<PAGE> 1
CNA
CAPITAL SELECT
VARIABLE
ANNUITY
================================================================================
ANNUAL REPORT
ISSUED BY THE
VALLEY FORGE
LIFE INSURANCE COMPANY,
ONE OF THE CNA
COMPANIES
DECEMER 31, 1999
CNA
FOR ALL THE COMMITMENTS YOU MAKE
<PAGE> 2
- --------------------------------------------------------------------------------
February 24, 2000
- --------------------------------------------------------------------------------
Dear Contractholder:
This Annual Report includes the statements of assets and liabilities as of
December 31, 1999, statements of operations for the year then ended, statements
of changes in net assets for the two years ended December 31, 1999 and the
Independent Auditors' Report thereon for each of the subaccounts available
through your CNA Capital Select(R) Variable Annuity contract/policy.*
These subaccounts are managed by widely recognized portfolio managers such
as Federated, Fidelity, Fred Alger, MFS and others. It's worth noting that
during 1999, CNA added Janus to this list of popular portfolio managers when we
made six Janus portfolios available to you and other contractowners.
In addition to performance information, a full list of the subaccounts
currently available (complete with information detailing the total shares and
market value held by CNA Capital Select VA contract owners in aggregate),
contractual information about the separate accounts, and other notes of
interest.
Your CNA Capital Select Variable Annuity ("Contract") is issued by Valley
Forge Life Insurance Company, one of the CNA companies.
For more than a century, CNA has been helping people across America meet
their insurance and financial needs. We hope that your CNA Capital Select
Variable Annuity - with its multiple investment options, tax deferral and
penalty - free access provisions** -- will continue to help you meet your needs,
as well.
To that end, I encourage you to read the enclosed annual report fully. If
you have questions, please contact your CNA representative. Or call our
administrative offices, toll-free, at 1-800-827-2621.
Thanks again for doing business with CNA.
David M. Chermow
David M. Chernow
Senior Vice President & Chief Operating Officer
CNA Investment Products
* Although guaranteed-interest options are available in connection with CNA
Capital Select Variable Annuity, financial reports regarding these
fixed-interest funds are not included in this report.
** 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.
Actual investment performance results will vary, and you may have a gain or
loss when you withdraw your money.
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1
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value
(See Supplemental cost
information below) $29,703,202 $3,355,716 $4,861,406 $8,012,656 $5,992,679 $24,349,701 $11,949,857
----------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL ASSETS 29,703,202 3,355,716 4,861,406 8,012,656 5,992,679 24,349,701 11,949,857
----------- ---------- ---------- ---------- ---------- ----------- -----------
LIABILITIES:
Payable for fund withdrawals
and surrenders (34,878) (107,868) (4,173) (51,065) (105,715) (94,018) (120,178)
----------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES (34,878) (107,868) (4,173) (51,065) (105,715) (94,018) (120,178)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $29,668,324 $3,247,848 $4,857,233 $7,961,591 $5,886,964 $24,255,683 $11,829,679
=================================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $29,668,324 $3,262,612 $5,061,507 $7,724,362 $5,835,260 $20,734,923 $ 9,927,803
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
JANUS JANUS
VAN ECK ASPEN JANUS JANUS ASPEN
EMERGING CAPITAL ASPEN ASPEN FLEXIBLE
MARKETS APPRECIATION GROWTH BALANCED INCOME
DECEMBER 31, 1999 FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value (See
Supplemental cost information below) $1,085,079 $8,222,654 $2,866,575 $3,580,814 $260,415
---------- ---------- ---------- ---------- --------
TOTAL ASSETS 1,085,079 8,222,654 2,866,575 3,580,814 260,415
---------- ---------- ---------- ---------- --------
LIABILITIES:
Payable for fund withdrawals and
surrenders (1,990) -- (863) -- (54,538)
---------- ---------- ---------- ---------- --------
TOTAL LIABILITIES (1,990) -- (863) -- (54,538)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,083,089 $8,222,654 $2,865,712 $3,580,814 $205,877
======================================================================================================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $ 621,316 $6,460,434 $2,564,139 $3,357,450 $202,939
======================================================================================================================
<CAPTION>
JANUS JANUS
ASPEN ASPEN
INTERNATIONAL WORLD WIDE
GROWTH GROWTH
DECEMBER 31, 1999 PORTFOLIO PORTFOLIO
- ------------------------------------------ -----------------------------
<S> <C> <C>
ASSETS:
Investments, at market value (See
Supplemental cost information below) $724,430 $2,733,573
-------- ----------
TOTAL ASSETS 724,430 2,733,573
-------- ----------
LIABILITIES:
Payable for fund withdrawals and
surrenders (91) (78)
-------- ----------
TOTAL LIABILITIES (91) (78)
- ------------------------------------------
NET ASSETS $724,339 $2,733,495
==========================================
SUPPLEMENTAL COST INFORMATION:
Investments, at cost: $618,384 $2,394,255
==========================================
</TABLE>
See accompanying Notes to Financial Statements.
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2
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<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS MFS SOGEN
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL OVERSEAS
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$3,931,611 $19,149,543 $3,883,853 $10,768,176 $4,694,705 $5,275,194 $2,127,072 $5,011,714 $3,323,165
---------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
3,931,611 19,149,543 3,883,853 10,768,176 4,694,705 5,275,194 2,127,072 5,011,714 3,323,165
---------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
-- (25,509) (20,216) -- (33,341) (42,329) (142,042) (151,324) --
---------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
-- (25,509) (20,216) -- (33,341) (42,329) (142,042) (151,324) --
- -------------------------------------------------------------------------------------------------------------------------------
$3,931,611 $19,124,034 $3,863,637 $10,768,176 $4,661,364 $5,232,865 $1,985,030 $4,860,390 $3,323,165
===============================================================================================================================
$2,998,780 $16,042,433 $3,187,774 $ 7,168,784 $3,838,648 $4,985,879 $2,034,696 $4,927,674 $2,632,373
===============================================================================================================================
<CAPTION>
VAN ECK
WORLDWIDE
HARD
ASSETS
FUND
- --- ---------
<C> <S>
$410,436
--------
410,436
--------
(46,638)
--------
(46,638)
- ---
$363,798
===
$328,321
===
</TABLE>
See accompanying Notes to Financial Statements.
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3
<PAGE> 5
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FEDERATED FEDERATED FEDERATED FIDELITY ASSET FIDELITY FIDELITY
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME MANAGER INDEX 500 CONTRAFUND
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $706,558 $149,669 $ 304,785 $216,369 $180,618 $ 190,903 $ 161,610
-------- -------- --------- -------- -------- ---------- ----------
706,558 149,669 304,785 216,369 180,618 190,903 161,610
-------- -------- --------- -------- -------- ---------- ----------
Expenses:
Mortality and expense risk and
administration charges 218,056 36,756 52,594 91,915 47,651 236,504 99,358
-------- -------- --------- -------- -------- ---------- ----------
218,056 36,756 52,594 91,915 47,651 236,504 99,358
-------- -------- --------- -------- -------- ---------- ----------
NET INVESTMENT INCOME (LOSS) 488,502 112,913 252,191 124,454 132,967 (45,601) 62,252
-------- -------- --------- -------- -------- ---------- ----------
Investment gains and (losses):
Net realized gains (losses) - 10,509 (126,349) 27,187 45,050 1,086,783 251,862
Net unrealized gains (losses) - (89,449) (183,228) 37,873 315,175 2,357,042 1,425,059
-------- -------- --------- -------- -------- ---------- ----------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) - (78,940) (309,577) 65,060 360,225 3,443,825 1,676,921
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $488,502 $ 33,973 $ (57,386) $189,514 $493,192 $3,398,224 $1,739,173
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JANUS JANUS JANUS JANUS
VAN ECK ASPEN JANUS JANUS ASPEN ASPEN ASPEN
EMERGING CAPITAL ASPEN ASPEN FLEXIBLE INTERNATIONAL WORLD WIDE
MARKETS APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income - - - - - - -
-------- ---------- -------- -------- ----------- ---------- --------
- - - - - - -
-------- ---------- -------- -------- ----------- ---------- --------
Expenses:
Mortality and expense risk and
administration charges $ 8,211 $ 19,876 $ 5,105 $ 4,713 $ 324 $ 664 $ 3,010
-------- ---------- -------- -------- ----------- ---------- --------
8,211 19,876 5,105 4,713 324 664 3,010
-------- ---------- -------- -------- ----------- ---------- --------
NET INVESTMENT INCOME (LOSS) (8,211) (19,876) (5,105) (4,713) (324) (664) (3,010)
-------- ---------- -------- -------- ----------- ---------- --------
Investment gains and (losses):
Net realized gains (losses) (10,144) 17,638 3,441 41 (829) 1,668 157
Net unrealized gains (losses) 526,239 1,762,220 301,573 223,364 2,938 105,955 339,240
-------- ---------- -------- -------- ----------- ---------- --------
NET REALIZED AND UNREALIZED
INVESTMENT GAINS (LOSSES) 516,095 1,779,858 305,014 223,405 2,109 107,623 339,397
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $507,884 $1,759,982 $299,909 $218,692 $ 1,785 $ 106,959 $336,387
====================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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4
<PAGE> 6
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE ALGER THE ALGER MFS VAN ECK
AMERICAN THE ALGER AMERICAN MFS GROWTH MFS MFS SOGEN WORLDWIDE
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL OVERSEAS HARD
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 240,850 $ 958,176 $220,841 - $32,893 $ 23,662 $112,682 $ 143,153 $ 34,501 $ 2,253
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
240,850 958,176 220,841 - 32,893 23,662 112,682 143,153 34,501 2,253
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
31,029 161,061 29,020 $ 70,170 43,888 56,667 $23,473 51,054 37,217 2,921
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
31,029 161,061 29,020 70,170 43,888 56,667 23,473 51,054 37,217 2,921
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
209,821 797,115 191,821 (70,170) (10,995) (33,005) 89,209 92,099 (2,716) (668)
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
(27,093) 335,913 21,690 245,537 107,121 122,217 (6,655) 14,997 140,440 (1,568)
904,672 2,287,237 529,227 3,087,888 655,276 47,625 (25,526) (127,595) 796,693 49,925
---------- ---------- -------- ---------- -------- -------- -------- --------- -------- --------
877,579 2,623,150 550,917 3,333,425 762,397 169,842 (32,181) (112,598) 937,133 48,357
- -----------------------------------------------------------------------------------------------------------------------------
$1,087,400 $3,420,265 $742,738 $3,263,255 $751,402 $136,837 $57,028 $ (20,499) $934,417 $ 47,689
=============================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
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5
<PAGE> 7
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VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FIDELITY
PRIME MONEY UTILITY HIGH INCOME EQUITY-INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999 FUND II FUND II BOND FUND II PORTFOLIO
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==============================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------
From operations:
Net investment income (loss) $ 207,113 $ 3,202 $ (9,420) $ 8,287
Net realized and unrealized gains
(losses) 634 97,354 (26,804) 186,584
------------ ---------- ---------- ----------
Change in net assets resulting
from operations 207,747 100,556 (36,224) 194,871
------------ ---------- ---------- ----------
From capital transactions:
Net premiums/deposits 24,848,283 1,307,253 2,301,701 2,167,250
Death benefits (15,275) (19,978) (13,846) (7,421)
Surrenders (198,856) (15,885) (12,264) (37,904)
Withdrawals (112,539) (77,318) (93,235) (31,134)
Transfers into (out of) subaccounts, net --
Note 1
(20,028,240) 348,351 830,154 1,482,837
------------ ---------- ---------- ----------
Change in net assets resulting
from capital transactions 4,493,373 1,542,423 3,012,510 3,573,628
------------ ---------- ---------- ----------
Increase in net assets 4,701,120 1,642,979 2,976,286 3,768,499
Net assets at beginning of period 861,084 50,683 190,479 495,969
------------ ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 5,562,204 $1,693,662 $3,166,765 $4,264,468
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 1.00 $ 15.27 $ 10.92 $ 25.42
==============================================================================================
UNITS OUTSTANDING AT END OF PERIOD 5,562,204 110,914 289,997 167,760
==============================================================================================
<CAPTION>
FIDELITY
ASSET FIDELITY FIDELITY
MANAGER INDEX 500 CONTRAFUND
FOR THE YEAR ENDED DECEMBER 31, 1999 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------ --------------------------------------
<S> <C> <C> <C>
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) subaccount
net -- Note 1
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
====================================
FOR THE YEAR ENDED DECEMBER 31, 1998
- ------------------------------------
From operations:
Net investment income (loss) $ 19,013 $ (22,378) $ 3,442
Net realized and unrealized gains
(losses) 141,214 1,288,532 507,452
---------- ----------- -----------
Change in net assets resulting
from operations 160,227 1,266,154 510,894
---------- ----------- -----------
From capital transactions:
Net premiums/deposits 1,237,984 6,238,184 1,114,162
Death benefits -- -- (10,449)
Surrenders (1,620) (50,773) (23,821)
Withdrawals (22,890) (110,964) (23,659)
Transfers into (out of) subaccount
Note 1
616,956 2,784,494 1,814,245
---------- ----------- -----------
Change in net assets resulting
from capital transactions 1,830,430 8,860,941 2,870,478
---------- ----------- -----------
Increase in net assets 1,990,657 10,127,095 3,381,372
Net assets at beginning of period 267,366 562,885 329,066
---------- ----------- -----------
NET ASSETS AT END OF PERIOD $2,258,023 $10,689,980 $ 3,710,438
- ------------------------------------
NET ASSET VALUE PER UNIT AT END OF
PERIOD $ 18.16 $ 141.25 $ 24.44
====================================
UNITS OUTSTANDING AT END OF PERIOD 124,340 75,681 151,818
====================================
</TABLE>
See accompanying Notes to Financial Statements.
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6
<PAGE> 8
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- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
THE THE
ALGER THE ALGER MFS
AMERICAN ALGER AMERICAN MFS GROWTH MFS MFS SOGEN
SMALL AMERICAN MIDCAP EMERGING MFS WITH LIMITED TOTAL OVERSEAS
CAPITALIZATION GROWTH GROWTH GROWTH RESEARCH INCOME MATURITY RETURN VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES SERIES SERIES FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 209,821 $ 797,115 $ 191,821 $ (70,170) $ (10,995) $ (33,005) $ 89,209 $ 92,099 $ (2,716)
877,579 2,623,150 550,917 3,333,425 762,397 169,842 (32,181) (112,598) 937,133
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,087,400 3,420,265 742,738 3,263,255 751,402 136,837 57,028 (20,499) 934,417
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,066,895 5,221,581 1,384,117 2,740,437 1,024,522 1,191,276 261,437 1,432,338 411,295
-- (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) (87,477)
(33,248) (208,410) (38,843) (34,437) (35,053) (59,788) (22,640) (61,388) (73,467)
222,844 5,544,308 642,592 1,911,677 1,312,541 1,605,262 746,199 1,874,729 99,935
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,242,956 10,258,869 1,947,895 4,581,110 2,231,791 2,710,610 896,444 2,987,702 350,286
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
2,330,356 13,679,134 2,690,633 7,844,365 2,983,193 2,847,447 953,472 2,967,203 1,284,703
1,601,255 5,444,900 1,173,004 2,923,811 1,678,171 2,385,418 1,031,558 1,893,187 2,038,462
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
$ 3,931,611 $19,124,034 $3,863,637 $10,768,176 $4,661,364 $5,232,865 $1,985,030 $4,860,390 $3,323,165
- ----------------------------------------------------------------------------------------------------------------------------
$ 55.15 $ 64.38 $ 32.23 $ 37.94 $ 23.34 $ 21.31 $ 9.81 $ 17.75 $ 14.18
============================================================================================================================
71,289 297,049 119,877 283,821 199,716 245,559 202,348 273,825 234,356
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
$ 115,699 $ 307,440 $ 18,386 $ (10,989) $ (1,475) $ (16,356) $ (7,862) $ 12,833 $ (24,005)
2,409 766,562 131,442 548,478 172,413 234,577 (11,034) 69,285 (64,492)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
118,108 1,074,002 149,828 537,489 170,938 218,221 (18,896) 82,118 (88,497)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,012,659 2,385,652 456,073 845,164 586,011 1,164,678 743,654 968,524 1,098,070
(3,193) -- (3,436) -- -- (4,023) (7,699) -- (3,348)
(27,136) (13,467) -- (9,089) (1,253) -- (6,502) (7,865) (16,724)
(16,711) (33,198) (1,155) (24,319) (11,140) (17,911) (6,087) (11,868) (21,157)
321,797 1,782,528 529,267 1,432,918 777,200 805,436 245,382 602,434 317,226
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,287,416 4,121,515 980,749 2,244,674 1,350,818 1,948,180 968,748 1,551,225 1,374,067
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,405,524 5,195,517 1,130,577 2,782,163 1,521,756 2,166,401 949,852 1,633,343 1,285,570
195,731 249,383 42,427 141,648 156,415 219,017 81,706 259,844 752,892
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
$ 1,601,255 $ 5,444,900 $1,173,004 $ 2,923,811 $1,678,171 $2,385,418 $1,031,558 $1,893,187 $2,038,462
- ----------------------------------------------------------------------------------------------------------------------------
$ 43.97 $ 53.22 $ 28.87 $ 21.47 $ 19.05 $ 20.11 $ 10.16 $ 18.12 $ 10.07
============================================================================================================================
36,417 102,309 40,631 136,181 88,093 118,618 101,531 104,481 202,429
============================================================================================================================
<CAPTION>
VAN ECK
WORLDWIDE VAN ECK
HARD EMERGING
ASSETS MARKETS
FUND FUND
- --- -----------------------
<S> <C> <C>
$ (668) $ (8,211)
48,357 516,095
-------- -----------
47,689 507,884
-------- -----------
150,522 195,914
-- --
(8,640) --
(1,989) (15,623)
35,073 (6,561)
-------- -----------
174,966 173,730
-------- -----------
222,655 681,614
141,143 401,475
-------- -----------
$363,798 $ 1,083,089
- ---
$ 10.96 $ 14.26
===
33,193 75,953
===
- ---
$ 4,608 $ (2,674)
(40,765) (109,753)
-------- -----------
(36,157) (112,427)
-------- -----------
128,466 348,583
-- --
(20,009) (3,769)
(1,198) (4,392)
61,004 156,590
-------- -----------
168,263 497,012
-------- -----------
132,106 384,585
9,037 16,890
-------- -----------
$141,143 $ 401,475
- ---
$ 9.20 $ 7.12
===
15,342 56,387
===
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
7
<PAGE> 9
- --------------------------------------------------------------------------------
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS JANUS JANUS JANUS
ASPEN JANUS JANUS ASPEN ASPEN ASPEN
CAPITAL ASPEN ASPEN FLEXIBLE INTERNATIONAL WORLD WIDE
APPRECIATION GROWTH BALANCED INCOME GROWTH GROWTH
FOR THE YEAR ENDED DECEMBER 31, 1999 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (19,876) $ (5,105) $ (4,713) $ (324) $ (664) $ (3,010)
Net realized and unrealized gains
(losses) 1,779,858 305,014 223,405 2,109 107,623 339,397
---------- ---------- ---------- -------- -------- ----------
Change in net assets resulting from
operations 1,759,982 299,909 218,692 1,785 106,959 336,387
---------- ---------- ---------- -------- -------- ----------
From capital transactions:
Net premiums/deposits 6,485,581 2,588,038 3,367,893 204,092 617,608 2,407,678
Death benefits -- -- -- -- -- --
Surrenders (11,563) (9,539) -- -- -- (8,172)
Withdrawals (11,346) (12,696) (5,771) -- (228) (2,401)
Transfers into (out of) subaccounts, net -- Note 1
-- -- -- -- -- 3
---------- ---------- ---------- -------- -------- ----------
Change in net assets resulting from
capital
transactions 6,462,672 2,565,803 3,362,122 204,092 617,380 2,397,108
---------- ---------- ---------- -------- -------- ----------
Increase in net assets 8,222,654 2,865,712 3,580,814 205,877 724,339 2,733,495
Net assets at beginning of period -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ----------
NET ASSETS AT END OF PERIOD $8,222,654 $2,865,712 $3,580,814 $205,877 $724,339 $2,733,495
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER UNIT AT END OF PERIOD $ 33.17 $ 33.65 $ 27.92 $ 11.42 $ 38.67 $ 47.75
=================================================================================================================================
UNITS OUTSTANDING AT END OF PERIOD 247,894 85,162 128,253 18,028 18,731 57,246
=================================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
8
<PAGE> 10
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 24 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")
FRED ALGER MANAGEMENT, INC.:
The Alger American Small Capitalization Portfolio
The Alger American Growth Portfolio
The Alger American MidCap Growth Portfolio
- ------------------------------------------------------------
INVESTMENT ADVISOR:
FUND/SUBACCOUNT
- ------------------------------------------------------------
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
JANUS CAPITAL CORPORATION - INSTITUTIONAL CLASS
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 World Wide Growth Portfolio
The MFS Limited Maturity Series subaccount is no longer available for new
allocations as of May 1, 1999.
- --------------------------------------------------------------------------------
9
<PAGE> 11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
10
<PAGE> 12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
VALLEY FORGE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
11
<PAGE> 13
- --------------------------------------------------------------------------------
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 statement of assets and liabilities of the
subaccounts of Valley Forge Life Insurance Company Variable Annuity Separate
Account (the "Account") as of December 31, 1999, the statements of operations
for the year ended December 31, 1999, and changes in net assets for the two
years ended December 31, 1999. 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, Van Eck Emerging Markets Fund, Janus Aspen Capital
Appreciation Portfolio, Janus Aspen Growth Portfolio, Janus Aspen Balanced
Portfolio, Janus Aspen Flexible Income Portfolio, Janus Aspen International
Growth Portfolio and Janus Aspen World Wide Growth Portfolio. These financial
statements are the responsibility of the 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
misstatements. 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, 1999. 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, 1999, the results of their operations for the year
ended December 31, 1999, and the changes in their net assets for the two years
ended December 31, 1999, are in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
February 24, 2000
- --------------------------------------------------------------------------------
12
<PAGE> 14
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF IMPACT OF YEAR 2000 ON VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
Separate Account does not maintain any systems, it relies on the systems of
CNA and the systems of other business partners.
CNA believes that it has successfully resolved the Year 2000 issue. There
were no problems observed that would affect the normal processing of CNA
business. No significant processing or other computer problems related to Year
2000 have arisen at CNA nor in any of the systems of the Separate Account
business partners. Going forward, CNA does not expect any Year 2000 systems
processing problems that would have a material impact on the results of
operations or equity of CNA or of the Separate Account.
- --------------------------------------------------------------------------------
13
<PAGE> 15
The principal underwriter of this
product is CNA Investor Services, Inc.,
a registered broker-dealer and member of
the National Association of Securities
Dealers. CNA Investor Services, Inc., is
an affiliate of CNA Financial
Corporation. CNA annuities are issued by
the Valley Forge Life Insurance Company,
one of the CNA companies.
CNA is a registered service mark of CNA
Financial Corporation. The policy form
numbers for this product are: V100-1128A
Series, V100-1129-A Series, P4-119913A
Series and P4-119914A Series. The CNA
Capital Select Variable Annuity is not
available in all states.
MAILING ADDRESS:
CNA Insurance Companies
Variable Product Team
P.O. Box 305139
Nashville TN 37230-5139
CNA
FOR ALL THE COMMITMENTS YOU MAKE
AG-132666-B 2/00 Printed in USA
