333-8551
File Nos. 811-7547
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [X]
(Check appropriate box or boxes.)
Valley Forge Life Insurance Company Variable Annuity Separate Account
_____________________________________________________________________
(Exact Name of Registrant)
Valley Forge Life Insurance Company
___________________________________
(Name of Depositor)
CNA Plaza, 43 South, Chicago, Illinois 60685
____________________________________________________________ __________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (312) 822-6597
Name and 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.
4401 West Tradewinds Avenue
Suite 207
Lauderdale by the Sea, FL 33308
(954) 771-7909
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
================================================================================
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.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(Required by Rule 495)
Item No. Location
- -------- --------
PART A
<S> <C>
Item 1. Cover Page Cover Page
Item 2. Definitions Index of Special of Terms
Item 3. Synopsis Highlights
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies The Company, Distributor,
CROSS REFERENCE SHEET (CONT'D)
(Required by Rule 495)
Item No. Location
- -------- --------
Investment Choices
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable The Annuity Contract
Annuity Contracts
Item 8. Annuity Period Annuity Provisions
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase, Contract Value
Item 11. Redemptions Access to Your Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings Not Applicable
Item 14. Table of Contents of the Statement of Other Information
Additional Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distribution
Item 21. Calculation of Performance Data Performance Information
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
PART A
VALLEY FORGE LIFE INSURANCE COMPANY
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
This prospectus describes the variable annuity contract offered by Valley Forge
Life Insurance Company (we, us, our). This is an individual deferred variable
annuity contract and provides for accumulation of contract values and annuity
payments on a fixed and variable basis.
The contract has a number of investment choices (fixed accounts and variable
investment options). The fixed accounts provide an investment rate guaranteed by
us. You can put your money in the fixed accounts and/or any of the following
investment options which are offered through our variable account, Valley Forge
Life Insurance Company Variable Annuity Separate Account. Some of the investment
options may not be available in your state.
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
SOGEN VARIABLE FUNDS, INC.
Advised by Societe Generale Asset Management Corp.
SoGen Overseas Variable Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Advised by Van Eck Associates Corporation
Van Eck Worldwide Emerging Markets Fund
Van Eck Worldwide Hard Assets Fund
VARIABLE INSURANCE PRODUCTS FUND (VIP) and
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund 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
Advised by Janus Capital Corporation
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen International Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Please read this Prospectus before investing. You should keep it for future
reference. It contains important information about the contract.
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information (SAI) (dated ________, 1999). The SAI has been filed with
the Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference and other information regarding
companies that file electronically with the SEC. The Table of Contents of the
SAI is on page _ of this prospectus. For a free copy of the SAI, call us at
(800) 262-1755 or write to: Valley Forge Life, Administrative Office, 100 CNA
Drive, Nashville, TN 37214.
The Contracts:
* are not bank deposits.
* are not federally insured.
* are not endorsed by any bank or governmental agency.
* are not guaranteed and may be subject to loss of principal.
The SEC has not approved or disapproved these securities or determined that
this prospectus is accurate or complete. Any representation that it has
is a criminal offense.
______, 1999
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
HIGHLIGHTS
TABLE OF FEES AND EXPENSES
THE COMPANY
THE ANNUITY CONTRACT
PURCHASE
INVESTMENT CHOICES
EXPENSES
CONTRACT VALUE
WITHDRAWALS
DEATH BENEFIT
ANNUITY PROVISIONS
TAXES
PERFORMANCE
OTHER INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. We indicated below the page in which we believe you will find
the best explanation for the word or term. These words and terms are in italics
on the indicated page.
Page
Accumulation Period
Accumulation Unit
Annuitant
Annuity Date
Annuity Payment Options
Annuity Payments
Annuity Period
Annuity Unit
Beneficiary
Investment Options
Non-Qualified
Qualified
HIGHLIGHTS
The variable annuity contract that we are offering is a contract between you,
the owner, and us, the insurance company. The contract provides a means for
investing on a tax-deferred basis in our fixed account options and investment
options. The contract is intended for retirement savings or other long-term
investment purposes.
The contract has an immediate interest feature in which we will add an
additional 3% to each purchase payment you make during the first contract year.
The contract, as in all deferred annuity contracts, has two phases: the
accumulation period and the annuity period. During the accumulation period,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. If you make a withdrawal during the accumulation period, we
may also assess a withdrawal charge of up to 7%. The annuity period occurs when
you begin receiving regular payments from your contract.
You can choose to receive annuity payments on a variable basis, a fixed basis,
or a combination of both. If you choose variable payments, the amount of the
variable annuity payments will depend upon the investment performance of the
investment options you select for the annuity period. If you choose fixed
payments, the amount of the fixed annuity payments are level for the annuity
period.
Free Look. If you cancel the contract within 10 days after receiving it (or
whatever period is required in your state), we will cancel the contract without
charging a withdrawal fee. You will receive whatever your contract is worth on
the day that we receive your request. This amount may be more or less than your
original payment. We will return your original payment if required by law.
Tax Penalty. The earnings in your contract are not taxed until you take money
out of your contract. If you take money out during the accumulation period, for
tax purposes any earnings are deemed to come out first. If you are younger than
59 1/2 when you take money out, you may be charged a 10% federal tax penalty on
those earnings. Payments during the annuity period are considered partly a
return of your original investment.
Inquiries. If you need more information, please contact us at:
Valley Forge Life Insurance Company
100 CNA Drive
Nashville, TN 37214
(800) 262-1755
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
Owner Transaction Expenses
Withdrawal Charge: (as a percentage of purchase payments withdrawn) (See Note 2)
Number of Contract Years
From Receipt of Purchase Payment Withdrawal Charge
<S> <C> <C>
1 7%
2 7%
3 6%
4 6%
5 5%
6 4%
7 3%
8 and thereafter 0%
Transfer Fee: No charge for the first 12 transfers in a
contract year during the accumulation period;
thereafter, the fee is $25 per transfer. There is
no charge for the 4 allowable transfers in a
contract year during the annuity period.
Contract Maintenance Charge: (See Note 3) $30 per contract year.
Variable Account Annual Expenses
(as a percentage of average variable account value)
Product Expense Charge: (See Note 4) 1.40%
</TABLE>
<TABLE>
<CAPTION>
Investment Option Expenses: (as a percentage of the average daily net assets of
an investment option)
Other Total Annual
Expenses (after Expenses (after
waivers and/or waivers and/or
reimbursements reimbursements
with respect with respect
to certain to certain
Management investment investment
(Advisory Fees) options) options)
--------------- -------- --------
Federated Insurance Series (See Note 6)
<S> <C> <C> <C>
Federated High Income Bond Fund II 0.60% 0.18% 0.78%
Federated Prime Money Fund II 0.49% 0.31% 0.80%
Federated Utility Fund II 0.68% 0.25% 0.93%
The Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Mid-Cap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
SoGen Variable Funds, Inc. (See Note 7)
SoGen Overseas Variable Fund 0.75% 0.89% 1.64%
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Emerging Markets Fund (See Note 8) 1.00% 0.61% 1.61%
Van Eck Worldwide Hard Assets Fund (See Note 9) 1.00% 0.20% 1.20%
Variable Insurance Products Fund (VIP) and Variable
Insurance Products Fund II (VIP II) (See Note 10)
Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.64%
Fidelity VIP II Contrafund 0.59% 0.11% 0.70%
Fidelity VIP Equity-Income 0.49% 0.09% 0.58%
Fidelity VIP Index 500 Portfolio 0.24% 0.11% 0.35%
MFS Variable Insurance Trust (See Note 11)
MFS Emerging Growth Series 0.75% 0.10% 0.85%
MFS Growth With Income Series 0.75% 0.13% 0.88%
MFS Research Series 0.75% 0.11% 0.86%
MFS Total Return Series 0.75% 0.16% 0.91%
Janus Aspen Series (See Note 12)
Janus Aspen Capital Appreciation Portfolio 0.70% 0.22% 0.92%
Janus Aspen Growth Portfolio 0.65% 0.03% 0.68%
Janus Aspen Balanced Portfolio 0.72% 0.02% 0.74%
Janus Aspen Flexible Income Portfolio 0.65% 0.08% 0.73%
Janus Aspen International Growth Portfolio 0.66% 0.20% 0.86%
Janus Aspen Worldwide Growth Portfolio 0.65% 0.07% 0.72%
</TABLE>
Examples
The examples below are designed to help you to understand the expenses in a
contract. You should not consider these examples to represent the actual
expenses you would pay. The actual expenses may be greater or less than those
shown.
If you surrendered your contract after the end of the specified time period, you
would pay the following aggregate expenses on a $1,000 investment, assuming a 5%
annual return:
<TABLE>
<CAPTION>
Investment Option 1 Year 3 Years 5 Years 10 Years
- ----------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated High Income Bond Fund II $ 96 $140 $186 $289
Federated Prime Money Fund II $ 96 $140 $187 $291
Federated Utility Fund II $ 97 $144 $194 $305
Alger American Growth Portfolio $ 96 $140 $186 $290
Alger American Mid-Cap Growth Portfolio $ 97 $141 $189 $295
Alger American Small Capitalization Portfolio $ 97 $143 $192 $301
SoGen Overseas Variable Fund $105 $167 $230 $376
Van Eck Worldwide Emerging Markets Fund $105 $166 $229 $374
Van Eck Worldwide Hard Assets Fund $100 $153 $208 $333
Fidelity VIP Equity-Income Portfolio $ 94 $133 $175 $267
Fidelity VIP II Asset Manager Portfolio $ 94 $135 $178 $274
Fidelity VIP II Contrafund $ 95 $137 $182 $280
Fidelity VIP II Index 500 Portfolio $ 91 $126 $163 $242
MFS Emerging Growth Series $ 97 $142 $190 $296
MFS Growth With Income Series $ 97 $143 $191 $300
MFS Research Series $ 97 $142 $190 $297
MFS Total Return Series $ 97 $144 $193 $303
Janus Aspen Capital Appreciation Portfolio $ 97 $144 $193 $304
Janus Aspen Growth Portfolio $ 95 $136 $181 $278
Janus Aspen Balanced Portfolio $ 95 $138 $184 $285
Janus Aspen Flexible Income Portfolio $ 95 $138 $183 $284
Janus Aspen International Growth Portfolio $ 97 $142 $190 $297
Janus Aspen Worldwide Growth Portfolio $ 95 $ 98 $183 $283
</TABLE>
If you do not surrender your contract after the end of the specified time period
or if you begin receiving annuity payments you would pay the following aggregate
expenses on the same investment:
<TABLE>
<CAPTION>
Investment Option 1 Year 3 Years 5 Years 10 Years
- ----------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated High Income Bond Fund II $26 $ 80 $136 $289
Federated Prime Money Fund II $26 $ 80 $137 $291
Federated Utility Fund II $27 $ 84 $144 $305
Alger American Growth Portfolio $26 $ 80 $136 $290
Alger American Mid-Cap Growth Portfolio $27 $ 81 $139 $295
Alger American Small Capitalization Portfolio $27 $ 83 $142 $301
SoGen Overseas Variable Fund $35 $107 $180 $376
Van Eck Worldwide Emerging Markets Fund $35 $106 $179 $374
Van Eck Worldwide Hard Assets Fund $30 $ 93 $158 $333
Fidelity VIP Equity-Income Portfolio $24 $ 73 $125 $267
Fidelity VIP II Asset Manager Portfolio $24 $ 75 $128 $274
Fidelity VIP II Contrafund $25 $ 77 $132 $280
Fidelity VIP II Index 500 Portfolio $21 $ 66 $113 $242
MFS Emerging Growth Series $27 $ 82 $140 $296
MFS Growth With Income Series $27 $ 83 $141 $300
MFS Research Series $27 $ 82 $140 $297
MFS Total Return Series $27 $ 84 $143 $303
Janus Aspen Capital Appreciation Portfolio $27 $ 84 $143 $304
Janus Aspen Growth Portfolio $25 $ 76 $131 $278
Janus Aspen Balanced Portfolio $25 $ 78 $134 $285
Janus Aspen Flexible Income Portfolio $25 $ 78 $133 $284
Janus Aspen International Growth Portfolio $27 $ 82 $140 $297
Janus Aspen Worldwide Growth Portfolio $25 $ 78 $133 $283
<FN>
Notes to Table of Fees and Expenses and Examples
1. The purpose of the Table of Fees and Expenses is to assist you in
understanding the various costs and expenses that you will incur directly
or indirectly. The Table reflects expenses of the separate account as well
as the investment options.
2. There are circumstances under which we will waive or reduce the withdrawal
charge.
3. During the accumulation period we will waive this charge if your contract
value is $50,000 or more at the time the deduction is to be made.
4. The Fee Table and contract refer to a Product Expense Charge. This charge
is equivalent to the aggregate charges that until recently were referred to
as a Mortality and Expense Risk Charge and an Administrative Charge by many
companies issuing variable annuity contracts. Throughout this prospectus we
will refer to this charge as a Product Expense Charge. Under certain
circumstances we may reduce the charge.
5. The tables do not reflect any premium taxes, which generally range from 0%
to 4% depending upon the state or jurisdiction.
6. Federated Advisors has voluntarily agreed to waive a portion of its
management fee with respect to these funds. Absent this waiver, the total
annual expenses would have been 0.78%, 0.81% and 1.00% for the Federated
High Income Bond Fund II, the Federated Prime Money Fund II and the
Federated Utility Fund II, respectively.
7. The annualized ratios of operating expenses to average net assets for the
period ended December 31, 1998 would have been 4.98% without the effect of
the investment advisory fee waiver and expense reimbursement provided
by the advisor.
8. For the year ended December 31, 1998, Van Eck Associates Corporation agreed
to waive its management fees and assume all expenses of the Fund except
interest, taxes, brokerage commissions and extraordinary expenses exceeding
1.5% of average daily net assets.
9. The fund directs certain portfolio trades to a broker that, in turn, pays a
portion of the Fund's operating expenses. The fund also has a fee
arrangement based on cash balances left on deposit with the custodian,
which reduces the fund's operating expenses. Due to this, management
fees, other expenses, and total annual expenses were 1.00%, 0.16% and
1.16%, respectively.
10. A portion of the brokerage commissions that these funds pay was used to
reduce fund expenses. In addition, these funds have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.57%, 0.63% and 0.66% for the Equity-Income, Asset Manager and
Contrafund portfolios, respectively.
11. 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 under
"Other Expenses".
12. Janus Aspen Series has voluntarily agreed to waive a portion of its fees
with respect to some of these funds. Absent this waiver, the total annual
expenses would have been 0.97%, 0.72%, 0.95%, and 0.74% for the Janus Aspen
Capital Appreciation Portfolio, Janus Aspen Growth Portfolio, Janus Aspen
International Growth Portfolio, and Janus Aspen Worldwide Growth Portfolio,
respectively.
</FN>
</TABLE>
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 September 30, 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 ANNUITY CONTRACT
This prospectus describes the variable annuity contract that we are offering. An
annuity is a contract between you, the owner, and us, the insurance company,
in which we promise to pay you an income, in the form of annuity payments,
beginning on a designated date in the future. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation period. Once you
begin receiving annuity payments, your contract is in the annuity period.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation of the assets in your contract until you take
money out of your contract. The contract is called a variable annuity because
you can choose among the investment options, and depending upon market
conditions, you can gain or lose money in any of these options. If you elect
the variable annuity portion of the contract, the amount of money you are able
to accumulate in your contract during the accumulation period depends upon the
investment performance of the investment option(s) you elect.
You can choose to receive annuity payments on a variable basis, a fixed basis or
a combination of both. If you choose variable payments, the amount of the
annuity payments you receive will depend upon the investment performance of the
investment option(s) you select for the annuity period. If you select to receive
payments on a fixed basis, the payments you receive will remain level.
The contract was intended to be sold as a non-qualified contract to individuals
seeking retirement savings or other long-term investment purposes. It can also
be purchased pursuant to standard IRA, Roth IRA and 403(b) qualified plans.
However, if the contract is issued pursuant to a 403(b) plan, it can only be
done as a rollover.
PURCHASE
Purchase Payments
A purchase payment is the money you give us to buy the contract. The minimum
initial purchase payment amount we will accept is $10,000 for non-qualified
contracts, and $2,000 for qualified contracts. Each subsequent purchase payment
must be at least $1,000. If you participate in the Electronic Fund Transfer
program, the minimum subsequent payment is $100. Unless we agree otherwise, the
maximum total of all purchase payments we will accept for the contract is
$1,000,000.
Immediate Interest Payments
We will add an additional 3% to each purchase payment you make during the first
contract year. We refer to these amounts as immediate interest payments.
Immediate interest payments will be allocated in the same way as your purchase
payment.
If you make a withdrawal anytime during the first contract year, including an
exercise of your Free Look Right, (except for withdrawals pursuant to the
systematic withdrawal program which are not subject to the withdrawal charge),
we will deduct (recapture) pro-rata the immediate interest payments from the
amount you withdraw. However, we will not deduct any earnings that resulted from
the immediate interest payments. After the first contract year, the immediate
interest payments will vest and can be withdrawn at any time.
We reserve the right to limit immediate interest payments in the future. The
immediate interest payments are subject to certain state insurance laws and may
not be available in your state. An immediate interest payment and any of its
investment earnings are treated as taxable income.
We have applied to the Securities and Exchange Commission for an exemption from
certain provisions of the Investment Company Act of 1940 so that we can
recapture any immediate interest payments applied to a contract as described
above. Until such time as we receive approval of our exemption request, we will
not recapture any immediate interest payments.
Allocation of Purchase Payments
When you purchase a contract, you choose how we will apply your purchase
payments among the investment options and the fixed account options. You may
change the allocation of purchase payments by written notice to us. Any
additional purchase payments will be allocated according to the allocation
schedule in effect unless accompanied by written notice requesting a different
allocation. Only whole percentages may be applied.
Free Look. If you change your mind about owning this contract, you can cancel it
within 10 days after receiving it (or the period required in your state, which
is shown on page 1 of your contract). When you cancel the contract within this
time period, we will not assess a withdrawal charge. You will generally receive
back whatever your contract is worth on the day we receive your request less
any immediate interest payment.
In certain states, or if you have purchased the contract as an IRA, we may be
required to give you back your purchase payment if you decide to cancel your
contract within 10 days after receiving it (or whatever period is required in
your state). We reserve the right to allocate your purchase payment to a money
market fund, or similar investment option, for 15 days before we allocate your
first purchase payment to the investment option(s) you have selected. (In some
states, the period may be longer.) If you exercise your free look right, we will
return the greater of your contract value less any immediate interest payments
or your purchase payments.
Allocation. Once we receive your purchase payment and the necessary information,
we will issue your contract and allocate your first purchase payment within 2
business days except as described in the paragraph before this one. If you do
not give us all of the information we need, we will contact you to get it. If
for some reason we are unable to complete this process within 5 business days,
we will either send back your money or get your permission to keep it until we
get all of the necessary information. If you add more money to your contract by
making additional purchase payments, we will credit those amounts to your
contract within one business day. Our business day closes when the New York
Stock Exchange's normal business day ends, usually 4:00 p.m. Eastern time.
INVESTMENT CHOICES
The contract offers you the choice of allocating purchase payments to one of our
fixed account options or to one or more of the investment options which are
listed below. Additional investment options may be available in the future.
You should read the prospectuses for these funds carefully before investing.
Copies of these prospectuses are attached to this prospectus. Certain investment
options contained in the fund prospectuses may not be available with your
contract. Also, some of the investment options may not be available in your
state.
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
SOGEN VARIABLE FUNDS, INC.
Advised by Societe Generale Asset Management Corp.
SoGen Overseas Variable Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Advised by Van Eck Associates Corporation
Van Eck Worldwide Emerging Markets Fund
Van Eck Worldwide Hard Assets Fund
VARIABLE INSURANCE PRODUCTS FUND (VIP) and
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio (long-term capital appreciation)
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 (seeks long-term capital growth and future income)
MFS Total Return Series
JANUS ASPEN SERIES
Advised by Janus Capital Corporation
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen International Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
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 representation, that the investment results of similar funds will be
comparable even though the funds have the same advisers.
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' advisers, distributors and/or affiliates for the
administrative services which we provide to the funds.
Fixed Account Options
During the accumulation period, you may allocate purchase payments and contract
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 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 from which to
select. 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 withdraw your money from the
account before the expiration of the time period you may be subject to an
interest adjustment. The adjustment may be positive or negative.
Fixed Account I and II are not available in all states.
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 contract 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 subject to the following:
1. Currently, during the accumulation period, you can make 12 transfers
every contract year without charge.
2. We will assess a $25 transfer fee for each transfer during the
accumulation period in excess of the free 12 transfers allowed per
contract year. Transfers made at the end of the Free Look Period by us
and any 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.
3. The minimum amount which you can transfer is $500 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.
4. You may not make a transfer until after the end of the Free Look
Period.
5. A transfer will be effected as of the end of the business day when we
receive an acceptable transfer request containing all required
information. The required information includes the amount which is to
be transferred, and the investment option(s) and/or the fixed account
affected.
6. We are not liable for a transfer made in accordance with your
instructions.
7. We reserve the right to restrict transfers between investment options
to a maximum of 12 per contract year and to restrict transfers from
being made on consecutive business days. We also reserve the right to
restrict transfers into and out of any fixed account option.
8. 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.
9. Transfers do not change your allocation instructions for future
purchase payments.
10. Transfers made during the annuity period are also subject to the
following:
a. you may make 4 transfers each contract year between investment
options or from the investment options to the general account;
b. you may not make a transfer from the general account to an
investment option; and
c. you may not make a transfer within 3 business days of the annuity
payment date.
Dollar Cost Averaging Option
We offer two Dollar Cost Averaging Options (Program I and Program II). A Dollar
Cost Averaging Option allows you to systematically transfer a set amount from
our dollar cost averaging account to any investment option or Fixed Account I.
If you select Dollar Cost Averaging, we will open a dollar cost averaging
account for you. (You can only have one Dollar Cost Averaging account in
operation at one time.) By allocating amounts on a regular schedule 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 is
available only during the accumulation period.
Under Program I, you must have at least $1,000 allocated to dollar cost
averaging. The funds allocated will be placed in the Money Market Fund. The
minimum amount which can be transferred each month is $100. We guarantee that
the interest we credit to your dollar cost averaging account will be at least
equal to that credited to Fixed Account I. We may, at our discretion, credit
excess interest greater than that credited to Fixed Account I.
Under Program II, you must have at least $5,000 in the dollar cost averaging
account. Transfers must occur for a period of 6 or 12 months. We guarantee that
the interest we credit to your dollar cost averaging account will be at least
equal to that credited to Fixed Account I. We may, at our discretion, credit
excess interest greater than that credited to Fixed Account I.
We have the right to modify, terminate 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. If this option is
terminated, all money remaining in the dollar cost averaging account will be
transferred to Fixed Account I or into the Money Market Fund if Fixed Account I
is not available.
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.
If you participate in a Dollar Cost Averaging option, you may not also
participate in the Systematic Withdrawal Program or the Automatic Transfer
Option.
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 amounts 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 is available only during the accumulation period.
You have the choice of rebalancing quarterly, semi-annually or annually.
Allocation percentages must be in whole numbers and are subject to the minimums
stated in your contract.
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
not participate in the Dollar Cost Averaging Option or Systematic Withdrawal
Program if you participate in the Automatic Transfer Option.
Example:
Assume that you want your initial purchase payment 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%.
Substitution and Limitation on Further Investment
We may be substitute one of the investment options you have elected with another
investment option. We would 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 intent to take either of these
actions.
EXPENSES
There are charges and other expenses associated with the contract that reduce
the return on your investment in the contract. These charges and expenses are:
Contract Maintenance Charge
Every year on the anniversary of the date when your contract was issued, we
deduct a $30 contract maintenance charge from your contract. We reserve the
right to change the charge but it will never be more than $50 per year. This
charge may be increased only for contracts sold after we amend the prospectus.
The charge is deducted pro rata from your selected investment options and fixed
account options. This charge is for administrative expenses associated with your
contract.
During the accumulation period, we will not deduct this charge if the value of
your contract is $50,000 or more. If you make a total withdrawal on a day other
than a contract anniversary and your contract value for the business day when
the total withdrawal is made is less than $50,000, the full contract maintenance
will be deducted at the time of the total withdrawal.
Product Expense Charge
Each business day we make a deduction for our Product Expense Charge. The
Product Expense Charge is equal to 1.40% (on an annual basis).
This charge is included in part of our calculation of the value of the
accumulation units and the annuity units. This charge is for the guarantee of
annuity rates, the death benefit, for certain expenses of the contract, and for
assuming the risk (expense risk) that the current charges will be insufficient
in the future to cover the cost of administering the contract. If the charges
under the contract are not sufficient, then we will bear the loss. We do,
however, expect to profit from this charge. We may use any profits we make from
this charge to pay for the costs of distributing the contract.
Withdrawal Charge
During the accumulation period, you can make withdrawals from your contract. We
keep track of each purchase payment. Subject to the free withdrawal amount and
other waivers discussed below, if you make a withdrawal and it has been fewer
than the stated number of years since you made your purchase payment, we will
assess a withdrawal charge.
Withdrawal Charge: (as a percentage of purchase payments withdrawn)
Contract Year
Since Receipt of Purchase Payment Withdrawal Charge
-------------------------------- -----------------
1 7%
2 7%
3 6%
4 6%
5 5%
6 4%
7 3%
8 and thereafter 0%
Each purchase payment has its own withdrawal charge period. When the
withdrawal is for only part of the value of your contract, the withdrawal
charge is deducted first from any earnings, and then from any purchase
payments in your contract.
Waiver and Reduction of the Withdrawal Charge
Free Partial Withdrawals. We do not apply a withdrawal charge against the
earnings withdrawn from your contract. Also, after the first contract year
(and during the first year under our Systematic Withdrawal Program) you may
withdraw each contract year free from any withdrawal charge an amount equal
to 10% of the greater of the following:
* your total purchase payments, less prior withdrawals, as of the
first business day of the contract year;
* or your contract value as of the business day we receive your written
notice for the withdrawal.
This right is non-cumulative and we reserve the right to limit the number of
free partial withdrawals in any contract year.
For purposes of determining whether a withdrawal charge applies, we take out
amounts from your contract in the following order:
1. the 10% free partial withdrawal amount described above;
2. purchase payments from oldest to newest; and then
3. earnings in excess of 1 and 2 above.
Waiver of Withdrawal Charges Under Terminal Illness-Confinement Benefit. Under
the conditions set out in the waiver of withdrawal charge for Terminal Illness
or Confinement Rider to your contract, if you were 75 or younger on the contract
date we will waive 100% of the withdrawal charge (25% if you were 76 or older on
the contract date) when:
* you become confined for at least 30 consecutive days; or
* you have been diagnosed with a terminal illness after the contract is
issued (which means you are not expected to live more than 12 months).
You can elect this benefit only if the contract is at least 30 days old. This
benefit varies from state to state and may not be available in your state.
Tax Charges
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of your contract for them. Some
of these taxes are due when the contract is issued, and others are due when
annuity payments begin. Premium taxes generally range from 0% to 4%, depending
on the state.
Transfer Fee
We will charge $25 for each additional transfer in excess of the 12 free
transfers permitted. The transfer fee is deducted from the amount which is
transferred. Transfers made at the end of the Free Look Period by us and any
transfers made pursuant to the Dollar Cost Averaging Option or Automatic
Transfer Option will not be counted in determining the application of any
transfer fee.
Income Taxes
We will deduct from your contract for any income taxes which we incur because of
the contract. At the present time, we are not making any such deductions.
Investment Option Expenses
There are deductions from and expenses paid out of the assets of the various
investment options which are described in the attached fund prospectuses.
CONTRACT VALUE
Your contract value is the sum of your interest in the various investment
options and our available fixed account options. Your interest in the investment
option(s) will vary depending upon the performance of the investment options you
choose.
Accumulation Units
In order to keep track of your contract value, we use a unit of measure called
an accumulation unit. During the annuity period of your contract we call the
unit an annuity unit. Every business day we determine the value of an
accumulation unit and an annuity unit. We do this by:
1. determining the change in investment experience (including any
charges) for the investment option from the previous business day to
the current business day;
2. subtracting our product expense charge and any other charges such as
taxes we have deducted; and
3. multiplying the previous business day's accumulation unit (or annuity
unit) value by this result.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment option by the value of
the accumulation unit for that investment option. When you make a withdrawal, we
debit from your contract accumulation units representing the withdrawal. We also
debit accumulation units when we deduct certain charges under the contract.
We calculate the value of an accumulation unit for each investment option after
the New York Stock Exchange closes each day and the result is reflected in the
value of your contract.
Example:
On Monday we receive an additional purchase payment of $5,000 from you. You
have told us you want this to go to the MFS Growth With Income Series. When
the New York Stock Exchange closes on that Monday, we determine that the
value of an accumulation unit for the MFS Growth With Income Series is
$13.90. We then divide $5,000 by $13.90 and credit your contract on Monday
night with 359.71 accumulation units for the MFS Growth With Income Series.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
* by making a withdrawal (either a partial or a complete withdrawal); or
* by electing to receive annuity payments; or
* by receiving a death benefit.
Withdrawals Made During the Accumulation Period
You may withdraw all, or part, of your contract value at any time during the
accumulation period. If you make a withdrawal you will receive the value of your
contract on the day you made the withdrawal, less any applicable charges.
Unless you instruct us otherwise, any partial withdrawal will be made pro-rata
from all the investment options and any fixed account option(s) you elected.
Under most circumstances, the amount of any partial withdrawal must be for at
least $500, or your entire interest in any fixed account or investment option.
We require that you have a contract value of $1,000 in any investment option or
$500 in any fixed account option after any partial withdrawal. We require that
you leave at least $10,000 in the contract after a partial withdrawal for
non-qualified contracts and $2,000 for qualified contracts. We may terminate
your contract and pay you the withdrawal value (contract value less any charges
and applicable interest adjustment for Fixed Account II) if you make a
withdrawal before the annuity date of an amount which results in your contract
value falling below the minimum amount. We will notify you of our intent to
terminate the contract. The contract will automatically terminate unless we
receive additional purchase payments in excess of the minimum amount within 30
days.
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan (TSA). For a more complete explanation see the discussion in
the Taxes Section and the discussion in the Statement of Additional Information.
Systematic Withdrawal Program
We will make payments (deposited directly to your checking account) to you
periodically at your election (currently: monthly, quarterly, semi-annually or
annually). Withdrawals may be made from any investment option or Fixed Account
I.
Each payment must be at least $100. If there are insufficient funds in the
selected investment options or Fixed Account I, we will take amounts from
remaining investment options and fixed account options. These payments may be
subject to the withdrawal charges. See "Expenses - Withdrawal Charge."
Minimum Distribution Option. If your contract has been issued as an IRA, TSA or
other qualified plan, you may elect the Systematic Withdrawal Program. Under
this program, we will make payments to you that are designed to meet the
applicable minimum distribution requirements imposed by the Internal Revenue
Code on such qualified plans.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
DEATH BENEFIT
Death of Contract Owner During the Accumulation Period
If you or your joint owner die during the accumulation period, a death benefit
will be paid to your primary beneficiary. Upon the death of a joint owner, the
surviving joint owner, if any, will be treated as the primary beneficiary. Any
other beneficiary designation on record at the time of death will be treated as
a contingent beneficiary.
Death Benefit Amount During the Accumulation Period
The minimum guaranteed death benefit amount provided in your contract is the
greater of:
1. the total amount of purchase payments made, less any adjusted
withdrawals and applicable withdrawal charges; or
2. your contract value as of the end of the normal business day during
which we receive both due proof of death and election for the payment
method.
The adjusted withdrawal amount depends upon the relationship between the
contract value and the minimum guaranteed death benefit. If the contract value
equals or exceeds the minimum guaranteed death benefit at the time of
withdrawal, the adjusted withdrawal will equal 100% of the actual withdrawal
amount. If the contract value is less than the minimum guaranteed death benefit
at the time of withdrawal, the adjusted withdrawal will equal the actual
withdrawal times the ratio of the minimum guaranteed death benefit to the
contract value.
Contract value for purposes of the death benefits is determined as of the end of
the business day during which we receive both due proof of death and an election
for the payment method. It remains in an investment option and/or any fixed
account option until distribution begins. From the time the death benefit is
determined until complete distribution is made, any amount in an investment
option will be subject to investment risk which is borne by the beneficiary.
Death Benefit Options During the Accumulation Period
Unless already selected by you, a beneficiary must elect the death benefit to be
paid under one of the following options in the event of your death during the
accumulation period. If the beneficiary is the spouse of the owner, he or she
may elect to continue the contract in his or her own name and exercise all the
owner's rights under the contract. In this event, the contract value will be
adjusted to equal the death benefit.
Option 1 - lump sum payment of the death benefit; or
Option 2 - the payment of the entire death benefit within 5 years of the date of
death of the owner or any joint owner; or
Option 3 - payment of the death benefit under an annuity option over the
lifetime of the beneficiary or over a period not extending beyond the life
expectancy of the beneficiary with distribution beginning within 1 year of the
date of your death or of any joint owner.
Any portion of the death benefit not applied under Option 3 within 1 year of the
date of your death, or that of a joint owner, must be distributed within 5 years
of the date of death.
If a lump sum payment is requested, the amount will be paid within 7 days,
unless the suspension of payments provision is in effect.
Payment to the beneficiary, in any form other than a lump sum, may only be
elected during the 60 day period beginning with the date of receipt by us of
proof of death.
Death of Contract Owner During the Annuity Period
If you or a joint owner, who is not the annuitant, dies during the annuity
period, any remaining payments under the annuity option elected will continue to
be made at least as rapidly as under the method of distribution in effect at the
time of your death. Upon your death during the annuity period, the beneficiary
becomes the owner.
Death of Annuitant
Upon the death of the annuitant, who is not the owner, during the accumulation
period, you automatically become the annuitant. You may designate a new
annuitant subject to our underwriting rules then in effect. If the owner is a
non-natural person, the death of the annuitant will be treated as the death of
the owner and a new annuitant may not be designated.
Upon the death of the annuitant during the annuity period, the death benefit, if
any, will be as specified in the annuity option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
annuitant's death.
ANNUITY PROVISIONS
Under the contract you can receive regular income payments. You can choose the
day, month and year in which those payments begin. We call that date the annuity
date. The annuity date cannot be after the 28th of any month. You can also
choose among income plans. We call those annuity payments.
Your annuity date must be at least 1 contract year from the date you purchase
the contract. Annuity payments must begin by the annuitant's 95th birthday or
earlier if required by law. The annuitant is the person whose life we look to
when we make annuity payments.
During the annuity period, you have the same investment choices you had just
before the start of the annuity period. If you do not tell us otherwise, your
annuity payments will be based on the investment allocations that were in place
on the annuity date.
General Account
During the annuity period, you can elect to have your annuity payments paid out
of our general account. We guarantee a specified interest rate used in
determining the payments. If you elect this option, the payments you receive
will remain level. This option is only available during the annuity period.
Annuity Payment Amount
If you choose to have your payments come from the General Account, the payment
will not vary. If you choose to have any portion of your annuity payment come
from the investment option(s), the dollar amount of your payment from the
investment option(s) will depend upon four things:
* the value of your contract in the investment option(s) on the annuity
date;
* the 3% assumed investment rate used in the annuity table for the
contract;
* the performance of the investment options you selected; and
* if permitted in your state and under the type of contract you have
purchased, the age and sex of the annuitant(s).
If the actual performance exceeds the 3% assumed investment rate plus the
deductions for expenses, your annuity payments will increase. Similarly, if the
actual performance is less than 3% plus the amount of the deductions, your
annuity payments will decrease.
Annuity Payment Options
You can choose one of the following annuity payment options. Annuity payments
start at least 30 days from the annuity date, provided the annuitant is alive.
Once annuity payments begin, you cannot change the annuity payment option. All
annuity payments are made to you unless you direct us otherwise. If you do not
choose an annuity payment option at the time you purchase the contract, we will
assume that you selected Option 4 with a 10 year period certain.
Option 1 - Payment Certain. Under this option we pay you the value of your
contract applied to the option in equal installments, as specified by you. The
minimum time period over which you can elect this option is 6 years. The total
payments in a year must be at least 5% of the value you apply to this option.
You may request a single lump sum payment, which is the sum of the annuity value
plus or minus any losses or gains since the annuity date, less any annuity
payments made and charges assessed during the annuity period.
Option 2 - Period Certain. Under this option we make equal payments over a
designated period between 6 and 30 years, as chosen by you. You may request a
single lump sum payment, which is the sum of the annuity value plus or minus any
losses or gains since the annuity date, less any annuity payments made and
charges assessed during the annuity period.
Option 3 - Life Annuity. Under this option we make monthly payments during the
lifetime of the annuitant and terminating with the last payment preceding
his/her death.
Option 4 - Life Annuity with a Period Certain. Under this option we make monthly
annuity payments until the later of the death of the annuitant or a designated
period between 6 and 30 years, as chosen by you. We guarantee that if, at the
death of the annuitant, payments have been made for less than a stated period,
the monthly payments will continue during the remainder of the stated period. If
the annuitant dies before we have made all of the payments within the selected
period, you may request a single lump sum payment, which is the sum of the
annuity value plus or minus any losses or gains since the annuity date, less any
annuity payments made and charges assessed during the annuity period.
Option 5 - Joint Life and Survivor Annuity. Under this option we make monthly
payments during the joint lifetime of the annuitant and another named individual
and thereafter during the lifetime of the survivor. Payments cease with the last
payment due prior to the death of the survivor.
Additional Options. We may make other options available.
TAXES
Note: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included in the Statement of Additional Information a more comprehensive
discussion regarding taxes.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you are taxed
depending on how you take the money out and the type of contract - qualified or
non-qualified (see following sections).
Under non-qualified contracts, you, as the owner, are not taxed on increases in
the value of your contract until a distribution occurs - either as a withdrawal
or as annuity payments. When you make a withdrawal, you are taxed on the amount
of the withdrawal that is earnings. For annuity payments, different rules apply.
A portion of each annuity payment is treated as a partial return of your
purchase payments and is not taxed. The remaining portion of the annuity payment
is treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your purchase payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
the pre-tax purchase payments to the after-tax purchase payments in your
contract. If all of your purchase payments were made with pre-tax money then the
full amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. (The penalty is
increased to 25% for withdrawals from SIMPLE IRAs during the first two years.)
Some withdrawals will be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid to you after leaving your employment in a series of substantially
equal payments made annually (or more frequently) under a lifetime
annuity;
(5) paid to you after you have attained age 55 and left your employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid from an IRA for medical insurance (as defined in the Code);
(9) paid from an IRA for qualified higher education expenses; or
(10) up to $10,000 for qualified first time home buyer expenses (as defined
in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in (4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of amounts attributable to purchase payments
made under a salary reduction agreement by owners from Tax-Sheltered Annuities.
Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the investment options are managed so as to
comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, are considered the
owner of the shares of the investment options. If you are considered owner of
the shares, it will result in the loss of the favorable tax treatment for the
contract. It is unknown to what extent owners are permitted to select investment
options, to make transfers among the investment options or the number and type
of investment options owners may select from without being considered owner of
the shares. If any guidance is provided which is considered a new position, then
the guidance is generally 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 contract, could be treated as the owner of
the investment options.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
PERFORMANCE
We periodically advertise performance of the various investment options. We will
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the product expense charge and the fees and expenses
of the investment options. It does not reflect the deduction of any contract
maintenance charge or withdrawal charge. The deduction of any contract
maintenance charge or withdrawal charge would reduce the percentage increase or
make greater any percentage decrease. Any advertisement will also include
average annual total return figures which reflect the deduction of the product
expense charge, contract maintenance charge and withdrawal charges and the fees
and expenses of the investment options.
The performance will be based on the historical performance of the corresponding
investment options for the periods commencing from the date on which the
particular investment option was made available through the contracts. In
addition, for certain investment options performance may be shown for the period
commencing from the inception date of the investment option. These figures
should not be interpreted to reflect actual historical performance of the
Variable Account.
We may, from time to time, include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
OTHER INFORMATION
The Variable Account
We established a variable account, Valley Forge Life Insurance Company Variable
Annuity Separate Account (Variable Account), to hold the assets that underlie
the contracts. Our Board of Directors adopted a resolution to establish the
Variable Account under Pennsylvania 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 contracts, 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.
Impact of Year 2000 on Us
The widespread use of computer programs, both in the United States and
internationally, that rely on two digit date fields to perform computations and
decision making functions may cause computer systems to malfunction when
processing information involving dates beginning in 1999. Such malfunctions
could lead to business delays and disruptions. We do not maintain any systems.
Instead, we rely on the systems of CNA Financial, third party vendors and other
business partners. CNA Financial, on our behalf, has a plan under which it
reviews periodically the progress that these parties are making on this issue.
As of December 1, 1998, CNA Financial had certified internally as Year
2000-ready all of the internal systems we use. However, as business conditions
change, CNA may respond by revising previous Year 2000 strategies or solutions
affecting specific systems. In limited cases, a system that was to have been
replaced, instead, may be renovated to become Year 2000 ready prior to January
1, 2000. We do not believe these changes will have a material impact on us.
CNA Financial has also received statements of Year 2000 compliance from certain
key business partners. Our management believes that the systems on which we rely
do not have any significant remaining exposure to the Year 2000 issue and,
therefore, we do not have a material exposure to the Year 2000 issue. However,
due to the interdependent nature of computer systems, there may be an adverse
impact on us if our business partners fail to address the Year 2000 issue
successfully. To mitigate this impact, if any, CNA Financial on behalf of itself
and us is communicating with its business partners to coordinate Year 2000
conversion. In addition, CNA Financial has developed business resumption plans
to ensure that it and we are able to continue critical processes through other
means in the event that it becomes necessary to do so. Formal strategies have
been developed to include appropriate recovery processes and use of alternative
vendors.
Voting Rights
We are the legal owner of the investment option shares. However, we believe that
when an investment option solicits proxies in conjunction with a vote of
shareholders, it is required to obtain from you and other owners instructions as
to how to vote those shares. When we receive those instructions, we will vote
all of the shares we own in proportion to those instructions. This will also
include any shares that we own on our own behalf. Should we determine that we
are no longer required to comply with the above, we will vote the shares in our
own right.
Distributor
CNA Investor Services, Inc. ("CNAISI") serves as the distributor for the
contracts. CNAISI is located at CNA Plaza, Chicago, Illinois 60685.
Commissions will be paid to agents and broker-dealers who sell the contracts.
Such agents and broker-dealers will be paid commissions up to 6% of purchase
payments and may be paid an additional annual trail commission of up to 1% of
contract value.
Ownership
Owner. You, as the owner of the contract, have all the rights under the
contract. The owner is as designated at the time the contract is issued, unless
changed. You can change the owner at any time. A change will automatically
revoke any prior owner designation. The change request must be in writing.
Joint Owner. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner (except where not permitted under state law). Upon
the death of either joint owner, the surviving joint owner will be the
designated beneficiary. Any other beneficiary designation at the time the
contract was issued or as may have been later changed will be treated as a
contingent beneficiary unless otherwise indicated in a written notice.
Beneficiary
The following information applies to the beneficiary:
* the beneficiary is the person(s) or entity you name to receive any
death benefit;
* the beneficiary is named at the time the contract is issued unless
changed at a later date;
* unless an irrevocable beneficiary has been named, you can change the
beneficiary at any time before you die.
Annuitant
The following information applies to the annuitant:
* you choose the annuitant at the time you buy the contract;
* you may change the annuitant prior to the annuity date;
* any change of annuitant is subject to our consent; and
* you cannot change the annuitant in a contract which is owned by a
non-individual.
Assignment
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the contract before we receive notice of the assignment. An assignment may be a
taxable event.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
Suspension of Payments or Transfers
We may be required to suspend or postpone payments for withdrawals 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
investment options is not reasonably practicable or we cannot
reasonably value the shares of the investment options;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
We have reserved the right to defer payment for a withdrawal or transfer from
any fixed account option for the period permitted by law but not for more than
six months.
Financial Statements
Our financial statements and the financial statements of the Variable Account
have been included in the Statement of Additional Information.
Additional Information
For further information about the contract you may obtain a Statement of
Additional Information. You can call the telephone number indicated on the cover
page or you can write to us. For your convenience we have included a post card
for that purpose.
The Table of Contents of this statement is as follows:
Company
Independent Auditors
Legal Opinion
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
VALLEY FORGE LIFE INSURANCE COMPANY
ATTN:
____________________________________________________________________________
Please send me, at no charge, the Statement of Additional Information
dated___________, 1999 for the Annuity Contract issued by Valley Forge Life
Insurance Company.
(Please print or type and fill in all information)
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE AND
FIXED ANNUITY CONTRACT
ISSUED BY
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
AND
VALLEY FORGE LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED _____, 1999, FOR THE INDIVIDUAL
FLEXIBLE PREMIUM DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT WHICH IS DESCRIBED
HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: 100 CNA DRIVE, NASHVILLE, TN 37214, (800) 262-1755.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED _______, 1999.
TABLE OF CONTENTS
Page
COMPANY .......................................................................
INDEPENDENT AUDITORS............................................................
LEGAL OPINIONS..................................................................
DISTRIBUTION....................................................................
Reduction of the Withdrawal Charge.....................................
PERFORMANCE INFORMATION.........................................................
Total Return...........................................................
Historical Unit Values.................................................
Reporting Agencies.....................................................
Performance Information................................................
FEDERAL TAX STATUS..............................................................
Diversification........................................................
Multiple Contracts.....................................................
Contracts Owned by Other than Natural Persons..........................
Tax Treatment of Assignments...........................................
Income Tax Withholding.................................................
Tax Treatment of Withdrawals - Non-qualified Contracts.................
Qualified Plans........................................................
Tax Treatment of Withdrawals - Qualified Contracts.....................
Tax-sheltered Annuities - Withdrawal Limitations.......................
ANNUITY PROVISIONS..............................................................
Variable Annuity.......................................................
Fixed Annuity..........................................................
Annuity Unit...........................................................
Net Investment Factor..................................................
Expense Guarantee......................................................
FINANCIAL STATEMENTS............................................................
COMPANY
Valley Forge Life Insurance Company (the "Company"), 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 September 30,
1999.
The Company is principally engaged in the sale of life insurance and annuities.
It is licensed in the District of Columbia, Guam, Puerto Rico and all states
except New York, where we are only admitted as a reinsurer.
The Company is a Pennsylvania corporation that provides life and health
insurance, retirement plans, and related financial services to individuals and
groups.
INDEPENDENT AUDITORS
The financial statements for Valley Forge Life Insurance Company as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 included in this prospectus have been audited by Deloitte &
Touche LLP, 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 Annuity Separate Account as of
December 31, 1998 and 1997 and for year ended December 31, 1998 and for the
period from inception through December 31, 1997 included in the Statement of
Additional Information which is part of this registration statement have been
audited by Deloitte & Touche LLP, 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.
LEGAL OPINIONS
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 Contracts.
All matters relating to Pennsylvania law pertaining to the Contracts, including
the validity of the Contracts and the Company's authority to issue Contracts,
have been passed upon by Lynne Gugenheim, Esquire, Vice President and Associate
General Counsel.
DISTRIBUTION
CNA Investor Services, Inc. ("CNAISI") acts as the distributor. CNAISI is an
affiliate of the Company. The offering is on a continuous basis.
REDUCTION OF THE WITHDRAWAL CHARGE. The amount of the withdrawal charge on the
contracts may be reduced or eliminated when sales of the contracts are made to
individuals or to a group of individuals in a manner that results in savings of
sales expenses. The entitlement to reduction of the withdrawal charge will be
determined by the Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made. Generally,
the sales expenses for a larger group are less than for a smaller
group because of the ability to implement large numbers of contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received. Per contract
sales expenses are likely to be less on larger purchase payments than
on smaller ones.
3. Any prior or existing relationship with the Company. Per contract
sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the contract
with fewer sales contacts.
4. Other circumstances, of which the Company is not presently aware,
which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction of the withdrawal charge.
The withdrawal charge may be eliminated when the contracts are issued to an
officer, director or employee of the Company or any of its affiliates.
In no event will any reduction or elimination of the withdrawal charge be
permitted where the reduction or elimination will be unfairly discriminatory to
any person.
PERFORMANCE INFORMATION
TOTAL RETURN. From time to time, the Company may advertise performance data.
Such data will show the percentage change in the value of an accumulation unit
based on the performance of an investment option over a period of time, usually
a calendar year, determined by dividing the increase (decrease) in value for
that unit by the accumulation unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 1.40% product expense charge, the contract maintenance charge,
the expenses for the underlying investment option being advertised and any
applicable withdrawal charges.
The hypothetical value of a contract purchased for the time periods described in
the advertisement will be determined by using the actual accumulation unit
values for an initial $1,000 purchase payment, and deducting any applicable
withdrawal charge to arrive at the ending hypothetical value. The average annual
total return is then determined by computing the fixed interest rate that a
$1,000 purchase payment would have to earn annually, compounded annually, to
grow to the hypothetical value at the end of the time periods described. The
formula used in these calculations is:
n
P (1 + T) = ERV
Where:
P= a hypothetical initial payment of $1,000
T= average annual total return
n= number of years
ERV= ending redeemable value at the end of the time
periods used (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the time periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
withdrawal charge or contract maintenance charge. The deduction of any
withdrawal charge or contract maintenance charge would reduce any percentage
increase or make greater any percentage decrease.
Owners should note that the investment results of each investment option will
fluctuate over time, and any presentation of the investment option's total
return for any period should not be considered as a representation of what an
investment may earn or what an owner's total return may be in any future period.
HISTORICAL UNIT VALUES. The Company may also show historical accumulation unit
values in certain advertisements containing illustrations. These illustrations
will be based on actual accumulation unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in accumulation unit values for any of the investment options
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the investment
option being compared. The Standard & Poor's 500 Composite Stock Price Index is
an unmanaged, unweighted average of 500 stocks, the majority of which are listed
on the New York Stock Exchange. The Dow Jones Industrial Average is an
unmanaged, weighted average of thirty blue chip industrial corporations listed
on the New York Stock Exchange. Both the Standard & Poor's 500 Composite Stock
Price Index and the Dow Jones Industrial Average assume quarterly reinvestment
of dividends.
REPORTING AGENCIES. The Company may also distribute sales literature which
compares the performance of the Accumulation unit values of the contracts with
the unit values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
PERFORMANCE INFORMATION. The Accumulation units invest in the portfolios managed
by Federated Insurance Series, The Alger American Fund, SoGen Variable Funds,
Inc., Van Eck Worldwide Insurance Trust, Variable Insurance Products Fund and
Variable Insurance Products Fund II, MFS Variable Insurance Trust and Janus
Aspen Series. In order to demonstrate how the investment experience of the these
portfolios affect accumulation unit values, performance information was
developed. The information is based upon the historical experience of the
portfolios and is for the periods shown.
Future performance of the portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance of the portfolios is calculated for a specified period of time by
assuming an initial purchase payment of $1,000 allocated to the portfolio.
Performance figures for the accumulation units will reflect the product expense
charges as well as the portfolio expenses. There are also performance figures
for the accumulation units which reflect the product expense charges, contract
maintenance charge, the portfolio expenses, and assume that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected. The percentage increases (decreases) are determined by subtracting
the initial purchase payment from the ending value and dividing the remainder by
the beginning value. The performance may also show figures when no withdrawal is
assumed.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
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. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
GENERAL. Section 72 of the Code governs taxation of annuities in general. An
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Annuity Option selected. For a lump sum payment received as a total
withdrawal, the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable annuity contracts. The Code
provides that a variable annuity contract will not be treated as an annuity
contract 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 Contract as an annuity contract would result in the imposition of federal
income tax to the Owner with respect to earnings allocable to the Contract prior
to the receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
options underlying variable contracts such as the Contract. 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 option will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
option is represented by any one investment; (2) no more than 70% of the value
of the total assets of the option is represented by any two investments; (3) no
more than 80% of the value of the total assets of the option is represented by
any three investments; and (4) no more than 90% of the value of the total assets
of the option is represented by any four investments.
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."
The Company intends that all investment options underlying the Contracts will be
managed 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 Contract. 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 Contract 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 policy
owner 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 as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
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 the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS. The Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year to the same contract owner by
one company or its affiliates are treated as one annuity contract for purposes
of determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences including more rapid taxation of the
distributed amounts from such combination of contracts. For purposes of this
rule, contracts received in a Section 1035 exchange will be considered issued in
the year of the exchange. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS. Under Section 72(u) of the Code,
the investment earnings on premiums for the Contracts will be taxed currently to
the Owner if the Owner is a non-natural person, e.g., a corporation or certain
other entities. Such Contracts generally will not be treated as annuities for
federal income tax purposes. However, this treatment is not applied to a
Contract held by a trust or other entity as an agent for a natural person nor to
Contracts held by Qualified Plans. Purchasers should consult their own tax
counsel or other tax adviser before purchasing a Contract to be owned by a
non-natural person.
TAX TREATMENT OF ASSIGNMENTS. An assignment, pledge, or other transfer of a
Contract may be a taxable event. Owners should therefore consult competent tax
advisers should they wish to assign, pledge, or transfer their Contracts.
DEATH BENEFITS. Any death benefits paid under the Contract are taxable to the
beneficiary. The rules governing the taxation of payments from an annuity
contract, as discussed above, generally apply to the payment of death benefits
and depend on whether the death benefits are paid as a lump sum or as annuity
payments. Estate taxes may also apply.
INCOME TAX WITHHOLDING. All distributions or the portion thereof which is
includible in the gross income of the Owner are subject to federal income tax
withholding. Generally, amounts are withheld from periodic payments at the same
rate as wages and at the rate of 10% from non-periodic payments. However, the
Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions); or d) hardship distributions. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS. Section 72 of the Code
governs treatment of distributions from annuity contracts. It provides that if
the Contract Value exceeds the aggregate purchase payments made, any amount
withdrawn will be treated as coming first from the earnings and then, only after
the income portion is exhausted, as coming from the principal. Withdrawn
earnings are includible in gross income. It further provides that a ten percent
(10%) penalty will apply to the income portion of any premature distribution.
However, the penalty is not imposed on amounts received: (a) after the taxpayer
reaches age 59 1/2; (b) after the death of the Owner; (c) if the taxpayer is
totally disabled (for this purpose disability is as defined in Section 72(m)(7)
of the Code); (d) in a series of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the taxpayer
or for the joint lives (or joint life expectancies) of the taxpayer and his or
her Beneficiary; (e) under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS. The Contracts offered herein are designed to be suitable for
use under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Owners,
Annuitants and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon withdrawal or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to withdrawals from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
certain Qualified Plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
A. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
B. INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
ROTH IRAS
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
SIMPLE IRAs
Section 408(p) of the Code permits certain employers (generally those with less
that 100 employees) to establish a retirement program for employees using
Savings Incentive Match Plan Retirement Annuities ("SIMPLE IRA"). SIMPLE IRA
programs can only be established with the approval of and adoption by the
employer of the Contract Owner of the SIMPLE IRA. Contributions to SIMPLE IRAs
will be made pursuant to a salary reduction agreement in which an Owner would
authorize his/her employer to deduct a certain amount from his/her pay and
contribute it directly to the SIMPLE IRA. The Owner's employer will also make
contributions to the SIMPLE IRA in amounts based upon certain elections of the
employer. The only contributions that can be made to a SIMPLE IRA are salary
reduction contributions and employer contributions as described above, and
rollover contributions from other SIMPLE IRAs. Purchasers of Contracts to be
qualified as SIMPLE IRAs should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
C. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, and withdrawals. (See
"Tax Treatment of Withdrawals Qualified Contracts" below.) Purchasers of
Contracts for use with Pension or Profit Sharing Plans should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
D. GOVERNMENT AND TAX-EXEMPT ORGANIZATION'S DEFERRED COMPENSATION PLAN
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans. While participants in such Plans may
be permitted to specify the form of investment in which their Plan accounts will
participate, all such investments are owned by the sponsoring employer and are
subject to the claims of its creditors until December 31, 1998, or such earlier
date as may be established by Plan amendment. However, amounts deferred under a
governmental Plan created on or after August 20, 1996 and amounts deferred under
any 457 Plan after December 31, 1998 must be held in trust, custodial account or
annuity contract for the exclusive benefit of Plan participants and their
beneficiaries. The amounts deferred under a Plan which meets the requirements of
Section 457 of the Code are not taxable as income to the participant until paid
or otherwise made available to the participant or beneficiary. As a general
rule, the maximum amount which can be deferred in any one year is the lesser of
$8,000 or 33 1/3 percent of the participant's includible compensation. However,
in limited circumstances, up to $15,000 may be deferred in each of the last
three years before normal retirement age. Furthermore, the Code provides
additional requirements and restrictions regarding eligibility and
distributions.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS. In the case of a withdrawal
under a Qualified Contract, a ratable portion of the amount received is taxable,
generally based on the ratio of the individual's cost basis to the individual's
total accrued benefit under the retirement plan. Special tax rules may be
available for certain distributions from a Qualified Contract. Section 72(t) of
the Code imposes a 10% penalty tax on the taxable portion of any distribution
from qualified retirement plans, including Contracts issued and qualified under
Code Sections 401 (Pension and Profit-Sharing Plans), 403(b)(Tax-Sheltered
Annuities) and 408 and 408A (Individual Retirement Annuities). This penalty is
increased to 25% instead of 10% for SIMPLE IRAs if distribution occurs within
the first two years after the Owner first participated in the SIMPLE IRA. To the
extent amounts are not includible in gross income because they have been rolled
over to an IRA or to another eligible Qualified Plan, no tax penalty will be
imposed. The tax penalty will not apply to the following distributions: (a) if
distribution is made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2; (b) distributions following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m) (7) of the Code); (c) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (h) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8)of
the Code.) The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years on which the exception was used.
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. There are no required distributions from a Roth IRA prior to the
death of the owner.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS. The Code limits the withdrawal
of amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Section 403(b)(11) of the Code) to circumstances only
when the Owner: (1) attains age 59 1/2; (2) separates from service; (3) dies;
(4) becomes disabled (within the meaning of Section 72(m)(7) of the Code); or
(5) in the case of hardship. However, withdrawals for hardship are restricted to
the portion of the Owner's Contract Value which represents contributions made by
the Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable to
such contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect transfers between
Tax-Sheltered Annuity Plans. Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
ANNUITY PROVISIONS
VARIABLE ANNUITY. A variable annuity is an annuity with payments which: (1) are
not predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable investment option(s) of the separate
account. At the annuity calculation date, the contract value in each investment
option will be applied to the applicable annuity tables. The annuity table used
will depend upon the annuity option chosen. The dollar amount of annuity
payments after the first is determined as follows:
(1) the dollar amount of the first annuity payment is divided by the value
of an annuity unit as of the annuity calculation date. This
establishes the number of annuity units for each monthly payment. The
number of annuity units remains fixed during the annuity payment
period.
(2) the fixed number of annuity units per payment in each subaccount is
multiplied by the annuity unit value as of the annuity calculation
date. This result is the dollar amount of the payment.
The total dollar amount of each variable annuity payment is the sum of all
investment option variable annuity payments.
The Company determines the amount of variable annuity payments, including the
first, no more than ten (10) business days prior to the payment date. The
payment date must be the same day each month as the date selected for the
annuity date, i.e. the first or the fifteenth.
FIXED ANNUITY. A fixed annuity is a series of payments made during the annuity
period which are guaranteed as to dollar amount by the Company and do not vary
with the investment experience of the separate account. The general account
value as of the annuity calculation date will be used to determine the fixed
annuity monthly payment. The first monthly annuity payment will be based upon
the annuity option elected and the appropriate annuity option table. Fixed
annuity payments will remain level.
ANNUITY UNIT. The value of an annuity unit for each investment option was
arbitrarily set initially at $10. This was done when the first investment option
shares were purchased. The investment option annuity unit value for any business
day is determined by multiplying the investment option annuity unit value for
the immediately preceding business day by the product of the Net Investment
Factor for the business day for which the annuity unit value is being
calculated, and an amount equivalent to the daily assumed investment factor.
NET INVESTMENT FACTOR. The Net Investment Factor for any investment option for
any business day is determined by dividing:
(a) the accumulation unit value as of the close of the current business
day, by
(b) the accumulation unit value as of the close of the immediately
preceding business day.
The Net Investment Factor may be greater or less than one, as the annuity unit
value may increase or decrease.
EXPENSE GUARANTEE. The Company guarantees that the dollar amount of each annuity
payment after the first annuity payment will not be affected by variations in
actual mortality or expense experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations
under the contracts. The financial statements of the Variable Account are
also included herein.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)
Federated Federated
Prime Money Utility
September 30, 1999 Fund II Fund II
- ------------------------------------------- ------------ -----------
ASSETS:
<S> <C> <C>
Investments, at market value: $ 20,231,490 $ 3,014,603
Total assets 20,231,490 3,014,603
Liabilities - -
=========================================== ============ ===========
Net assets $ 20,231,490 $ 3,014,603
=========================================== ============ ===========
- ------------------------------------------- ------------ -----------
- ------------------------------------------- ------------ -----------
- -----------------------------------------------------------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(UNAUDITED)
Federated Federated
Prime Money Utility
For the Nine Months Ended September 30, 1999 Fund II Fund II
- ------------------------------------------- ------------ -----------
Investment income:
Dividend income $ 447,158 $ 149,669
447,158 149,669
Expenses:
Policy fees/Cost of insurance 147,412 22,088
147,412 22,088
Net Investment income (loss) 299,746 127,581
Investment gains and (losses):
Net realized gains (losses) - 4,909
Net unrealized gains (losses) 2,171 (111,727)
Net realized and unrealized investment gains (losses) 2,171 (106,818)
- ------------------------------------------- ------------ -----------
Net increase (decrease) in net assets resulting from operations $ 301,917 $ 20,763
=========================================== ============ ===========
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
=========================================== ============ ===========
Federated Federated
Prime Money Utility
Fund II Fund II
For the Nine Months Ended September 30, 1999 ------------ -----------
- -------------------------------------------
From operations: $ 299,746 $ 127,581
Net investment income (loss) 2,171 (106,818)
Net realized and unrealized investment gains (losses) 301,917 20,763
Change in net assets resulting from operations
From capital transactions: 21,880,513 491,632
Net premiums/deposits - (52,283)
Death Benefits (240,024) (29,199)
Surrenders (192,859) (38,815)
Withdrawals (7,080,261) 928,844
Transfers in (out of) subaccounts , net -- Note 1 14,367,369 1,300,179
Change in net assets resulting from capital transactions 14,669,286 1,320,942
Increase in net assets ------------ -----------
- ------------------------------------------- 5,562,204 1,693,661
Net assets at beginning of period ------------ -----------
=========================================== ============ ===========
Net assets at end of period $ 20,231,490 $ 3,014,603
=========================================== ============ ===========
Net asset value per unit at end of period $ 1.00 $ 13.88
=========================================== ============ ===========
Units outstanding at end of period 20,231,490 217,190
=========================================== ============ ===========
Federated Federated
For the Year ended December 31, 1998 Prime Money Utility
- ------------------------------------------- Fund II Fund II
From operations: ------------ -----------
Net investment income (loss) $ 207,113 $ 3,202
Net realized and unrealized investment gains (losses) 634 97,354
Change in net assets resulting from operations 207,747 100,556
From capital transactions:
Net premiums/deposits 24,848,283 1,307,253
Death Benefits (15,275) (19,978)
Surrenders (198,856) (15,885)
Withdrawals (112,539) (77,318)
Transfers in (out of) subaccounts , net -- Note 1 (20,028,240) 348,351
Change in net assets resulting from capital transactions 4,493,373 1,542,423
Increase (decrease) in net assets 4,701,120 1,642,979
- ------------------------------------------- ------------ -----------
Net assets at beginning of period 861,084 50,683
- ------------------------------------------- ------------ -----------
Net assets at end of period $ 5,562,204 $ 1,693,662
=========================================== ============ ===========
Net asset value per unit at end of period ============ ===========
=========================================== $ 1.00 $ 15.27
Units outstanding at end of period ============ ===========
=========================================== 5,562,204 110,914
=========================================== ============ ===========
============ ===========
</TABLE>
<TABLE>
<CAPTION>
The Alger
Fidelity American The Alger
Federated Fidelity Asset Fidelity Fidelity Small American
High Income Equity-Income Manager Index 500 Contrafund Capitalization Growth
Bond Fund II Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,572,111 $ 7,149,565 $ 4,714,558 $ 19,446,972 $ 8,127,274 $ 2,210,016 $ 13,662,271
4,572,111 7,149,565 4,714,558 19,446,972 8,127,274 2,210,016 13,662,271
- - - - - - -
=========== ============ =========== ============ =========== ============ ============
$ 4,572,111 $ 7,149,565 $ 4,714,558 $ 19,446,972 $ 8,127,274 $ 2,210,016 $ 13,662,271
=========== ============ =========== ============ =========== ============ ============
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
The Alger
Fidelity American The Alger
Federated Fidelity Asset Fidelity Fidelity Small American
High Income Equity-Income Manager Index 500 Contrafund Capitalization Growth
Bond Fund II Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ 304,785 $ 216,369 $ 180,618 $ 190,903 $ 161,610 $ 240,850 $ 958,176
304,785 216,369 180,618 190,903 161,610 240,850 958,176
37,977 57,228 31,006 142,921 55,055 18,111 90,763
37,977 57,228 31,006 142,921 55,055 18,111 90,763
266,807 159,141 149,611 47,982 106,555 222,739 867,413
(47,909) 16,651 8,038 508,706 98,560 (30,867) 48,505
(115,622) 45,095 (99,012) 334,219 (95,976) (107,794) (538,585)
(163,531) 61,746 (90,974) 842,925 2,584 (138,661) (490,080)
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ 103,276 $ 220,887 $ 58,638 $ 890,907 $ 109,139 $ 84,078 $ 377,333
=========== ============ =========== ============ =========== ============ ============
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
The Alger
Fidelity American The Alger
Federated Fidelity Asset Fidelity Fidelity Small American
High Income Equity-Income Manager Index 500 Contrafund Capitalization Growth
Bond Fund II Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ 266,807 $ 159,141 $ 149,611 $ 47,982 $ 106,555 $ 222,739 $ 867,413
(163,531) 61,746 (90,974) 842,925 2,584 (138,661) (490,080)
103,276 220,887 58,638 890,907 109,139 84,078 377,333
802,734 999,820 977,994 4,057,203 2,024,893 316,446 2,432,701
(191,732) (10,015) (9,327) (20,407) - - (26,683)
(114,532) (52,994) (1,092) (98,959) (214,120) (7,728) (32,227)
(68,521) (61,210) (34,566) (137,517) (52,603) (6,880) (78,061)
874,120 1,788,611 1,464,891 4,065,773 2,549,533 222,846 5,544,313
1,302,069 2,664,213 2,397,900 7,866,094 4,307,703 524,685 7,840,042
1,405,345 2,885,100 2,456,537 8,757,001 4,416,842 608,763 8,217,376
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
3,166,766 4,264,465 2,258,021 10,689,971 3,710,433 1,601,254 5,444,895
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
=========== ============ =========== ============ =========== ============ ============
$ 4,572,111 $ 7,149,565 $ 4,714,558 $ 19,446,972 $ 8,127,274 $ 2,210,016 $ 13,662,271
=========== ============ =========== ============ =========== ============ ============
$ 10.03 $ 24.88 $ 17.16 $ 145.84 $ 24.84 $ 42.08 $ 52.92
=========== ============ =========== ============ =========== ============ ============
455,844 287,362 274,741 133,345 327,185 52,519 258,168
=========== ============ =========== ============ =========== ============ ============
The Alger
Fidelity American The Alger
Federated Fidelity Asset Fidelity Fidelity Small American
High Income Equity-Income Manager Index 500 Contrafund Capitalization Growth
Bond Fund II Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ (9,420) $ 8,287 $ 19,013 $ (22,378) $ 3,442 $ 115,699 $ 307,440
(26,804) 186,584 141,214 1,288,532 507,452 2,409 766,562
(36,224) 194,871 160,227 1,266,154 510,894 118,108 1,074,002
2,301,701 2,167,250 1,237,984 6,238,184 1,114,162 1,012,659 2,385,652
(13,846) (7,421) - - (10,449) (3,193) -
(12,264) (37,904) (1,620) (50,773) (23,821) (27,137) (13,467)
(93,235) (31,134) (22,890) (110,964) (23,664) (16,711) (33,203)
830,154 1,482,837 616,956 2,784,494 1,814,245 321,797 1,782,528
3,012,510 3,573,628 1,830,430 8,860,941 2,870,473 1,287,415 4,121,510
2,976,286 3,768,499 1,990,657 10,127,095 3,381,367 1,405,523 5,195,512
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
190,479 495,969 267,366 562,885 329,066 195,731 249,383
- ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ 3,166,765 $ 4,264,468 $ 2,258,023 $ 10,689,980 $ 3,710,433 $ 1,601,254 $ 5,444,895
=========== ============ =========== ============ =========== ============ ============
=========== ============ =========== ============ =========== ============ ============
$ 10.92 $ 25.42 $ 18.16 $ 141.25 $ 24.44 $ 43.97 $ 53.22
=========== ============ =========== ============ =========== ============ ============
289,997 167,760 124,340 75,681 151,818 36,417 102,309
=========== ============ =========== ============ =========== ============ ============
=========== ============ =========== ============ =========== ============ ============
The Alger MFS Van Eck
American MFS Growth MFS MFS Sogen Worldwide
MidCap Emerging MFS with Limited Total Overseas Hard
Growth Growth Research Income Maturity Return Variable Assets
Portfolio Series Series Series Series Series Fund Fund
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 2,329,000 $ 5,245,418 $ 3,547,918 $ 4,675,634 $ 1,934,947 $ 4,649,661 $ 3,043,156 $ 218,712
2,329,000 5,245,418 3,547,918 4,675,634 1,934,947 4,649,661 3,043,156 218,712
- - - - - - - -
=========== =========== =========== =========== =========== =========== =========== ==========
$ 2,329,000 $ 5,245,418 $ 3,547,918 $ 4,675,634 $ 1,934,947 $ 4,649,661 $ 3,043,156 $ 218,712
=========== =========== =========== =========== =========== =========== =========== ==========
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
The Alger MFS Van Eck
American Growth MFS MFS Sogen Worldwide
MidCap MFS with Limited Total Overseas Hard
Growth Emerging MFS Income Maturity Return Variable Assets
Portfolio Growth Research Series Series Series Fund Fund
- ----------- Series Series ----------- ----------- ----------- ----------- ----------
----------- -----------
$ 220,841 $ - $ 32,893 $ 23,662 $ - $ 143,153 $ 22,316 $ 2,253
220,841 - 32,893 23,662 - 143,153 22,316 2,253
15,408 37,545 25,413 33,516 14,213 28,781 23,931 1,785
15,408 37,545 25,413 33,516 14,213 28,781 23,931 1,785
205,433 (37,545) 7,480 (9,854) (14,213) 114,372 (1,615) 467
4,826 42,989 23,735 22,446 (2,016) 2,908 9,833 (12,662)
(174,319) 340,498 29,602 (72,410) 46,592 (142,051) 616,242 43,784
(169,493) 383,487 53,337 (49,965) 44,576 (139,143) 626,075 31,123
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 35,940 $ 345,942 $ 60,817 $ (59,818) $ 30,363 $ (24,771) $ 624,460 $ 31,590
=========== =========== =========== =========== =========== =========== =========== ==========
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
The Alger MFS Van Eck
American MFS Growth MFS MFS Sogen Worldwide
MidCap Emerging MFS with Limited Total Overseas Hard
Growth Growth Research Income Maturity Return Variable Assets
Portfolio Series Series Series Series Series Fund Fund
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 205,433 $ (37,545) $ 7,480 $ (9,854) $ (14,213) $ 114,372 $ (1,615) $ 467
(169,493) 383,487 53,337 (49,965) 44,576 (139,143) 626,075 31,123
35,940 345,942 60,817 (59,818) 30,363 (24,771) 624,460 31,590
536,766 916,322 685,090 804,567 227,529 991,703 339,456 21,748
(9,196) (5,257) - - (11,410) (24,405) - -
(22,656) (20,165) (5,317) (23,450) (75,906) (27,926) (19,660) (8,640)
(27,451) (14,810) (18,676) (36,344) (13,301) (32,854) (39,497) (1,314)
642,593 1,099,576 1,147,834 1,605,262 746,115 1,874,726 99,935 34,186
1,120,057 1,975,666 1,808,931 2,350,035 873,026 2,781,243 380,235 45,979
1,155,997 2,321,608 1,869,748 2,290,217 903,388 2,756,472 1,004,695 77,569
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
1,173,003 2,923,809 1,678,171 2,385,417 1,031,559 1,893,190 2,038,461 141,143
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
=========== =========== =========== =========== =========== =========== =========== ==========
$ 2,329,000 $ 5,245,418 $ 3,547,918 $ 4,675,634 $ 1,934,947 $ 4,649,661 $ 3,043,156 $ 218,712
=========== =========== =========== =========== =========== =========== =========== ==========
$ 25.66 $ 24.47 $ 19.15 $ 19.28 $ 10.34 $ 17.26 $ 13.14 $ 10.64
=========== =========== =========== =========== =========== =========== =========== ==========
90,764 214,361 185,270 242,512 187,132 269,389 231,595 20,556
=========== =========== =========== =========== =========== =========== =========== ==========
The Alger MFS Van Eck
American MFS Growth MFS MFS Sogen Worldwide
MidCap Emerging MFS with Limited Total Overseas Hard
Growth Growth Research Income Maturity Return Variable Assets
Portfolio Series Series Series Series Series Fund Fund
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 18,386 $ (10,989) $ (1,475) $ (16,356) $ (7,862) $ 12,833 $ (24,005) $ 4,608
131,442 548,478 172,413 234,577 (11,034) 69,285 (64,492) (40,765)
149,828 537,489 170,938 218,221 (18,896) 82,118 (88,497) (36,157)
456,073 845,164 586,011 1,164,678 743,654 968,524 1,098,070 128,466
(3,437) - - (4,023) (7,699) - (3,348) -
- (9,091) (1,253) - (6,502) (7,865) (16,724) (20,009)
(1,155) (24,319) (11,140) (17,911) (6,087) (11,868) (21,157) (1,198)
529,267 1,432,918 777,200 805,436 245,382 602,434 317,226 61,004
980,748 2,244,672 1,350,818 1,948,180 968,748 1,551,225 1,374,067 168,263
1,130,576 2,782,161 1,521,756 2,166,401 949,852 1,633,343 1,285,570 132,106
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
42,427 141,648 156,415 219,017 81,706 259,844 752,892 9,037
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 1,173,003 $ 2,923,809 $ 1,678,171 $ 2,385,418 $ 1,031,558 $ 1,893,187 $ 2,038,462 $ 141,143
=========== =========== =========== =========== =========== =========== =========== ==========
=========== =========== =========== =========== =========== =========== =========== ==========
$ 28.87 $ 21.47 $ 19.05 $ 20.11 $ 10.16 $ 18.12 $ 10.07 $ 9.20
=========== =========== =========== =========== =========== =========== =========== ==========
40,631 136,181 88,093 118,618 101,531 104,481 202,429 15,342
=========== =========== =========== =========== =========== =========== =========== ==========
=========== =========== =========== =========== =========== =========== =========== ==========
Van Eck
Emerging
Markets
Fund
- ----------
$ 602,604
602,604
-
==========
$ 602,604
==========
- ----------
- ----------
- ----------
==========
==========
Van Eck
Emerging
Markets
Fund
- ----------
$ -
-
4,969
4,969
(4,969)
(28,502)
162,746
134,244
- ----------
$ 129,274
==========
- ----------
- ----------
- ----------
==========
Van Eck
Emerging
Markets
Fund
- ----------
$ (4,969)
134,244
129,274
80,794
-
-
(2,377)
(6,562)
71,854
201,129
- ----------
401,475
- ----------
==========
$ 602,604
==========
$ 9.09
==========
66,293
==========
Van Eck
Emerging
Markets
Fund
- ----------
$ (2,674)
(109,753)
(112,427)
348,583
-
(3,769)
(4,392)
156,590
497,012
384,585
- ----------
16,890
- ----------
$ 401,475
==========
==========
$ 7.12
==========
56,387
==========
==========
</TABLE>
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
September 30, 1999 -- 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 86% of the outstanding common stock of CNA as of
September 30, 1999.
VFL sells a wide range of life insurance products, including the Flexible
Premium Deferred Annuity Contract ("Contract"). Under the terms of the Contract,
contractholders select where the net purchase payments of the Contract are
invested. The contractholder may choose to invest in either the Variable
Account, the Guaranteed Interest Option Separate Account ("GIO Account") or both
the Variable Account and the GIO Account.
The Variable Account currently offers 23 subaccounts each of which invests
in shares of corresponding funds (Funds), in which the contractholders bear all
of the investment risk. Each Fund is either an open-end diversified management
investment company or a separate investment portfolio of such a company and is
managed by an investment advisor ("Investment Advisor") which is registered with
the Securities and Exchange Commission. The Investment Advisors and subaccounts
are identified here.
- - ------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
- - ------------------------------------------------------------
FEDERATED ADVISERS:
Federated Prime Money Fund II
Federated Utility Fund II
Federated High Income Bond Fund II
FIDELITY MANAGEMENT & RESEARCH COMPANY:
Fidelity Variable Insurance Products Fund Equity-Income
Portfolio ("Fidelity Equity-Income Portfolio")
Fidelity Variable Insurance Products Fund II Asset
Manager Portfolio ("Fidelity Asset Manager Portfolio")
Fidelity Variable Insurance Products Fund II Index 500
Portfolio ("Fidelity Index 500 Portfolio")
Fidelity Variable Insurance Products Fund II Contrafund
Portfolio ("Fidelity Contrafund Portfolio")
- - ------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
- - ------------------------------------------------------------
FRED ALGER MANAGEMENT, INC.:
The Alger American Small Capitalization Portfolio
The Alger American Growth Portfolio
The Alger American MidCap Growth Portfolio
JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen International Growth
Janus Aspen Worldwide Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
MASSACHUSETTS FINANCIAL SERVICES COMPANY:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS Limited Maturity Series (closed to new investments)
MFS Total Return Series
SOCIETE GENERALE ASSET MANAGEMENT CORP.:
SoGen Overseas Variable Fund VAN ECK ASSOCIATES CORPORATION:
Van Eck Worldwide Hard Assets Fund
Van Eck Emerging Markets Fund
- - ------------------------------------------------------------------------------
8
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
September 30, 1999 -- UNAUDITED
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
The GIO Account is also a separate account of VFL. 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 GIO
Account value or benefits relating thereto.
The assets of the GIO Account and the Variable Account are held separately
from other VFL assets and from the General Account of VFL. The contractholder
(before the maturity date, while the contractholder is still living or the
Contract is in force) may transfer all or part of any subaccount value to
another subaccount(s) or to the GIO Account, or transfer all or part of the GIO
Account value to any subaccounts. The MFS Limited Maturity Series subaccount is
no longer available for new allocations as of May 1, 1999. The GIO Account,
however, unlike the Variable Account, is not registered as an investment company
under the 1940 Act. Separate financial statements are not prepared for the GIO
Account and the accompanying financial statements do not reflect amounts
invested in the GIO Account.
- - ------------------------------------------------------------------------------
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 market value based on quoted market
prices. Changes in the difference between market value and cost are reflected as
net unrealized gains (losses) in the accompanying financial statements.
INVESTMENT INCOME -- Investment income consists of dividends declared by
the Funds and are recognized on the date of record.
REALIZED GAINS AND LOSSES -- Realized investment gains and losses in the
Variable Account represent the difference between the proceeds from sales of
shares of the Funds held by the subaccount and the cost of such shares, which
are determined using the average cost method.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to contractholders generally
upon distribution. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of Variable Account's management, these statements include all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position, results of operations and
changes in net assets in the accompanying financial statements.
- - ------------------------------------------------------------------------------
9
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
September 30, 1999 -- UNAUDITED
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE 3. CHARGES AND DEDUCTIONS
- - ------------------------------------------------------------------------------
VFL deducts a daily charge from the assets of the Variable Account to
compensate it for various product expense risks that it assumes under the
Contract. The daily charge is equal to an annual rate of 1.40% of the net assets
of the subaccount.
An annual administration fee of $30 is also deducted from the subaccounts
on each Contract if the contract value is below $50,000. This fee is to cover a
portion of VFL's administrative expenses related to the contracts.
VFL permits 12 free transfers among and between the subaccounts within the
Variable Account (four of which can be applied to the GIO Account) per contract
year without an assessment of a fee. For each additional transfer, VFL charges
$25 at the time each such transfer is processed. The fee is deducted from the
amount being transferred.
- --------------------------------------------------------------------------------
NOTE 4. DIVERSIFICATION REQUIREMENTS
- - ------------------------------------------------------------------------------
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable 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
if each of the Funds that the Variable Account participates in, that the mutual
Funds satisfy the diversification requirement of the regulations.
- - ------------------------------------------------------------------------------
10
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
September 30, 1999 -- UNAUDITED
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE 5. MANAGEMENT'S DISCUSSION OF YEAR 2000 IMPACT ON VARIABLE ACCOUNT
- - ------------------------------------------------------------------------------
The widespread use of computer programs, both in the United States and
internationally, that rely on two digit date fields to perform computations and
decision making functions may cause computer systems to malfunction when
processing information involving dates beginning in 1999. Such malfunctions
could lead to business delays and disruptions. The Variable Account does not
maintain any systems. Instead, it relies on the systems of CNA, third party
vendors and other business partners. CNA, on behalf of The Variable Account, has
a plan under which it reviews periodically the progress that these parties are
making on this issue. As of December 1, 1998, CNA had certified internally as
Year 2000-ready all of the internal systems used by Separate Account. However,
as business conditions change, CNA may respond by revising previous Year 2000
strategies or solutions affecting specific systems. In limited cases, a system
that was to have been replaced, instead, may be renovated to become Year 2000
ready prior to January 1, 2000. The Variable Account does not believe these
changes will have a material impact on the Variable Account.
CNA has also received statements of Year 2000 compliance from certain key
business partners. Separate Account management believes that the systems on
which it relies does not have any significant remaining exposure to the Year
2000 issue and, therefore The Variable Account does not have a material exposure
to the Year 2000 issue. However, due to the interdependent nature of computer
systems, there may be an adverse impact on Separate Account if its business
partners fail to address the Year 2000 issue successfully. To mitigate this
impact, if any, CNA on behalf of itself and Separate Account is communicating
with its business partners to coordinate Year 2000 conversion. In addition, CNA
has developed business resumption plans to ensure that it and The Variable
Account are able to continue critical processes through other means in the event
that it becomes necessary to do so. Formal strategies have been developed to
include appropriate recovery processes and use of alternative vendors.
Based on its current assessment, CNA estimates that the total cost to
replace and upgrade its systems to accommodate Year 2000 processing will be
approximately $70 million. As of September 30th, 1999, CNA has spent
approximately $60 million on Year 2000 readiness matter.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- - ------------------------------------------------------------------------------
To the Contractholders of Valley Forge Life Insurance Company Variable Annuity
Separate Account and the Board of Directors of Valley Forge Life Insurance
Company:
We have audited the accompanying statements of assets and liabilities of
the subaccounts of Valley Forge Life Insurance Company Variable Annuity Separate
Account (the "Account") as of December 31, 1998 and 1997, and the related
statements of operations and changes in net assets for the year ended December
31, 1998 and the period from inception through December 31, 1997. The
subaccounts that collectively comprise the Account are the Federated Prime Money
Fund II, Federated Utility Fund II, Federated High Income Bond Fund II, Fidelity
Variable Insurance Products Fund Equity-Income Portfolio, Fidelity Variable
Insurance Products Fund II Asset Manager Portfolio, Fidelity Variable Insurance
Products Fund II Index 500 Portfolio, Fidelity Variable Insurance Products Fund
II Contrafund Portfolio, The Alger American Fund Small Capitalization Portfolio,
The Alger American Growth Portfolio, The Alger American MidCap Growth Portfolio,
MFS Emerging Growth Series, MFS Research Series, MFS Growth With Income Series,
MFS Limited Maturity Series, MFS Total Return Series, SoGen Overseas Variable
Fund, Van Eck Worldwide Hard Assets Fund and Van Eck Emerging Markets Fund.
These financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998 and 1997. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the subaccounts that comprise the
Account as of December 31, 1998 and 1997, the results of their operations and
the changes in their net assets for the year ended December 31, 1998 and the
period from inception through December 31, 1997, in conformity with generally
accepted accounting principles.
Chicago, Illinois
February 23, 1999
7
STATEMENTS OF ASSETS AND LIABILITIES
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1998 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value: $5,562,204 $1,693,662 $3,166,765 $4,264,468 $2,258,023 $10,689,980 $3,710,438
---------- ---------- ---------- ---------- ---------- ----------- ----------
TOTAL ASSETS 5,562,204 1,693,662 3,166,765 4,264,468 2,258,023 10,689,980 3,710,438
---------- ---------- ---------- ---------- ---------- ----------- ----------
LIABILITIES - - - - - - -
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,562,204 $1,693,662 $3,166,765 $4,264,468 $2,258,023 $10,689,980 $3,710,438
=================================================================================================================================
</TABLE>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1997 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value: $ 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 - - - - - - -
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 861,084 $ 50,683 $ 190,479 $ 495,969 $ 267,366 $ 562,885 $ 329,066
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements
8
STATEMENTS OF ASSETS AND LIABILITIES
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY
DECEMBER 31, 1998 PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES
---------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value: $1,601,255 $5,444,900 $1,173,004 $2,923,811 $1,678,171 $2,385,418 $1,031,558
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 1,601,255 5,444,900 1,173,004 2,923,811 1,678,171 2,385,418 1,031,558
---------- ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES - - - - - - -
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,601,255 $5,444,900 $1,173,004 $2,923,811 $1,678,171 $2,385,418 $1,031,558
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
MFS SOGEN WORLDWIDE VAN ECK
TOTAL OVERSEAS HARD EMERGING
RETURN VARIABLE ASSETS MARKET
DECEMBER 31, 1998 SERIES FUND FUND FUND
----------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value: $1,893,187 $2,038,462 $141,143 $401,475
---------- ---------- -------- ---------
TOTAL ASSETS 1,893,187 2,038,462 141,143 401,475
---------- ---------- -------- --------
LIABILITIES - - - -
- - ----------------------------------------------------------------------------------------
NET ASSETS $1,893,187 $2,038,462 $141,143 $401,475
==========================================================================================
</TABLE>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY
DECEMBER 31, 1997 PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES
---------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value: 195,731
$ $ 249,383 $ 42,427 $ 141,648 $ 156,415 $ 219,017 $ 81,706
TOTAL ASSETS ---------- ---------- ---------- ---------- ---------- ---------- ----------
195,731 249,383 42,427 141,648 156,415 219,017 81,706
LIABILITIES ---------- ---------- ---------- ---------- ---------- ---------- ----------
- - ------------------------------------ - - - - - - -
NET ASSETS ---------------------------------------------------------------------------------------------
$ 195,731 $ 249,383 $ 42,427 $ 141,648 $ 156,415 $ 219,017 $ 81,706
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
MFS SOGEN WORLDWIDE VAN ECK
TOTAL OVERSEAS HARD EMERGING
RETURN VARIABLE ASSETS MARKET
DECEMBER 31, 1997 SERIES FUND FUND FUND
-----------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value: $ 259,844 $ 752,892 $ 9,037 $16,890
---------- ---------- -------- --------
TOTAL ASSETS 259,844 752,892 9,037 16,890
---------- ---------- -------- --------
LIABILITIES - - - -
-------------------------------------------------------
NET ASSETS $ 259,844 $ 752,892 $ 9,037 $16,890
==============================================================================================
</TABLE>
See accompanying Notes to Financial Statements
9
STATEMENTS OF OPERATIONS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET FIDELITY FIDELITY
FOR THE YEAR ENDED PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1998 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $295,559 $ 11,976 $ 14,362 $ 37,197 $ 34,952 $ 53,264 $ 26,355
-------- -------- -------- -------- -------- ---------- --------
295,559 11,976 14,362 37,197 34,952 53,264 26,355
-------- -------- -------- -------- -------- ---------- --------
Expenses:
Mortality and expense risk
and administration charges 88,446 8,774 23,782 28,910 15,939 75,642 22,913
-------- -------- -------- -------- -------- ---------- --------
88,446 8,774 23,782 28,910 15,939 75,642 22,913
-------- -------- -------- -------- -------- ---------- --------
NET INVESTMENT INCOME
(LOSS) 207,113 3,202 (9,420) 8,287 19,013 (22,378) 3,442
-------- -------- -------- -------- -------- ---------- --------
Investment gains and (losses):
Net realized gains (losses) 634 26,859 (8,426) (6,499) (25,723) 153,627 34,709
Net unrealized gains
(losses) - 70,495 (18,378) 193,083 166,937 1,134,905 472,743
-------- -------- -------- -------- -------- ---------- --------
NET REALIZED AND
UNREALIZED INVESTMENT
GAINS (LOSSES) 634 97,354 (26,804) 186,584 141,214 1,288,532 507,452
- - ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $207,747 $100,556 $(36,224) $194,871 $160,227 $1,266,154 $510,894
========================================================================================================================
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, 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 and (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 NET
ASSETS RESULTING FROM
OPERATIONS $ 15,115 $ 4,207 $ 5,921 $ 22,656 $ 11,356 $ 27,310 $ 6,889
========================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
10
STATEMENT OF OPERATIONS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS MFS
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $128,450 $ 341,214 $ 25,115 $ 5,508 $ 7,886 - - $27,446
-------- ---------- -------- -------- -------- -------- -------- -------
128,450 341,214 25,115 5,508 7,886 - - 27,446
-------- ---------- -------- -------- -------- -------- -------- -------
Expenses:
Mortality and expense risk
and administration charges 12,751 33,774 6,729 16,497 9,361 $ 16,356 $ 7,862 14,613
-------- ---------- -------- -------- -------- -------- -------- -------
12,751 33,774 6,729 16,497 9,361 16,356 7,862 14,613
-------- ---------- -------- -------- -------- -------- -------- -------
NET INVESTMENT INCOME
(LOSS) 115,699 307,440 18,386 (10,989) (1,475) (16,356) (7,862) 12,833
-------- ---------- -------- -------- -------- -------- -------- -------
Investment gains and (losses):
Net realized gains (losses) (39,387) (39,007) (16,647) 40,933 10,492 40,525 11,121 20,622
Net unrealized gains
(losses) 41,796 805,569 148,089 507,545 161,921 194,052 (22,155) 48,663
-------- ---------- -------- -------- -------- -------- -------- -------
NET REALIZED AND
UNREALIZED INVESTMENT
GAINS (LOSSES) 2,409 766,562 131,442 548,478 172,413 234,577 (11,034) 69,285
- - ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $118,108 $1,074,002 $149,828 $537,489 $170,938 $218,221 $(18,896) $82,118
===================================================================================================================================
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 1-MAY-97 21-FEB-97
- - ----------------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividend income $ 51 - $ 89 - - $ 5,132 $ 3,140 -
-------- ---------- -------- -------- -------- -------- -------- -------
51 - 89 - - 5,132 3,140 -
-------- ---------- -------- -------- -------- -------- -------- -------
Expenses:
Mortality, expense risk and
administration charges 661 $ 621 199 $ 692 $ 969 792 470 $ 1,259
-------- ---------- -------- -------- -------- -------- -------- -------
661 621 199 692 969 792 470 1,259
-------- ---------- -------- -------- -------- -------- -------- -------
NET INVESTMENT INCOME
(LOSS) (610) (621) (110) (692) (969) 4,340 2,670 (1,259)
-------- ---------- -------- -------- -------- -------- -------- -------
Investment gains and (losses):
Net realized gains (losses) 5,548 732 1,490 122 3,145 2,986 1,202 5,264
Net unrealized gains
(losses) (13,637) (8,997) (1,453) 3,958 5,519 5,310 (1,986) 11,648
-------- ---------- -------- -------- -------- -------- -------- -------
NET REALIZED AND
UNREALIZED INVESTMENT
GAINS (LOSSES) (8,089) (8,265) 37 4,080 8,664 8,296 (784) 16,912
- - ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ (8,699) $ (8,886) $ (73) $ 3,388 $ 7,695 $ 12,636 $ 1,886 $15,653
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
SOGEN WORLDWIDE VAN ECK
OVERSEAS HARD EMERGING
VARIABLE ASSETS MARKETS
FUND FUND FUND
---------------------- ---------
<S> <C> <C> <C>
Investment income:
Dividend income - $ 5,831 $ 783
-------- -------- ---------
- 5,831 783
-------- -------- ---------
Expenses:
Mortality and expense risk
and administration charges $ 24,005 1,223 3,457
-------- -------- ---------
24,005 1,223 3,457
-------- -------- ---------
NET INVESTMENT INCOME
(LOSS) (24,005) 4,608 (2,674)
-------- -------- ---------
Investment gains and (losses):
Net realized gains (losses) (62) (20,683) (49,149)
Net unrealized gains
(losses) (64,430) (20,082) (60,604)
-------- -------- ---------
NET REALIZED AND
UNREALIZED INVESTMENT
GAINS (LOSSES) (64,492) (40,765) (109,753)
- - ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $(88,497) $(36,157) $(112,427)
===========================================================================
FOR THE PERIOD FROM INCEPTION
TO
DECEMBER 31, 1997 3-FEB-97 3-APR-97
- - ---------------------------------------------------------------------------
Investment income:
Dividend income - - -
-------- -------- ---------
- - -
-------- -------- ---------
Expenses:
Mortality, expense risk and
administration charges $ 8,364 $ 20 $ 94
-------- -------- ---------
8,364 20 94
-------- -------- ---------
NET INVESTMENT INCOME
(LOSS) (8,364) (20) (94)
-------- -------- ---------
Investment gains and (losses):
Net realized gains (losses) 7,592 11 (404)
Net unrealized gains
(losses) (34,846) (189) (4,665)
-------- -------- ---------
NET REALIZED AND
UNREALIZED INVESTMENT
GAINS (LOSSES) (27,254) (178) (5,069)
- - ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $(35,618) $ (198) $ (5,163)
===========================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED EQUITY- ASSET FIDELITY FIDELITY
FOR THE PERIOD ENDED PRIME MONEY UTILITY HIGH INCOME INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1998 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 207,113 $ 3,202 $ (9,420) $ 8,287 $ 19,013 $ (22,378) $ 3,442
Net realized and unrealized
gains (losses) 634 97,354 (26,804) 186,584 141,214 1,288,532 507,452
------------ ---------- ---------- ---------- ---------- ----------- ----------
Change in net assets
resulting from operations 207,747 100,556 (36,224) 194,871 160,227 1,266,154 510,894
------------ ---------- ---------- ---------- ---------- ----------- ----------
From capital transactions:
Net premiums/deposits 24,848,283 1,307,253 2,301,701 2,167,250 1,237,984 6,238,184 1,114,162
Death benefits (15,275) (19,978) (13,846) (7,421) - - (10,449)
Surrenders (198,856) (15,885) (12,264) (37,904) (1,620) (50,773) (23,821)
Withdrawals (112,539) (77,318) (93,235) (31,134) (22,890) (110,964) (23,659)
Transfers into (out of)
subaccounts, net -- Note 1 (20,028,240) 348,351 830,154 1,482,837 616,956 2,784,494 1,814,245
------------ ---------- ---------- ---------- ---------- ----------- ----------
Change in net assets
resulting from capital
transactions 4,493,373 1,542,423 3,012,510 3,573,628 1,830,430 8,860,941 2,870,478
------------ ---------- ---------- ---------- ---------- ----------- ----------
Increase in net assets 4,701,120 1,642,979 2,976,286 3,768,499 1,990,657 10,127,095 3,381,372
Net assets at beginning of
period 861,084 50,683 190,479 495,969 267,366 562,885 329,066
------------ ---------- ---------- ---------- ---------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 5,562,204 $1,693,662 $3,166,765 $4,264,468 $2,258,023 $10,689,980 $3,710,438
- - --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 1.00 $ 15.27 $ 10.92 $ 25.42 $ 18.16 $ 141.25 $ 24.44
================================================================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 5,562,204 110,914 289,997 167,760 124,340 75,681 151,818
================================================================================================================================
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
- - --------------------------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ 15,115 $ (68) $ 545 $ (1,842) $ (1,397) $ (1,805) $ (917)
Net realized and unrealized
gains (losses) - 4,275 5,376 24,498 12,753 29,115 7,806
------------ ---------- ---------- ---------- ---------- ----------- ----------
Change in net assets
resulting from operations 15,115 4,207 5,921 22,656 11,356 27,310 6,889
------------ ---------- ---------- ---------- ---------- ----------- ----------
From capital transactions:
Net premiums/deposits 3,534,379 22,534 116,421 427,889 186,728 444,865 146,548
Withdrawals (6,610) - (507) (701) (12) (704) -
Transfers into (out of)
subaccounts, net -- Note 1 (2,681,800) 23,942 68,644 46,125 69,294 91,414 175,629
------------ ---------- ---------- ---------- ---------- ----------- ----------
Change in net assets
resulting from capital
transactions 845,969 46,476 184,558 473,313 256,010 535,575 322,177
------------ ---------- ---------- ---------- ---------- ----------- ----------
Increase in net assets 861,084 50,683 190,479 495,969 267,366 562,885 329,066
Net assets at beginning of
period - - - - - - -
------------ ---------- ---------- ---------- ---------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 861,084 $ 50,683 $ 190,479 $ 495,969 $ 267,366 $ 562,885 $ 329,066
- - --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 1.00 $ 14.29 $ 10.95 $ 24.28 $ 18.01 $ 114.39 $ 19.94
================================================================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 861,084 3,547 17,395 20,427 14,845 4,921 16,503
================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
12
STATEMENTS OF CHANGES IN NET ASSETS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE THE
ALGER THE ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH MFS
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED
FOR THE PERIOD ENDED CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY
DECEMBER 31, 1998 PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 115,699 $ 307,440 $ 18,386 $ (10,989) $ (1,475) $ (16,356) $ (7,862)
Net realized and unrealized
gains (losses) 2,409 766,562 131,442 548,478 172,413 234,577 (11,034)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net assets
resulting from operations 118,108 1,074,002 149,828 537,489 170,938 218,221 (18,896)
----------- ---------- ---------- ---------- ---------- ---------- ----------
From capital transactions:
Net premiums/deposits 1,012,659 2,385,652 456,073 845,164 586,011 1,164,678 743,654
Death benefits (3,193) - (3,436) - - (4,023) (7,699)
Surrenders (27,136) (13,467) - (9,089) (1,253) - (6,502)
Withdrawals (16,711) (33,198) (1,155) (24,319) (11,140) (17,911) (6,087)
Transfers into (out of)
subaccounts, net -- Note 1 321,797 1,782,528 529,267 1,432,918 777,200 805,436 245,382
----------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net assets
resulting from capital
transactions 1,287,416 4,121,515 980,749 2,244,674 1,350,818 1,948,180 968,748
----------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net assets 1,405,524 5,195,517 1,130,577 2,782,163 1,521,756 2,166,401 949,852
Net assets at beginning of
period 195,731 249,383 42,427 141,648 156,415 219,017 81,706
----------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 1,601,255 $5,444,900 $1,173,004 $2,923,811 $1,678,171 $2,385,418 $1,031,558
- - --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 43.97 $ 53.22 $ 28.87 $ 21.47 $ 19.05 $ 20.11 $ 10.16
==========================================================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 36,417 102,309 40,631 136,181 88,093 118,618 101,531
==========================================================================================================================
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 1-MAY-97
- - --------------------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ (610) $ (621) $ (110) $ (692) $ (969) $ 4,340 $ 2,670
Net realized and unrealized
gains (losses) (8,089) (8,265) 37 4,080 8,664 8,296 (784)
----------- ---------- ---------- ---------- ---------- --------- ---------
Change in net assets
resulting from operations (8,699) (8,886) (73) 3,388 7,695 12,636 1,886
----------- ---------- ---------- ---------- ---------- --------- ---------
From capital transactions:
Net premiums/deposits 186,908 203,646 38,097 99,654 121,533 124,921 75,938
Withdrawals - - - - - - (960)
Transfers into (out of)
subaccounts, net -- Note 1 17,522 54,623 4,403 38,606 27,187 81,460 4,842
----------- ---------- ---------- ---------- ---------- --------- ---------
Change in net assets
resulting from capital
transactions 204,430 258,269 42,500 138,260 148,720 206,381 79,820
----------- ---------- ---------- ---------- ---------- --------- ---------
Increase in net assets 195,731 249,383 42,427 141,648 156,415 219,017 81,706
Net assets at beginning of
period - - - - - - -
----------- ---------- ---------- ---------- ---------- --------- ---------
NET ASSETS AT END OF PERIOD $ 195,731 $ 249,383 $ 42,427 $ 141,648 $ 156,415 $ 219,017 $ 81,706
- - --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 43.75 $ 42.76 $ 24.18 $ 16.14 $ 15.79 $ 16.44 $ 10.01
==========================================================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 4,474 5,832 1,755 8,776 9,906 13,322 8,162
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
MFS SOGEN WORLDWIDE VAN ECK
TOTAL OVERSEAS HARD EMERGING
FOR THE PERIOD ENDED RETURN VARIABLE ASSETS MARKETS
DECEMBER 31, 1998 SERIES FUND FUND FUND
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 12,833 $ (24,005) $ 4,608 $ (2,674)
Net realized and unrealized
gains (losses) 69,285 (64,492) (40,765) (109,753)
---------- ---------- -------- ---------
Change in net assets
resulting from operations 82,118 (88,497) (36,157) (112,427)
---------- ---------- -------- ---------
From capital transactions:
Net premiums/deposits 968,524 1,098,070 128,466 348,583
Death benefits - (3,348) - -
Surrenders (7,865) (16,724) (20,009) (3,769)
Withdrawals (11,868) (21,157) (1,198) (4,392)
Transfers into (out of)
subaccounts, net -- Note 1 602,434 317,226 61,004 156,590
---------- ---------- -------- ---------
Change in net assets
resulting from capital
transactions 1,551,225 1,374,067 168,263 497,012
---------- ---------- -------- ---------
Increase in net assets 1,633,343 1,285,570 132,106 384,585
Net assets at beginning of
period 259,844 752,892 9,037 16,890
---------- ---------- -------- ---------
NET ASSETS AT END OF PERIOD $1,893,187 $2,038,462 $141,143 $ 401,475
- - ----------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 18.12 $ 10.07 $ 9.20 $ 7.12
==================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 104,481 202,429 15,342 56,387
==================================================================================
FOR THE PERIOD FROM INCEPTION
TO
DECEMBER 31, 1997 21-FEB-97 3-FEB-97 3-APR-97
- - ----------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ (1,259) $ (8,364) $ (20) $ (94)
Net realized and unrealized
gains (losses) 16,912 (27,254) (178) (5,069)
---------- ---------- -------- ---------
Change in net assets
resulting from operations 15,653 (35,618) (198) (5,163)
---------- ---------- -------- ---------
From capital transactions:
Net premiums/deposits 186,723 819,873 4,326 19,999
Withdrawals (786) (959) - -
Transfers into (out of)
subaccounts, net -- Note 1 58,254 (30,404) 4,909 2,054
---------- ---------- -------- ---------
Change in net assets
resulting from capital
transactions 244,191 788,510 9,235 22,053
---------- ---------- -------- ---------
Increase in net assets 259,844 752,892 9,037 16,890
Net assets at beginning of
period - - - -
---------- ---------- -------- ---------
NET ASSETS AT END OF PERIOD $ 259,844 $ 752,892 $ 9,037
- - ----------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END
OF PERIOD $ 16.63 $ 9.77 $ 15.72 $ 11.00
==================================================================================
UNITS OUTSTANDING AT END OF
PERIOD 15,625 77,062 575 1,536
==================================================================================
</TABLE>
See accompanying Notes to Financial Statements
13
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
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 85% of the outstanding common stock of CNA.
VFL sells a wide range of life insurance products, including the Flexible
Premium Deferred Annuity Contract ("Contract"). Under the terms of the Contract,
contractholders select where the net purchase payments of the Contract are
invested. The contractholder may choose to invest in either the Variable
Account, the Guaranteed Interest Option Separate Account ("GIO Account") or both
the Variable Account and the GIO Account.
The Variable Account currently offers 18 subaccounts each of which invests
in shares of corresponding funds ("Funds"), in which the contractholders bear
all of the investment risk. Each Fund is either an open-end diversified
management investment company or a separate investment portfolio of such a
company and is managed by a registered investment advisor ("Investment
Advisor"). The Investment Advisors and subaccounts are identified in Notes 3 and
4.
The GIO Account is also a separate account of VFL. 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 GIO
Account value or benefits relating thereto.
The assets of the GIO Account and the Variable Account are held separately
from other VFL assets and from the general account of VFL. The contractholder
(before the maturity date, while the contractholder is still living or the
Contract is in force) may transfer all or part of any subaccount value to
another subaccount(s) or to the GIO Account, or transfer all or part of GIO
Account value to any subaccounts. The GIO Account, however, unlike the Variable
Account, is not registered as an investment company under the 1940 Act. Separate
financial statements are not prepared for the GIO Account and the accompanying
financial statements do not reflect amounts invested in the GIO Account.
14
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
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 market value based on quoted market
prices. Changes in the difference between market value and cost are reflected as
net unrealized gains (losses) in the accompanying financial statements.
INVESTMENT INCOME -- Investment income consists of dividends declared by
the Funds and are recognized on the date of record.
REALIZED INVESTMENT GAINS AND LOSSES -- Realized investment gains and
losses in the Variable Account represent the difference between the proceeds
from sales of shares of the Funds held by the subaccount and the cost of such
shares, which is determined using the average cost method.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to contractholders generally
upon distribution. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of Variable Accounts' management, these statements include all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position, results of operations and
changes in net assets in the accompanying financial statements.
15
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE 3. INVESTMENTS
- - ------------------------------------------------------------------------------
The investments in the Funds/subaccounts of the Variable Account at
December 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
INVESTMENT ADVISOR MARKET
FUND/SUBACCOUNT SHARES COST VALUE
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERATED ADVISERS:
FEDERATED PRIME MONEY FUND II
December 31, 1998 5,562,204 $5,562,204 $ 5,562,204
December 31, 1997 861,084 $ 861,084 $ 861,084
FEDERATED UTILITY FUND II
December 31, 1998 110,914 $1,618,977 $ 1,693,662
December 31, 1997 3,547 $ 46,493 $ 50,683
FEDERATED HIGH INCOME BOND FUND II
December 31, 1998 289,997 $3,181,228 $ 3,166,765
December 31, 1997 17,395 $ 186,564 $ 190,479
FIDELITY MANAGEMENT & RESEARCH COMPANY:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND EQUITY-INCOME PORTFOLIO
("FIDELITY EQUITY-INCOME PORTFOLIO")
December 31, 1998 167,760 $4,065,113 $ 4,264,468
December 31, 1997 20,427 $ 489,697 $ 495,969
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ASSET MANAGER PORTFOLIO
("FIDELITY ASSET MANAGER PORTFOLIO")
December 31, 1998 124,340 $2,089,493 $ 2,258,023
December 31, 1997 14,845 $ 265,773 $ 267,366
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II INDEX 500 PORTFOLIO
("FIDELITY INDEX 500 PORTFOLIO")
December 31, 1998 75,681 $9,535,262 $10,689,980
December 31, 1997 4,921 $ 543,072 $ 562,885
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II CONTRAFUND PORTFOLIO
("FIDELITY CONTRAFUND PORTFOLIO")
December 31, 1998 151,818 $3,233,621 $ 3,710,438
December 31, 1997 16,503 $ 324,992 $ 329,066
FRED ALGER MANAGEMENT, INC.:
THE ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
December 31, 1998 36,417 $1,573,096 $ 1,601,255
December 31, 1997 4,474 $ 209,368 $ 195,731
THE ALGER AMERICAN GROWTH PORTFOLIO
December 31, 1998 102,309 $4,648,328 $ 5,444,900
December 31, 1997 5,832 $ 258,380 $ 249,383
THE ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
December 31, 1998 40,631 $1,026,368 $ 1,173,004
December 31, 1997 1,755 $ 43,880 $ 42,427
</TABLE>
16
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE 3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
INVESTMENT ADVISOR MARKET
FUND/SUBACCOUNT SHARES COST VALUE
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS FINANCIAL SERVICES COMPANY:
MFS EMERGING GROWTH SERIES
December 31, 1998 136,181 $2,412,308 $ 2,923,811
December 31, 1997 8,776 $ 137,690 $ 141,648
MFS RESEARCH SERIES
December 31, 1998 88,093 $1,510,731 $ 1,678,171
December 31, 1997 9,906 $ 150,896 $ 156,415
MFS GROWTH WITH INCOME SERIES
December 31, 1998 118,618 $2,186,056 $ 2,385,418
December 31, 1997 13,322 $ 213,707 $ 219,017
MFS LIMITED MATURITY SERIES
December 31, 1998 101,531 $1,055,699 $ 1,031,558
December 31, 1997 8,162 $ 83,692 $ 81,706
MFS TOTAL RETURN SERIES
December 31, 1998 104,481 $1,832,876 $ 1,893,187
December 31, 1997 15,625 $ 248,196 $ 259,844
SOCIETE GENERALE ASSETS MANAGEMENT CORP.:
SOGEN OVERSEAS VARIABLE FUND
December 31, 1998 202,429 $2,137,738 $ 2,038,462
December 31, 1997 77,062 $ 787,738 $ 752,892
VAN ECK ASSOCIATES CORPORATION:
VAN ECK WORLDWIDE HARD ASSETS FUND
December 31, 1998 15,342 $ 161,414 $ 141,143
December 31, 1997 575 $ 9,226 $ 9,037
VAN ECK EMERGING MARKETS FUND
December 31, 1998 56,387 $ 466,744 $ 401,475
December 31, 1997 1,536 $ 21,555 $ 16,890
</TABLE>
17
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE 4. INVESTMENT TRANSACTIONS
- - ------------------------------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of shares of Funds
in the subaccounts for the year ended December 31, 1998 and from inception
through 1997 are as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
INVESTMENT ADVISOR 1998 1997
FUND/SUBACCOUNT PURCHASES SALES PURCHASES SALES
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERATED ADVISERS:
Federated Prime Money Fund II $37,915,138 $33,510,211 $3,550,031 $2,710,000
Federated Utility Fund II 2,109,966 576,317 131,884 85,557
Federated High Income Bond
Fund II 3,840,081 851,353 226,400 42,489
FIDELITY MANAGEMENT & RESEARCH COMPANY:
Fidelity Equity-Income
Portfolio 4,569,909 1,025,191 675,097 203,626
Fidelity Asset Manager
Portfolio 2,313,974 499,483 429,770 175,157
Fidelity Index 500 Portfolio 10,107,926 1,322,627 646,677 112,906
Fidelity Contrafund Portfolio 3,468,672 621,107 366,624 45,364
FRED ALGER MANAGEMENT, INC.:
The Alger American Small
Capitalization Portfolio 1,599,548 324,883 327,651 123,882
The Alger American Growth
Portfolio 4,889,796 802,055 391,931 134,284
The Alger American MidCap
Growth Portfolio 1,170,468 196,448 55,923 13,622
MASSACHUSETTS FINANCIAL SERVICES COMPANY:
MFS Emerging Growth Series 2,619,399 391,222 319,665 182,097
MFS Research Series 1,743,636 402,179 181,534 33,784
MFS Growth With Income Series 2,781,439 849,615 231,099 25,510
MFS Limited Maturity Series 1,655,554 694,668 135,099 55,749
MFS Total Return Series 2,062,990 526,378 466,510 223,577
SOCIETE GENERALE ASSETS MANAGEMENT CORP.:
SoGen Overseas Variable Fund 1,826,237 476,175 994,765 214,619
VAN ECK ASSOCIATES CORPORATION:
Van Eck Worldwide Hard Assets
Fund 212,775 45,735 10,106 892
Van Eck Emerging Markets Fund 623,134 129,579 26,885 4,925
</TABLE>
18
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
DECEMBER 31, 1998
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
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 equal to an annual rate of 1.25% of the net assets
of the subaccount.
An annual administration fee of $30 is also deducted from the subaccounts
on each Contract if the contract value is below $50,000. This fee covers a
portion of VFL's administrative expenses related to the contracts.
VFL deducts a daily administration charge from the assets of the
subaccounts on each Contract to compensate it for a portion of the expenses it
incurs in administering the contracts. The daily charge is equal to an annual
rate of 0.15% of the net assets of the subaccounts.
VFL permits 12 transfers among and between the subaccounts within the
Variable Account (four of which can be applied to the GIO Account) per contract
year without an assessment of a fee. For each additional transfer, VFL charges
$25 at the time each such transfer is processed. The fee is deducted from the
amount being transferred.
- - ------------------------------------------------------------------------------
NOTE 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 prospectuses of
each of the Funds that the Variable Account participates in, that the Funds
satisfy the diversification requirement of the regulations.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Valley Forge Life Insurance Company
We have audited the accompanying balance sheets of Valley Forge Life
Insurance Company (a wholly-owned subsidiary of Continental Assurance Company,
which is a wholly-owned subsidiary of Continental Casualty Company, a
wholly-owned subsidiary of CNA Financial Corporation, an affiliate of Loews
Corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Valley Forge Life Insurance Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 10, 1999
64
FINANCIAL STATEMENTS OF VALLEY FORGE LIFE INSURANCE COMPANY
The following financial statements are those of VFL and not those of the
separate account. They are included for the purpose of informing investors as to
the financial position and operations of VFL.
VALLEY FORGE LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands of dollars)
ASSETS:
Investments:
Fixed maturities available-for-sale (amortized cost:
$454,635 and $466,267)................................ $ 460,516 $ 471,707
Equity securities available-for-sale (cost: $981 and
$981)................................................. 2,218 2,260
Policy loans............................................ 74,150 66,971
Other invested assets................................... 485 433
Short-term investments.................................. 81,418 4,597
---------- ----------
TOTAL INVESTMENTS................................... 618,787 545,968
Cash...................................................... 3,750 24,565
Receivables:
Reinsurance............................................. 2,119,897 1,586,471
Premium and other insurance............................. 54,690 65,196
Less allowance for doubtful accounts.................... (26) (285)
Deferred acquisition costs................................ 111,963 95,354
Accrued investment income................................. 7,721 5,245
Receivables for securities sold........................... -- 744
Due from affiliates....................................... -- 35,999
Other..................................................... 902 228
Separate Account business................................. 73,745 8,941
- - ----------------------------------------------------------------------------------------
TOTAL ASSETS $2,991,429 $2,368,426
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Insurance reserves:
Future policy benefits.................................. $2,438,305 $1,906,899
Claims.................................................. 93,001 81,242
Policyholders' funds.................................... 42,746 39,928
Payables for securities purchased......................... 370 497
Federal income taxes payable.............................. 6,468 5,975
Deferred income taxes..................................... 6,213 4,098
Due to affiliates......................................... 1,946 --
Commissions and other payables............................ 64,815 104,586
Separate Account business................................. 73,745 8,941
---------- ----------
TOTAL LIABILITIES................................... 2,727,609 2,152,166
---------- ----------
Commitments and contingent liabilities -- Notes 8 and 10.... -- --
Stockholder's Equity
Common stock ($50 par value; Authorized-200,000 shares;
Issued-50,000 shares)................................... 2,500 2,500
Additional paid-in capital................................ 69,150 39,150
Retained earnings......................................... 187,683 170,230
Accumulated other comprehensive income.................... 4,487 4,380
---------- ----------
TOTAL STOCKHOLDER'S EQUITY.......................... 263,820 216,260
- - ----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,991,429 $2,368,426
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
65
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Revenues:
Premiums.................................................. $315,599 $332,172 $325,486
Net investment income..................................... 35,539 29,913 29,312
Realized investment gains................................. 16,967 4,200 4,771
Other..................................................... 7,959 6,872 8,217
-------- -------- --------
376,064 373,157 367,786
-------- -------- --------
Benefits and expenses:
Insurance claims and policyholders' benefits.............. 301,900 307,207 304,840
Amortization of deferred acquisition costs................ 11,807 11,818 1,177
Other operating expenses.................................. 35,813 33,505 36,022
-------- -------- --------
349,520 352,530 342,039
-------- -------- --------
Income before income tax................................ 26,544 20,627 25,747
Income tax expense.......................................... 9,091 7,297 9,028
================================================================================================
NET INCOME $ 17,453 $ 13,330 $ 16,719
================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
66
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS INCOME EQUITY
- - -----------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995....... $2,500 $39,150 $140,181 $ 13,641 $195,472
Comprehensive income:
Net income..................... -- -- $ 16,719 16,719 16,719
Other comprehensive loss....... -- -- (12,651) -- (12,651) (12,651)
--------
Total comprehensive
income................... $ 4,068
========
BALANCE, DECEMBER 31, 1996....... 2,500 39,150 156,900 990 199,540
Comprehensive income:
Net income..................... -- -- $ 13,330 13,330 -- 13,330
Other comprehensive income..... -- -- 3,390 -- 3,390 3,390
--------
Total comprehensive
income................... $ 16,720
========
BALANCE, DECEMBER 31, 1997....... 2,500 39,150 170,230 4,380 216,260
Capital contribution from
Assurance...................... -- 30,000 -- -- 30,000
Comprehensive income:
Net income..................... -- -- $ 17,453 17,453 -- 17,453
Other comprehensive income..... -- -- 107 -- 107 107
--------
Total comprehensive
income................... $ 17,560
=================================================================================================================
BALANCE, DECEMBER 31, 1998 $2,500 $69,150 $187,683 $ 4,487 $263,820
=================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
67
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 17,453 $ 13,330 $ 16,719
Adjustments to reconcile net income to net cash flows from
operating activities:
Deferred income tax provision............................. 2,115 2,581 3,309
Realized investment gains................................. (16,967) (4,200) (4,771)
Amortization of bond discount............................. (4,821) (2,438) (4,922)
Changes in:
Insurance receivables, net.............................. (522,920) (269,787) (254,549)
Deferred acquisition costs.............................. (16,746) (20,765) (23,989)
Accrued investment income............................... (2,476) (300) (258)
Due to/from affiliates.................................. 37,945 31,500 (62,563)
Federal income taxes payable............................ 493 2,151 4,399
Insurance reserves...................................... 541,560 221,252 198,239
Commissions and other payables and other................ (40,861) 47,212 (8,376)
--------- --------- ---------
TOTAL ADJUSTMENTS................................... (22,678) 7,206 (153,481)
--------- --------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES............ (5,225) 20,536 (136,762)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed maturities............................... (744,431) (464,361) (535,263)
Proceeds from fixed maturities:
Sales..................................................... 741,277 278,459 530,828
Maturities, calls and redemptions......................... 33,635 45,442 36,726
Purchases of equity securities.............................. (5) (1,334) (728)
Proceeds from sale of equity securities..................... 5 2,447 1,306
Change in short-term investments............................ (73,233) 39,301 (2,851)
Change in policy loans...................................... (7,179) (6,704) (4,259)
Change in other invested assets............................. (82) (580) --
Other, net.................................................. -- -- 72
--------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES............ (50,013) (107,330) 25,831
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts for investment contracts credited to policyholder
accounts................................................ 30,007 111,478 98,091
Return of policyholder account balances on investment
contracts............................................... (25,584) (24,878) (4,504)
Capital contribution from Affiliate....................... 30,000 -- --
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES............ 34,423 86,600 93,587
--------- --------- ---------
NET CASH FLOWS...................................... (20,815) (194) (17,344)
Cash at beginning of period................................. 24,565 24,759 42,103
- - ---------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD....................................... $ 3,750 $ 24,565 $ 24,759
===================================================================================================
Supplemental disclosures of cash flow information:
Federal income taxes paid................................. $ 6,651 $ 2,488 $ 1,965
===================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
68
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Valley Forge Life Insurance Company (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 (CNAF). Loews Corporation owns approximately 85% of
the outstanding common stock of CNAF.
VFL markets and underwrites insurance products designed to satisfy the
life, health and retirement needs of individuals and groups. Products available
in individual policy form include annuities as well as term and universal life
insurance. Products available in group policy form include life, pension,
accident and health.
The operations, assets and liabilities of VFL and its parent, Assurance,
are managed on a combined basis. Pursuant to a Reinsurance Pooling Agreement,
amended July 1, 1996, VFL cedes all of its business, excluding its separate
account business, to its parent, Assurance. This business is then pooled with
the business of Assurance, which excludes Assurance's participating contracts
and separate account business, and 10% of the combined pool is assumed by VFL.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). Certain amounts applicable to
prior years have been reclassified to conform to classifications followed in
1998.
The preparation of financial statements in conformity with 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.
INSURANCE
Premium revenue--Revenues on universal life type contracts are comprised of
contract charges and fees which are recognized over the coverage period.
Accident and health insurance premiums are earned ratably over the terms of the
policies after provision for estimated adjustments on retrospectively rated
policies and deductions for ceded insurance. Other life insurance premiums are
recognized as revenue when due, after deductions for ceded insurance.
Future policy benefit reserves--Reserves for traditional life insurance
products (whole and term life products) are computed based upon the net level
premium method using actuarial assumptions as to interest rates, mortality,
morbidity, withdrawals and expenses. Actuarial assumptions include a margin for
adverse deviation and generally vary by plan, age at issue and policy duration.
Interest rates range from 3% to 9%, and mortality, morbidity and withdrawal
assumptions reflect VFL and industry experience prevailing at the time of issue.
Expense assumptions include the estimated effects of inflation and expenses
beyond the premium paying period. Reserves for universal life-type contracts are
69
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 1.--(CONTINUED)
equal to the account balances that accrue to the benefit of the policyholders.
Interest crediting rates ranged from 4.30% to 7.25% for the three years ended
December 31, 1998.
Claim reserves--Claim reserves include provisions for reported claims in
the course of settlement and estimates of unreported losses based upon past
experience.
Reinsurance--In addition to the Pooling Agreement with Assurance, VFL also
assumes and cedes insurance with other insurers and reinsurers and members of
various reinsurance pools and associations. VFL utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of risk
and minimize exposures on larger risks. The reinsurance coverages are tailored
to the specific risk characteristics of each product line with VFL's retained
amount varying by type of coverage. VFL's reinsurance includes coinsurance,
yearly renewable term and facultative programs. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim liability.
Deferred acquisition costs--Life acquisition costs are capitalized and
amortized based on assumptions consistent with those used for computing policy
benefit reserves. Acquisition costs on traditional life business are amortized
over the assumed premium paying periods. Universal life and annuity acquisition
costs are amortized in proportion to the present value of the estimated gross
profits over the products' assumed durations. To the extent that unrealized
gains or losses on available-for-sale securities would result in an adjustment
of deferred policy acquisition costs had those gains or losses actually been
realized, the related unamortized deferred policy acquisition costs are recorded
as an adjustment of the unrealized gains or losses included in stockholder's
equity.
INVESTMENTS
Valuation of investments--VFL classifies its fixed maturities and its
equity securities as available-for-sale, and as such, they are carried at fair
value. The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and accretion
are included in net investment income.
Policy loans are carried at unpaid balances. Short-term investments, which
have an original maturity of one year or less, are carried at amortized cost
that approximates market value. VFL has no real estate or mortgage loans.
VFL accounts for its derivative securities under the fair value method.
Under this method the derivative securities are recorded at fair value at the
reporting date and changes in fair value are reflected in realized investment
gains and losses. VFL's derivatives are made up of interest rate caps and
purchased options and are classified as other invested assets.
Investment gains and losses--All securities transactions are recorded on
the trade date. Realized investment gains and losses are determined on the basis
of the cost of the specific securities sold. Unrealized investment gains and
losses on fixed maturities and equity securities are reflected as part of
stockholder's equity, net of applicable deferred income taxes and deferred
acquisition costs. Investments are written down to estimated fair
70
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 1.--(CONTINUED)
values and losses are charged to income when a decline in value is considered to
be other than temporary.
Securities lending activities--VFL has a securities lending program were
securities are loaned to third parties, primarily major brokerage firms.
Borrowers of these securities must deposit 100% of the fair value of the
securities if the collateral is cash, or 102%, if the collateral is securities.
Cash deposits from these transactions are invested in short-term investments
(primarily commercial paper). VFL continues to receive the interest on the
loaned debt securities, as beneficial owner, and accordingly, loaned debt
securities are included within fixed maturity securities. VFL had no securities
on loan at December 31, 1998 or 1997.
Separate Account business--VFL writes certain variable annuity contracts
and universal life policies. The supporting assets and liabilities of these
contracts and policies are legally segregated and reflected as assets and
liabilities of Separate Account business. Substantially all assets of the
Separate Account business are carried at fair value. Separate Account
liabilities are principally obligations due to contractholders and are carried
at contract values.
INCOME TAXES
The provision for income taxes includes deferred taxes, resulting from
temporary differences between the financial statement and tax return basis of
assets and liabilities under the liability method. Temporary differences
primarily relate to insurance reserves, deferred acquisition costs, investment
valuation differences, and net unrealized investment gains/losses.
71
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 2. INVESTMENTS:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
- - -----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Fixed maturities:
Taxable bonds............................................. $27,150 $20,669 $21,597
Equity securities........................................... 72 72 59
Policy loans................................................ 4,760 4,264 3,669
Short-term investments...................................... 3,803 4,885 4,197
Other....................................................... 105 201 12
------- ------- -------
35,890 30,091 29,534
Investment expense.......................................... 351 178 222
- - -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $35,539 $29,913 $29,312
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF INVESTMENT GAINS (LOSSES)
- - ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- - ------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Realized investment gains (losses):
Fixed maturities.......................................... $16,907 $ 3,333 $ 4,123
Equity securities......................................... -- 1,021 578
Other..................................................... 60 (154) 70
------- ------- --------
16,967 4,200 4,771
Income tax expense.......................................... (5,938) (1,470) (1,670)
------- ------- --------
NET REALIZED INVESTMENT GAINS......................... 11,029 2,730 3,101
------- ------- --------
Change in net unrealized investment gains (losses):
Fixed maturities.......................................... 441 5,806 (20,726)
Equity securities......................................... (42) (607) 1,263
Separate Account business and other....................... (235) 20 --
------- ------- --------
164 5,219 (19,463)
Deferred income tax (expense) benefit....................... (57) (1,829) 6,812
------- ------- --------
CHANGE IN NET UNREALIZED INVESTMENT GAINS (LOSSES).... 107 3,390 (12,651)
- - ------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES) $11,136 $ 6,120 $ (9,550)
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF GROSS REALIZED
INVESTMENT GAINS (LOSSES) FOR FIXED
MATURITIES AND EQUITY SECURITIES
- - ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
FIXED EQUITY FIXED EQUITY FIXED EQUITY
YEAR ENDED DECEMBER 31 MATURITIES SECURITIES MATURITIES SECURITIES MATURITIES SECURITIES
- - ---------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sales................... $741,277 $ 5 $278,459 $2,447 $530,828 $1,306
======== === ======== ====== ======== ======
Gross realized gains.................. $ 17,604 $-- $ 4,793 $1,113 $ 7,927 $ 578
Gross realized losses................. (697) -- (1,460) (92) (3,804) --
- - ---------------------------------------------------------------------------------------------------------------------
NET REALIZED GAINS ON SALES $ 16,907 $-- $ 3,333 $1,021 $ 4,123 $ 578
=====================================================================================================================
</TABLE>
72
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 2.--(CONTINUED)
<TABLE>
<CAPTION>
ANALYSIS OF NET UNREALIZED INVESTMENT
GAINS (LOSSES) INCLUDED IN ACCUMULATED
OTHER COMPREHENSIVE INCOME
- - ---------------------------------------------------------------------------------------------------------------
1998 1997
---------------------------- ---------------------------
DECEMBER 31 GAINS LOSSES NET GAINS LOSSES NET
- - ---------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.................................. $6,926 $(1,045) $ 5,881 $6,227 $(787) $ 5,440
Equity securities................................. 1,237 -- 1,237 1,279 -- 1,279
Separate Account business and other............... -- (215) (215) 20 -- 20
------ ------- ------- ------ ----- -------
$8,163 $(1,260) 6,903 $7,526 $(787) 6,739
====== ======= ====== =====
Deferred income tax expense....................... (2,416) (2,359)
- - ---------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT GAINS $ 4,487 $ 4,380
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENTS IN FIXED MATURITIES
AND EQUITY SECURITIES AVAILABLE FOR SALE
- - ------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
- - ------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
U.S. Treasuries and obligations of government agencies... $223,743 $1,601 $ 563 $224,781
Asset-backed securities.................................. 109,207 1,163 180 110,190
Corporate securities..................................... 98,466 2,512 81 100,897
Other debt securities.................................... 23,219 1,650 221 24,648
-------- ------ ------ --------
Total fixed maturities............................... 454,635 6,926 1,045 460,516
Equity securities........................................ 981 1,237 -- 2,218
- - ------------------------------------------------------------------------------------------------------------
TOTAL $455,616 $8,163 $1,045 $462,734
============================================================================================================
DECEMBER 31, 1997
U.S. Treasuries and obligations of government agencies... $299,066 $2,073 $ 711 $300,428
Asset-backed securities.................................. 68,612 147 74 68,685
Corporate securities..................................... 72,431 2,384 2 74,813
Other debt securities.................................... 26,158 1,623 -- 27,781
-------- ------ ------ --------
Total fixed maturities............................. 466,267 6,227 787 471,707
Equity securities........................................ 981 1,279 -- 2,260
- - ------------------------------------------------------------------------------------------------------------
TOTAL $467,248 $7,506 $ 787 $473,967
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENTS IN FIXED
MATURITIES BY CONTRACTUAL MATURITY
- - -------------------------------------------------------------------------------------
1998
---------------------
AMORTIZED MARKET
DECEMBER 31 COST VALUE
- - -------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Due in one year or less..................................... $ 7,507 $ 7,508
Due after one year through five years....................... 111,381 112,434
Due after five years through ten years...................... 45,393 46,494
Due after ten years......................................... 181,146 183,891
Asset-backed securities not due at a single maturity date... 109,208 110,189
- - -------------------------------------------------------------------------------------
TOTAL $454,635 $460,516
=====================================================================================
</TABLE>
73
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 2.--(CONTINUED)
Actual maturities may differ from contractual maturities because securities
may be called or prepaid with or without call or prepayment penalties.
There are no investments, other than equity securities, that have not
produced income for the years ended December 31, 1998 and 1997. There are no
equity investments in a single issuer that when aggregated exceed 10% of
stockholder's equity.
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In the normal course of business, VFL invests in various financial assets,
incurs various financial liabilities, and enters into agreements involving
derivative securities, including off-balance sheet financial instruments.
Fair values are required to be disclosed for all financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values may be based on estimates using present value or other valuation
techniques. These techniques are significantly affected by the assumptions used,
including the discount rates and estimates of future cash flows. Potential taxes
and other transaction costs have not been considered in estimating fair value.
The estimates presented herein are subjective in nature and are not necessarily
indicative of the amounts VFL could realize in a current market exchange.
All non-financial instruments such as deferred acquisition costs,
reinsurance receivables, deferred income taxes and insurance reserves are
excluded from fair value disclosure. Thus, the total fair value amounts cannot
be aggregated to determine the underlying economic value of VFL.
The carrying amounts reported in the balance sheet approximate fair value
for cash, short-term investments, accrued investment income, receivables for
securities sold, payables for securities purchased and certain other assets and
other liabilities because of their short-term nature. Accordingly, these
financial instruments are not listed in the table below. The carrying amounts
and estimated fair values of VFL's other financial instrument assets and
liabilities are listed below:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
1998 1997
CARRYING ESTIMATED CARRYING ESTIMATED
DECEMBER 31 AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands of dollars)
FINANCIAL ASSETS
Investments:
Fixed maturities....................................... $460,516 $ 460,516 $471,707 $ 471,707
Equity securities...................................... 2,218 2,218 2,260 2,260
Policy loans........................................... 74,150 72,148 66,971 63,756
Other.................................................. 485 485 433 433
Separate Account business:
Fixed maturities....................................... 247 247 3,198 3,198
Mutual funds........................................... 55,577 55,577 5,233 5,233
Other.................................................. 340 340 305 305
FINANCIAL LIABILITIES
Premium deposits and annuity contracts................... 332,665 312,979 266,093 247,567
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
74
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 3.--(CONTINUED)
The following methods and assumptions were used by VFL in estimating the
fair value amounts for financial instruments:
Fixed maturities and equity securities are based on quoted market
prices, where available. For securities not actively traded, fair values
are estimated using values obtained from independent pricing services,
costs to settle, or quoted market prices of comparable instruments.
The fair values for policy loans are estimated using discounted cash
flow analyses at interest rates currently offered for similar loans to
borrowers with comparable credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Valuation techniques to determine fair value of Separate Account
business assets consist of discounted cash flows and quoted market prices
of (a) the investments or (b) comparable instruments. The fair value of
Separate Account business liabilities approximates their carrying value.
Premium deposits and annuity contracts are valued based on cash
surrender values and the outstanding fund balances.
VFL invests from time to time in certain derivative financial instruments
primarily to reduce its exposure to market risk. Financial instruments used for
such purposes may include interest rate caps, put and call options, commitments
to purchase securities, futures and forwards. VFL also uses derivatives to
mitigate the risk associated with certain guaranteed annuity contracts by
purchasing certain options in a notional amount equal to the original customer
deposit. VFL generally does not hold or issue these instruments for trading
purposes.
Derivative financial instruments consist of interest rate caps in the
general account and purchased options in the Separate Accounts at December 31,
1998. The gross notional principal or contractual amounts of derivative
financial instruments in the general account at December 31, 1998 and 1997
totaled $50 million. The gross notional principal or contractual amounts of
derivative financial instruments in the Separate Accounts totaled $1.5 million
at December 31, 1998 and 1997. The contract or notional amounts are used to
calculate the exchange of contractual payments under the agreements and are not
representative of the potential for gain or loss on these agreements.
The fair values associated with derivative financial instruments are
generally affected by interest rates, equity stock prices and foreign exchange
rates. The credit exposure associated with these instruments is generally
limited to the unrealized fair value of the instruments and will vary based on
the credit worthiness of the counterparties. The risk of default depends on the
creditworthiness of the counterparty to the instrument. Although VFL is exposed
to the aforementioned credit risk, it does not expect any counterparty to fail
to perform as contracted based on the creditworthiness of the counterparties.
Due to the nature of the derivative securities, VFL does not require collateral.
75
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 3.--(CONTINUED)
The fair value of derivatives generally reflects the estimated amounts that
VFL would receive or pay upon termination of the contracts at the reporting
date. Dealer quotes are available for substantially all of VFL's derivatives.
For securities not actively traded, fair values are estimated using values
obtained from independent pricing services, costs to settle, or quoted market
prices of comparable instruments. The fair value of derivative financial assets
(liabilities) in the general account and Separate Accounts at December 31, 1998
totaled $0.1 million and $0.5 million, respectively, and compares to $0.4
million and $0.3 million, respectively, at December 31, 1997. Net realized gains
(losses) on derivative financial instruments held in the general account and
Separate Accounts totaled ($0.2) million and $0.1 million, respectively, for the
year ended December 31, 1998. Net realized losses on derivative financial
instruments held in the general account totaled $0.1 million for the year ended
December 31, 1997, while net realized losses on derivatives in the Separate
Accounts were negligible for the same period.
Options are contracts that grant the purchaser, for a premium payment, the
right, but not the obligation, to either purchase or sell a financial instrument
at a specified price within a specified period of time.
An interest rate cap consists of a guarantee given by the issuer to the
purchaser in exchange for the payment of a premium. This guarantee states that
if interest rates rise above a specified rate, the issuer will pay to the
purchaser the difference between the then current market rate and the specified
rate on the notional principal amount. The notional principal amount is not
actually borrowed or repaid.
NOTE 4. STATUTORY CAPITAL AND SURPLUS (UNAUDITED):
Statutory capital and surplus and net income for VFL are determined in
accordance with accounting practices prescribed or permitted by the Pennsylvania
Insurance Department. Prescribed statutory accounting practices are set forth in
a variety of publications of the National Association of Insurance Commissioners
as well as state laws, regulations, and general administrative rules. VFL has no
material permitted accounting practices. VFL had statutory net losses of $8.1
million, $1.0 million and $2.7 million for the years ended December 31, 1998,
1997 and 1996, respectively. The statutory net losses for 1998, 1997 and 1996
were primarily due to the immediate expensing of acquisition costs which were
substantial and a result of sales of individual life and annuity products. Under
GAAP, such costs are capitalized and amortized to income over the duration of
these contracts. Statutory capital and surplus for VFL was $147.1 million, and
$125.3 million at December 31, 1998 and 1997, respectively.
The payment of dividends by VFL to Assurance without prior approval of the
Pennsylvania Insurance Department is limited to formula amounts. As of December
31, 1998, dividends of approximately $14.7 million was not subject to prior
Insurance Department approval.
76
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 5. ACCUMULATED OTHER COMPREHENSIVE INCOME:
Comprehensive income is comprised of all changes to stockholder's equity,
including net income, except those changes resulting from investments by, and
distributions to, the stockholder. Other comprehensive income (loss) is
comprehensive income exclusive of net income. The change in the components of
accumulated other comprehensive income (loss) are shown in the following tables.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
PRE-TAX TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT BENEFIT AMOUNT
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Net unrealized gains on investment securities:
Net unrealized holding gains arising during the period.... $ 3,756 $(1,314) $ 2,442
Adjustment for (gains) losses included in net income...... (3,592) 1,257 (2,335)
- - ---------------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME $ 164 $ (57) $ 107
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
PRE-TAX TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT BENEFIT AMOUNT
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Net unrealized gains on investment securities:
Net unrealized holding gains (losses) arising during the
period.................................................. $ 6,447 $(2,256) $ 4,191
Adjustment for (gains) losses included in net income...... (1,228) 427 (801)
- - ---------------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME $ 5,219 $(1,829) $ 3,390
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
PRE-TAX TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT BENEFIT AMOUNT
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the
period.................................................. $ (5,822) $ 2,038 $ (3,784)
Adjustment for (gains) losses included in net income...... (13,641) 4,774 (8,867)
- - ---------------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE LOSS $(19,463) $ 6,812 $(12,651)
===================================================================================================
</TABLE>
NOTE 6. BENEFIT PLANS:
VFL has no employees as it has contracted with Casualty for services
provided by Casualty employees. As Casualty is a wholly-owned subsidiary of
CNAF, all Casualty employees are covered by CNAF's Benefit Plans. The plans are
discussed below.
PENSION PLAN
CNAF has noncontributory pension plans covering all full-time employees age
21 or over that have completed at least one year of service. While the benefits
for the plans vary, they are generally based on years of credited service and
the employee's highest sixty consecutive months of compensation. Casualty is
included in the CNA Employees' Retirement Plan and VFL is allocated its
proportionate share of these expenses. The net pension cost allocated to VFL was
$1.1 million, $4.0 million and $3.6 million for the years ended December 31,
1998, 1997 and 1996, respectively.
77
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 6.--(CONTINUED)
POST RETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
CNAF provides certain health and dental care benefits for eligible retirees
through age 64, and provides life insurance and reimbursement of Medicare Part B
premiums for all eligible retired persons. CNAF funds benefit costs principally
on the basis of current benefit payments.
Net postretirement benefit cost allocated to VFL was $0.5 million, $2.1
million and $1.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
SAVINGS PLAN
Casualty is included in the CNA Employees' Savings Plan, which is a
contributory plan that allows employees to make regular contributions of up to
6% of their salary. VFL is allocated its proportionate share of CNA Employees'
Savings Plan expenses. CNAF contributes an amount equal to 70% of the employee's
regular contribution. Employees may also make an additional contribution of up
to 10% of their salaries for which there is no matching contribution by CNAF.
CNAF contributions allocated to and expensed by VFL for the Savings Plan were
$0.2 million in 1998 and 1997, and $1.0 million in 1996.
NOTE 7. INCOME TAXES:
VFL is taxed under the provisions of the Internal Revenue Code, as
applicable to life insurance companies, and is included along with Assurance,
its parent company, which is ultimately included in the consolidated Federal
income tax return of Loews. The Federal income tax provision of VFL generally is
computed on a stand-alone basis, as if VFL was filing its own separate tax
return.
VFL maintains a special tax memorandum account designated as the
"Shareholder's Surplus Account." Dividends from this account may be distributed
to the shareholder without resulting in any additional tax. The amount in the
Shareholder's Surplus Account was $156.3 million and $121.8 million at December
31, 1998 and 1997, respectively.
Significant components of VFL's deferred tax liabilities as of December 31,
1998 and 1997 are shown in the table below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
DECEMBER 31 1998 1997
- - ------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands of dollars)
Insurance reserves.......................................... $ 26,880 $ 24,961
Deferred acquisition costs.................................. (37,729) (33,374)
Investment valuation........................................ 3,693 6,129
Net unrealized gains........................................ (2,416) (2,359)
Receivables................................................. 1,009 (2,486)
Other, net.................................................. 2,350 3,031
- - ------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (6,213) $ (4,098)
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
</TABLE>
78
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 7.--(CONTINUED)
At December 31, 1998, gross deferred tax assets and liabilities amounted to
$35.5 million and $41.7 million, respectively. Gross deferred tax assets and
liabilities, at December 31, 1997, amounted to $35.1 million and $39.2 million,
respectively.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Current tax expense......................................... $7,033 $4,716 $5,719
Deferred tax expense........................................ 2,058 2,581 3,309
- - ------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE................................ $9,091 $7,297 $9,028
==========================================================================================
</TABLE>
A reconciliation of the statutory federal income tax rate on income is as
follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
% OF % OF % OF
PRETAX PRETAX PRETAX
YEAR ENDED DECEMBER 31 1998 INCOME 1997 INCOME 1996 INCOME
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands of dollars)
Income taxes at statutory rates.................... $9,290 35.0 $7,219 35.0 $9,011 35.0
Other.............................................. (199) (0.8) 78 0.4 17 0.1
- - ---------------------------------------------------------------------------------------------------------------
INCOME TAX AT EFFECTIVE RATES.................. $9,091 34.2 $7,297 35.4 $9,028 35.1
===============================================================================================================
</TABLE>
NOTE 8. REINSURANCE:
The ceding of insurance does not discharge primary liability of VFL. VFL
places reinsurance with other carriers only after careful review of the nature
of the contract and a thorough assessment of the reinsurers' credit quality and
claim settlement performance. For carriers that are not authorized reinsurers in
VFL's state of domicile, VFL receives collateral, primarily in the form of bank
letters of credit. Such collateral totaled approximately $0.1 million at both
December 31, 1998 and 1997.
In the table below, the majority of life premium revenue is from long
duration type contracts, while the majority of accident and health earned
premiums is from short
79
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 8.--(CONTINUED)
duration contracts. The effects of reinsurance on premium revenues are shown in
the following table:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
PREMIUMS
-------------------------------------------- ASSUMED/NET
YEAR ENDED DECEMBER 31 DIRECT ASSUMED CEDED NET %
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
1998
Life........................................ $687,644 $78,156 $690,541 $ 75,259 104%
Accident and Health......................... 4,158 240,340 4,158 240,340 100
-------- -------- -------- -------- ---
Total premiums............................ $691,802 $318,496 $694,699 $315,599 101%
======== ======== ======== ======== ===
1997
Life........................................ $564,891 $81,502 $567,217 $ 79,176 103%
Accident and Health......................... 2,776 252,996 2,776 252,996 100
-------- -------- -------- -------- ---
Total premiums............................ $567,667 $334,498 $569,993 $332,172 101%
======== ======== ======== ======== ===
1996
Life........................................ $422,700 $72,718 $424,907 $ 70,511 103%
Accident and Health......................... 1,080 254,975 1,080 254,975 100
-------- -------- -------- -------- ---
Total premiums............................ $423,780 $327,693 $425,987 $325,486 101%
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
Transactions with Assurance, as part of the Pooling Agreement described in
Note 1, are reflected in the above table. Premium revenues ceded to
non-affiliated companies were $263.4 million, $116.2 million and $43.0 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
Additionally, benefits and expenses for insurance claims and policyholder
benefits are net of reinsurance recoveries from non-affiliated companies of
$203.4 million, $77.8 million and $7.0 million for the years ended December 31,
1998, 1997 and 1996, respectively.
Reinsurance receivables reflected on the balance sheets are amounts
recoverable from reinsurers who have assumed a portion of the Company's
insurance reserves. These balances are principally due from Assurance pursuant
the Reinsurance Pooling Agreement.
The impact of reinsurance, including transactions with Assurance, on life
insurance in force is shown in the following schedule:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
LIFE INSURANCE IN FORCE
------------------------------------------ ASSUMED/NET
DIRECT ASSUMED CEDED NET %
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
December 31, 1998............................ $224,615 $32,253 $230,734 $26,134 123.4%
December 31, 1997............................ $166,308 $25,557 $168,353 $23,512 108.7
December 31, 1996............................ $108,126 $22,085 $109,873 $20,338 108.6
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9. RELATED PARTIES:
As discussed in Note 1, VFL is party to a pooling agreement with its
parent, Assurance. In addition, VFL is party to the CNA Intercompany Expense
Agreement whereby expenses incurred by CNAF and each of its subsidiaries are
allocated to the
80
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 9.--(CONTINUED)
appropriate companies. All acquisition and underwriting expenses allocated
to VFL are further subject to the Reinsurance Pooling Agreement with Assurance,
so that acquisition and underwriting expenses recognized by VFL are ten percent
of the acquisition and underwriting expenses of the combined pool. Pursuant to
the foregoing agreements, VFL recorded amortization of deferred acquisition
costs and other operating expenses totaling $47.6 million, $45.3 million and
$37.2 million for 1998, 1997 and 1996, respectively. Expenses of VFL exclude
$9.2 million, $9.9 million and $12.3 million of general and administrative
expenses incurred by VFL and allocated to CNAF for the years ended December 31,
1998, 1997 and 1996, respectively. At December 31, 1998, VFL had a payable of
$1.9 million to affiliated companies. VFL had a $36.0 million affiliated
receivable at December 31, 1997, for net cash settlements due from Assurance in
the normal course of operations related to pooling and general expense
reimbursements.
There are no interest charges on intercompany receivables or payables.
During 1998, Assurance made a $30.0 million capital contribution to VFL.
NOTE 10. LEGAL:
VFL is party to litigation arising in the ordinary course of business. The
outcome of this litigation will not, in the opinion of management, materially
affect the results of operations or equity of VFL.
NOTE 11. BUSINESS SEGMENTS:
VFL operates in one reportable segment, the business of which is to market
and underwrite insurance products designed to satisfy the life, health and
retirement needs of individuals and groups. VFL products are distributed
primarily in the United States. Premium revenues earned outside the United
States are not material.
The operations, assets and liabilities of VFL and its parent, Assurance,
are managed on a combined basis. Pursuant to a Reinsurance Pooling Agreement,
amended July 1, 1996, VFL cedes all of its business, excluding its Separate
Account business, to Assurance which is then pooled with the business of
Assurance, excluding Assurance's participating contracts and separate account
business, and 10% of the combined pool is assumed by VFL.
The following represents premiums by product group for each of the years in
the three years ended December 31, 1998:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
(THOUSANDS OF DOLLARS) 1998 1997 1996
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life........................................................ $ 75,259 $ 79,176 $ 70,511
Accident and Health......................................... 240,340 252,996 254,975
- - ------------------------------------------------------------------------------------------------
Total....................................................... $315,599 $332,172 $325,486
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
</TABLE>
81
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 11.--(CONTINUED)
Assurance is a large provider of health insurance benefits to postal and
other federal employees under the Federal Employees Health Benefit Plan (FEHBP).
Premiums under this contract totaled $2.0 billion, $2.1 billion and $2.1 billion
for the years ended December 31, 1998, 1997 and 1996, respectively, and the
portion of these premiums assumed by VFL under the Reinsurance Pooling Agreement
totaled $202 million, $212 million and $210 million for the years ended December
31, 1998, 1997 and 1996, respectively.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements of the Variable Account are
included in Part B hereof:
1. Statements of Assets and Liabilities - September 30, 1999 (unaudited)
2. Statements of Operations for the Nine Months Ended September 30, 1999
(unaudited)
3. Statements of Changes in Net Assets for the Nine Months Ended
September 30, 1999 (unaudited)
4. Notes to Financial Statements - September 30, 1999 (unaudited)
5. Independent Auditors' Report
6. Statements of Assets and Liabilities - December 31, 1998 and
December 31, 1997
7. Statements of Operations for the Year Ended December 31, 1998
and For the Period from Inception to December 31, 1997
8. Statements of Changes in Net Assets For the Period Ended
December 31, 1998 and for the Period From Inception to December
31, 1997
9. Notes to Financial Statements - December 31, 1998
The following financial statements of the Company are included
in Part B hereof:
1. Independent Auditors' Report
2. Balance Sheets - December 31, 1998 and 1997
3. Statements of Operations For the Year Ended December 31, 1998,
1997 and 1996
4. Statements of Stockholder's Equity
5. Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996
6. Notes to Financial Statements
(b) Exhibits
(1) Certified resolution of the board of directors of the Company
dated February 12, 1996, establishing the Variable Account.*
(2) Not applicable.
(3) Form of underwriting agreement between the Company and CNA Investor
Services, Inc. ("CNAISI").**
(4) (a) Form of Flexible Premium Deferred Variable Annuity Contract (the
"Contract").
(b) Form of Terminal Illness and Confinement Endorsement.***
(c) Form of Tax Sheltered Annuity Endorsement.***
(d) Form of Pension/Profit Sharing Endorsement.***
(e) Form of Systematic Withdrawal Endorsement.***
(f) Form of Automatic Transfer Endorsement.***
(g) Form of Dollar Cost Averaging I Endorsement.
(h) Form of Dollar Cost Averaging II Endorsement.
(i) Form of Roth IRA Endorsement. ***
(j) Form of IRA Endorsement. ***
(5) Form of Application.
(6) (a) Articles of Incorporation of the Company.*
(b) By-Laws of the Company.*
(7) Not applicable.
(8) (a) Form of Participation Agreement between the Company and Federated
Insurance Series.**
(b) Form of Participation Agreement between the Company and Variable
Insurance Products Fund.**
(c) Form of Participation Agreement between the Company and The Alger
American Fund.**
(d) Form of Participation Agreement between the Company and MFS
Variable Insurance Trust. **
(e) Form of Participation Agreement between the Company and SoGen
Variable Funds, Inc. **
(f) Form of Participation Agreement between the Company and Van Eck
Worldwide Insurance Trust.**
(g) Form of Participation Agreement between the Company and Janus
Aspen Series.***
(9) Opinion and Consent of Counsel
(10) Independent Auditors' Consent
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable
* Incorporated herein by reference to the initial filing of this Form N-4
Registration on February 20, 1996.
** Incorporated herein by reference to filing of Pre-Effective Amendment
Number 1 to this Form N-4 Registration on September 4, 1996.
*** Incorporated herein by reference to Form N-4 (File No. 333-8551) as filed
electronically on August 18, 1999.
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
The name, age, positions and offices, term as director, and business
experience during the past five years for Valley Forge Life Insurance Company's
("VFL") directors and executive officers are listed in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OFFICERS OF VFL
- ----------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME AND ADDRESS AGE WITH VFL PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
Bernard L. Hengesbaugh 53 Chairman of the Chairman of the Board and Chief Executive
CNA Plaza Board, Chief Officer of CNA since February, 1999. Prior
Chicago, IL 60685 Executive thereto, Mr. Hengesbaugh served as Executive
Officer, and Vice President and Chief Operating Officer of
Director CNA since February, 1998. Prior thereto, Mr.
Hengesbaugh was Senior Vice President of CNA
since November, 1990. Mr. Hengesbaugh has
served as Director since February, 1999.
- - ----------------------------------------------------------------------------------------------------
Peter E. Jokiel 51 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 a 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 since April, 1994. Prior
General Counsel thereto, Mr. Kantor was a partner at the law
and Director firm of Shea & Gould.** Mr. Kantor has served
as a Director of VFL since April, 1997.
- - ----------------------------------------------------------------------------------------------------
Robert V. Deutsch*** 40 Senior Vice Senior Vice President, Chief Financial Officer
CNA Plaza President, Chief and Director since August 16, 1999. Prior
Chicago, IL 60685 Financial thereto, Chief Financial Officer for Executive
Officer, Director Risk, Inc.
- - ----------------------------------------------------------------------------------------------------
Tom Taylor 48 Executive Vice Executive Vice President, Underwriting Policy
President Group since June 1999. Specialty Operations,
1998-1999. President and Chief Operating
Officer, Financial Insurance, 1992-1998.
- ------------------------------------------------------------------------------------------------------
Carol Dubnicki 48 Senior Vice Senior Vice President, Human Resources since
President, May, 1998. Prior thereto, Senior Vice President,
Director Human Resources, Amoco, 1993-1998.
- ------------------------------------------------------------------------------------------------------
Donald P. Lofe, Jr. 42 Group Vice Group Vice President, Corporate Finance
President, Department since October 1998. Prior thereto,
Director partner-in-charge of Pricewaterhouse Coopers LLP.
- -----------------------------------------------------------------------------------------------------
John M. Squarok 46 Group Vice Group Vice President of CNA since July 1998.
President Prior thereto, Mr. Squarok was Chief Financial
and Director Officer of various businesses of GE Capital from
August 1988 until July 1998. Director since
August 1998.
- ------------------------------------------------------------------------------------------------------
</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 VFL. Executive officers serve at the discretion of the Board of
Directors.
** Shea & Gould declared bankruptcy in 1995.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. The Company is a stock life insurance
company of which all of the voting securities are owned by Continental Assurance
Company. Continental Assurance Company is owned by Continental Casualty Company,
a stock casualty insurance company organized under the Illinois Insurance Code,
the home office of which is located at CNA Plaza, Chicago, Illinois 60685. All
of the voting securities of Continental Casualty Company are owned by CNA
Financial Corporation, a Delaware Corporation. As of September 30, 1999, 86% of
the outstanding voting securities of CNA Financial Corporation are owned by
Loews Corporation, a Delaware Corporation, 667 Madison Avenue, New York, New
York 10021-8087. Loews corporation has interests in insurance, hotels, watches
and other timing devices, drilling rigs and tobacco. Laurence A. Tisch is
Co-Chairman of the Board and a director of Loews Corporation and Chief Executive
Officer and a director of CNA Financial Corporation. Preston R. Tisch is
Co-Chairman of the Board and a director of Loews Corporation and a director of
CNA Financial Corporation. James S. Tisch is President and Chief Executive
Officer and director of Loews Corporation and a director of CNA Financial
Corporation.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. INDEMNIFICATION
The registrant has no officers, directors or employees. The depositor and the
registrant do not indemnify the officers, directors of 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. Most of the officers, directors and employees are also officers,
directors and/or employees of CNAFC.
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, office, 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.
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.
Insofar as indemnification for liability arising under the Securities Act of
1933 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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) CNAISI is the registrant's principal underwriter and also serves as the
principal underwriter of certain variable annuity contracts and variable
life insurance contracts issued by the Company and certain variable
annuity contracts and variable life insurance contracts issued by
affiliates of the Company.
(b) CNA Investor Services Inc.("CNAISI") is the principal underwriter for the
Policies. The following persons are the officers and directors of CNAISI.
Name and Principal Positions and Offices
Business Address with Underwriter
---------------- ----------------
Ronald Chapon Director
Lynne Gugenheim Director
John J. Sullivan, Jr. Director
Kevin Hogan Director
The principal business address for each officer and director of CNAISI is CNA
Plaza, 34 South Chicago, Illinois 60685.
(c) Not applicable.
Item 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at CNA Plaza, Chicago, Illinois 60685, or 100 CNA
Drive, Nashville, Tennessee 37214-3439, and by CNAISI at CNA Plaza, Chicago,
Illinois 60685.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Valley Forge Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Chicago, and the State of Illinois, on this 20th day of
December, 1999.
VALLEY FORGE LIFE INSURANCE COMPANY on
behalf of its separate account
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
(Registrant)
By: /s/DAVID L. STONE
---------------------------------
Group Vice President
VALLEY FORGE LIFE INSURANCE COMPANY
(Depositor)
By: /s/JOEL S. FELDMAN
---------------------------------
Group Vice President
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- - --------- ----- ----
/s/BERNARD L. HENGESBAUGH 12-15-99
- -------------------------- Chairman of the Board, ---------
Bernard L. Hengesbaugh Chief Executive Officer Date
and Director
/s/ROBERT V. DEUTSCH 12-22-99
- ---------------------- Chief Financial Officer ---------
Robert V. Deutsch and Director Date
/s/CAROL DUBNICKI 12-20-99
- ---------------------- Director and Senior ---------
Carol Dubnicki Vice President Date
/s/JONATHAN D. KANTOR 12-15-99
- ---------------------- Senior Vice President, Secretary ---------
Jonathan D. Kantor General Counsel, Director Date
/s/DONALD P. LOFE, JR. 12-20-99
- ---------------------- Group Vice President, Director ---------
Donald P. Lofe, Jr. Date
/s/JOHN M. SQUAROK 12-21-99
- ---------------------- Group Vice President, Director ---------
John M. Squarok Date
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE ANNUITY SEPARATE ACCOUNT
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM N-4
(FILE NOS. 333-8551 and 811-7547)
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B4(a) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract
EX-99.B4(g) Form of Dollar Cost Averaging I Endorsement
EX-99.B4(h) Form of Dollar Cost Averaging II Endorsement
EX-99.B5 Form of Application
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Auditors' Consent
VA-101 (10/99)
Valley Forge Life Insurance Company
A Stock Company
Executive Office: Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
We agree to pay the benefits described in this contract in accordance with its
provisions.
PLEASE READ THIS CONTRACT CAREFULLY. THIS IS A LEGAL CONTRACT BETWEEN YOU AND
VALLEY FORGE LIFE INSURANCE COMPANY.
NOTICE OF 10 DAY FREE LOOK PERIOD
If, for any reason, you are not satisfied with this contract, you may return it
to us for cancellation within 10 days of the day you receive it by delivering or
mailing it to us at our Administrative Office or to the agent from whom it was
purchased. This contract will be void as of the date we receive it and we will
promptly return the contract value.
Signed for the Company at its Executive Office, CNA Plaza, Chicago, Illinois
60685.
Chief Executive Officer Group Vice President
- --------------------------------------------------------------------------------
Annuity payments and other values provided by this contract, when based on the
investment performance of the Variable Account, may increase or decrease daily
as a function of the investment performance of the subaccounts you select and
are not guaranteed as to dollar amount. No minimum contract value is guaranteed.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Non Participating
Valley Forge Life Insurance Company
A Stock Company
Executive Office: Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
We agree to pay the benefits described in this contract in accordance with its
provisions.
PLEASE READ THIS CONTRACT CAREFULLY. THIS IS A LEGAL CONTRACT BETWEEN YOU AND
VALLEY FORGE LIFE INSURANCE COMPANY.
- --------------------------------------------------------------------------------
NOTICE OF 10 DAY FREE LOOK PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If, for any reason, you are not satisfied with this contract, you may return it
to us for cancellation within 10 days of the date you receive it by delivering
or mailing it to us at our Administrative Office or to the agent from whom it
was purchased. This contract will be void as of the date we receive it and we
will promptly return the sum of all purchase payments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VAR-101 (10/99)
- --------------------------------------------------------------------------------
Signed for the Company at its Executive Office, CNA Plaza, Chicago, Illinois
60685.
Chief Executive Officer Group Vice President
- --------------------------------------------------------------------------------
Annuity payments and other values provided by this contract, when based on the
investment performance of the Variable Account, may increase or decrease daily
as a function of the investment performance of the subaccounts you select and
are not guaranteed as to dollar amount. No minimum contract value is guaranteed.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
VA-101 (10/99)
CONTRACT DATA PAGE
OWNER: [JOHN DOE] AGE AT ISSUE: [35]
JOINT OWNER: [JANE DOE] AGE AT ISSUE: [32]
ANNUITANT: [JOHN DOE] AGE AT ISSUE: [35]
CONTRACT NUMBER: [12345] CONTRACT DATE: [July 1, 1999]
PLAN TYPE: [Non-Qualified] ANNUITY DATE: [July 1, 2034]
ADMINISTRATIVE OFFICE: [Valley Forge Life, 100 CNA Drive, Nashville, TN 37214]
[1-800-262-1755]
PURCHASE PAYMENTS:
Initial Purchase Payment: [$25,000]
Minimum Subsequent Purchase Payment: [$1,000]
Maximum Total Purchase Payments: [$1,000,000 without approval]
BENEFICIARY:
[As designated by the owner on the contract date unless changed in
accordance with the contract provisions.]
CONTRACT MAINTENANCE CHARGE:
The contract maintenance charge is currently [$30.00] each contract year.
We reserve the right to change the contract maintenance charge and will
provide notice of the change. The maximum contract maintenance charge is
$50.00 per contract year. The contract maintenance charge will be deducted
from the contract value on each contract anniversary while this contract is
in force. If during the accumulation period, your contract value on a
contract anniversary is at least [$50,000] then no contract maintenance
charge is deducted. If a total withdrawal is made on other than a contract
anniversary and your contract value for the business day when the total
withdrawal is made is less than [$50,000], the full contract maintenance
charge will be deducted at the time of total withdrawal. The contract
maintenance charge will be deducted from the subaccounts and any fixed
account selected in the same proportion that the amount of contract value
in each subaccount and/or any fixed account bears to the total contract
value. During the annuity period, the contract maintenance charge will be
collected pro rata from each annuity payment If the owner is not a natural
person, we will look to the annuitant in determining the above.
PRODUCT EXPENSE CHARGE:
Equal on an annual basis to [1.40%] of the average daily net asset value of
the Variable Account.
[TAX CHARGES:
We reserve the right to deduct from purchase payments or from the Variable
Account any federal, state or municipal taxes that may be attributable to
this contract.]
FIXED ACCOUNT OPTIONS:
[Fixed Account I:
Minimum Guaranteed Interest Rate: [3.00%]
Current Interest Rate as of Contract Date: [x%.] [The current interest
rates applies only to purchase payments allocated or transferred to
Fixed Account I during the calendar month in which this contract is
issued. This rate is guaranteed for one contract year.]
INVESTMENT OPTIONS:
[Federated Prime Money Fund II]
[Federated Utility Fund II]
[Federated High Income Bond Fund II]
[Fidelity VIP Equity-Income Portfolio]
[Fidelity VIP II Asset Manager Portfolio]
[Fidelity VIP II Index 500 Portfolio]
[Fidelity VIP II Contrafund]
[Alger American Small Capitalization Portfolio]
[Alger American Growth Portfolio]
[Alger American MidCap Growth Portfolio]
[MFS Emerging Growth Series]
[MFS Research Series]
[MFS Growth with Income Series]
[MFS Limited Maturity Series]
[MFS Total Return Series]
[SoGen Overseas Variable Fund]
[Van Eck Worldwide Hard Assets Fund]
[Van Eck Worldwide Emerging Markets Fund]
[JanusAspen Capital Appreciation Portfolio]
[Janus Aspen Growth Portfolio]
[Janus Aspen Balanced Portfolio]
[Janus Aspen Flexible Income Portfolio]
[Janus Aspen International Growth Portfolio]
[Janus Aspen Worldwide Growth]
VARIABLE ACCOUNT: [VFL Variable Annuity Separate Account]
[ALLOCATION GUIDELINES:
1. Currently, you may select as many investment options as you wish. We
reserve the right to limit this in the future.
2. Currently, you may also select any available fixed account at the time the
purchase payment or transfer is made.
3. The initial purchase payment will be credited to your contract within two
(2) business days after receipt at our Administrative Office. Additional
purchase payments will be credited to your contract as of the business day
they are received.
4. Allocation percentages must be in whole numbers. Each allocation must be at
least [1%].]
TRANSFERS:
Number of Transfers Permitted
During the Accumulation Period: [Subject to any transfer
fees and any minimum and maximum amounts that may be
transferred, currently there is no limitation on the number
of transfers that may be made between subaccounts.
Currently, you may make unlimited transfers to any fixed
account option, subject to any transfer fees and any
required minimum or maximum amounts that may be transferred.
We reserve the right to limit the number of transfers, but
you will always be allowed at least [12] transfers between
subaccounts in a contract year during the accumulation
period.]
During the Annuity Period: [Currently, during a contract
year you may make [4] transfers between subaccounts, or,
from one or more subaccounts to the general account. The
amounts transferred are subject to any minimums and maximums
we may establish. You may not make a transfer from the
general account to the subaccounts.]
Number of Free Transfers: [Currently, you are allowed [12] free
transfers each contract year during the accumulation period and [4]
free transfers each contract year during the annuity period.]
Transfer Fee: [For each transfer in excess of the free transfers
permitted, the transfer fee is [$25]. Transfers made pursuant to a
prescheduled transfer will not be counted in determining the
application of the transfer fee.]
Minimum and Maximum Amount to be Transferred: [The minimum amount
which may be transferred is [$500] or your entire interest in any
subaccount or any fixed account, if less. This requirement is waived
if the transfer is pursuant to a prescheduled transfer or applied to a
specified annuity option.]
Prescheduled Transfers: [You may elect the dollar cost averaging
option or the automatic transfer option. We reserve the right to limit
the availability of any subaccount or fixed account for a prescheduled
transfer.]
WITHDRAWALS:
Withdrawal Charge: [A withdrawal charge is assessed against each
purchase payment withdrawn. The withdrawal charge is calculated at the
time of each withdrawal. Each purchase payment is tracked from its
contract year of receipt and the withdrawal charges are determined in
accordance with the following:
Contract Year
Since Receipt of
Purchase Payment Withdrawal Charge
1 7%
2 7%
3 6%
4 6%
5 5%
6 4%
7 3%
8 0%]
[The withdrawal charge is separately calculated and applied to each
purchase payment when the purchase payment is withdrawn. No withdrawal
charge applies to withdrawals in excess of the sum of all purchase
payments less prior withdrawals of purchase payments. The order of
withdrawal is as follows: 1.) the amount subject to waiver of
withdrawal charge as described below; 2.) purchase payments from
oldest to newest; 3.) contract value in excess of 1.) and 2.) above.
For purposes of computing withdrawal charges, the deduction of any tax
and withdrawal charges is considered to be made from contract value in
excess of aggregate purchase payments less prior withdrawals of
purchase payments. We reserve the right to limit the number of partial
withdrawals in a contract year that are not subject to a withdrawal
charge.]
Waiver of Withdrawal Charge: [In each contract year after the first
contract year, you may withdraw an amount equal to 10% of the "free
partial withdrawal basis" without incurring withdrawal charge. We
reserve the right to limit the number of such free partial withdrawals
in any contract year.
"Free partial withdrawal basis" means the greater of: (1) Aggregate
purchase payments (less prior withdrawals of purchase payments) as of
the first business day of the contract year; or (2) contract value as
of the business day the written notice for withdrawal is received.]
Minimum partial withdrawal amount: [[$500] Withdrawals made pursuant
to the systematic withdrawal option [or any minimum distribution
option] are not subject to this minimum.] [Withdrawals made pursuant
to the systematic withdrawal option must be at least [$100].]
[Minimum contract value which must remain in an account or subaccount
after a partial withdrawal: [[$1,000] in any subaccount or [$5,000] in
any fixed account
Minimum contract value which must remain in the contract after a
partial withdrawal: [$10,000 for non-qualified contracts] [$2,000 for
qualified contracts]
[IMMEDIATE INTEREST RATE: [3%]
Immediate Interest: Each purchase payment received during the first contract
year will be credited immediate interest at the rate shown above. The immediate
interest will be allocated in the same manner as the purchase payments at the
time of receipt. The dollar amount of this immediate interest will be excluded
from any withdrawal value, including the exercise of any Free Look right, if the
contract value is withdrawn before the first day of the second contract year. If
a partial withdrawal is taken during the first contract year, the immediate
interest will be reduced in the same proportion that the amount of the partial
withdrawal bears to the total of purchase payments.]
RIDERS AND ENDORSEMENTS
[Individual Retirement Annuity Endorsement]
[Tax Sheltered Annuity Endorsement]
[Pension/Profit Sharing Endorsement]
[Roth IRA Endorsement]
[Simple IRA Endorsement]
[457 Endorsement]
[Terminal Illness - Confinement Rider]
[Dollar Cost Averaging]
[Systematic Withdrawal Rider]
[Automatic Transfer Rider]
ATTACHED RIDERS
RIDER
TABLE OF CONTENTS
Contract Data Page .....................
Definitions ............................
General Provisions .....................
Ownership and Assignment................
Beneficiary Provisions..................
Purchase Payments ......................
Contract Value .........................
Fixed Account..................
The Variable Account...........
Transfers ..............................
Withdrawals ............................
Payment of Benefits ....................
Death Benefit ..........................
Annuity Provisions and Payment Options..
Annuity Tables..........................
DEFINITIONS
Accumulation Period: The period prior to the annuity date during which you may
make purchase payments.
Accumulation Unit: A unit of measure used to calculate the contract value in a
subaccount.
Age: The age as of the nearest birthday.
Annuitant: The person or person(s) whose life (or lives) determines the annuity
payments under this contract.
Annuity Date: The date when annuity payments begin. This is shown on the
contract data page.
Annuity Payments: The periodic payment we make under an annuity payment option.
Annuity Payment Date: The date when we make annuity payments. This is the same
day of the month as the annuity date.
Annuity Period: The period starting on the annuity date during which annuity
payments are paid.
Annuity Unit: A unit of measure used to calculate variable annuity payments.
Annuity Value: The value of the contract available to be applied to an annuity
option.
Beneficiary: The person(s) who will receive the death benefit.
Business Day: Each day that both the New York Stock Exchange and we are open for
business. The Variable Account will be valued each business day.
Contract Anniversary: The same date each calendar year as the contract date.
Contract Date: The date on which the contract becomes effective as shown on the
contract data page.
Contract Value: The sum of the variable contract value and any fixed account.
Contract Year: A twelve-month period beginning on the contract date or contract
anniversary.
Fixed Account: A portion of the general account into which you may allocate
purchase payments or transfer contract value. It is equal to the sum of all
purchase payments allocated to any fixed account less withdrawals and charges.
At our discretion, we may from time to time declare an excess interest rate for
Fixed Account I. The excess interest rate will be guaranteed for one contract
year. A fixed account is available only during the accumulation period.
General Account: Our assets other than those allocated to any Variable Account
of the Company. The general account is available only during the annuity period.
Investment Option: The investment choices within the Variable Account available
under the contract. Current investment options are shown on the contract data
page.
Owner: The person(s) or entity(ies) who is (are) entitled to exercise all
ownership rights and privileges provided in the contract. All references to
owner shall include any named joint owner. Any joint owner must be the spouse of
the other owner unless limited by state law.
Subaccount: A subdivision of the Variable Account which is invested in a
corresponding investment option.
Subaccount Value: The amount equal to that part of any purchase payment
allocated or transferred to the subaccount adjusted by interest income,
dividends, net capital gains or losses, realized or unrealized, and decreased by
withdrawals (including any applicable withdrawal and tax charges) and any
amounts transferred out of that subaccount.
The Company, We, Us, Our: Valley Forge Life Insurance Company
Variable Account: Valley Forge Life Insurance Company Variable Annuity Separate
Account.
Variable Contract Value: The sum of all subaccount values.
Withdrawal Value: The contract value plus or minus any applicable interest
adjustment, less any applicable tax charges not previously deducted, less the
contract maintenance fee and less any applicable withdrawal charges.
Written Notice: A notice or request submitted in writing in a form satisfactory
to us that is signed by you and received at our Administrative Office.
You, Your: The owner(s).
GENERAL PROVISIONS
Entire Contract: The contract is made up of this contract and any attached
endorsements or riders.
Incontestability: We will not contest the validity of this contract.
Misstatement of Age or Sex: If the age or sex of the owner or annuitant has been
misstated, we will adjust the benefits paid under this contract to reflect the
correct age and/or sex. Underpayments will be made up immediately, overpayments
will be deducted from future annuity payments until the total is repaid.
Periodic Reports: At least once each contract year we will furnish you with a
report showing the contract value and any other information as may be required
by law. Reports will be sent to your last known address.
Non Participating: This contract does not participate in the surplus or profits
of the Company.
Protection of Benefits: To the extent permitted by law, no benefits payable or
account values under this contract are subject to the claims of creditors. No
beneficiary may commute, encumber, alienate or assign any payments under this
contract.
Taxes: Any taxes paid to any governmental entity relating to this contract will
be deducted from the purchase payments or contract value when incurred. We will,
at our sole discretion, determine when taxes have resulted from the investment
experience of the Variable Account, receipt by us of purchase payments or
commencement of annuity payments. We may, at our sole discretion, pay taxes when
due and deduct that amount from the contract value at a later date. Payment at
an earlier date does not waive any right we may have to deduct amounts at a
later date. We will deduct any withholding taxes required by applicable law.
Proof of Age and Survival: We have the right to require proof of the owner or
annuitant's age prior to the annuity date. We also reserve the right to require
proof of the owner or annuitant's survival before any annuity payment date.
Modification: We may modify this contract in order to maintain compliance with
applicable state and federal law. This contract may be changed or altered only
by one of our officers. Any change or alteration must be in writing.
Currency: Any money we pay, or that is paid to us, must be in United States
currency.
OWNERSHIP AND ASSIGNMENT
Owner: You, as the owner, have all the interest and rights under this contract.
The owner is designated on the contract date unless changed.
You may change the owner at any time. A change of owner will automatically
revoke any prior designation of owner. A request for change must be made by
written notice. The change will be effective as of the date the written notice
is signed. A new designation of owner will not apply to any payment made or
action taken by us prior to the time the new designation was recorded.
Joint Owner: A contract may be owned by joint owners. Any joint owner must be
the spouse of the other owner, unless limited by state law. Any actions which
are to be performed by the owner, in the case of joint owners, require the
signature of both owners, unless otherwise allowed by us. Upon the death of
either owner, the surviving joint owner will be the primary beneficiary. Any
other beneficiary designation will be treated as a contingent beneficiary unless
otherwise indicated in a written notice.
Annuitant: The person on whose life annuity payments are based. You designate
the annuitant on the contract date, and you may change the annuitant prior to
the annuity date. The annuitant may not be changed in a contract which is owned
by a non-individual. Any change of annuitant is subject to our consent.
Assignment: You may, at any time during your lifetime, assign your rights under
this contract. We will not be bound by any assignments until we record written
notice of the assignment. We are not responsible for the validity or sufficiency
of any assignments. We will not be liable as to any payment or other settlement
we make before we record the assignment.
BENEFICIARY PROVISIONS
Beneficiary: The beneficiary designation in effect on the contract date will
remain in effect unless changed. Unless you provide otherwise, the death benefit
will be paid in equal shares or all to the survivor as follows:
1. to the primary beneficiaries who survive you, and/or the annuitant(s), as
applicable; or if there are none,
2. to the contingent beneficiaries who survive you, and/or the annuitant(s),
as applicable; or if there are none,
3. to your estate.
Changing the Beneficiary: Subject to the rights of any irrevocable beneficiary,
you may change the primary or contingent beneficiary. A change may be made by
filing written notice. The change will take effect as of the date the written
notice is signed. We will not be liable for any payment made or action taken
before we record the change.
PURCHASE PAYMENTS
Purchase Payments: The initial purchase payment is due on the contract date. The
minimum subsequent purchase payments and maximum total purchase payments are
shown on the contract data page. Subject to the minimum and maximum payments
shown on the contract data page, you may increase or decrease or change the
frequency of subsequent purchase payments. We reserve the right to reject any
purchase payment.
Allocation of Purchase Payments: The allocation of purchase payments is made in
accordance with your selection made at the contract date. We reserve the right
to allocate initial purchase payments to the money market or similar subaccount
during the free look period. Unless you elect otherwise, subsequent purchase
payments will be allocated in accordance with your initial selection.
You may change the allocation of purchase payments by written notice. Any
additional purchase payments will be allocated in accordance with the allocation
schedule in effect unless accompanied by written notice requesting a different
allocation. Only whole percentages may be applied. The minimum percentage that
may be allocated is shown on the contract data page. Purchase payments may be
allocated net of any government imposed tax charges.
CONTRACT VALUE
FIXED ACCOUNT
Fixed Account I Value - The value of Fixed Account I at any time is equal to:
1. the purchase payments allocated to Fixed Account I; plus
2. amounts transferred to Fixed Account I; plus
3. any interest credited to Fixed Account I; less
4. any prior withdrawals and withdrawal charges deducted from Fixed Account I;
less
5. any amounts transferred from Fixed Account I; less
6. any applicable taxes or charges deducted from Fixed Account I.
Interest To Be Credited - We guarantee that the interest to be credited to any
fixed account will not be less than the minimum guaranteed interest rate shown
on the contract data page or any supplemental data page. We may credit
additional interest at our sole discretion to Fixed Account I. Declared interest
will be guaranteed one contract year.
THE VARIABLE ACCOUNT
Variable Account: The Variable Account is named on the contract data page and
consists of assets set aside by us, which are kept separate from our general
assets and all of our other Variable Account assets. The assets of the Variable
Account, equal to reserves and other liabilities of your contract and those of
other owners, will not be charged with liabilities arising out of any other
business we may do.
The Variable Account assets are divided into subaccounts. The assets of the
subaccounts are allocated to the investment options shown on the contract data
page.
Investments of the Variable Account: Purchase payments applied to the Variable
Account are allocated to subaccounts. We may, from time to time, add additional
investment options to those options shown on the contract data page. You may be
permitted to transfer contract values to the additional investment option(s).
However, the right to make any transfer will be limited by any terms and
conditions in effect at the time of transfer.
If the shares of any of the investment options become unavailable for investment
by the Variable Account, or if we deem further investment in these shares
inappropriate, we may limit further purchase of such shares or substitute shares
of another investment option for shares already purchased under this contract.
Valuation of Assets: Assets of the Variable Account are valued each business day
at their fair market value in accordance with our procedures.
Change in Operation of the Variable Account: We reserve the right to modify the
structure or operation of the Variable Account. If we do so, we guarantee that
such modification will not affect the value of your contract.
Accumulation Units: Accumulation units shall be used to account for all amounts
allocated to or withdrawn from a subaccount as a result of purchase payments,
transfers, withdrawals, or fees and charges. We will determine the number of
accumulation units of a subaccount purchased or canceled. This is done by
dividing the amount allocated to (or the amount withdrawn from) the subaccount,
by the dollar value of one accumulation unit of the subaccount as of the
business day during which the request for transfer is received at our
Administrative Office.
Accumulation Unit Value: The Accumulation Unit Value for each subaccount was set
at $10 when the subaccount became part of the Variable Account. Subsequent
accumulation unit values for each subaccount are determined by multiplying the
accumulation unit value for the immediate preceding business day by the net
investment factor of the subaccount for the current business day. The
accumulation unit value may increase or decrease from business day to business
day.
Net Investment Factor: The net investment factor for each subaccount is
determined by dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
(a) the net asset value per share of the investment option held in the
subaccount, determined at the end of the normal business day; plus
(b) the per share amount of any divided or capital gain distributions made
by the investment option held in the subaccount, if the "ex-dividend"
date occurs as of the current business day; plus or minus
(c) a per share charge or credit for any taxes reserved for, which we
determine to have resulted from the operations of the subaccount.
(2) is the net asset value per share of the investment option held in the
subaccount, determined at the end of the prior business day.
(3) is a daily factor representing the product expense charge deducted from the
subaccount.
TRANSFERS
A transfer is subject to the following:
1. The maximum number of transfers without a transfer fee is shown on the
contract data page;
2. We reserve the right to assess a transfer fee if the number of transfers
exceeds the maximum number of free transfers. We will notify you of the
imposition of any transfer fee. Any transfer fee we may impose is deducted
from the amount which is transferred;
3. You may not make a transfer until after the end of the free look period;
4. The minimum amount which may be transferred is shown on the contract data
page;
5. A transfer will be effected as of the end of the normal business day when
we receive an acceptable transfer request;
6. We are not liable for a transfer made in accordance with your instructions;
7. We reserve the right to restrict transfers between subaccounts to a maximum
of twelve (12) per contract year and to restrict transfers from being made
on consecutive business days. We also reserve the right to restrict
transfers into and out of the any fixed account;
8. 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 we considered to be to the disadvantage of other
owners. A modification could be applied to transfers to or from, one or
more of the subaccounts 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 the
subaccounts by an owner at any one time;
9. During times of severe economic or market conditions, we may suspend the
transfer privilege temporarily without notice and treat transfer requests
based on their separate components (a redemption order with a simultaneous
request for purchase of another subaccount). In such a case, the redemption
order would be processed at the source subaccount's next determined
accumulation unit. However, the purchase into the new subaccount would be
effective at the next determined accumulation unit value for the new
subaccount only after we receive proceeds from the source subaccount, or we
otherwise receive cash on behalf of the source subaccount;
10. Transfers do not change the allocation instructions for future purchase
payments;
11. You may elect to make transfers by telephone. To elect this option you must
first make a written request. If there are joint owners, unless we are
instructed to the contrary, instructions by telephone will be accepted from
either one of the joint owners. We will use reasonable procedures to
confirm that instructions communicated by telephone are genuine;
12. Transfers made during the annuity period are also subject to the following:
a. The number of transfers is limited to the number of transfers set
forth on the contract data page;
b. You may not make a transfer from the general account to a subaccount;
c. The amount transferred to the general account from a subaccount will
be based on current company
practice for such requests at the time of the transfer; and d. You may not
make a transfer within three (3) business days of an annuity payment
date.
WITHDRAWALS
Withdrawals during the Accumulation Period: You may withdraw all or part of the
contract value subject to the following:
1. The minimum partial withdrawal amount is shown on the contract data page.
2. The maximum partial withdrawal is the amount that would leave a minimum
contract value of the amount shown on the contract data page.
This contract ends when we pay the withdrawal value. The withdrawal value will
be determined as of the date we receive your written notice and this contract.
We will withdraw the amount you request from the contract value as of the day
that we receive your written notice and send that amount to you. We will deduct
any applicable withdrawal, contract maintenance and/or other charges.
If your written notice does not specify the amount to be withdrawn from each
subaccount or any fixed account, we will make the withdrawal based on the
proportion that each subaccount and each fixed account bears to the contract
value as of the date of the withdrawal.
For purposes of withdrawal charges, all withdrawals will be determined on a
first in, first out basis.
Termination: We may terminate this contract and pay you the withdrawal value, if
before the annuity date your withdrawal will result in your contract value
falling below the minimum stated on the contract data page.
We will mail you a notice of our intent to terminate this contract. This
contract will automatically terminate unless we receive additional purchase
payments in excess of the minimum amount specified on the contract data page
within thirty (30) days.
Minimum Benefit: The value of this contract is at least equal to the minimum
under any nonforfeiture law where this contract has been issued.
PAYMENT OF BENEFITS
Payment of Benefits from Subaccounts: We will make any transfer and will pay the
proceeds of any withdrawal, death benefit or annuity payment within seven
business days after receipt of all written notices and/or due proofs of death.
This payment or transfer may be postponed if:
1. The New York Stock Exchange is closed, other than customary weekend or
holiday closing, or trading on the exchange is restricted as determined by
the Securities and Exchange Commission ("SEC"); or
2. The SEC permits, by an order, the postponement for your protection; or
3. The SEC determines that an emergency exists that would make the disposal of
securities held in the Variable Account or determination of their value not
reasonably practicable.
Right to Defer Payments or Transfers from the fixed account: We have the right
to defer payment of any withdrawal or transfer from the any fixed account for up
to six (6) months from the date we receive your written notice, unless the law
in your state provides otherwise.
DEATH BENEFIT
Minimum Guaranteed Death Benefit: The minimum guaranteed death benefit during
the accumulation period is equal to the greater of:
1. total purchase payments less any adjusted withdrawals and related
withdrawal charges; or
2. the contract value determined as of the end of the normal business day
during which we receive both due proof of death and an election for the
payment method.
The adjusted withdrawal amount is dependent upon the relationship between the
contract value and the minimum guaranteed death benefit.
If the contract value equal equals or exceeds the minimum guaranteed death
benefit at the time of withdrawal, the adjusted withdrawal will equal 100% of
the actual withdrawal amount.
If the contract value is less than the minimum guaranteed death benefit at the
time of withdrawal, the adjusted withdrawal will equal the actual withdrawal
times the ratio of the minimum guaranteed death benefit to the contract value.
Death of Owner During the Accumulation Period: Upon your death or the death of
any joint owner during the accumulation period, the death benefit will be paid
to the beneficiary(ies) you had designated. Upon death of a joint owner, the
surviving joint owner, if any, will be treated as the primary beneficiary. Any
other beneficiary designation on record at the time of death will be treated as
a contingent beneficiary.
Death Benefit Options During the Accumulation Period: Unless already selected by
the owner, a beneficiary must elect the death benefit to be paid under one (1)
of the options below in the event of the death of an owner during the
accumulation period. Furthermore, if the beneficiary is the spouse of the owner,
he or she may elect to continue this contract in his or her own name and
exercise all the owner's rights under the contract. In this event, the contract
value will be adjusted to equal the death benefit.
Option 1 - lump sum payment of the death benefit;
Option 2 - payment of the entire death benefit within five (5) years of the
date of the death of the owner or any joint owner; or
Option 3 - payment of the death benefit under an annuity option over the
lifetime of the beneficiary or over a period not extending beyond the life
expectancy of the beneficiary with distribution beginning within one (1)
year of the date of death of the owner or any joint owner.
Any portion of the death benefit not applied to option 2 within one (1) year of
the date of death of the owner or joint owner must be distributed within five
(5) years of the date of death.
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and election, unless payment is postponed as
described above.
Payment to the beneficiary, other than in a single sum, may be elected only
during the 60-day period beginning with the date we receive due proof of death.
Contract value is computed as of the date we receive due proof of death of the
owner. From the time the death benefit is determined until complete distribution
is made, any amount in any subaccount will be subject to investment risk which
is borne by the beneficiary.
Death Benefits on or After the Annuity Date: If the owner or joint owner, who is
not the annuitant, dies after the annuity date, any remaining payments under the
annuity option elected will continue at least as rapidly as under the method of
distribution in effect on the date of the owner's death. Upon the death of the
owner during the annuity period, the beneficiary becomes the new owner.
Death of the Annuitant: Upon the death of an annuitant, who is not the owner,
during the accumulation period, the owner automatically becomes the annuitant.
The owner may designate a new annuitant, subject to the Company's underwriting
rules then in effect. If the owner is a non-natural person, the death of the
primary annuitant will be treated as death of the owner and a new annuitant may
not be designated.
Upon the death of the annuitant during the annuity period, the death benefit, if
any, will be as specified in the annuity option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
annuitant's death.
ANNUITY PROVISIONS AND PAYMENT OPTIONS
The Annuity Date: The annuity date may not be sooner than the first day of the
second contract year nor may it be later than the 95th birthday of the
annuitant, or earlier if required by law. Upon your request to annuitize, we
will issue a supplemental contract. If you do not elect an annuity option,
Option 4 with 10 year period certain is the default.
Annuity Payments: Annuity payments start at least 30 days after the annuity
date, provided the annuitant is alive. All annuity payments are made to you,
unless you elect otherwise.
Minimum Annuity Benefit: The minimum annuity benefit will be greater than or
equal to that mandated by law in the state of issue.
Fixed Annuity Payments: Fixed annuity payments are periodic payments that depend
only on the form and duration of the annuity payment option selected, the
annuity value applied to purchase the annuity payments and the age and sex of
the annuitant.
Variable Annuity Payments: The value of a variable annuity payment is based on
the annuity units on the annuity date. The number of annuity units attributable
to each subaccount under a contract remains fixed unless there is an exchange of
annuity units.
Annuity Unit: An annuity unit is the unit of measure used to calculate variable
annuity payments. An annuity unit is calculated by dividing the dollar amount of
the first variable annuity payment attributable to that subaccount by the
annuity unit value of that subaccount.
Annuity Unit Value: The annuity unit value of each subaccount for any business
day is equal to (a) multiplied by (b) divided by (c) where:
(a) is the net investment factor for the business day for which the annuity
unit value is being calculated;
(b) is the annuity unit value for the preceding valuation period;
(c) is the Assumed Investment Factor adjusted for the number of days in the
valuation period. The Annual Investment Factor is equal to one plus 3% or
1.03. The annual factor can be translated into a daily factor of
1.00008098.
Annuity Value: The annuity value is the contract value less any contract
maintenance charge less any applicable taxes.
Payment Option Rate Tables: The amount of monthly payments per $1,000 applied is
shown for a fixed annuity in these tables. For a variable annuity, the tables
show the amount of the first variable annuity payment only. Subsequent variable
annuity payments will change with changes in annuity unit value.
Option 1 - Payment Certain - We pay the annuity value in equal payments as you
specify. The total of all payments made in each year must be at least 5% of the
annuity value applied under this option. The amount of each fixed annuity
payment and the first variable annuity payment for each $1,000 of annuity value
applied is shown in Table 1. The owner has the right of commutation at the
interest rate used for determination of payments less any applicable withdrawal
charges.
Option 2 - Period Certain - We pay the annuity value in equal installments over
a designated period of time you choose of not less than six (6) nor more than
thirty (30) years. The amount of each fixed annuity payment and the first
variable annuity payment for each $1,000 of annuity value applied is shown in
Table 2. The owner has the right of commutation at the interest rate used for
determination of payments less any applicable withdrawal charges.
Option 3 - Life Annuity -- We apply the annuity value to make monthly payments
while the annuitant lives.
Option 4 - Life Annuity with Period Certain - We apply the annuity value to make
monthly payments until the later of the death of the annuitant or the period
certain. The period certain is not to be less than six (6) years nor more than
thirty (30) years. The amount of each fixed annuity payment and the first
variable annuity payment is shown in Table 2. If the annuitant dies during the
period certain payout, the owner has the right of commutation at the interest
rate used for determination of payments .
Option 5 - Joint Life and Survivor Annuity - We apply the annuity value to make
monthly payments while both annuitants are living. After the death of either
annuitant, payments continue as long as the other annuitant still lives. The
amount of each fixed annuity payment and the first variable annuity payment is
shown in Table 3.
Additional Options: We may make other income options available.
<TABLE>
<CAPTION>
TABLE 1 - PAYMENTS CERTAIN (per $1,000 of annuity value applied)
- -------------------------------- -------------------------------------------------------------------------------------
Number Amount of
- -------------------------------- -------------------------------------------------------------------------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
Annual Semi-Annual Quarterly Monthly
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
6 179.22 90.27 45.30 15.14
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
7 155.83 78.49 39.39 13.16
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
8 138.31 69.67 34.96 11.68
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
9 31.52 10.53 31.52 10.53
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
10 28.77 9.61 28.77 9.61
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
11 26.52 8.86 26.52 8.86
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
12 24.66 8.24 24.66 8.24
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
13 23.08 7.71 23.08 7.71
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
14 21.73 7.26 21.73 7.26
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
15 20.56 6.87 20.56 6.87
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
16 19.54 6.53 19.54 6.53
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
17 73.74 37.14 18.64 6.23
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
18 70.59 35.56 17.84 5.96
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
19 67.78 34.14 17.13 5.73
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
20 65.26 32.87 16.50 5.51
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
25 55.76 28.08 14.09 4.71
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
30 49.53 24.95 12.52 4.18
- -------------------------------- ------------------------- --------------------- ------------------ ------------------
<FN>
1983(a) mortality tables at 3% interest with a five (5) year setback for females
</FN>
</TABLE>
<TABLE>
<CAPTION>
Table 2 - Period Certain and Life (per $1,000 of annuity value applied)
- ------------------------- ------------------ ------------------- ------------------ ------------------ ===================
Number of Number Of Number of
- ------------------------- ------------------ ------------------- ------------------ ------------------ ===================
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ---------- --------- =========
Male Female 15 20 Male Female 15 20 Male Female 15 20
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ---------- --------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
16 and 21 and 39 44 $3.59 $3.56 63 68 $5.26 $4.91
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
under under $2.96 $2.96 40 45 3.63 3.60 64 69 5.37 4.97
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17 22 2.98 2.97 41 46 3.67 3.64 65 70 5.47 5.03
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
18 23 2.99 2.99 42 47 3.72 3.68 66 71 5.57 5.09
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
19 24 3.01 3.01 43 48 3.77 3.73 67 72 5.67 5.14
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
20 25 3.03 3.03 44 49 3.82 3.78 68 73 5.77 5.19
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
21 26 3.05 3.05 45 50 3.87 3.82 69 74 5.87 5.23
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
22 27 3.07 3.07 46 51 3.93 3.87 70 75 5.97 5.27
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
23 28 3.09 3.09 47 52 3.98 3.92 71 76 6.06 5.31
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
24 29 3.11 3.11 48 53 4.04 3.98 72 77 6.15 5.35
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
25 30 3.14 3.13 49 54 4.10 4.03 73 78 6.24 5.37
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
26 31 3.16 3.16 50 55 4.17 4.09 74 79 6.32 5.40
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
27 32 3.19 3.18 51 56 4.24 4.15 75 80 6.39 5.42
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
28 33 3.21 3.20 52 57 4.31 4.20 76 81 6.46 5.44
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
29 34 3.24 3.23 53 58 4.38 4.26 77 82 6.52 5.46
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
30 35 3.27 3.26 54 59 4.45 4.33 78 83 6.58 5.47
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
31 36 3.30 3.29 55 60 4.53 4.39 79 84 6.63 5.48
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
32 37 3.33 3.32 56 61 4.61 4.45 80 85 6.67 5.49
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
33 38 3.36 3.35 57 62 4.70 4.52 81 and 6.71 5.50
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
34 39 3.39 3.38 58 63 4.79 4.58 82 over 6.74 5.50
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
35 40 3.43 3.41 59 64 4.88 4.65 83 6.77 5.50
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
36 41 3.47 3.45 60 65 4.97 4.72 84 6.79 5.51
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
37 42 3.50 3.48 61 66 5.07 4.78 85+ 6.81 5.51
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
38 43 3.54 3.52 62 67 5.16 4.85
- ------------ ------------ -------- --------- ------- ----------- -------- --------- ------- ----------- -------- =========
<FN>
o Use the Payee's age nearest the Date of Settlement.
o 1983(a) mortality tables at 3% interest with a five (5) year setback for
females
</FN>
</TABLE>
<TABLE>
<CAPTION>
Joint and Survivor (per $1,000 of annuity value applied)
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
Age of
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
Male Female 60 61 62 63 64 65 66
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
51 56 $3.89 $3.92 $3.94 $3.97 $3.99 $4.01 $4.04
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
52 57 3.93 3.96 3.98 4.01 4.04 4.06 4.08
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
53 58 3.96 3.99 4.02 4.05 4.08 4.11 4.13
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
54 59 4.00 4.03 4.06 4.09 4.12 4.15 4.18
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
55 60 4.03 4.07 4.10 4.14 4.17 4.20 4.23
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
56 61 4.07 4.11 4.14 4.18 4.21 4.25 4.28
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
57 62 4.10 4.14 4.18 4.22 4.26 4.30 4.33
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
58 63 4.14 4.18 4.22 4.26 4.30 4.34 4.38
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
59 64 4.17 4.21 4.26 4.30 4.35 4.39 4.44
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
60 65 4.20 4.25 4.30 4.34 4.39 4.44 4.49
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
61 66 4.23 4.28 4.33 4.38 4.44 4.49 4.54
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
62 67 4.26 4.32 4.37 4.42 4.48 4.53 4.59
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
63 68 4.29 4.35 4.41 4.46 4.52 4.58 4.63
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
64 69 4.32 4.38 4.44 4.50 4.56 4.62 4.68
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
65 70 4.35 4.41 4.47 4.54 4.60 4.66 4.73
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
66 71 4.37 4.44 4.50 4.57 4.64 4.71 4.78
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
67 72 4.40 4.47 4.53 4.60 4.67 4.75 4.82
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
68 73 4.42 4.49 4.56 4.64 4.71 4.79 4.86
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
69 74 4.45 4.52 4.59 4.67 4.74 4.82 4.90
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
70 75 4.47 4.54 4.62 4.70 4.78 4.86 4.94
- ----------------- ----------- ---------- ---------- ---------- -------------- -------------- ------------- ==============
<FN>
1983(a) mortality tables at 3% interest with a five (5) year setback for females
</FN>
</TABLE>
<TABLE>
<CAPTION>
Joint and Survivor (con't.)
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
Age of
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
Male Female 67 68 69 70 71 72 73 74 75
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
51 56 4.06 4.08 4.10 4.12 4.13 4.15 4.17 4.18 4.19
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
52 57 4.11 4.13 4.15 4.17 4.19 4.21 4.23 4.24 4.26
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
53 58 4.16 4.18 4.21 4.23 4.25 4.27 4.29 4.31 4.33
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
54 59 4.21 4.24 4.26 4.29 4.31 4.33 4.36 4.38 4.40
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
55 60 4.26 4.29 4.32 4.35 4.37 4.40 4.42 4.45 4.47
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
56 61 4.32 4.35 4.38 4.41 4.44 4.47 4.49 4.52 4.54
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
57 62 4.37 4.41 4.44 4.47 4.50 4.53 4.56 4.59 4.62
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
58 63 4.42 4.46 4.50 4.54 4.57 4.60 4.64 4.67 4.70
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
59 64 4.48 4.52 4.56 4.60 4.64 4.67 4.71 4.74 4.78
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
60 65 4.53 4.58 4.62 4.66 4.71 4.75 4.79 4.82 4.86
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
61 66 4.59 4.63 4.68 4.73 4.78 4.82 4.86 4.90 4.94
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
62 67 4.64 4.69 4.74 4.80 4.85 4.89 4.94 4.99 5.03
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
63 68 4.69 4.75 4.81 4.86 4.92 4.97 5.02 5.07 5.12
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
64 69 4.74 4.81 4.87 4.93 4.99 5.05 5.10 5.16 5.21
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
65 70 4.80 4.86 4.93 4.99 5.06 5.12 5.18 5.24 5.30
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
66 71 4.85 4.92 4.99 5.06 5.13 5.19 5.26 5.33 5.39
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
67 72 4.89 4.97 5.05 5.12 5.19 5.27 5.34 5.41 5.48
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
68 73 4.94 5.02 5.10 5.18 5.26 5.34 5.42 5.50 5.58
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
69 74 4.99 5.07 5.16 5.24 5.33 5.41 5.50 5.58 5.67
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
70 75 5.03 5.12 5.21 5.30 5.39 5.48 5.58 5.67 5.76
- ----------------- ---------- ----------- ---------- -------- ---------- ----------- -------- --------- --------- ========
<FN>
1983(a) mortality tables at 3% interest with a five (5) year setback for females
</FN>
</TABLE>
Valley Forge Life Insurance Company
A Stock Company
Executive Office: Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
- --------------------------------------------------------------------------------
Annuity payments and other values provided by this contract, when based on the
investment performance of the Variable Account, may increase or decrease daily
as a function of the investment performance of the subaccounts you select and
are not guaranteed as to dollar amount. No minimum contract value is guaranteed.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
VAR-103 (10/99)
VALLEY FORGE LIFE INSURANCE COMPANY
A Stock Company
Executive Office: Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
DOLLAR COST AVERAGING RIDER I
This rider forms a part of the contract to which it is attached.
If you request dollar cost averaging, we will open a dollar cost averaging
account for you under this contract. All purchase payment(s) applied to this
option will be allocated to the dollar cost averaging account. No transfers may
be made into this account.
Before the annuity date, you may choose to have us transfer a fixed dollar
amount on a monthly or quarterly basis from the money market account to any of
the subaccounts or any available one year guaranteed interest rate fixed
account. The transfers will begin when you request but no sooner than seven
business days following receipt of your written notice provided the transfers do
not begin until 30 days after the contract date. Transfers will terminate at the
end of the period you designate or within seven business days of your written
request to terminate these transfers.
To be eligible for dollar cost averaging the following conditions must be met:
1. The value of the dollar cost averaging account must be at least $1,000; and
2. The minimum transfer amount must be at least $100.
You may have only one dollar cost averaging account in operation at one time.
Transfers under the dollar cost averaging are made as of the same day every
calendar month. This day may not be later than the 28th of the month. If this
calendar day is not a business day, transfers are made as of the next business
day. There is no additional charge for this option and these transfers do not
count toward the 12 free transfers each contract year.
We reserve the right to discontinue this option at any point in time or change
its features.
If this option is terminated, all money remaining in the dollar cost averaging
account will be transferred to the money market fund.
Signed for the Company at its Executive Offices in Chicago, Illinois.
Chief Executive Officer Group Vice President
VAR-113 (10/99)
VALLEY FORGE LIFE INSURANCE COMPANY
A Stock Company
Executive Office: Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
DOLLAR COST AVERAGING RIDER II
This rider forms a part of the contract to which it is attached.
If you request dollar cost averaging, we will open a dollar cost averaging
account for you under this contract. All purchase payment(s) applied to this
option will be allocated to the dollar cost averaging account. No transfers may
be made into this account.
Before the annuity date, you may choose to have us transfer a fixed dollar
amount on a monthly or quarterly basis from the dollar cost averaging account to
any of the subaccounts or any one year guaranteed interest rate fixed account
for a 6 or 12 month period. The transfers will begin when you request but no
sooner than seven business days following receipt of your written notice
provided the transfers do not begin until 30 days after the contract date.
Transfers will terminate at the end of the 6 or 12 month period you designate or
within seven business days of your written request to terminate these transfers.
The interest rate earned on this account will be the interest rate earned in a
one year guaranteed interest rate fixed account, plus any additional interest,
which we may declare from time to time.
To be eligible for dollar cost averaging the value of the dollar cost averaging
account must be at least $5,000.
You may have only one dollar cost averaging account in operation at one time.
Transfers under the dollar cost averaging are made as of the same day every
calendar month. This day may not be later than the 28th of the month. If this
calendar day is not a business day, transfers are made as of the next business
day. There is no additional charge for this option and these transfers do not
count toward the 12 free transfers each contract year.
We reserve the right to discontinue this option at any point in time or change
its features.
If this option is terminated, all money remaining in the dollar cost averaging
account will be transferred to the money market fund.
Signed for the Company at its Executive Offices in Chicago, Illinois.
Chief Executive Officer Group Vice President
<TABLE>
<CAPTION>
????-???-? 1/1/99?? APP206-362-?
CNA Capital Select PLUS Variable Annuity
Application for Deferred Variable Annuity Contract/Certificate Issued by Valley Forge Life Insurance Company, a
CNA Insurance Company. Some features may not be available in all states.
For administrative questions, call (800) 827-2621
Please Print or Type All Information
<S> <C> <C>
1. ANNUITANT
__ Male __ Female __Mr. __Mrs. __Ms. __Miss
FIRST NAME____________________ MIDDLE____________________ LAST NAME____________________
RELATIONSHIP TO OWNER___________________________________
DATE OF BIRTH ____________________ SOCIAL SECURITY NO. _________________________
STREET ADDRESS____________________ CITY_____________ STATE________ ZIP____________________
HOME PHONE__________________BUSINESS PHONE ________________E-MAIL ADDRESS______________
CONTINGENT ANNUITANT ___Male ___Female
FIRST NAME____________________ MIDDLE____________________ LAST NAME____________________
RELATIONSHIP TO OWNER___________________________________
DATE OF BIRTH ____________________ SOCIAL SECURITY NO. _________________________
STREET ADDRESS____________________ CITY_____________ STATE________ ZIP____________________
HOME PHONE__________________BUSINESS PHONE ________________
2. OWNER (IF OTHER THAN ANNUITANT)
__Male __Female __Mr. __Mrs. __Ms. __Miss __Individual __Trust
FIRST NAME____________________ MIDDLE____________________ LAST NAME____________________
DATE OF BIRTH ____________________ SOCIAL SECURITY NO. /TAX ID _________________________
STREET ADDRESS____________________ CITY_____________ STATE________ ZIP____________________
HOME PHONE__________________BUSINESS PHONE ________________E-MAIL ADDRESS______________
JOINT OWNER __Male __Female
FIRST NAME ___________________________ MIDDLE_______________ LAST NAME____________________
RELATIONSHIP TO OWNER_____________________________________________________________________
DATE OF BIRTH ________________________ SOCIAL SECURITY/TAX ID NO. _________________________
3. BENEFICIARY
___Primary ___Contingent Percent: %___
FIRST NAME ___________________________ MIDDLE_______________ LAST NAME____________________
RELATIONSHIP TO OWNER_____________________________ DATE OF BIRTH ______________________
ADDRESS OF BENEFICIARY____________________________________________________________________
___Primary ___Contingent Percent: %___
FIRST NAME ___________________________ MIDDLE_______________ LAST NAME____________________
RELATIONSHIP TO OWNER_____________________________ DATE OF BIRTH ______________________
ADDRESS OF BENEFICIARY____________________________________________________________________
ADD INFORMATION ABOUT ADDITIONAL BENEFICIARIES HERE. CONTINUE UNDER SPECIAL INSTRUCTIONS (#9) IF NECESSARY.
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
______________________________________________________________________________________________
4. PLAN TYPE
The annuity will be used in the type of plan checked below:
__Non-qualified: Is this a 1035 Exchange?*
__Yes __No If yes, anticipated $______
__Qualified: Is this a direct transfer?*
__Yes __No If yes, anticipated $ ____
__Regular IRA _______ __Spousal IRA _______
TAX YEAR TAX YEAR
__Rollover IRA __Roth IRA _______
TAX YEAR
__HR-10 (Keough) ______ Other__________
TAX YEAR SPECIFY
__Simplified Employee Pension Plan__________
TAX YEAR
*IF THIS IS A 1035 EXCHANGE OR DIRECT TRANSFER, PLEASE COMPETE A VARIABLE PRODUCTS AUTHORIZATION TO TRANSFER
FUNDS FORM. YOU MAY ALSO NEED TO COMPLETE A REPLACEMENT FORM IN SOME STATES.
5. CONTRIBUTIONS
(MAKE CHECKS PAYABLE TO VALLEY FORGE LIFE INSURANCE COMPANY)
TOTAL CONTRIBUTION: $ ________________
Minimum Initial Deposit for Non-Qualified Plans: $10,000
Minimum Initial Deposit for Qualified Plans: $2,000
6. TELEPHONE TRANSFER AUTHORIZATION
Upon receiving proper identification as outlined in the prospectus, I instruct Valley Forge Life to accept
telephone requests from (check applicable box or boxes)
__me (the owner/s)
__ and/or my designated registered representative,___________________(name of representative). I understand that
neither Valley Forge Life, nor any persons authorized by Valley Forge Life, will be responsible for any claim,
loss, liability or expense in connection with instructions received by telephone from me or the designated
representative, if Valley Forge Life acted on such instruction in good faith in reliance upon this authorization.
Valley Forge Life will continue to act upon this authorization until such time as I notify Valley Forge Life
otherwise in writing.
___________________ ___________________ ___________________
OWNER'S INITIALS JOINT OWNER'S INITIALS DATE
7. PRE-AUTHORIZED CHECK (ATTACH VOIDED CHECK )
I authorize CNA to withdraw $__________on a monthly basis from my checking account for future monthly
contributions to my Contract. A voided check is attached. (MINIMUM IS $100 MONTHLY.)
IF YOU WANT THE WITHDRAWAL TO OCCUR ON A SPECIFIC DAY OF THE MONTH, WRITE THAT DAY HERE______(NOTE THAT THE 29TH,
30TH, AND 31ST ARE NOT AVAILABLE DATES). OTHERWISE, CONTRIBUTIONS WILL BEGIN ONE FREQUENCY AFTER THE DATE OF
ISSUE.
8. ANNUITY DATE
__________________IF NO DATE IS SPECIFIED, THE CONTRACT/CERTIFICATE WILL BE ISSUED WITH ANNUITY DATE AS THE
CONTRACT DATE FOLLOWING THE ANNUITANT'S 95TH BIRTHDAY (UNLESS OTHERWISE SPECIFIED BY STATE REGULATIONS). ANNUITY
OPTION DEFAULTS TO LIFE WITH 10-YEAR PERIOD CERTAIN.
9. SPECIAL INSTRUCTIONS
____________________________________________________________________________________________________________________________________
10. ALLOCATIONS On issued contracts, your initial Net Purchase payment will be allocated as indicated
below. Selections must total 100%. Minimum initial allocation to any single subaccount is 1%. No
fractional percentages.+ These percentages will apply in future years but may be changed at any time by the
owner. If no allocation is indicated, Prime Money Fund will be automatically selected.
FEDERATED ADVISORS
_% PRIME MONEY FUND II (101)
_% UTILITY FUND II (102)
_% HIGH INCOME BOND FUND II (103)
FIDELITY MANAGEMENT AND RESEARCH CO.
_ %VIP EQUITY-INCOME (201)
_% VIP II ASSET MANAGER (202)
_% VIP II INDEX 500 (203)
_% VIP II CONTRAFUND (204)
FRED ALGER MANAGEMENT, INC.
_% AMERICAN SMALL CAP (301)
_% AMERICAN GROWTH (302)
_% AMERICAN MID-CAP GROWTH (303)
MFS ASSET MANAGEMENT, INC.
_% EMERGING GROWTH SERIES (401)
_% RESEARCH SERIES (402)
_% GROWTH WITH INCOME SERIES (403)
_% TOTAL RETURN SERIES (405)
JANUS ASPEN SERIES
_% CAPITAL APPRECIATION PORTFOLIO (510)
_% GROWTH PORTFOLIO (5II)
_% BALANCED PORTFOLIO (512)
_% FLEXIBLE INCOME PORTFOLIO (513)
_% INTERNATIONAL GROWTH PORTFOLIO (514)
_% WORLDWIDE GROWTH PORTFOLIO (515)
SOGEN ASSET MANAGEMENT CORP.
_% OVERSEAS VARIABLE FUND (501)
VAN ECK ASSOCIATES CORP.
_% WORLDWIDE HARD ASSETS (601)
_% EMERGING MARKETS FUND (602)
FIXED ASSETS I
_% 1 YEAR (011)
FIXED ASSETS I I
(GUARANTEED INTEREST OPTIONS)
_% 1 YEAR (001)
_% 3 YEAR (003)
_% 5 Year (005)
_%7 YEAR (007)
_%10 YEAR (010)
OTHER (Please specify)
__%______________
__%_______________
__%_______________
__%_______________
__%_______________
__%_______________
11. DOLLAR COST AVERAGING I authorize the Company to transfer the following amount as indicated below.
(Choose Only One.)
__ DCA (STANDARD VERSION - CAN ACTIVATE AT ANY TIME)
MINIMUM INITIAL DEPOSIT IS $1,000
Initial deposit: $________ or % _______+ MINIMUM TRANSFER AMOUNT: $100
DOLLAR AMOUNT PERCENTAGE AMOUNT
DCA Contributions will be allocated according to instructions in section 10. Unallocated fund balance will be
held in the (Federated) Prime Money Fund II.
Check transfer term:
__Until "Money Market" account is 100% depleted
__Will notify you when to discontinue DCA program
(PLEASE NOTE: NOTIFICATION MUST BE IN WRITING AND MUST BE RECEIVED BY CNA AT LEAST 30 DAYS
PRIOR TO DESIRED DATE OF DISCONTINUATION)
__ End date:____/____/____/
Amount per frequency: $_________________ OR % _______________
Transfer frequency (CHECK ONE) _Monthly _Quarterly
_Semi Annually _Annually
IF YOU WANT THE WITHDRAWAL TO OCCUR ON A SPECIFIC DAY OF THE MONTH, WRITE THAT DAY HERE_____(NOTE THAT THE 29TH,
30TH, AND 31ST ARE NOT AVAILABLE DATES). OTHERWISE, CONTRIBUTIONS WILL BEGIN ONE FREQUENCY AFTER THE DATE OF
ISSUE.
START DATE______END DATE_______(IF USED SEQUENTIALLY WITH OTHER PROGRAMS)*
*REBLANCING, SYSTEMATIC WITHDRAWAL, AND DOLLAR COST AVERAGING CANNOT OCCUR AT THE SAME TIME. HOWEVER, THE
PROGRAMS CAN OCCUR IN SEQUENCE. PLEASE SPECIFY START/END DATES.
__DCA (SPECIAL VERSION - CAN ACTIVATE ONLY WITH INITIAL PURCHASE)
Initial deposit: $ _________ or %___________ MINIMUM INITIAL DEPOSIT IS $5,000.
DOLLAR AMOUNT PERCENTAGE AMT.
MUST BE EXHAUSTED WITHIN SELECTED TIME FRAME (1 YEAR OR 6 MONTHS -- SELECT OPTION 1 OR OPTION 2 BELOW).
DCA Contributions will be allocated according to instructions in section 10. Unallocated fund balance will
receive a fixed-interest rate according to the option selected.
Transfer will be completed in equal percentages throughout the time period and transfer frequency indicated below:
Time period (CHECK ONE) _ Option 1 1 YEAR TO COMPLETE TOTAL FUND TRANSFER
_ Option 2 6 MONTHS TO COMPLETE TOTAL FUND TRANSFER
(PLEASE CONSULT YOUR CNA REPRESENTATIVE FOR CURRENT RATES BEING OFFERED ON EACH OF THESE TWO OPTIONS)
Transfer frequency (CHECK ONE) __ Monthly __Quarterly
SPECIAL DCA WILL BEGIN 1 FREQUENCY AFTER ALL INITIAL FUNDS ARE RECEIVED.
START DATE__________END DATE____________(IF USED SEQUENTIALLY WITH OTHER PROGRAMS)*
*REBALANCING, SYSTEMATIC WITHDRAWAL AND DOLLAR COST AVERAGING CANNOT OCCUR AT THE SAME TIME. HOWEVER, THE
PROGRAMS CAN OCCUR IN SEQUENCE. PLEASE SPECIFY START/END DATES.
12. REBALANCING REBALANCING WILL BEGIN ON THE FIRST BUSINESS DAY OF THE CHOSEN FREQUENCY ONCE THE REQUEST
IS RECEIVED BY THE SERVICE CENTER.
Rebalancing should occur: _Quarterly _Annually
_Semi Annually
START DATE__________END DATE_________(IF USED SEQUENTIALLY WITH OTHER PROGRAMS)*
*REBALANCING, SYSTEMATIC WITHDRAWAL, AND DOLLAR COST AVERAGING CANNOT OCCUR AT THE SAME TIME. HOWEVER, THE
PROGRAMS CAN OCCUR IN SEQUENCE. PLEASE SPECIFY START/END DATES.
13. SYSTEMATIC WITHDRAWAL UNLESS NET WITHDRAWAL IS REQUESTED, THE
AMOUNT IS SENT PRIOR TO DEDUCTION OF SURRENDER CHARGES.
_ Net withdrawal
$_________ or ____________% of account value
Transfer frequency (CHECK ONE) _Monthly _Quarterly
_Semi Annually _Annually
START DATE__________END DATE__________(IF USED SEQUENTIALLY WITH OTHER PROGRAMS)*
*REBALANCING, SYSTEMATIC WITHDRAWAL, AND DOLLAR COST AVERAGING CANNOT OCCUR AT THE SAME TIME. HOWEVER, THE
PROGRAMS CAN OCCUR IN SEQUENCE. PLEASE SPECIFY START/END DATES.
14. STATEMENT OF PARTICIPANT __I Have __Have not received a copy of the current prospectus for the
Capital Select Variable Annuity. Date of Prospectus: ___/____/___. I hereby represent to the best of my
knowledge and belief that each of the statements and answers contained above is full, complete and true, and
that each Social Security number or taxpayer identification number shown above is correct. I understand
that all payments and values, when based on the investment experience of variable accounts, may increase or
decrease in accordance with market performance, and the dollar amounts are not guaranteed. I understand that
amounts payable from the Fixed Account I under this contract are subject to a market value adjustment if
withdrawn or transferred prior to the end of the applicable guaranteed period. I also understand that
surrender charges may be applicable. I believe this contract will meet anticipated financial needs. To the
best of my knowledge, the annuity applied for by this application __ does __ does not replace or
change any insurance or annuity coverage currently in force. Signed at:
____________________________________________________________________
CITY STATE DATE
___________________________________________________________________________________________
ANNUITANT'S SIGNATURE OWNER'S SIGNATURE (IF OTHER THAN ANNUITANT)
____________________________________________________________________________________________
JOINT OWNER'S SIGNATURE AGENT/REGISTERED REP'S SIGNATURE
15. AGENT'S REPLACEMENT QUESTION Do you have knowledge or reason to believe that the annuity applied for
by this application will replace or change any insurance or annuity coverage currently in force on the life
of the proposed annuitant? __Yes __No (If yes, provide details and complete the appropriate replacement
form. If this is a 1035 exchange or direct transfer, please complete a variable product "authorization to
transfer" form.)
AGENT TRANSMITTAL: NOTE: PLEASE PRINT. NAME ENTERED MUST BE IDENTICAL TO THE NAME ON THE AGENT'S STATE
LICENSE.
- -------------------------------------------------------------------------------------------------------------------
WRITING AGENT/REPRESENTATIVE AGENT CODE SPLIT PERCENT
- -------------------------------------------------------------------------------------------------------------------
WRITING AGENT/REPRESENTATIVE AGENT CODE SPLIT PERCENT
- -------------------------------------------------------------------------------------------------------------------
BROKER DEALER DEALER CODE BRANCH ADDRESS PHONE NUMBER
- -------------------------------------------------------------------------------------------------------------------
WHOLESALE BROKER DEALER / MANAGING GENERAL AGENT / LIFE SALES OFFICE / DEALER-AGENCY CODE
For Registered Representative Use Only. Contact your home office for program information:
___ Option A ___Option B ___ Option C
Send applications and fund paperwork to: CNA ATTN: Variable Team P.O. Box 305139 Nashville, TN 37230-5139
Phone: 800-827-2621
Send overnight deliveries to: CNA ATTN: Variable Team 100 CNA Drive Nashville, TN 37214.
????-???-? 1/1/99?? APP206-362-?
</TABLE>
CNA INSURANCE COMPANIES
CNA PLAZA
CHICAGO, ILLINOIS 60685
December 23, 1999
Board of Directors
Valley Forge Life Insurance Company
CNA Plaza, 23S
Chicago, IL 60685
Lady/Gentlemen:
I have acted as counsel to Valley Forge Life Insurance Company (the "Company"),
a Pennsylvania insurance company, Valley Forge Life Insurance Company Variable
Annuity Separate Account (the "Variable Annuity Account") and the Valley Forge
Life Insurance Company Guaranteed Interest Option Account (the "GIO Account") in
connection with the amendment to the registration under the Securities Act of
1933 (file No. 333-8551) of certain flexible premium Variable Annuity Contracts
(the "Contract").
In rendering this opinion, I have assumed the genuineness of all signatures of
all documents I have examined, the authority of representations made to me, the
authenticity of all original documents of which copies were furnished to me, and
the conformity to original documents of all documents submitted to me as
certified, conformed or photostatic copies. I have made such examinations of law
and documents as are in my judgment necessary or appropriate.
Based upon the foregoing, I am of the opinion that:
1. The Company was organized in accordance with the laws of the Commonwealth
of Pennsylvania and is a duly authorized stock life insurance company under
the laws of Pennsylvania and the laws of those states in which the Company
is admitted to do business;
2. The Variable Annuity Account and the GIO Account have been duly created and
are validly existing as separate accounts pursuant to Section 40-37-109 of
the Pennsylvania Unconsolidated Statutes;
3. The Company is authorized to issue the Contracts in those states in which
it is admitted and upon compliance with applicable local law;
4. The Contract, when issued in accordance with the prospectus contained in
the aforesaid registration statement and upon compliance with applicable
local law, will be legal and binding obligations of the Company in
accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment No. 8 of the aforesaid registration statement and to
the reference to me under the caption "Legal Matters" in the prospectus
contained in said amendment to the registration statement.
Sincerely,
s/LYNNE GUGENHEIM
Lynne Gugenheim
Vice President and
Associate General Counsel
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Pre-Effective Amendment No. 1 to Registration
Statement No. 333-8551 and in the Post-Effective Amendment No. 8 to Registration
Statement No. 811-7547, both filed on Form N-4 of Valley Forge Life Insurance
Company Variable Annuity Separate Account of our report on the financial
statements of Valley Forge Life Insurance Company, dated February 10, 1999 and
our report on the financial statements of the Valley Forge Life Insurance
Company Variable Annuity Separate Account, dated February 23, 1999, appearing in
the Registration Statement and to the reference to us under the heading
"Independent Auditors" in the Registration Statement.
Deloitte & Touche LLP
Chicago, Illinois
December 28, 1999
