A M E R I C A N F I D E L I T Y
1996
ANNUAL
REPORT
Variable Annuity Fund A
<PAGE>
January 20, 1996
Dear Participant:
Fueled by low inflation, continued moderate economic growth, a favorable
interest rate environment, healthy corporate profit growth and a record
flow of money into domestic stock funds, the U.S. stock market rallied to
record highs for the full year and enjoyed its second year of robust
gains. The Variable Annuity Fund A also reported strong gains for the
year. The unit value was $15.34 on December 31, 1996, up 25.7% from
$12.20 on December 31, 1995.
The economy continued to expand during the fourth quarter at a moderate
pace following the sharp deceleration in growth in the third quarter. For
the year, Gross Domestic Product was up approximately 3.5%. We expect
economic growth to slow in the first half of 1997 to the 1.5 - 2.5%
range, with growth accelerating in the second half of the year. We expect
the GDP to grow in the 2-3% range for the full year.
The 30 year treasury rate spiked in early July to 7.23%, up 120 basis
points from the beginning of the year, as investors were unsettled by the
robust strength of the economy during the first half of the year. Long
term interest rates drifted lower during the fourth quarter to close the
year at 6.64%. Despite concern over excessive growth, continued moderate
trends in inflation combined with a slow down in consumer spending
allowed interest rates to drift lower in the second half of the year. We
expect long term interest rates to fall over the first half of 1997 as
the economy slows and trend higher in the second half of 1997 as the
economy regains momentum.
The Consumer Price Index increased slightly to approximately 3.3% for
1996. However, labor costs continue to exhibit only limited pressure
despite the historically low unemployment numbers. We expect inflation to
remain fairly stable in 1997 in the 2.5 - 3.0% range as companies
continue to experience difficulties in passing on price increases in an
extremely competitive global economy.
At current levels, we believe that the stock market will continue to be
volatile during 1997. Valuation of the stock market is not overly
worrisome if 1997 brings higher corporate profits, continued low interest
rates and a sustained flow of funds into the equity markets. While it is
possible that the recent market momentum could subside if we experience
any economic or foreign surprises, we continue to view stocks favorably
over the long term.
If you have any questions about your account, please contact us.
Sincerely,
JOHN W. REX
John W. Rex, Chairman
Board of Managers
<PAGE>
OBJECTIVES:
The Fund's principal investment objective is long-term growth of
capital. Occasional investments to seek short-term capital appreciation
may be made. A secondary investment objective is the production of
income.
VARIABLE ANNUITY FUND A
Historical Unit Values
12/31/70 1.0386
12/31/71 1.20
12/31/72 1.4432
12/31/73 1.0956
12/31/74 .8263
12/31/75 1.0537
12/31/76 1.3399
12/31/77 1.2949
12/31/78 1.3490
12/31/79 1.6040
12/31/80 2.0971
12/31/81 2.1868
12/31/82 2.7875
12/31/83 3.2029
12/31/84 3.2507
12/31/85 3.7903
12/31/86 4.4669
12/31/87 4.6009
12/31/88 5.1103
12/31/89 6.5142
12/31/90 6.9245
12/31/91 8.8663
12/31/92 9.1083
12/31/93 9.7090
12/31/94 9.0936
12/31/95 12.1986
12/31/96 15.3389
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares or --------------------------
Principal Percent
COMMON STOCKS Amount Amount of Net Assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals and Allied Products:
Avery-Dennison Corporation 83,000 $2,936,125
Pfizer, Inc. 29,800 2,469,675
American Home Products
Corporation 40,700 2,386,038
Johnson & Johnson 44,000 2,189,000
Merck & Company, Inc. 11,700 927,225
Abbott Laboratories 16,800 852,600
Dupont 7,200 679,500
Eli Lilly and Company 6,400 467,200
----------
12,907,363 13.06%
Business Services:
Reuters Holdings PLC ADR** 31,300 2,394,450
Interpublic Group of Companies 44,300 2,104,250
Cisco Systems, Inc.* 32,200 2,048,725
Automatic Data Processing 34,000 1,457,750
First Data Corporation 37,200 1,357,800
Microsoft Corporation* 8,100 669,263
Computer Associates 9,000 447,750
----------
10,479,988 10.61%
Petroleum and Coal Products:
Texaco, Inc. 27,600 2,708,250
Royal Dutch Petroleum 15,300 2,612,475
Exxon Corporation 18,000 1,764,000
Kerr-McGee Corporation 19,800 1,425,600
----------
8,510,325 8.61%
Depository Institutions:
Citicorp 16,500 1,699,500
MBNA 30,000 1,245,000
Bank America Corporation 10,000 997,500
J.P. Morgan & Company 10,000 976,250
Nationsbank Corporation 9,700 948,175
CoreStates Financial Corporation 18,200 944,125
Wachovia Corporation 13,500 762,750
Regions Financial Corporation 8,800 454,846
----------
8,028,146 8.12%
Insurance Carriers:
American International Group 26,100 2,825,325
AFLAC, Inc. 59,775 2,555,381
Allstate Corporation 21,000 1,215,375
United Healthcare Corporation 16,700 751,500
----------
7,347,581 7.44%
Communications:
Cox Communications* 88,000 2,035,000
Nynex Corporation 22,000 1,058,750
Ameritech 16,700 1,012,437
SBC Communications, Inc. 18,800 972,900
Central & South West Corporation 29,000 743,125
Bellsouth Corporation 15,000 605,625
----------
6,427,837 6.50%
Electronic and Other Electric Equipment
Intel Corporation 25,900 3,391,268
General Electric Company 18,000 1,779,750
----------
5,171,018 5.23%
Holding and Other Investment Offices:
Wells Fargo & Company 5,000 1,348,750
CALI Realty Corporation 20,400 629,850
Meditrust 15,600 624,000
Felcor Suite Hotels, Inc. 17,300 611,987
First Industrial Realty Trust 20,000 607,500
Federal Realty Investment Trust 22,300 604,888
----------
4,426,975 4.48%
Non-Depository Institutions:
Federal National Mortgage
Association 72,400 2,696,900
Capital One Financial
Corporation 41,000 1,476,000
----------
4,172,900 4.22%
Industrial Machinery and Equipment:
Hewlett-Packard Company 36,600 1,839,150
International Business Machines
Corporation 7,000 1,057,000
United Technologies 10,000 660,000
----------
3,556,150 3.60%
Food and Kindred Products:
The Coca-Cola Company 57,600 3,031,200
----------
3,031,200 3.07%
Fabricated Metal Products:
The Gillette Company 38,900 3,024,475
----------
3,024,475 3.06%
Food Stores:
Safeway, Inc.* 68,600 2,932,650
----------
2,932,650 2.97%
Electric, Gas and Sanitary Services:
GTE 27,800 1,264,900
Texas Utilities 19,500 794,625
Teco Energy, Inc. 21,000 506,625
----------
2,566,150 2.60%
Eating and Drinking Places:
McDonald's Corporation 44,200 2,000,050
----------
2,000,050 2.02%
General Merchandise:
Sears Roebuck & Company 40,300 1,858,837
----------
1,858,837 1.88%
Personal Services:
Loewen Group, Inc. 42,000 1,643,250
----------
1,643,250 1.66%
Miscellaneous Retail:
Price/Costco, Inc. 57,700 1,449,712
----------
1,449,712 1.47%
Motion Pictures:
Disney (Walt) Company 19,200 1,336,800
----------
1,336,800 1.35%
Hotels and Other Lodging Places:
Mirage Resorts, Inc.* 61,800 1,336,425
----------
1,336,425 1.35%
Railroad Transportation:
Burlington Northern/Santa Fe 10,300 889,663
----------
889,663 0.90%
Transportation Equipment:
Chrysler Corporation 24,000 792,000
----------
792,000 0.80%
Building Materials & Gardening Supplies:
Home Depot, Inc. 7,000 350,875
----------
350,875 0.36%
---------- -----
Total Common Stocks (Cost $62,100,128) $94,240,370 95.36%
----------- -----
Short Term Investments:
Associates Corporation of North America
Master Note Fltg (5.31% at 12/31/96) 3,994,317 3,994,317
-----------
Total Short-Term Investments: $ 3,994,317 4.04%
----------- -----
Total Investments: $98,234,687 99.40%
----------- -----
Other Assets and Liabilities, net: 594,712 0.60%
----------- -----
Total Net Assets: $98,829,399 100.00%
=========== ======
</TABLE>
* Presently not producing dividend income.
** Foreign Investments
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS:
Cash $469,711 $224,163
Investments at market value
(Cost: $66,094,445 and $55,469,201
in 1996 and 1995, respectively) 98,234,687 72,928,693
Receivables for investment
securities sold 0 1,500,277
Accrued interest and dividends 191,430 113,477
----------- -----------
Total assets 98,895,828 74,766,610
LIABILITIES:
Payables for investments
securities purchased 66,429 1,614,026
Accounts payable 0 50
----------- -----------
Total liabilities 66,429 1,614,076
----------- -----------
NET ASSETS $98,829,399 $73,152,534
=========== ===========
ACCUMULATION UNITS OUTSTANDING 6,443,056 5,996,795
=========== ===========
NET ASSET VALUE PER UNIT 15.3389 12.1986
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 1,538,540 $ 1,097,364
Interest 201,294 161,264
----------- -----------
1,739,834 1,258,628
----------- -----------
Expenses:
Mortality and expense
guaranty fees (note 3) 809,048 593,042
Investment management fees
(note 3) 353,001 200,769
----------- -----------
1,162,049 793,811
----------- -----------
NET INVESTMENT INCOME 577,785 464,817
----------- -----------
REALIZED GAINS ON INVESTMENTS:
Proceeds from sales 31,697,825 38,990,793
Cost of securities sold 27,483,951 35,180,383
----------- -----------
NET REALIZED GAINS 4,213,874 3,810,410
----------- -----------
UNREALIZED APPRECIATION
ON INVESTMENTS:
End of year 32,140,242 17,459,492
Beginning of year 17,459,492 3,663,198
----------- -----------
INCREASE (DECREASE) IN 14,680,750 13,796,294
UNREALIZED APPRECIATION OF
INVESTMENTS ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $19,472,409 $18,071,521
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income $ 577,785 $ 464,817
Net realized gains on investments 4,213,874 3,810,410
Increase (decrease) in unrealized
appreciation of investments 14,680,750 13,796,294
------------ ------------
19,472,409 18,071,521
------------ ------------
Changes from principal transactions:
Net purchase payments received (note 3) 15,914,163 11,269,062
Withdrawal of funds (9,709,707) (7,254,521)
------------ ------------
Increase in net assets derived from
principal transactions 6,204,456 4,014,541
------------ ------------
Increase in net assets 25,676,865 22,086,062
NET ASSETS:
Beginning of year 73,152,534 51,066,472
------------ ------------
End of year $98,829,399 $73,152,534
============ ============
ACCUMULATION UNITS:
Outstanding, beginning of year 5,996,795 5,615,645
Increase for payments received 1,159,575 1,061,993
Decrease for withdrawal of funds (713,314) (680,843)
------------ ------------
Outstanding, end of year 6,443,056 5,996,795
============ ============
</TABLE>
SCHEDULE OF SELECTED PER SHARE
DATA AND RATIOS
<TABLE>
<CAPTION>
Per-Unit Income and Capital Changes
-----------------------------------
Years Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME AND EXPENSES:
Investment Income $0.2817 $0.2163 $0.2105 $0.2113 $0.2267
Operating Expenses 0.1882 0.1364 0.1193 0.1180 0.1113
------ ------ ------ ------ ------
Net Investment Income 0.0935 0.0799 0.0912 0.0933 0.1154
CAPITAL CHANGES:
Net realized and unrealized gains
(losses) from securities 3.0468 3.0251 (0.7066) 0.5074 0.1266
------ ------ ------ ------ ------
Net increase (decrease) in
accumulation unit value 3.1403 3.1050 (0.6154) 0.6007 0.2420
Accumulation unit value,
beginning of period 12.1986 9.0936 9.7090 9.1083 8.8663
------- ------- ------- ------- -------
Accumulation unit value,
end of period $15.3389 $12.1986 $ 9.0936 $ 9.7090 $ 9.1083
======== ======== ======== ======== ========
NUMBER OF ACCUMULATION
UNITS OUTSTANDING,
END OF PERIOD 6,443,056 5,996,795 5,615,645 5,113,999 4,644,455
========= ========= ========= ========= =========
RATIOS:
Ratio of expenses to
average net assets 1.3777% 1.2880% 1.2826% 1.2783% 1.2812%
Ratio of net investment
income to average net assets 0.6850% 0.7542% 0.9797% 1.0110% 1.3289%
Portfolio turnover rate 36.9% 66.1% 43.5% 51.2% 31.7%
Average commission rate paid $0.0636 $0.0551
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
American Fidelity Variable Annuity Fund A (the Fund) is a separate
account of American Fidelity Assurance Company (AFA). The Fund is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. The purpose of the
Fund is to provide a means of investing for supplemental retirement
income. Shares are only available in connection with variable annuity
policies issued by AFA.
The Fund's investment objectives are primarily long-term growth of
capital and secondarily the production of income. In order to achieve
these investment objectives, the Fund normally invests in a diversified
portfolio consisting primarily of common stocks.
Investments
- -----------
Investments in corporate stocks are valued by Merrill Lynch Pricing
Service. Domestic securities for which published quotations are not
available are valued at the quotation obtained from the Fund's primary
broker. Short-term investments are valued on the basis of amortized
cost, which approximates market.
The Fund's portfolio of investments is diversified such that not more
than five percent (5%) of the value of the total assets of the Fund are
invested in any one issuer and not more than twenty-five percent (25%)
are invested in any one industry or group of industries. Management does
not believe the Fund has any significant concentrations of credit risk.
Realized gains and losses from investment transactions and unrealized
appreciation or depreciation of investments are determined on the
specific-identification basis.
Dividend income is recorded on the ex-dividend date, and interest income
is recorded on the daily accrual basis. For certain securities in which
the exact dividend is unknown on the ex-dividend date, such as stock in
foreign companies, an estimate of the dividend is recorded on the
ex-dividend date, and any necessary adjustments are added to the Fund*s
investment income on the date the dividend is received by the Fund. Any
taxes withheld by foreign governments or any foreign exchange expenses
(gains or losses) incurred by investment in such securities are paid by
the Fund. The Fund does not expect these costs to be significant.
Income Taxes
- ------------
The fund is not taxed separately because the operations of the Fund are
part of the total operations of AFA. AFA files its federal income tax
returns under sections of the Internal Revenue Code applicable to life
insurance companies. The Fund*s net increase in net assets from
operations is not expected to result in taxable income under present
regulations. The Fund will not be taxed as a "Regulated Investment
Company" under Subchapter "M" of the Internal Revenue Code.
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 increase and decrease in
net assets from operations during the period. Actual results could
differ from those estimates.
NOTE 2 - INVESTMENTS
The aggregate dollar amount of investment purchases (exclusive of
short-term investments) was $34,924,178 and $43,967,652 for the years
ended December 31, 1996 and 1995, respectively. At December 31, 1996,
net unrealized appreciation on investments of $32,140,242 was composed of
gross appreciation of $32,475,048 and gross depreciation of $334,806.
NOTE 3 - VARIABLE ANNUITY CONTRACTS
Net purchase payments received represent gross payments less deductions
of $578,837 and $433,049 for the years ended December 31, 1996 and 1995,
respectively. The deductions are comprised of sales and administrative
expenses, minimum death benefits, administrative charges, and certificate
issuance fees. These deductions were paid to AFA.
AFA acts as the Fund's investment manager and assumes certain mortality
and expense risks under the variable annuity contracts. Investment
management fees are equal to .0013698% of the Fund's daily net assets
(.5% per annum). In 1996, these fees increased from .325% upon approval
of all states. Mortality and expense guaranty fees are equal to
.0026308% of the Fund's daily net assets (.96025% per annum). Such fees
were paid to AFA.
During the accumulation period, contract owners may partially or totally
withdraw from the Fund by surrendering a portion or all of their
accumulation units. The Internal Revenue Code may limit certain
withdrawals based upon age, disability, and other factors. When contract
owners withdraw, they receive the current value of their accumulation
units.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Managers and Contract Owners
American Fidelity Variable Annuity Fund A:
We have audited the accompanying statements of assets and liabilities of
American Fidelity Variable Annuity Fund A (the Fund) as of December 31,
1996 and 1995, and the related statements of operations and changes in
net assets for the years then ended, the financial highlights for each of
the years in the five-year period ended December 31, 1996, and the
Schedule of Portfolio Investments as of December 31, 1996. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights 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 and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 and 1995, by
correspondence with the custodian and the broker. 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of American Fidelity Variable Annuity Fund A as of December 31,
1996 and 1995, the results of its operations and changes in its net
assets for the years then ended, and the financial highlights for each of
the years in the five-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
January 15, 1997
<PAGE>
PARTICIPANTS' BENEFITS
As a participant of Variable Annuity Fund A, you benefit from a number of
valuable and helpful services which help you meet your investment needs.
Some of the services you currently enjoy are the following:
RE-INVESTMENT WITHOUT CHARGE
Dividends and interest from investment income as well as capital gain
contributions are automatically re-invested without charge.
PROFESSIONAL MANAGEMENT
Knowledgeable, full-time management constantly monitors market
opportunities for your fund.
CAPITAL FULLY INVESTED
Accumulation units are issued in full and fractional amounts so that your
net payments are immediately available for investment purposes.
ANNUAL STATEMENT OF ACCOUNT
You receive an annual statement of account each year. This statement is
a valuable, permanent, personal record. In the event that you should
have occasion to redeem some of your accumulation units, you are also
provided with the proper tax form for your convenience in filing your
income tax return.
REDEMPTION WITHOUT CHARGE
American Fidelity Variable Annuity Fund A will redeem your accumulation
units without charge at the full value when your request is received in
Oklahoma City as described in the Prospectus.
SYSTEMATIC RETIREMENT OPTIONS
At your retirement a range of pay out options is available in order to
tailor your retirement income payments as closely as possible to your
needs.
PERSONAL SERVICE
Continuous personal service is available to you through the team of
American Fidelity trained salaried representatives or directly from the
Annuity Services Department in our Home Office.
<PAGE>
Board of Managers JOHN W. REX, Chairman
American Fidelity President and Director
Variable Annuity American Fidelity Assurance Company
Fund A DANIEL D. ADAMS, JR., Secretary
Vice President
American Fidelity Assurance Company
JEAN G. GUMERSON
President
Presbyterian Health Foundation
EDWARD C. JOULLIAN, III
Chairman of the Board and Chief
Executive Officer
Mustang Fuel Corporation
GREGORY M. LOVE
President and Chief Operating Officer
Love's Country Stores, Inc.
J. DEAN ROBERTSON, D.D.S
Pediatric Dentistry
Private Practice
G. RAINEY WILLIAMS, JR.
Managing Partner, MARCO Investment Company
- --------------------------------------------------------------------------------
Safekeeping of Securities Boatmen's Trust Company
Oklahoma City, Oklahoma
- --------------------------------------------------------------------------------
Independent Auditors KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
- --------------------------------------------------------------------------------
Investment Manager American Fidelity Assurance Company
Oklahoma City, Oklahoma
- --------------------------------------------------------------------------------
Investment Sub-Advisors Lawrence W. Kelly & Associates, Inc.
Pasadena, California
Todd Investment Advisors, Inc.
Louisville, Kentucky
- --------------------------------------------------------------------------------
Board of Directors LYNDA L. CAMERON
American Fidelity President
Assurance Company Cameron Equestrian Center, Inc.
Cameron Arabian, Inc.
WILLIAM M. CAMERON
Vice Chairman of the Board and
Chief Executive Officer
American Fidelity Assurance Company
WILLIAM E. DURRETT
Chairman of the Board
American Fidelity Assurance Company
EDWARD C. JOULLIAN, III
Chairman of the Board and President
Mustang Fuel Corporation
JOHN W. REX
President
American Fidelity Assurance Company
GALEN P. ROBBINS, M.D.
Physician and Director
of Cardiovascular Clinic
JOHN D. SMITH
Director and President
John D. Smith Developments, Inc.
<PAGE>
[AF Logo] American Fidelity
Assurance Company
A member of the American Fidelity Group
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
Telephone: 1-800-654-8489
