4,580 11,632 (4,069) 68,113
Net unrealized gains (losses) - (2,394) (4,820) 11,609 4,422 257,397
----------- --------- ---------- ---------- ---------- ----------
Change in net assets resulting
from operations 88,773 10,166 2,088 52,295 31,396 351,644
From capital transactions:
Net premiums/deposits 14,049,857 415,012 1,084,821 899,296 558,789 4,033,987
Withdrawals (20,784) (1,314) (6,629) (5,095) (1,197) (28,152)
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 (9,948,759) 151,314 611,778 644,371 215,188 1,098,328
----------- --------- ---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 4,080,314 565,012 1,689,970 1,538,572 772,780 5,104,163
Increase in net assets 4,169,087 575,178 1,692,058 1,590,867 804,176 5,455,807
Net assets at beginning of period 861,084 50,683 190,479 495,969 267,366 562,885
----------- --------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $5,030,171 $625,861 $1,882,537 $2,086,836 $1,071,542 $6,018,692
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 14.06 $ 11.06 $ 25.17 $ 17.25 $ 129.26
=======================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 5,030,171.0 44,513.6 170,211.3 82,909.7 62,118.4 46,562.7
=======================================================================================================================
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 4-MAR-97 17-MAR-97 1-MAY-97 21-FEB-97 21-FEB-97 17-MAR-97
- -----------------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ 15,115 $ (68) $ 545 $ (1,842) $ (1,397) $ (1,805)
Net realized gains (losses) - 85 1,461 18,226 11,160 9,302
Net unrealized gains (losses) - 4,190 3,915 6,272 1,593 19,813
----------- --------- ---------- ---------- ---------- ----------
Change in net assets resulting
from operations 15,115 4,207 5,921 22,656 11,356 27,310
From capital transactions:
Net premiums/deposits 3,534,379 22,534 116,421 427,889 186,728 444,865
Withdrawals (6,610) - (507) (701) (12) (704)
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 (2,681,800) 23,942 68,644 46,125 69,294 91,414
----------- --------- ---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 845,969 46,476 184,558 473,313 256,010 535,575
Increase in net assets 861,084 50,683 190,479 495,969 267,366 562,885
Net assets at beginning of period - - - - - -
----------- --------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 861,084 $ 50,683 $ 190,479 $ 495,969 $ 267,366 $ 562,885
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 14.29 $ 10.95 $ 24.28 $ 18.01 $ 114.39
=======================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 861,083.8 3,546.7 17,395.3 20,427.1 14,845.4 4,920.8
=======================================================================================================================
<CAPTION>
FIDELITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 VIP II
(UNAUDITED) CONTRAFUND
- --------------------------------------
<S> <C>
From operations:
Net investment income (loss) $ 20,651
Net realized gains (losses) 22,377
Net unrealized gains (losses) 61,744
----------
Change in net assets resulting
from operations 104,772
From capital transactions:
Net premiums/deposits 404,470
Withdrawals (6,192)
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 658,874
----------
Change in net assets resulting
from capital transactions 1,057,152
Increase in net assets 1,161,924
Net assets at beginning of period 329,066
----------
NET ASSETS AT END OF PERIOD $1,490,990
- --------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 21.95
======================================
UNITS OUTSTANDING AT END OF PERIOD 67,926.7
======================================
FOR THE PERIOD FROM INCEPTION TO
- --------------------------------------
From operations:
Net investment income (loss) $ (917)
Net realized gains (losses) 3,732
Net unrealized gains (losses) 4,074
----------
Change in net assets resulting
from operations 6,889
From capital transactions:
Net premiums/deposits 146,548
Withdrawals -
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 175,629
----------
Change in net assets resulting
from capital transactions 322,177
Increase in net assets 329,066
Net assets at beginning of period -
----------
NET ASSETS AT END OF PERIOD $ 329,066
- --------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 19.94
======================================
UNITS OUTSTANDING AT END OF PERIOD 16,502.8
======================================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
6
<PAGE> 8
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
<TABLE>
<CAPTION>
======================================= ===========================================================================
ALGER ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 1998 SMALL AMERICAN MID-CAP EMERGING MRS WITH
(UNAUDITED) CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME
<S> <C> <C> <C> <C> <C> <C>
From operations: $ 124,584 $ 333,611 $ 23,773 $ (282) $ 5,728 $ (4,218)
Net investment income (loss) (17,415) (4,304) 3,127 31,988 30,380 54,508
Net realized gains (losses) (44,730) (81,921) 4,050 33,694 3,031 8,778
Net unrealized gains (losses) ---------- ----------- --------- --------- --------- ----------
Change in net assets resulting 62,439 247,386 30,950 65,400 39,139 59,068
from operations
From capital transactions: 795,068 1,529,833 190,511 473,079 253,192 661,255
Net premiums/deposits
Withdrawals
Transfers among sub-accounts and
with the Guaranteed Interest (3,100) (8,227) (2,228) (23,386) (6,322) (18,453)
Option Separate Account -- net -- 180,316 649,016 216,795 281,629 247,929 289,409
Note 1 ---------- ----------- --------- --------- --------- ----------
Change in net assets resulting
from capital transactions 972,284 2,170,622 405,078 731,322 494,799 932,211
Increase in net assets 1,034,723 2,418,008 436,028 796,722 533,938 991,279
Net assets at beginning of period 195,731 249,383 42,427 141,648 156,415 219,017
---------- ----------- --------- --------- --------- ----------
NET ASSETS AT END OF PERIOD $1,230,454 $ 2,667,391 $478,455 $938,370 $690,353 $1,210,296
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 43.14 $ 45.66 $ 26.70 $ 19.45 $ 18.35 $ 19.09
=======================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 28,522.3 58,418.6 17,919.7 48,245.2 37,621.4 63,399.5
=======================================================================================================================
<CAPTION>
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 3-APR-97 17-JUN-97 21-FEB-97 21-FEB-97 21-FEB-97
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (610) $ (621) $ (110) $ (692) $ (969)
Net realized gains (losses) 5,548 732 1,490 122 3,145
Net unrealized gains (losses) (13,637) (8,997) (1,453) 3,958 5,519
---------- ----------- --------- --------- ---------
Change in net assets resulting
from operations (8,699) (8,886) (73) 3,388 7,695
From capital transactions:
Net premiums/deposits 186,908 203,646 38,097 99,654 121,533
Withdrawals - - - - -
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 17,522 54,623 4,403 38,606 27,187
---------- ----------- --------- --------- ---------
Change in net assets resulting
from capital transactions 204,430 258,269 42,500 138,260 148,720
Increase in net assets 195,731 249,383 42,427 141,648 156,415
Net assets at beginning of period - - - - -
NET ASSETS AT END OF PERIOD $ 195,731 $ 249,383 $ 42,427 $141,648 $156,415
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 43.75 $ 42.76 $ 24.18 $ 16.14 $ 15.79
========================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 4,473.8 5,832.2 1,754.7 8,776.2 9,906.0
========================================================================================================
<CAPTION>
VAN ECK VAN ECK
MFS MFS SOGEN WORLDWIDE WORLDWIDE
FOR THE SIX MONTHS ENDED JUNE 30, 1998 LIMITED TOTAL OVERSEAS HARD EMERGING
(UNAUDITED) MATURITY RETURN VARIABLE ASSETS MARKETS TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1,741) $ 20,127 $ (9,412) $ 5,400 $ (92) $ 705,394
Net realized gains (losses) 2,654 19,932 10,039 (2,996) (21,838) 211,335
Net unrealized gains (losses) 4,408 (16,074) 39,232 (13,522) (40,712) 224,192
--------- ---------- ---------- -------- --------- -----------
Change in net assets resulting 5,321 23,985 39,859 (11,118) (62,642) 1,140,921
from operations
From capital transactions: 393,835 518,001 961,995 52,262 278,069 27,553,332
Net premiums/deposits
Withdrawals
Transfers among sub-accounts and
with the Guaranteed Interest (1,263) (2,323) (1,157) (1) (4,223) (140,046)
Option Separate Account -- net -- 152,933 349,549 337,311 41,712 143,146 (3,679,161)
Note 1 ---------- ---------- ---------- -------- --------- -----------
Change in net assets resulting
from capital transactions 545,505 865,227 1,298,149 93,973 416,992 23,734,125
Increase in net assets 550,826 889,212 1,338,007 82,855 354,350 24,875,046
Net assets at beginning of period 81,706 259,844 752,892 9,037 16,890 4,882,522
--------- ---------- ---------- -------- --------- -----------
NET ASSETS AT END OF PERIOD $632,532 $1,149,056 $2,090,899 $ 91,892 $ 371,240 $29,757,568
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 10.29 $ 17.53 $ 10.51 $ 11.55 $ 8.35
======================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 61,470.6 65,548.0 198,943.8 7,956.0 44,459.9
======================================================================================================
<CAPTION>
FOR THE PERIOD FROM INCEPTION TO
DECEMBER 31, 1997 13-MAR-97 1-MAY-97 21-FEB-97 3-FEB-97 3-APR-97 11-APR-97
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 4,340 $ 2,670 $ (1,259) $ (8,364) $ (20)$ (94) $ 3,902
Net realized gains (losses) 2,986 1,202 5,264 7,592 11 (404) 71,654
Net unrealized gains (losses) 5,310 (1,986) 11,648 (34,846) (189) (4,665) 519
---------- --------- ---------- ---------- -------- --------- -----------
Change in net assets resulting
from operations 12,636 1,886 15,653 (35,618) (198) (5,163) 76,075
From capital transactions:
Net premiums/deposits 124,921 75,938 186,723 819,873 4,326 19,999 6,760,982
Withdrawals - (960) (786) (959) - - (11,239)
Transfers among sub-accounts and
with the Guaranteed Interest
Option Separate Account -- net --
Note 1 81,460 4,842 58,254 (30,404) 4,909 2,054 (1,943,296)
---------- --------- ---------- ---------- -------- --------- -----------
Change in net assets resulting
from capital transactions 206,381 79,820 244,191 788,510 9,235 22,053 4,806,447
Increase in net assets 219,017 81,706 259,844 752,892 9,037 16,890 4,882,522
Net assets at beginning of period - - - - - - -
NET ASSETS AT END OF PERIOD $ 219,017 $ 81,706 $ 259,844 $ 752,892 $ 9,037 $ 16,890 $ 4,882,522
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 16.44 $ 10.01 $ 16.63 $ 9.77 $ 15.72 $ 11.00
===============================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 13,322.2 8,162.4 15,625.0 77,061.7 574.9 1,535.5
===============================================================================================================
</TABLE>
<PAGE> 9
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
- --------------------------------------------------------------------------------
Valley Forge Life Insurance Company Variable Annuity Separate Account
("Variable Account"), a unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, is a separate
account of Valley Forge Life Insurance Company ("VFL"). The Variable Account
began operation on February 3, 1997. The assets of the Variable Account are
segregated from VFL's general account and its other separate accounts. VFL is a
wholly-owned subsidiary of Continental Assurance Company ("Assurance").
Assurance is a wholly-owned subsidiary of Continental Casualty Company
("Casualty"), which is wholly-owned by CNA Financial Corporation ("CNA"). Loews
Corporation owns approximately 84% of the outstanding common stock of CNA.
The Variable Account currently offers 18 sub-accounts each of which invests
in shares of a corresponding fund (i.e., investment portfolios), wherein the
contractholders bear all of the investment risk. Each fund is either an open-end
diversified management investment company or a separate investment portfolio of
such a company and is managed by a registered investment advisor. The
sub-accounts are as follows:
FEDERATED INSURANCE SERIES:
Federated Prime Money
Fund II
Federated Utility Fund II
Federated High Income
Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
Fidelity VIP Equity-
Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity VIP II Asset
Manager Portfolio
Fidelity VIP II Index 500
Portfolio
Fidelity VIP II Contrafund
Portfolio
THE ALGER AMERICAN FUND:
Alger American Small
Capitalization Portfolio
Alger American Growth
Portfolio
Alger American Mid-Cap
Growth Portfolio
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth
Series
MFS Research Series
MFS Growth With Income
Series
MFS Limited Maturity
Series
MFS Total Return Series
SOGEN VARIABLE FUNDS, INC.:
SoGen Overseas Variable
Fund
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Hard
Assets Fund
Van Eck Worldwide
Emerging Markets Fund
The Guaranteed Interest Option Separate Account ("GIO Account") is also a
separate account of VFL that supports the values and benefits under the
Guaranteed Interest Option. Through the Guaranteed Interest Option, VFL offers
specified effective annual rates of interest that are credited daily and
available for specified periods of time. Contractholders choosing the Guaranteed
Interest Option do not participate in the investment performance of the GIO
Account and this performance does not determine the Guaranteed Interest Option
value or benefits relating thereto. The assets of the GIO Account are held
separately from other VFL assets and from the General Account of VFL. The GIO
Account, however, unlike the Variable Account, is not registered as an
investment company under the 1940 Act. As a result, separate financial
statements are not prepared for the GIO Account and the accompanying financial
statements do not reflect amounts invested in the GIO Account.
- --------------------------------------------------------------------------------
8
<PAGE> 10
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
VALUATION OF INVESTMENTS -- Investments in the Variable Account consist of
shares of the funds and are stated at fair value based on quoted market prices.
RECOGNITION OF INVESTMENT INCOME -- Investment income consists of dividends
declared by the portfolio managers of the funds and are recognized on the date
of record.
INVESTMENT GAINS AND LOSSES -- Realized investment gains and losses in the
Variable Account represent the difference between the proceeds from sales of
shares by the Variable Account and the cost of such shares, which are determined
using the average cost method.
CONTRACTHOLDER VARIABLE ACCOUNT ACTIVITY -- Variable Account activity is
reflected in individual contractholder accounts on a daily basis.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to contractholders generally
upon distribution. Accordingly, no provision for income taxes has been recorded.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of VFL's Management, these statements include all adjustments,
consisting of normal recurring accruals., which are necessary for the fair
presentation of the financial position, results of operations and cash flows in
the accompanying financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS
- --------------------------------------------------------------------------------
The investments in the funds of the subaccounts of the Variable Annuity
Separate Account at June 30, 1998 (unaudited) and December 31, 1997 are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERATED INSURANCE SERIES:
FEDERATED PRIME MONEY FUND II
June 30, 1998 5,030,171 $5,030,171 $5,030,171
December 31, 1997 861,084 861,084 861,084
FEDERATED UTILITY FUND II
June 30, 1998 44,514 623,933 625,861
December 31, 1997 3,547 46,493 50,683
FEDERATED HIGH INCOME BOND FUND II
June 30, 1998 170,211 1,882,968 1,882,537
December 31, 1997 17,395 186,564 190,479
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
FIDELITY VIP EQUITY-INCOME PORTFOLIO
June 30, 1998 82,910 2,068,955 2,086,836
December 31, 1997 20,427 489,697 495,969
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
FIDELITY VIP II ASSET MANAGER PORTFOLIO
June 30, 1998 62,118 1,065,527 1,071,542
December 31, 1997 14,845 265,773 267,366
FIDELITY VIP II INDEX 500 PORTFOLIO
June 30, 1998 46,563 5,741,218 6,018,692
December 31, 1997 4,921 543,072 562,885
FIDELITY CONTRAFUND PORTFOLIO
June 30, 1998 67,927 1,411,178 1,490,990
December 31, 1997 16,503 324,992 329,066
THE ALGER AMERICAN FUND:
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
June 30, 1998 28,522 1,288,606 1,230,454
December 31, 1997 4,474 209,368 195,731
ALGER AMERICAN GROWTH PORTFOLIO
June 30, 1998 58,419 2,758,574 2,667,391
December 31, 1997 5,832 258,380 249,383
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE> 12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE ALGER AMERICAN FUND:
ALGER AMERICAN MID-CAP GROWTH PORTFOLIO
June 30, 1998 17,920 475,859 478,455
December 31, 1997 1,755 43,880 42,427
MFS VARIABLE INSURANCE TRUST:
MFS EMERGING GROWTH SERIES
June 30, 1998 48,245 900,712 938,370
December 31, 1997 8,776 137,690 141,648
MFS RESEARCH SERIES
June 30, 1998 37,621 682,520 690,353
December 31, 1997 9,906 150,896 156,415
MFS GROWTH WITH INCOME SERIES
June 30, 1998 63,400 1,196,203 1,210,296
December 31, 1997 13,322 213,707 219,017
MFS LIMITED MATURITY SERIES
June 30, 1998 61,471 631,159 632,532
December 31, 1997 8,162 83,692 81,706
MFS TOTAL RETURN SERIES
June 30, 1998 65,548 1,154,033 1,149,056
December 31, 1997 15,625 248,196 259,844
SOGEN VARIABLE FUNDS, INC.:
SOGEN OVERSEAS VARIABLE FUND
June 30, 1998 198,944 2,086,513 2,090,899
December 31, 1997 77,062 787,738 752,892
VAN ECK WORLDWIDE INSURANCE TRUST:
VAN ECK WORLDWIDE HARD ASSETS FUND
June 30, 1998 7,956 105,602 91,892
December 31, 1997 575 9,226 9,037
VAN ECK EMERGING MARKETS FUND
June 30, 1998 44,460 416,621 371,240
December 31, 1997 1,536 21,555 16,890
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE> 13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 4. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of funds in the
sub-accounts for the six-month period ended June 30, 1998 are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASES SALES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
FEDERATED INSURANCE SERIES:
Federated Prime Money Fund II $20,243,863 $16,337,573
Federated Utility Fund II 691,411 128,443
Federated High Income Bond Fund II 2,005,056 327,119
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
Fidelity VIP Equity-Income Portfolio 1,886,949 356,520
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity VIP II Asset Manager Portfolio 847,230 78,360
Fidelity VIP II Index 500 Portfolio 5,591,576 514,808
Fidelity VIP II Contrafund Portfolio 1,333,187 281,741
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Portfolio 1,195,322 227,118
Alger American Growth Portfolio 2,596,744 433,460
Alger American Mid-Cap Growth Portfolio 497,553 93,816
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series 913,254 187,721
MFS Research Series 677,126 218,970
MFS Growth With Income Series 1,356,548 464,090
MFS Limited Maturity Series 856,365 311,551
MFS Total Return Series 1,020,315 196,892
SOGEN VARIABLE FUNDS, INC.:
SoGen Overseas Variable Fund 1,525,239 236,503
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Hard Assets Fund 103,407 9,865
Van Eck Emerging Markets Fund 504,760 88,644
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE> 14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 4. INVESTMENT TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of funds in the
sub-accounts from the date of inception to December 31, 1997, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASES SALES
- -------------------------------------------------------------------------------------
<S> <C> <C>
FEDERATED INSURANCE SERIES:
Federated Prime Money Fund II $3,550,031 $2,710,000
Federated Utility Fund II 131,884 85,557
Federated High Income Bond Fund II 226,400 42,489
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
Fidelity VIP Equity-Income Portfolio 675,097 203,626
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity VIP II Asset Manager Portfolio 429,770 175,157
Fidelity VIP II Index 500 Portfolio 646,677 112,906
Fidelity VIP II Contrafund Portfolio 366,624 45,364
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Portfolio 327,651 123,882
Alger American Growth Portfolio 391,931 134,284
Alger American Mid-Cap Growth Portfolio 55,923 13,622
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series 319,665 182,097
MFS Research Series 181,534 33,784
MFS Growth With Income Series 231,099 25,510
MFS Limited Maturity Series 135,099 55,749
MFS Total Return Series 466,510 223,577
SOGEN VARIABLE FUNDS, INC.:
SoGen Overseas Variable Fund 994,765 214,619
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Hard Assets Fund 10,106 892
Van Eck Emerging Markets Fund 26,885 4,925
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE> 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
JUNE 30, 1998 -- UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5. CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
VFL deducts a daily charge from the assets of the Variable Account to
compensate it for mortality and expense risks that it assumes under the
Contract. The daily charge is approximately equal to an annual rate of 1.25% of
the net assets of the Variable Account.
An annual administration fee of $30 is deducted from contracts in both the
Variable and GIO Accounts if the contract value is below $50,000 at the time of
the deduction. This fee is to cover a portion of VFL's administrative expenses
related to the contracts.
VFL deducts a daily administration charge from the assets of the Variable
Account to compensate it for a portion of the expenses it incurs in the
administering the contracts. The daily charge is approximately equal to an
annual rate of 0.15% of the net assets of the Variable Account.
VFL permits 12 free transfers among and between the sub-accounts within the
Variable Account (four of which can be applied to the GIO Account) per contract
year. For each additional transfer, VFL charges $25 at the time each such
transfer is processed. The fee is deducted from the amount being transferred.
- --------------------------------------------------------------------------------
NOTE 6. DIVERSIFICATION REQUIREMENTS
- --------------------------------------------------------------------------------
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable annuity contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
an annuity contract for Federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of the Treasury. VFL believes, based on the funds'
prospectuses, that the mutual funds satisfy the requirement of the regulations.
- --------------------------------------------------------------------------------
14
<PAGE> 16
The principal underwriter of this
product is CNA Investor Services,
Inc., a registered broker-dealer and
member of the National Association
of Securities Dealers. CNA Investor
Services, Inc., is an affiliate of CNA
Financial Corporation. CNA annu-
ities are issued by the Valley Forge
Life Insurance Company, one of the
CNA insurance companies.
CNA is a registered service mark of
CNA Financial Corporation. The pol-
icy form numbers for this product
are: V100-1128-A Series, V100-
1129-A Series, P4-119913-A Series
and P4-119914-A Series. The CNA
Capital Select Variable Annuity is not
available in all states.
MAILING ADDRESS:
CNA Insurance Companies
Variable Product Team
P.O. Box 305139
Nashville TN 37230-5139
[CNA LOGO]
AG-132666-A 8/98 Printed in USA
