<PAGE> 1
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June 30, 2000
--------------------------------------------------------------------------------
Dear Contractholder:
Your CNA Capital Select(R) Variable Annuity and PLUS Variable Annuity,
issued by the Valley Forge Life Insurance Company, one of the CNA companies, was
designed to be competitive with some of the best products in the industry -- and
it continues to improve. Within the past year, for instance, we have increased
our roster of fund managers and added a number of subaccounts (which are also
called portfolios) to give you even more flexibility with your investment
choices.
This Semi-Annual Report takes a look at the subaccounts that are
represented in our products. It reflects each subaccount's assets and
liabilities at June 30, 2000, results of operations for the six month period
ending June 30, 2000 and changes in net assets for the six month and twelve
month periods ending June 30, 2000 and December 31, 1999, respectively.*
These subaccounts are managed by widely recognized fund managers:
S Alliance Capital Management L.P.
S American Century Investment Management, Inc.
S Arnhold and S. Bleichroeder Advisors, Inc.
S Federated Investment Management Company
S Fidelity Management & Research Company
S Fred Alger Management, Inc.
S Janus Capital Corporation
S Lazard Asset Management
S Massachusetts Financial Services Company (MFS)
S Morgan Stanley Asset Management, Inc.
S Templeton Asset Management LTD.
S Templeton Investment Counsel, Inc.
S Van Eck Associates Corporation
The full list of subaccounts can be found in the Notes to Financial
Statements, Note 1, Organization, included within this report.
If you need additional information, please refer to your prospectus. If you
can't find it or need another copy, please contact your CNA representative -- or
let us hear from you directly. Thank you, once again, for selecting the CNA
Capital Select(R) Variable Annuity or PLUS Variable Annuity as one of the tools
to help you reach your long-term goals.**
Sincerely,
/s/ Kevin M. Hogan
Kevin M. Hogan
Senior Vice President & Chief Marketing Officer
CNA Investment Products
*Although guaranteed-interest options are available in connection with CNA
Capital Select(R) Variable Annuity and PLUS Variable Annuity, financial reports
regarding the fixed-interest accounts are not included in this report.
**As with many investment products, performance results will vary, and the
cash value of your contract might show an increase or decrease when you withdraw
your money. It's important to remember that taxes will be due to the extent that
any earnings are withdrawn. And, in certain circumstances, withdrawals prior to
age 59 1/2 can result in government-imposed penalties and other charges.
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1
<PAGE> 2
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIP II FIDELITY FIDELITY
FEDERATED FEDERATED FEDERATED VIP ASSET VIP II VIP II
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value
(cost noted below): $21,410,225 $4,718,158 $5,824,852 $9,540,044 $7,327,163 $36,876,961 $21,165,718
----------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL ASSETS 21,410,225 4,718,158 5,824,852 9,540,044 7,327,163 36,876,961 21,165,718
----------- ---------- ---------- ---------- ---------- ----------- -----------
LIABILITIES: - - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $21,410,225 $4,718,158 $5,824,852 $9,540,044 $7,327,163 $36,876,961 $21,165,718
=================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $21,410,225 $4,434,768 $6,443,761 $9,359,634 $6,720,537 $33,190,993 $19,114,467
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
JANUS JANUS JANUS
VAN ECK ASPEN SERIES JANUS JANUS ASPEN SERIES ASPEN SERIES
EMERGING CAPITAL ASPEN SERIES ASPEN SERIES FLEXIBLE INTERNATIONAL
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH
JUNE 30, 2000 (UNAUDITED) FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value (cost
noted below): $1,715,276 $21,361,577 $13,805,207 $12,539,015.. $1,098,534 $15,273,018
---------- ----------- ----------- ----------- ---------- -----------
TOTAL ASSETS 1,715,276 21,361,577 13,805,207 12,539,015.. 1,098,534 15,273,018
---------- ----------- ----------- ----------- ---------- -----------
LIABILITIES: - - - - - -
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,715,276 $21,361,577 $13,805,207 $12,539,015.. $1,098,534 $15,273,018
==================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $1,510,595 $21,459,298 $14,138,097 $12,954,675.. $1,097,804 $16,661,586
==================================================================================================================================
<CAPTION>
JANUS
ASPEN SERIES
WORLD WIDE
GROWTH
JUNE 30, 2000 (UNAUDITED) PORTFOLIO
-------------------------------------- ------------
<S> <C>
ASSETS:
Investments, at market value (cost
noted below): $14,663,875
-----------
TOTAL ASSETS 14,663,875
-----------
LIABILITIES: -
--------------------------------------
NET ASSETS $14,663,875
======================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $14,860,358
======================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
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2
<PAGE> 3
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN AMERICAN MFS GROWTH MFS MFS
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS WITH LIMITED TOTAL
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH INCOME MATURITY RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$9,719,474... $32,877,485 $10,821,180 $155,820 $21,825,361 $6,445,948 $7,028,106 $1,490,868.. $6,152,858
----------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
$9,719,474.. 32,877,485 10,821,180 155,820 21,825,361 6,445,948 7,028,106 1,490,868.. 6,152,858
----------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
- - - - - - - - -
----------------------------------------------------------------------------------------------------------------------------
$9,719,474... $32,877,485 $10,821,180 $155,820 $21,825,361 $6,445,948 $7,028,106 $1,490,868.. $6,152,858
============================================================================================================================
$11,761,415.. $32,767,532 $10,635,748 $148,362 $19,030,031 $5,044,030 $6,816,292 $1,412,000.. $5,590,437
============================================================================================================================
<CAPTION>
FIRST EAGLE VAN ECK
SOGEN WORLDWIDE
OVERSEAS HARD
VARIABLE ASSETS
FUND FUND
--- -----------------------
<C> <C> <S>
$4,536,894 $537,134
---------- --------
4,536,894 537,134
---------- --------
- -
---
$4,536,894 $537,134
===
$3,709,955 $506,832
===
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$790,610 $639,319 $191,326 $135,739.. $47,701 $50,702 $17,647 $42,009 $4,201
-------- -------- -------- -------- ------- ------- ------- ------- ------
790,610 639,319 191,326 135,739.. 47,701 50,702 17,647 42,009 4,201
-------- -------- -------- -------- ------- ------- ------- ------- ------
- - - - - - - - -
--------------------------------------------------------------------------------------------------------------------
$790,610 $639,319 $191,326 $135,739.. $47,701 $50,702 $17,647 $42,009 $4,201
====================================================================================================================
$807,690 $663,828 $194,042 $141,957.. $44,662 $49,158 $18,165 $41,458 $4,105
====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING
MARKETS
EQUITY
PORTFOLIO
--- --------------
<C> <S>
$72,901
-------
72,901
-------
-
---
$72,901
===
$69,294
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
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3
<PAGE> 4
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIP II FIDELITY
FEDERATED FEDERATED FEDERATED VIP ASSET VIP II
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $281,747 $110,778 $ 478,674 $ 139,207 $188,748 $280,261
-------- -------- --------- --------- -------- --------
281,747 110,778 478,674 139,207 188,748 280,261
-------- -------- --------- --------- -------- --------
Expenses:
Mortality and expense risk and administration
charges 148,957 28,121 38,027 61,390 47,151 219,402
-------- -------- --------- --------- -------- --------
148,957 28,121 38,027 61,390 47,151 219,402
-------- -------- --------- --------- -------- --------
NET INVESTMENT INCOME (LOSS) 132,790 82,657 440,647 77,817 141,597 60,859
-------- -------- --------- --------- -------- --------
Investment gains and (losses):
Net realized gains (losses) - (47,804) (64,956) (57,234) 35,580 118,748
Net unrealized gains (losses) - 298,154 (421,218) (56,818) 122,921 174,208
-------- -------- --------- --------- -------- --------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) - 250,350 (486,174) (114,052) 158,501 292,956
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $132,790 $333,007 $ (45,527) $ (36,235) $300,098 $353,815
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FIDELITY
VIP II
CONTRAFUND
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO
-------------------------------------------------- ----------
<S> <C>
Investment income:
Dividend income $ 46,120
--------
46,120
--------
Expenses:
Mortality and expense risk and administration
charges 117,137
--------
117,137
--------
NET INVESTMENT INCOME (LOSS) (71,017)
--------
Investment gains and (losses):
Net realized gains (losses) 94,666
Net unrealized gains (losses) 149,375
--------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) 244,041
--------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $173,024
==================================================
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JANUS JANUS JANUS
VAN ECK ASPEN SERIES JANUS JANUS ASPEN SERIES ASPEN SERIES
EMERGING CAPITAL ASPEN SERIES ASPEN SERIES FLEXIBLE INTERNATIONAL
FOR THE SIX MONTHS ENDED JUNE 30, 2000 MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH
(UNAUDITED) FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income - $ 75,494 $ 529,634 $ 786,506 $ 29,301 $ 38,813
--------- ----------- --------- --------- -------- -----------
- 75,494 529,634 786,506 29,301 38,813
--------- ----------- --------- --------- -------- -----------
Expenses:
Mortality and expense risk and
administration charges $ 10,139 104,350 58,680 56,205 4,886 64,621
--------- ----------- --------- --------- -------- -----------
10,139 104,350 58,680 56,205 4,886 64,621
--------- ----------- --------- --------- -------- -----------
NET INVESTMENT INCOME (LOSS) (10,139) (28,856) 470,954 730,301 24,415 (25,808)
--------- ----------- --------- --------- -------- -----------
Investment gains and (losses):
Net realized gains (losses) 45,548 1,236,903 190,540 1,619 (12,515) 164,967
Net unrealized gains (losses) (256,289) (1,859,941) (634,463) (639,024) (2,208) (1,494,523)
--------- ----------- --------- --------- -------- -----------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) (210,741) (623,038) (443,923) (637,405) (14,723) (1,329,556)
---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(220,880) $ (651,894) $ 27,031 $ 92,896 $ 9,692 $(1,355,364)
=================================================================================================================================
<CAPTION>
JANUS
ASPEN SERIES
WORLD WIDE
FOR THE SIX MONTHS ENDED JUNE 30, 2000 GROWTH
(UNAUDITED) PORTFOLIO
-------------------------------------- ------------
<S> <C>
Investment income:
Dividend income $ 209,472
---------
209,472
---------
Expenses:
Mortality and expense risk and
administration charges 58,784
---------
58,784
---------
NET INVESTMENT INCOME (LOSS) 150,688
---------
Investment gains and (losses):
Net realized gains (losses) 236,234
Net unrealized gains (losses) (535,723)
---------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) (299,489)
--------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(148,801)
======================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
4
<PAGE> 5
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER MFS FIRST EAGLE
AMERICAN THE ALGER AMERICAN AMERICAN MFS GROWTH MFS MFS SOGEN
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS WITH LIMITED TOTAL OVERSEAS
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - - - - $ 2,108 $ 28,193 - $131,423 -
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
- - - - - 2,108 28,193 - 131,423 -
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
$ 48,695 $ 186,103 $ 49,234 $ 249 $ 115,743 39,616 42,503 $11,652 37,469 $ 28,033
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
48,695 186,103 49,234 249 115,743 39,616 42,503 11,652 37,469 28,033
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
(48,695) (186,103) (49,234) (249) (115,743) (37,508) (14,310) (11,652) 93,954 (28,033)
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
2,947,843 3,963,283 1,269,271 3,378 171,749 146,160 67,857 (32,344) (31,989) 122,955
(2,974,772) (2,973,856) (490,431) 7,458 (804,061) 579,202 (35,173) 128,535 629,705 129,522
----------- ----------- ---------- ------- --------- -------- -------- -------- -------- --------
(26,929) 989,427 778,840 10,836 (632,312) 725,362 32,684 96,191 597,716 252,477
-------------------------------------------------------------------------------------------------------------------------------
$ (75,624) $ 803,324 $ 729,606 $10,587 $(748,055) $687,854 $ 18,374 $84,539 $691,670 $224,444
===============================================================================================================================
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
VAN ECK
WORLDWIDE
HARD
ASSETS
FUND
---
<S> <C>
$ 4,238
-------
4,238
-------
4,006
-------
4,006
-------
232
-------
23,834
648
-------
24,482
---
$24,714
===
---
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 16,538 $ 12,433 - - $ 1 - - - -
-------- -------- ------- ------- ------ ------ ----- ----- ----
16,538 12,433 - - 1 - - - -
-------- -------- ------- ------- ------ ------ ----- ----- ----
773 644 $ 192 $ 265 60 $ 100 $ 33 $ 81 $ 2
-------- -------- ------- ------- ------ ------ ----- ----- ----
773 644 192 265 60 100 33 81 2
-------- -------- ------- ------- ------ ------ ----- ----- ----
15,765 11,789 (192) (265) (59) (100) (33) (81) (2)
-------- -------- ------- ------- ------ ------ ----- ----- ----
(4,626) 3,138 (465) 1,210 (148) (516) 48 (107) -
(17,080) (24,509) (2,716) (6,218) 3,039 1,544 (518) 551 96
-------- -------- ------- ------- ------ ------ ----- ----- ----
(21,706) (21,371) (3,181) (5,008) 2,891 1,028 (470) 444 96
--------------------------------------------------------------------------------------------------------------------
$ (5,941) $ (9,582) $(3,373) $(5,273) $2,832 $ 928 $(503) $ 363 $ 94
====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING
MARKETS
EQUITY
PORTFOLIO
---
<S> <C>
-
-------
-
-------
$ 114
-------
114
-------
(114)
-------
(5,785)
3,607
-------
(2,178)
---
$(2,292)
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
5
<PAGE> 6
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED VIP
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) FUND II FUND II BOND FUND II PORTFOLIO
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 132,790 $ 82,657 $ 440,647 $ 77,817
Net realized and unrealized gains (losses) 0 250,350 (486,174) (114,052)
------------ ---------- ---------- ----------
Change in net assets resulting from operations 132,790 333,007 (45,527) (36,235)
------------ ---------- ---------- ----------
From capital transactions:
Net premiums/deposits 17,235,261 1,611,192 875,274 1,768,737
Death benefits (87,746) (719,782) (37,640) (247,478)
Surrenders (1,163,700) (10,181) (1,161) (53,700)
Withdrawals (586,355) (30,038) (52,684) (113,346)
Transfers into (out of) subaccounts, net -- Note 1
(23,788,349) 286,112 229,357 260,475
------------ ---------- ---------- ----------
Change in net assets resulting from capital
transactions (8,390,889) 1,137,303 1,013,146 1,614,688
------------ ---------- ---------- ----------
Increase in net assets (8,258,099) 1,470,310 967,619 1,578,453
Net assets at beginning of period 29,668,324 3,247,848 4,857,233 7,961,591
------------ ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 21,410,225 $4,718,158 $5,824,852 $9,540,044
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 1.00 $ 13.49 $ 9.12 $ 22.91
============================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 21,410,225 349,752 638,690 416,414
============================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ 488,502 $ 112,913 $ 252,191 $ 124,454
Net realized and unrealized gains (losses) - (78,940) (309,577) 65,060
------------ ---------- ---------- ----------
Change in net assets resulting from operations 488,502 33,973 (57,386) 189,514
------------ ---------- ---------- ----------
From capital transactions:
Net premiums/deposits 33,173,793 831,090 1,266,165 2,220,476
Death benefits - (159,614) (191,732) (58,842)
Surrenders (1,163,352) (29,199) (116,987) (310,647)
Withdrawals (335,752) (50,907) (83,712) (131,986)
Transfers into (out of) subaccounts, net -- Note 1
(8,057,071) 928,843 874,120 1,788,608
------------ ---------- ---------- ----------
Change in net assets resulting from capital
transactions 23,617,618 1,520,213 1,747,854 3,507,609
------------ ---------- ---------- ----------
Increase in net assets 24,106,120 1,554,186 1,690,468 3,697,123
Net assets at beginning of period 5,562,204 1,693,662 3,166,765 4,264,468
------------ ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 29,668,324 $3,247,848 $4,857,233 $7,961,591
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 1.00 $ 14.35 $ 10.24 $ 25.71
============================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 29,668,324 226,331 474,339 309,669
============================================================================================================
<CAPTION>
FIDELITY
VIP II FIDELITY FIDELITY
ASSET VIP II VIP II
MANAGER INDEX 500 CONTRAFUND
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 141,597 $ 60,859 $ (71,017)
Net realized and unrealized gains (losses) 158,501 292,956 244,041
---------- ----------- -----------
Change in net assets resulting from operations 300,098 353,815 173,024
---------- ----------- -----------
From capital transactions:
Net premiums/deposits 1,276,669 7,034,620 6,376,375
Death benefits (368,038) (942,194) (639,606)
Surrenders (43,085) (293,953) (88,688)
Withdrawals (83,160) (271,700) (115,329)
Transfers into (out of) subaccounts, net -- Note
357,715 6,740,690 3,630,263
---------- ----------- -----------
Change in net assets resulting from capital
transactions 1,140,101 12,267,463 9,163,015
---------- ----------- -----------
Increase in net assets 1,440,199 12,621,278 9,336,039
Net assets at beginning of period 5,886,964 24,255,683 11,829,679
---------- ----------- -----------
NET ASSETS AT END OF PERIOD $7,327,163 $36,876,961 $21,165,718
--------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 16.54 $ 163.91 $ 25.09
==================================================
UNITS OUTSTANDING AT END OF PERIOD 442,997 224,983 843,592
==================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------
From operations:
Net investment income (loss) $ 132,967 $ (45,601) $ 62,252
Net realized and unrealized gains (losses) 360,225 3,443,825 1,676,921
---------- ----------- -----------
Change in net assets resulting from operations 493,192 3,398,224 1,739,173
---------- ----------- -----------
From capital transactions:
Net premiums/deposits 1,838,108 7,195,871 4,291,826
Death benefits (115,043) (114,424) (120,178)
Surrenders (1,668) (621,921) (225,432)
Withdrawals (50,538) (357,810) (115,676)
Transfers into (out of) subaccounts, net -- Note
1,464,890 4,065,763 2,549,528
---------- ----------- -----------
Change in net assets resulting from capital
transactions 3,135,749 10,167,479 6,380,068
---------- ----------- -----------
Increase in net assets 3,628,941 13,565,703 8,119,241
Net assets at beginning of period 2,258,023 10,689,980 3,710,438
---------- ----------- -----------
NET ASSETS AT END OF PERIOD $5,886,964 $24,255,683 $11,829,679
--------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 18.67 $ 167.41 $ 29.15
==================================================
UNITS OUTSTANDING AT END OF PERIOD 315,317 144,888 405,821
==================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
6
<PAGE> 7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN AMERICAN MFS GROWTH MFS MFS
SMALL AMERICAN MIDCAP LEVERAGED EMERGING MFS WITH LIMITED TOTAL
CAPITALIZATION GROWTH GROWTH ALLCAP GROWTH RESEARCH INCOME MATURITY RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (48,695) $ (186,103) $ (49,234) $ (249) $ (115,743) $ (37,508) $ (14,310) $ (11,652) $ 93,954
(26,929) 989,427 778,840 10,836 (632,312) 725,362 32,684 96,191 597,716
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
(75,624) 803,324 729,606 10,587 (748,055) 687,854 18,374 84,539 691,670
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
3,866,471 7,307,991 4,633,016 241,677 6,651,735 1,523,885 1,263,071 36,049 1,187,406
(397) (246,058) (153,166) - (11,938) (567,372) (17,525) (3,484) (590,185)
(152,923) (329,690) (49,703) - (88,638) (18,655) (46,261) - (30,531)
(77,280) (236,608) (63,803) (102) (102,496) (55,315) (79,370) (13,807) (53,693)
2,227,616 6,454,492 1,861,593 (96,342) 5,356,577 214,187 656,952 (597,459) 87,801
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
5,863,487 12,950,127 6,227,937 145,233 11,805,240 1,096,730 1,776,867 (578,701) 600,798
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
5,787,863 13,753,451 6,957,543 155,820 11,057,185 1,784,584 1,795,241 (494,162) 1,292,468
3,931,611 19,124,034 3,863,637 - 10,768,176 4,661,364 5,232,865 1,985,030 4,860,390
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
$9,719,474 $32,877,485 $10,821,180 $155,820 $21,825,361 $6,445,948 $7,028,106 $1,490,868 $6,152,858
----------------------------------------------------------------------------------------------------------------------------
$ 32.26 $ 57.40 $ 32.15 $ 50.06 $ 35.05 $ 23.24 $ 21.15 $ 10.04 $ 17.33
============================================================================================================================
301,286 572,778 336,584 3,113 622,692 277,364 332,298 148,493 355,041
============================================================================================================================
----------------------------------------------------------------------------------------------------------------------------
$ 209,821 $ 797,115 $ 191,821 - $ (70,170) $ (10,995) $ (33,005) $ 89,209 $ 92,099
877,579 2,623,150 550,917 - 3,333,425 762,397 169,842 (32,181) (112,598)
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
1,087,400 3,420,265 742,738 - 3,263,255 751,402 136,837 57,028 (20,499)
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
1,066,895 5,221,581 1,384,117 - 2,740,437 1,024,522 1,191,276 261,437 1,432,338
- (52,193) (9,196) - (5,257) (33,341) - (11,410) (175,729)
(13,535) (246,417) (30,775) - (31,310) (36,878) (26,140) (77,142) (82,248)
(33,248) (208,410) (38,843) - (34,437) (35,053) (59,788) (22,640) (61,388)
222,844 5,544,308 642,592 - 1,911,677 1,312,541 1,605,262 746,199 1,874,729
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
1,242,956 10,258,869 1,947,895 - 4,581,110 2,231,791 2,710,610 896,444 2,987,702
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
2,330,356 13,679,134 2,690,633 - 7,844,365 2,983,193 2,847,447 953,472 2,967,203
1,601,255 5,444,900 1,173,004 - 2,923,811 1,678,171 2,385,418 1,031,558 1,893,187
---------- ----------- ----------- -------- ----------- ---------- ---------- ---------- ----------
$3,931,611 $19,124,034 $ 3,863,637 - $10,768,176 $4,661,364 $5,232,865 $1,985,030 $4,860,390
----------------------------------------------------------------------------------------------------------------------------
$ 55.15 $ 64.38 $ 32.23 - $ 37.94 $ 23.34 $ 21.31 $ 9.81 $ 17.75
============================================================================================================================
71,289 297,049 119,877 - 283,821 199,716 245,559 202,348 273,825
============================================================================================================================
<CAPTION>
FIRST EAGLE VAN ECK
SOGEN WORLDWIDE VAN ECK
OVERSEAS HARD EMERGING
VARIABLE ASSETS MARKETS
FUND FUND FUND
--- ------------------------------------
<S> <C> <C> <C>
$ (28,033) $ 232 $ (10,139)
252,477 24,482 (210,741)
---------- -------- ----------
224,444 24,714 (220,880)
---------- -------- ----------
721,002 103,723 607,583
(1,118) - (5,663)
(110,751) - (17,513)
(12,605) (1,886) (7,423)
392,757 46,785 276,083
---------- -------- ----------
989,285 148,622 853,067
---------- -------- ----------
1,213,729 173,336 632,187
3,323,165 363,798 1,083,089
---------- -------- ----------
$4,536,894 $537,134 $1,715,276
---
$ 15.05 $ 11.26 $ 12.49
===
301,455 47,703 137,332
===
---
$ (2,716) $ (668) $ (8,211)
937,133 48,357 516,095
---------- -------- ----------
934,417 47,689 507,884
---------- -------- ----------
411,295 150,522 195,914
- - -
(87,477) (8,640) -
(73,467) (1,989) (15,623)
99,935 35,073 (6,561)
---------- -------- ----------
350,286 174,966 173,730
---------- -------- ----------
1,284,703 222,655 681,614
2,038,462 141,143 401,475
---------- -------- ----------
$3,323,165 $363,798 $1,083,089
---
$ 14.18 $ 10.96 $ 14.26
===
234,356 33,193 75,953
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
7
<PAGE> 8
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS
ASPEN SERIES JANUS JANUS ASPEN SERIES
CAPITAL ASPEN SERIES ASPEN SERIES FLEXIBLE
APPRECIATION GROWTH BALANCED INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (28,856) $ 470,954 $ 730,301 $ 24,415
Net realized and unrealized gains (losses) (623,038) (443,923) (637,405) (14,723)
----------- ----------- ----------- ----------
Change in net assets resulting from operations (651,894) 27,031 92,896 9,692
----------- ----------- ----------- ----------
From capital transactions:
Net premiums/deposits 12,828,818 9,009,204 4,412,382 596,504
Death benefits (20,667) - (95,598) -
Surrenders (146,366) (204,121) (13,150) -
Withdrawals (122,595) (80,999) (116,776) (8,287)
Transfers into (out of) subaccounts, net -- Note 1
1,251,627 2,188,380 4,678,447 294,748
----------- ----------- ----------- ----------
Change in net assets resulting from capital
transactions 13,790,817 10,912,464 8,865,305 882,965
----------- ----------- ----------- ----------
Increase in net assets 13,138,923 10,939,495 8,958,201 892,657
Net assets at beginning of period 8,222,654 2,865,712 3,580,814 205,877
----------- ----------- ----------- ----------
NET ASSETS AT END OF PERIOD $21,361,577 $13,805,207 $12,539,015 $1,098,534
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 31.73 $ 32.89 $ 26.32 $ 11.25
=============================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 673,230 419,739 476,406 97,647
=============================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ (19,876) $ (5,105) $ (4,713) $ (324)
Net realized and unrealized gains (losses) 1,779,858 305,014 223,405 2,109
----------- ----------- ----------- ----------
Change in net assets resulting from operations 1,759,982 299,909 218,692 1,785
----------- ----------- ----------- ----------
From capital transactions:
Net premiums/deposits 6,485,581 2,588,038 3,367,893 204,092
Death benefits - - - -
Surrenders (11,563) (9,539) - -
Withdrawals (11,346) (12,696) (5,771) -
Transfers into (out of) subaccounts, net - Note 1
- - - -
----------- ----------- ----------- ----------
Change in net assets resulting from capital
transactions 6,462,672 2,565,803 3,362,122 204,092
----------- ----------- ----------- ----------
Increase in net assets 8,222,654 2,865,712 3,580,814 205,877
Net assets at beginning of period - - - -
----------- ----------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 8,222,654 $ 2,865,712 $ 3,580,814 $ 205,877
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 33.17 $ 33.65 $ 27.92 $ 11.42
=============================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 247,894 85,162 128,253 18,028
=============================================================================================================
<CAPTION>
JANUS JANUS
ASPEN SERIES APEN SERIES
INTERNATIONAL WORLD WIDE
GROWTH GROWTH
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) PORTFOLIO PORTFOLIO
-------------------------------------------------- ----------------------------
<S> <C> <C>
From operations:
Net investment income (loss) $ (25,808) $ 150,688
Net realized and unrealized gains (losses) (1,329,556) (299,489)
----------- -----------
Change in net assets resulting from operations (1,355,364) (148,801)
----------- -----------
From capital transactions:
Net premiums/deposits 7,613,999 8,872,723
Death benefits - (99,124)
Surrenders (86,079) (49,843)
Withdrawals (78,984) (87,293)
Transfers into (out of) subaccounts, net -- Note
8,455,107 3,442,718
----------- -----------
Change in net assets resulting from capital
transactions 15,904,043 12,079,181
----------- -----------
Increase in net assets 14,548,679 11,930,380
Net assets at beginning of period 724,339 2,733,495
----------- -----------
NET ASSETS AT END OF PERIOD $15,273,018 $14,663,875
--------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 39.69 $ 48.03
==================================================
UNITS OUTSTANDING AT END OF PERIOD 384,808 305,307
==================================================
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------
From operations:
Net investment income (loss) $ (664) $ (3,010)
Net realized and unrealized gains (losses) 107,623 339,397
----------- -----------
Change in net assets resulting from operations 106,959 336,387
----------- -----------
From capital transactions:
Net premiums/deposits 617,608 2,407,678
Death benefits - -
Surrenders - (8,172)
Withdrawals (228) (2,401)
Transfers into (out of) subaccounts, net - Note
- 3
----------- -----------
Change in net assets resulting from capital
transactions 617,380 2,397,108
----------- -----------
Increase in net assets 724,339 2,733,495
Net assets at beginning of period - -
----------- -----------
NET ASSETS AT END OF PERIOD $ 724,339 $ 2,733,495
--------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 38.67 $ 47.75
==================================================
UNITS OUTSTANDING AT END OF PERIOD 18,731 57,246
==================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
8
<PAGE> 9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLIANCE AMERICAN TEMPLETON
ALLIANCE GROWTH CENTURY AMERICAN DEVELOPING TEMPLETON LAZARD LAZARD MORGAN STANLEY
PREMIER AND VP INCOME CENTURY MARKETS ASSET RETIREMENT RETIREMENT INTERNATIONAL
GROWTH INCOME & GROWTH VP VALUE SECURITIES STRATEGY EQUITY SMALL CAP MAGNUM
PORTFOLIO PORTFOLIO FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15,765 $ 11,789 $ (192) $ (265) $ (59) $ (100) $ (33) $ (81) $ (2)
(21,706) (21,371) (3,181) (5,008) 2,891 1,028 (470) 444 96
-------- -------- -------- -------- ------- ------- ------- ------- ------
(5,941) (9,582) (3,373) (5,273) 2,832 928 (503) 363 94
-------- -------- -------- -------- ------- ------- ------- ------- ------
671,936 591,976 179,983 134,785.. 37,080 49,774 18,150 39,000 3,059
- - - - - - - - -
- - - - - - - - -
(30) (78) (337) (336) - - - - -
124,645 57,003 15,053 6,563... 7,789 - - 2,646 1,048
-------- -------- -------- -------- ------- ------- ------- ------- ------
796,551 648,901 194,699 141,012.. 44,869 49,774 18,150 41,646 4,107
-------- -------- -------- -------- ------- ------- ------- ------- ------
790,610 639,319 191,326 135,739.. 47,701 50,702 17,647 42,009 4,201
- - - - - - - - -
-------- -------- -------- -------- ------- ------- ------- ------- ------
$790,610 $639,319 $191,326 $135,739.. $47,701 $50,702 $17,647 $42,009 $4,201
--------------------------------------------------------------------------------------------------------------------
$ 39.50 $ 21.30 $ 7.67 $5.42.... $ 6.37 $ 19.57 $ 11.47 $ 10.78 $13.45
====================================================================================================================
20,015 30,015 24,945 25,044.. 7,488 2,591 1,539 3,897 312
====================================================================================================================
<CAPTION>
MORGAN STANLEY
EMERGING MARKETS
EQUITY
PORTFOLIO
--- ----------------
<S> <C>
$ (114)
(2,178)
-------
(2,292)
-------
70,407
-
-
(201)
4,987
-------
75,193
-------
72,901
-
-------
$72,901
---
$ 13.18
===
5,531
===
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
9
<PAGE> 10
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 -- (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 87% 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 35* 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 INVESTMENT MANAGEMENT COMPANY:
Federated Prime Money Fund II
Federated Utility Fund II
Federated High Income Bond Fund II
FIDELITY MANAGEMENT & RESEARCH COMPANY:
Fidelity Equity -- Income Portfolio V.I.P.
Fidelity Asset Manager Portfolio V.I.P. II
Fidelity Index 500 Portfolio V.I.P. II
Fidelity Contrafund(R) Portfolio V.I.P. II
FRED ALGER MANAGEMENT, INC.:
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Leveraged AllCap Portfolio
MASSACHUSETTS FINANCIAL SERVICES COMPANY:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS Limited Maturity Series (Closed to new investments)
MFS Total Return Series
ARNHOLD AND S.BLEICHROEDER ADVISORS, INC.:
First Eagle SoGen Overseas Variable Fund
VAN ECK ASSOCIATES CORPORATION:
Van Eck Worldwide Hard Assets Fund
Van Eck Worldwide Emerging Markets Fund
------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
------------------------------------------------------------
JANUS CAPITAL CORPORATION:
Janus Aspen Series Capital Appreciation Portfolio
Janus Aspen Series Growth Portfolio
Janus Aspen Series Balanced Portfolio
Janus Aspen Series Flexible Income Portfolio
Janus Aspen Series International Growth Portfolio
Janus Aspen Series Worldwide Growth Portfolio
ALLIANCE CAPITAL MANAGEMENT L. P.:
Alliance Premier Growth Portfolio
Alliance Growth and Income Portfolio
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.:
American Century VP Income & Growth Fund
American Century VP Value Fund
TEMPLETON ASSET MANAGEMENT LTD.:
Templeton Developing Markets Securities Fund
TEMPLETON INVESTMENT COUNSEL, INC.:
Templeton Asset Strategy Fund
LAZARD ASSET MANAGEMENT:
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
MORGAN STANLEY ASSET MANAGEMENT INC.:
Morgan Stanley International Magnum Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
*The MFS Limited Maturity Series subaccount is no longer available for new
allocations as of May 1, 1999.
--------------------------------------------------------------------------------
10
<PAGE> 11
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 -- (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION (CONTINUED)
--------------------------------------------------------------------------------
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 segregated 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 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 first-in first-out cost method.
FEDERAL INCOME TAXES -- Net investment income and realized gains and losses
on investments of the Variable Account are taxable to contractholders generally
upon distribution. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of Variable Account's management, these statements include all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position, results of operations and
changes in net assets in the accompanying financial statements.
--------------------------------------------------------------------------------
11
<PAGE> 12
--------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 -- (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 3. 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 is to cover a
portion of VFL's administrative expenses related to the contracts.
VFL deducts a daily administration charge from the assets of the
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 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
of each of the Funds that the Variable Account participates in, that the mutual
Funds satisfy the diversification requirement of the regulations.
--------------------------------------------------------------------------------
NOTE 5. OTHER EVENTS
--------------------------------------------------------------------------------
On March 8, 2000, CNA announced that it was exploring the sale of the
individual life insurance and reinsurance businesses. On August 8, 2000, CNA
announced that it had completed exploring the sale of the individual life
insurance and life reinsurance businesses and that it would retain the
individual life, long term care and retirement services businesses. CNA
announced that it would continue to explore the separate sale of its life
reinsurance business. The sale of the life reinsurance business is not expected
to have any impact on results of operations or equity of the Variable Annuity
Separate Account or those of Valley Forge Life Insurance Company.
--------------------------------------------------------------------------------
12
<PAGE> 13
CNA CAPITAL SELECT(R)
VARIABLE ANNUITY &
PLUS Variable Annuity
SEMI-ANNUAL REPORT
DATED JUNE 30, 2000
Issued by the Valley Forge
Life Insurance Company,
one of the CNA companies
[CNA LOGO]
<PAGE> 14
The principle underwriter of these products is CNA Investor Services, Inc., a
registered broker-dealer and member of the National Association of Securities
Dealers. CNA Investor Services, Inc., is an affiliate of CNA Financial
Corporation. CNA annuities are issued by the Valley Forge Life Insurance
Company, one of the CNA companies.
CNA is a registered service mark of the CNA Financial Corporation.
The policy form numbers for these products are: (CNA Capital Select Variable
Annuity) V100-1128-A Series, V100-1129-A Series, ~P4-119913-A Series and
P4-119914-A Series, (CNA Capital Select PLUS Variable Annuity) VA-101 Series.
CNA Capital Select Variable Annuity & PLUS Variable Annuity are not available in
all states.
Mailing Addresses:
CNA Insurance Companies
Variable Support Center
P.O. Box 305153
Nashville, TN 37230-5153
CNA Insurance Companies
Variable Support Center
100 CNA Drive
Nashville, TN 37214-3439
www.CNAvariable.com
[CNA LOGO]
AG-139107-A 8/00 Printed in USA
