AMERICAN FIDELITY
June 30, 1998
VARIABLE ANNUITY FUND A
<PAGE>
Dear Participant:
The U.S. equity markets overcame renewed concerns surrounding the ongoing
weakness in Asia and posted solid gains for the second quarter. Led by
stronger than expected domestic economic growth, lower interest rates and
healthy corporate profits, equity prices added to their impressive first
quarter results. Variable Annuity Fund A also reported a gain for the
first half of the year. The unit value was $22.69 on June 30, 1998, up
16.6% from $19.46 on December 31, 1997.
Led by a strong increase in consumer demand, Real Gross Domestic Product
("GDP") surged 5.4% in the first quarter, the highest reading in over two
years. The first quarter's performance was quite impressive given the
overall weakness in Asia as evidenced by the rising trade deficit. We
expect Real GDP growth to slow significantly in the second quarter and to
accelerate in the third quarter assuming the General Motors strike is not
protracted.
Inflation rates, as measured by the Consumer Price Index ("CPI"), showed
signs of stabilizing near their recent lows. The CPI through May posted a
slight increase to a 1.7% annual rate while the core rate, which excludes
food and energy items, increased modestly to a 2.2% year-over-year rate.
We expect inflation to firm somewhat in the months ahead due to the tight
labor market and worker shortages in several sectors of the economy.
Falling commodity prices and cheaper imports should help to offset most of
these wage costs pressures, leading to only a moderate increase in the CPI
for the year ahead.
Interest rates, as measured by the 30 year U.S. Treasury Bond, plunged to
new lows, ending the quarter at 5.64% versus 5.94% at the end of the first
quarter. Increased concerns over the significant weakness in the Japanese
Yen, the economic crisis in Southeast Asia and a "flight to safety" by
foreign investors were largely accountable for pushing U.S. Treasury Bond
yields significantly lower. With cyclical lows in the rate of U.S.
inflation, it appears to us that the Federal Reserve is well positioned to
wait for the Asian slowdown to take its effect on domestic economic growth.
We expect the Fed to leave the Federal Funds rate unchanged at this time.
The U.S. equity markets ended the quarter with a sharp rally, adding
moderate gains to exceptional first quarter results. Lower interest rates,
strong economic growth and record cash flows into equity mutual funds
helped push stocks to new highs despite concerns over the weakness in Asia.
The advance was led by the large multinationals and utility stocks, which
clearly masked a sharp correction in the technology and energy sectors.
Looking to the second half, we continue to believe stocks are quite
attractive over the longer-term. Given the strong fundamental health of
the U.S. economy, low interest rates, and ample market liquidity, we
believe stocks offer further upside potential. However, any significant
deterioration in corporate earnings, market liquidity or inflation could
push the market into a corrective phase.
If you have any questions about your account, please contact us.
Sincerely,
JOHN W. REX
John W. Rex, Chairman
Board of Managers
JWR:jl
<PAGE>
AMERICAN FIDELITY
VARIABLE ANNUITY FUND A
<TABLE>
<CAPTION>
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998
<S> <C>
ASSETS:
Cash & investments at market value $169,146,604
Accrued interest and dividends 167,157
Accounts Receivable for Securities Sold 0
------------
Total Assets $169,313,761
LIABILITIES:
Accounts Receivable for Securities Purchased 1,527,718
Other accounts payable 0
Accounts payable - redemptions 0
------------
NET ASSETS $167,786,044
============
ACCUMULATION UNITS OUTSTANDING 7,393,375
============
NET ASSET VALUE PER UNIT 22.6941
============
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
June 30, 1998
<S> <C>
Net assets, beginning of year $137,090,551
Net investment income 56,927
Realized gain on investments 5,646,118
Increase (decrease) in unrealized
appreciation of investments 17,502,941
Net purchase payments received 13,776,632
Withdrawal of funds (6,287,125)
------------
Net assets at end of June $167,786,044
============
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
June 30, 1998
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,041,793
Interest 125,870
------------
1,167,663
EXPENSES:
Mortality and expense guaranty fees 730,347
Investment management fee 380,389 1,110,736
------- ------------
NET INVESTMENT INCOME $ 56,927
============
REALIZED GAIN ON INVESTMENTS: $ 5,646,118
============
UNREALIZED APPRECIATION OF INVESTMENTS: $ 17,502,941
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS Shares or Market
June 30, 1998 Principal Value
Amount Amount
--------- -------
<S> <C> <C>
COMMON STOCKS:
Chemicals & Allied Products:
Pfizer, Inc. 43,800 4,760,491
Avery-Dennison Corporation 84,400 4,536,500
Johnson & Johnson 44,000 3,245,000
Proctor & Gamble Company 22,600 2,058,001
Novartis AG-ADR<F2> 24,700 2,047,012
Bristol-Meyers Squibb Company 14,200 1,632,105
Merck & Company, Inc. 11,700 1,564,875
Abbott Laboratories 33,600 1,373,400
Dupont 14,400 1,074,600
Eli Lilly and Company 12,800 845,594
------------
23,137,578
Electronic & Other Electric Equipment:
General Electric Company 72,500 6,597,500
Lucent Technologies 39,400 3,277,568
Intel Corporation 43,600 3,231,850
Philips Electronics NV 30,000 2,550,000
------------
15,656,918
Business Services:
Cisco Systems, Inc.<F1> 59,250 5,454,674
Microsoft Corporation<F1> 38,400 4,161,600
Automatic Data Processing 34,000 2,477,750
Interpublic Group of Companies 25,500 1,547,518
Computer Associates 25,800 1,433,500
------------
15,075,042
Depository Institutions:
MBNA 67,500 2,227,500
Chase Manhattan Bank 27,600 2,083,800
Bank America Corporation 20,000 1,728,740
First Union Corporation 29,484 1,717,443
Wachovia Corporation 20,000 1,690,000
Nationsbank Corporation 19,400 1,484,100
J.P. Morgan & Company 10,000 1,171,250
Regions Financial Corporation 17,600 722,691
------------
12,825,524
Petroleum & Coal Products:
Royal Dutch Petroleum 61,200 3,354,494
Texaco, Inc. 55,200 3,294,722
Exxon Corporation 36,000 2,567,232
Chevron Corporation 25,000 2,076,550
------------
11,292,998
Insurance Carriers:
American International Group 39,150 5,715,900
AFLAC, Inc. 70,200 2,127,902
Allstate Corporation 21,000 1,922,802
------------
9,766,604
Electric, Gas & Sanitary Services:
Williams Companies, Inc. 62,900 2,122,875
GTE 34,800 1,935,750
Teco Energy, Inc. 55,500 1,488,066
Texas Utilities 34,500 1,436,063
Duke Energy Company 16,000 948,000
------------
7,930,754
Industrial Machinery & Equipment:
United Technologies 30,500 2,821,250
Applied Materials<F1> 62,000 1,829,000
International Business Machines Corp. 14,000 1,607,368
Hewlett-Packard Company 16,400 981,950
------------
7,239,568
Holdings and Other Investment Offices:
Wells Fargo & Company 7,100 2,619,900
First Industrial Realty Trust 28,000 890,736
Mack-Cali Realty Corporation 25,400 873,125
Felcor Suite Hotels, Inc. 23,300 731,038
Simon Debartolo Group, Inc. 20,000 650,000
Meditrust 18,744 523,651
------------
6,288,450
Food & Kindred Products:
The Coca-Cola Company 49,200 4,206,600
Sara Lee Corporation 36,500 2,041,701
------------
6,248,301
Food Stores:
Safeway, Inc.<F1> 137,200 5,582,256
Communications:
SBC Communications, Inc. 37,600 1,504,000
Ameritech 33,400 1,498,825
Bell Atlantic Corporation 31,792 1,450,510
Bellsouth Corporation 15,000 1,006,875
------------
5,460,210
Oil & Gas Extraction:
Schlumbereger, LTD 27,500 1,878,580
Diamond Offshore 44,400 1,776,000
R&B Falcon Company 71,000 1,606,375
------------
5,260,955
Non-Depository Institutions:
American Express Company 19,600 2,234,400
Federal National Mortgage Association 34,400 2,089,800
------------
4,324,200
Miscellaneous Retail:
Costco Company, Inc.<F1> 57,700 3,638,677
General Merchandise:
Wal-Mart Corporation 29,700 1,804,275
Sears Roebuck & Company 16,800 1,025,842
------------
2,830,117
Transportation Equipment:
Chrysler Corporation 24,000 1,353,000
Allied Signal, Inc. 30,000 1,331,250
------------
2,684,250
Radio, TV & Computer Stores:
Circuit City Stores 53,000 2,484,375
Miscellaneous Manufacturing Industries:
Tiffany & Company 47,200 2,265,600
Motion Pictures:
Disney (Walt) Company 19,200 2,017,190
Wholesale Trade-Nondurable Goods:
Unilever NV<F2> 25,000 1,973,425
Building Materials & Gardening Supplies:
Home Depot, Inc. 23,000 1,910,426
Fabricated Metal Products:
The Gillette Company 30,500 1,728,954
Personal Services:
H & R Block 39,300 1,655,513
Transportation by Air:
Delta Airlines, Inc. 12,000 1,551,000
Eating & Drinking Places:
McDonald's Corporation 16,000 1,104,000
Norrell Corporation 20,000 398,740
------------
1,502,740
Primary Metal Industries:
Englehard Corporation 58,000 1,174,500
Health Services:
Phycor, Inc.<F1> 39,000 645,918
------------
Total Common Stocks (Cost $95,382,365) $164,152,043
------------
SHORT-TERM INVESTMENTS:
Associates Corporation of North America
Master Note Fltg (5.57% at
6/30/98) 3,583,239 $ 3,583,239
U.S. Treasury Bill (5.2% maturing
12/10/98) 500,000 488,061
U.S. Treasury Bill (4.9% maturing
1/7/99) 500,000 486,971
------------
Total Short-Term Investments 4,558,271
------------
Total Investments: $168,710,314
============
<FN>
<F1> Presently not producing dividend income
<F2> Foreign Investments
</FN>
</TABLE>
SAFEKEEPING OF SECURITIES
Bank of Oklahoma, N.A.
Oklahoma City, OK
INVESTMENT MANAGER
American Fidelity Assurance Company
Oklahoma City, OK
INVESTMENT SUB ADVISORS
Lawrence Kelly & Associates, Inc. Todd Investment Advisors
Los Angeles, CA Louisville, KY
<PAGE>
PARTICIPANT'S UNIT VALUE
June 1993 9.0570
Dec. 1993 9.7090
June 1994 8.9789
Dec. 1994 9.0938
June 1995 10.8409
Dec. 1995 12.1993
June 1996 13.7321
Dec. 1996 15.3389
June 1997 17.8462
Dec. 1997 19.4632
June 1998 22.6941
SERVICES PROVIDED BY AMERICAN FIDELITY
Services for Educators:
. Disability Income Plans
. Tax-Deferred Annuities
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. Universal Life Insurance
Cancer Protection
Pension and Profit-Sharing Plans for Corporations
HR-10 Retirement Plans for the Self-Employed
Individual Retirement Annuities
Simplified Employee Pension Plans
Group Life and Permanent Group Ordinary
Young Advantage Life
Association and Group Life Plans
Comprehensive Medical Plans
Individual Permanent and Term Life Insurance
HOME OFFICE
2000 N. CLASSEN BOULEVARD
OKLAHOMA CITY, OKLA. 73106
Telephone: (405) 523-2000
GVA-276(7/98)
