Continental Assurance Company
Separate Account (B)
Report to Participants
December 31, 1995
CNA
L 554-921 (12/95) 2/96
<PAGE>
- - --------------------------------------------------------------------------------
Dear Participant:
- - --------------------------------------------------------------------------------
Separate Account (B) ended the year with an Accumulated Unit Value increase
of 32.66% while the dividend-adjusted Standard and Poor's Composite Index (S&P)
increased by 37.53%. Although we trailed the S&P, Separate Account (B) did beat
the 31.11% average gain of domestic stock funds as reported by the Wall Street
Journal.
1995 was an excellent year for financial markets. Not only were domestic
stock funds up 31.11% on average, but taxable bond funds also had a stellar
year, gaining 15.62% on average. Economic conditions throughout the year
remained positive for the markets. Growth continued at a moderate pace and
inflation remained muted. Corporate cash flow remained strong reflecting record
earnings. The Federal Reserve made its last tightening move in February 1995,
raising the federal funds rate on overnight bank loans from 5.50% to 6.00% and
the discount rate from 4.75% to 5.25%. Subsequently, The Federal Reserve dropped
the fed funds rate by .25% each on July 6 and December 19 to 5.50%, but left the
discount rate unchanged at 5.25%. Moderating interest rates, record earnings,
and strong cash flows into equity mutual funds resulted in a banner year for the
stock markets.
Separate Account (B) remained essentially fully invested throughout the
year. Although at times our cash position rose moderately, management did not
intend to make large bets on the direction of the stock market. As we have
commented on in previous reports, we have been moderately overweighted in the
Capital Goods-Technology sector. At mid-year this sector comprised 28.39% of
Separate Account (B)'s portfolio versus 15.59% for the S&P. As the year
developed it became apparent that this sector was going to become more volatile.
We took some profits in stocks of Motorola and Applied Materials while
maintaining core positions in these companies. At the same time, we completely
eliminated positions in less liquid stocks such as Fusion Systems and EMC, both
at very nice gains. We also sold a position in convertible bonds of Magnetek,
Inc. which was clearly underperforming the market and on which we took a loss.
At year end this sector accounted for 22.24% of the portfolio. Our next largest
sector is Consumer-Services at 16.60% of the portfolio, which includes such
diverse industries as cable television, entertainment, hospital management and
restaurants. Some of our holdings here include Tele-Communications, Inc.,
Healthsouth Corporation and McDonald's Corp.
Returns in excess of 35% for the market are rare and have occurred for the
S&P only 10 times in the past 100 years. Although a correction could occur and
probably will occur during 1996, there continues to be certain positives for the
market. Inflation remains moderate, which should temper any potential rise in
interest rates. In fact, if there is another move by the Federal Reserve, we
believe that fed funds could again be lowered. Although the rate of earnings
increase apparently has peaked, absolute earnings should advance during the
year. Generally, the fourth year of a Presidential cycle has a positive effect
on the performance of the market. Also, in 8 of the 10 years the S&P exceeded
35% the market was up the following year--the exceptions being 1929 and 1934.
<PAGE>
We remain guardedly optimistic for 1996. Major market declines are
typically initiated by (1) recession, (2) accelerating inflation and attendant
interest rate increases, and (3) overvaluation of the market in general. We do
not believe these factors are driving forces at this point in time.
Thank you for your continued support and participation.
Cordially,
/S/ DONALD C. RYCROFT
Donald C. Rycroft
Chairman of the Committee
Separate Account (B)
1
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================
YEAR ENDED DECEMBER 31
------------------------------------------------------
(Per accumulation unit outstanding during the period) 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Value at beginning of period $ 8.85 $8.91 $7.70 $7.29 $5.45
------ ----- ----- ----- -----
Investment income .19 .19 .15 .16 .19
Fees .09 .07 .07 .06 .05
------ ----- ----- ----- -----
INVESTMENT INCOME--NET .10 .12 .08 .10 .14
Net gain (loss) on investments 2.79 (.18) 1.13 .31 1.70
------ ----- ----- ----- -----
NET INCREASE (DECREASE) IN PARTICIPANTS' EQUITY
RESULTING FROM OPERATIONS 2.89 (.06) 1.21 .41 1.84
------ ----- ----- ----- -----
VALUE AT END OF PERIOD $11.74 $8.85 $8.91 $7.70 $7.29
====== ===== ===== ===== =====
Ratio of investment income--
net to average participants' equity 1.0% 1.3% 1.0% 1.4% 2.1%
Ratio of fees to average participants' equity .83% .83% .83% .83% .83%
Portfolio turnover rate 46% 52% 69% 71% 13%
Number of accumulation units outstanding
at end of period 8,763,186 9,298,777 9,385,475 9,935,498 10,485,925
- - ----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
- - --------------------------------------------------------------------------------
COMMITTEE FOR SEPARATE ACCOUNT (B)
- - --------------------------------------------------------------------------------
MEMBERS
- - --------------------------------------------------------------------------------
Donald C. Rycroft, Chairman
Senior Vice President
Continental Assurance Company
Richard W. Dubberke
Vice President and Portfolio Manager
Continental Assurance Company
Richard T. Fox
President
21st Century Environmental Management, Inc.
William W. Tongue
Professor of Economics and Finance, Emeritus
University of Illinois at Chicago
Peter J. Wrenn
President
Hudson Technology, Inc.
- - --------------------------------------------------------------------------------
SECRETARY
Lynne Gugenheim
Counsel
Continental Assurance Company
AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
CUSTODIAN
First National Bank of Chicago
- - --------------------------------------------------------------------------------
This report has been prepared for the information of participants in
Continental Assurance Company Separate Account (B) and is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus that includes information regarding Separate Account (B)'s
objectives, policies, management, records, sales commissions and other
information.
2
<PAGE>
- - ----------------------------------
RECORD OF ACCUMULATION UNIT VALUES
- - ----------------------------------
UNIT
VALUATION MARKET
DATE VALUE
- - ---------------------------
1995 December 31 $11.74
1994 December 31 8.85
1993 December 31 8.91
1992 December 31 7.70
1991 December 31 7.29
1990 December 31 5.45
1989 December 31 5.31
1988 December 31 4.56
1987 December 31 3.91
1986 December 31 3.72
The Annuity Unit Values shown at the right are based on the monthly
increases or decreases in the accumulation unit values in excess of an assumed
annualized rate of 3 1/2% and rounded to the nearest cent.
- - -----------------------------
RECORD OF ANNUITY UNIT VALUES
- - -----------------------------
UNIT
VALUATION MARKET
DATE VALUE
- - -------------------------
1996 January 1 $4.36
1995 January 1 3.35
1994 January 1 3.39
1993 January 1 3.14
1992 January 1 2.71
1991 January 1 2.36
1990 January 1 2.40
1989 January 1 2.08
1988 January 1 1.86
1987 January 1 1.94
<PAGE>
- - --------------------------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT IN ONE ACCUMULATION UNIT
- - --------------------------------------------------------------------------------
Separate Account (B) does not make distributions of investment income
and realized capital gains; therefore, the unit values include investment income
and capital gains. This chart displays the unit value at December 31 for the
past ten years. This period was one of mixed common stock prices. The values
shown should not be considered representations of values which may be achieved
in the future.
[CHART APPEARS HERE]
UNIT
VALUE
1995 $11.74
1994 8.85
1993 8.91
1992 7.70
1991 7.29
1990 5.45
1989 5.31
1988 4.56
1987 3.91
1986 3.72
3
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
========================================================================================================
DECEMBER 31, 1995
NUMBER OF MARKET
(All investments are in securities of unaffiliated issuers) SHARES VALUE
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS:
AEROSPACE-(3.2%)
Loral Corp. 94,000 $ 3,325,250
------------
BROADCASTING-(1.3%)
Tele-comm Liberty Media Gr-A* 49,250 1,323,594
------------
CHEMICAL-(3.3%)
Hercules Inc. 30,000 1,691,250
Minerals Technologies Inc. 47,300 1,726,450
------------
3,417,700
------------
COMPUTER TECHNOLOGY-(6.8%)
First Data Corp. 40,000 2,675,000
Hewlett-Packard Company 27,000 2,261,250
Xerox Corporation 15,000 2,055,000
------------
6,991,250
------------
COSMETICS-(2.6%)
The Gillette Company 52,000 2,710,500
------------
DIVERSIFIED-(5.5%)
Tenneco Inc. 40,000 1,985,000
Thermo Electron Corp.* 69,750 3,627,000
------------
5,612,000
------------
ELECTRONIC COMPONENTS-(5.5%)
Molex Incorporated/Class A 103,437 3,167,758
Motorola, Inc. 44,000 2,508,000
------------
5,675,758
------------
ENGINEERING & CONSTRUCTION-(2.1%)
Fluor Corporation 33,000 2,178,000
------------
FINANCIAL SERVICES (BANK)-(8.4%)
Boatmens Bancshares Inc. 72,000 2,943,000
Citicorp 50,500 3,396,125
PNC Bank Corp. 70,000 2,257,500
------------
8,596,625
------------
<PAGE>
- - --------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
========================================================================================================
DECEMBER 31, 1995
NUMBER OF MARKET
(All investments are in securities of unaffiliated issuers) SHARES VALUE
- - --------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (LEASING)-(1.9%)
A T & T Capital Corp. 50,000 1,912,500
------------
FOODS-(2.5%)
C P C International Inc. 36,800 2,525,400
------------
HEALTH CARE-(11.5%)
Cardinal Health, Inc. 46,500 2,545,875
Healthsouth Corp.* 104,000 3,029,000
Pfizer Inc. 59,400 3,742,200
United HealthCare Corp. 40,000 2,620,000
------------
11,937,075
------------
HOSPITAL MANAGEMENT-(1.5%)
Columbia HCA Healthcare Corp. 30,000 1,522,500
------------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================
DECEMBER 31, 1995
(All investments are in securities NUMBER OF MARKET
of unaffiliated issuers) SHARES VALUE
- - --------------------------------------------------------------------------------
COMMON STOCKS:
HOUSEHOLD PRODUCTS-(3.1%)
Procter & Gamble Co. 38,300 $ 3,178,900
-----------
LEISURE/GAMBLING-(1.2%)
Circus Circus Enterprises, Inc.* 43,610 1,215,629
-----------
MACHINERY-(2.5%)
Illinois Tool Works, Inc. 44,400 2,619,600
-----------
METALS (DIVERSIFIED)-(1.3%)
Aluminum Co. of America 25,000 1,321,875
-----------
NATURAL GAS PIPELINE-(3.0%)
Enron Corp. 80,000 3,050,000
-----------
OFFICE PRODUCTS-(2.5%)
Boise Cascade Office Products Corporation* 59,500 2,543,625
-----------
OIL & GAS EQUIPMENT-(2.2%)
Camco International Inc. 80,000 2,240,000
-----------
OIL & GAS EXPLORATION-(2.0%)
Vastar Resources Inc. 65,700 2,085,975
-----------
PAPER & FOREST PRODUCTS-(1.7%)
Buckeye Cellulose Corp.* 80,000 1,760,000
-----------
PHARMACEUTICAL-(2.3%)
Schering-Plough Corporation 44,000 2,409,000
-----------
RAILROADS-(2.3%)
Burlington Northern Santa Fe 30,212 2,356,536
-----------
RESTAURANTS/FAST FOODS-(2.2%)
McDonald's Corporation 50,000 2,256,250
-----------
RETAIL STORES-(3.9%)
Home Depot Inc. 48,333 2,313,942
The Sports Authority, Inc.* 86,500 1,762,438
-----------
4,076,380
-----------
SEMICONDUCTOR-(3.3%)
Applied Materials Inc.* 49,000 1,929,375
Intel Corp. 25,000 1,418,750
-----------
3,348,125
-----------
TELECOMMUNICATIONS-(4.2%)
A T & T Corporation 39,000 2,525,250
Tele-Communications, Inc./Class A* 91,000 1,808,625
-----------
4,333,875
-----------
TOTAL COMMON STOCKS-(93.8%) 96,523,922
-----------
5
<PAGE>
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================
DECEMBER 31, 1995
(All investments are in securities MARKET
of unaffiliated issuers) PAR VALUE VALUE
- - --------------------------------------------------------------------------------
BONDS:
TRANSPORTATION-(1.7%)
AMR Corporation, Conv. Sub. Deb., 6.125%,
due 11/01/24 $1,750,000 $ 1,785,000
------------
TOTAL BONDS-(1.7%) 1,785,000
------------
SHORT-TERM NOTES:
BANKS-(1.9%)
The First National Bank of Chicago
Eurodollar Time Deposit, 6.0%,
due 1/02/96 1,946,000 1,946,973
------------
U.S. GOVERNMENT-(2.5%)
United States Treasury Bills, 4.5%,
due 1/04/96 2,560,000 2,559,040
------------
TOTAL SHORT-TERM NOTES-(4.4%) 4,506,013
------------
TOTAL INVESTMENTS-(99.9%) 102,814,935
Cash and receivables less liabilities-(0.1%) 30,149
- - --------------------------------------------------------------------------------
PARTICIPANTS' EQUITY--NET ASSETS--(100.0%) $102,845,084
================================================================================
* Non-income producing security in 1995.
See accompanying Notes to Financial Statements.
<PAGE>
- - --------------------------------------------------------------------------------
STOCK PORTFOLIO CHANGES
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================
YEAR ENDED DECEMBER 31, 1995 (IN SHARES) INCREASED DECREASED NOW OWNED
- - --------------------------------------------------------------------------------
COMMON STOCK:
A T & T Capital Corp. - 30,000 50,000
A T & T Corporation 39,000 - 39,000
AVX Corporation 5,000 5,000 -
Aluminum Co. of America 25,000 - 25,000
Applied Materials Inc. 24,500 34,500 49,000
Boise Cascade Office Products Corporation 69,500 10,000 59,500
Buckeye Cellulose Corp. 80,000 - 80,000
Burlington Northern Santa Fe 30,213 1 30,212
C P C International Inc. 36,800 - 36,800
Cardinal Health, Inc. 21,500 - 46,500
Circus Circus Enterprises, Inc. 63,610 20,000 43,610
Columbia HCA Healthcare Corp. 30,000 - 30,000
Dana Corp. - 62,000 -
E M C Corp. - 123,000 -
Falcon Building Products, Inc. - 30,000 -
Fluor Corporation 33,000 - 33,000
Foster Wheeler Corp. 10,000 10,000 -
Fusion Systems Corporation 20,000 84,800 -
The Gillette Company 29,000 - 52,000
Healthsouth Corp. 59,500 15,000 104,000
Hercules Inc. 30,000 - 30,000
Hewlett-Packard Company 27,000 - 27,000
- - --------------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
STOCK PORTFOLIO CHANGES (CONTINUED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
========================================================================================================
YEAR ENDED DECEMBER 31, 1995, (IN SHARES) INCREASED DECREASED NOW OWNED
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Illinois Tool Works, Inc. - 16,500 44,400
Intel Corp. 25,000 - 25,000
Loral Corp. 47,000 - 94,000
Maytag Corporation 90,000 90,000 -
McDonald's Corporation 50,000 - 50,000
Minerals Technologies Inc. - 19,000 47,300
Molex Incorporated/Class A 20,688 8,501 103,437
Morton International Inc. - 61,500 -
Motorola, Inc. - 9,000 44,000
PMI Group Inc. 2,000 2,000 -
PNC Bank Corp. 70,000 - 70,000
Panamerican Beverages, Inc. - 56,500 -
Pfizer Inc. 34,700 15,300 59,400
Qualcomm Inc. 10,000 10,000 -
Schering-Plough Corporation 22,000 - 44,000
The Sports Authority, Inc. 5,000 - 86,500
Tele-Communications, Inc./Class A - 18,000 91,000
Tele-comm Liberty Media Gr-A 49,250 - 49,250
Temple-Inland Inc. - 37,250 -
Thermo Electron Corp. 23,250 - 69,750
USX-U S Steel Group 40,000 40,000 -
Union Carbide Corp. 30,000 30,000 -
United HealthCare Corp. 5,000 - 40,000
Xerox Corporation 15,000 - 15,000
PREFERRED STOCK:
Arkansas Best Corp., $2.875 Conv. Pfd. Series A - 25,000 -
Burlington Northern Inc., $6.25 Conv. Pfd. Series A - 28,400 -
Burlington Northern Santa Fe Corp., $6.25 Conv. Pfd. Series A 28,400 28,400 -
Ford Motor Co., $4.20 conv. Pfd. Series A - 26,000 -
- - --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
TEN LARGEST COMMON STOCK HOLDINGS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
=========================================================================================================
MARKET % OF NET
DECEMBER 31, 1995 VALUE ASSETS
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pfizer Inc. $3,742,200 3.6%
Thermo Electron Corp. 3,627,000 3.5
Citicorp 3,396,125 3.3
Loral Corp. 3,325,250 3.2
Procter & Gamble Co. 3,178,900 3.1
Molex Incorporated/Class A 3,167,758 3.1
Enron Corp. 3,050,000 3.0
Healthsouth Cop. 3,029,000 2.9
Boatmens Bancshares Inc. 2,943,000 2.9
The Gillette Company 2,710,500 2.6
- - ---------------------------------------------------------------------------------------------------------
$32,169,733 31.2%
=========================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================
DECEMBER 31 1995 1994
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities of unaffiliated issuers--Note 1:
Common stocks at market (cost $65,102,944 and $50,829,840) $ 96,523,922 $63,213,074
Preferred stocks at market (cost $5,350,658) - 4,932,425
Bonds at market (cost $1,763,438 and $7,858,969) 1,785,000 7,172,875
Short-term notes at amortized cost (approximates market) 4,506,013 7,145,177
------------ -----------
TOTAL INVESTMENTS 102,814,935 82,463,551
Cash 441 -
Dividends receivable--Note 1 113,049 73,775
Interest receivable 17,767 117,138
Receivable from Continental Assurance Company for fund deposits - 2,349
------------ -----------
TOTAL ASSETS 102,946,192 82,656,813
------------ -----------
LIABILITIES
Fees payable to Continental Assurance Company--Note 4 37,153 29,714
Payable for Securities Purchased - 335,793
Payable to Continental Assurance Company for fund withdrawals 63,955 26,876
------------ -----------
TOTAL LIABILITIES 101,108 392,383
- - ---------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY--NET ASSETS (8,763,186 and 9,298,777 units issued
and outstanding at $11.74 and $8.85 per unit)--Note 2 $102,845,084 $82,264,430
===================================================================================================
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
<TABLE>
<CAPTION>
=========================================================================================================
YEAR ENDED DECEMBER 31 1995 1994
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income:
Dividends $ 1,103,176 $ 1,039,107
Interest 586,862 737,444
----------- ------------
1,690,038 1,776,551
----------- ------------
Fees (Continental Assurance Company)--Note 4:
Investment advisory fees 462,018 415,070
Service fees 304,932 273,945
----------- ------------
766,950 689,015
----------- ------------
INVESTMENT INCOME--NET 923,088 1,087,536
----------- ------------
Investment gain (loss)--Note 3:
Net realized gain 5,038,356 8,420,855
Net unrealized gain (loss) 20,163,632 (10,188,758)
----------- ------------
NET GAIN (LOSS) ON INVESTMENTS 25,201,988 (1,767,903)
- - ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN PARTICIPANTS' EQUITY RESULTING FROM OPERATIONS $26,125,076 $ (680,367)
=========================================================================================================
See accompanying Notes to Financial Statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTICIPANTS' EQUITY
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
================================================================================================================
YEAR ENDED DECEMBER 31 1995 1994
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Investment income--net $ 923,088 $ 1,087,536
Net realized gain on investments 5,038,356 8,420,855
Net unrealized gain (loss) on investments 20,163,632 (10,188,758)
------------ ------------
Net increase (decrease) in participants' equity resulting from operations 26,125,076 (680,367)
------------ ------------
From unit transactions:
Sales 1,920,287 2,726,160
Withdrawals (7,464,709) (3,425,130)
------------ ------------
Net decrease in participants' equity resulting from unit transactions (5,544,422) (698,970)
------------ ------------
TOTAL INCREASE (DECREASE) IN PARTICIPANTS' EQUITY 20,580,654 (1,379,337)
Participants' equity, January 1 82,264,430 83,643,767
- - ----------------------------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY, DECEMBER 31 $102,845,084 $ 82,264,430
================================================================================================================
See accompanying Notes to Financial Statements
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
================================================================================
ORGANIZATION
Continental Assurance Company Separate Account (B) (Separate Account
(B)) is registered under the Investment Company Act of 1940, as amended, as an
open-end diversified management investment company. Separate Account (B) is part
of Continental Assurance Company (Assurance), an Illinois life insurance company
which is a wholly-owned subsidiary of Continental Casualty Company (Casualty).
Casualty is wholly-owned by CNA Financial Corporation (CNA). Loews Corporation
owns approximately 84% of the outstanding common stock of CNA.
The operations of Assurance include the sale of certain variable annuity
contracts, the proceeds of which are invested in Separate Account (B). Assurance
also provides investment advisory and administrative services to Separate
Account (B) for a fee.
The assets and liabilities of Separate Account (B) are segregated from
those of Assurance.
INVESTMENTS
Investments in securities traded on national securities exchanges are
valued at the last reported sales price on each business day of the year.
Securities not traded on a national exchange are valued at the bid price of
over-the-counter market quotations. Short-term notes are valued at cost plus
accrued discount or interest (amortized cost) which approximates market.
Net realized gains and losses on sales of securities are determined as the
difference between proceeds and cost, using the specific identification method.
There are no differences in cost for financial statement and Federal income tax
purposes.
<PAGE>
Security transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date.
Separate Account (B) may loan securities, up to a maximum of 25% of its net
assets, to brokers under loan agreements which are fully secured by cash or
government securities. Loaned securities are not reported herein as purchases or
sales since Separate Account (B) remains the owner of loaned securities. No
loans were outstanding at December 31, 1995 and 1994.
FEDERAL INCOME TAXES
Under existing Federal income tax law, no taxes are payable on net
investment income and net realized capital gains, which are reinvested in
Separate Account (B) and taken into account in determining unit values.
- - --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
NOTE 2. PARTICIPANTS' EQUITY--NET ASSETS:
==============================================================================================
Participants' equity--net assets consisted of the following:
- - ----------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Accumulated investment income--net $ 50,528,319 $ 49,605,231
Accumulated net realized gain on investment transactions 67,248,430 62,210,074
Accumulated unrealized gain 31,965,754 14,630,323
Accumulated unrealized loss (523,215) (3,351,416)
------------ ------------
Accumulated income 149,219,288 123,094,212
From unit transactions:
Accumulated proceeds from sale of units, net of withdrawals (46,374,204) (40,829,782)
- - ----------------------------------------------------------------------------------------------
TOTAL PARTICIPANTS' EQUITY--NET ASSETS $102,845,084 $ 82,264,430
==============================================================================================
- - ----------------------------------------------------------------------------------------------
NOTE 3. INVESTMENTS:
==============================================================================================
NET REALIZED GAIN ON INVESTMENTS
YEAR ENDED DECEMBER 31 1995 1994
- - ----------------------------------------------------------------------------------------------
Aggregate proceeds $318,899,683 $574,657,984
Aggregate cost 313,861,327 566,237,129
- - ----------------------------------------------------------------------------------------------
Net realized gain $ 5,038,356 $ 8,420,855
==============================================================================================
CHANGE IN UNREALIZED GAIN ON INVESTMENTS
YEAR ENDED DECEMBER 31 1995 1994
- - ----------------------------------------------------------------------------------------------
Unrealized gain on investments:
Balance, December 31 $ 31,442,539 $ 11,278,907
Less balance, January 1 11,278,907 21,467,665
- - ----------------------------------------------------------------------------------------------
Change in net unrealized gain $ 20,163,632 $(10,188,758)
==============================================================================================
AGGREGATE COST OF SECURITIES PURCHASED
YEAR ENDED DECEMBER 31 1995 1994
- - ----------------------------------------------------------------------------------------------
Common stocks $ 35,759,614 $ 31,810,643
Preferred stocks 2,103,588 3,169,213
Bonds 1,763,438 4,815,531
Short-term notes 274,431,387 535,565,058
- - ----------------------------------------------------------------------------------------------
Total purchases $314,058,027 $575,360,445
==============================================================================================
</TABLE>
10
<PAGE>
- - --------------------------------------------------------------------------------
NOTE 4. MANAGEMENT FEES:
================================================================================
Separate Account (B) pays fees to Assurance for investment advisory and
management services (investment advisory fees) which are set by contract at
one-half of one percent per annum of the average daily net assets of Separate
Account (B).
The Investment Advisory Agreement additionally provides for the
reimbursement to Assurance for certain legal, accounting and other expenses
(service fees). Such reimbursement is computed at the rate of .33 of one percent
per annum of the average daily net assets of Separate Account (B).
Participants pay fees to Assurance for sales and administrative services.
Sales fees represent costs paid by participants upon purchase of additional
accumulation units; administrative fees are deducted annually from certain
participants' accounts.
- - --------------------------------------------------------------------------------
FEES AND EXPENSES PAID TO ASSURANCE
YEAR ENDED DECEMBER 31 1995 1994
- - --------------------------------------------------------------------------------
Investment advisory fees $462,018 $415,070
Service fees 304,932 273,945
-------- --------
Total fees charged to fund income 766,950 689,015
Sales and administrative fees paid by participants 13,563 65,144
- - --------------------------------------------------------------------------------
Total $780,513 $754,159
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<PAGE>
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INDEPENDENT AUDITORS' REPORT
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The Committee Members and the Participants of
Continental Assurance Company Separate Account (B)
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments as of December 31, 1995, of Continental
Assurance Company Separate Account (B) (a separate account of Continental
Assurance Company (the Company), which is an affiliate of CNA Financial
Corporation, an affiliate of Loews Corporation) as of December 31, 1995 and
1994, and the related statements of operations and changes in participants'
equity for the years then ended, and the financial highlights for each of the
five years in the period ended December 31, 1995. These financial statements and
financial highlights are the responsibility of the Company'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. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian and brokers. 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 and financial highlights referred
to above present fairly, in all material respects, the financial position of
Continental Assurance Company Separate Account (B) as of December 31, 1995 and
1994, the results of its operations, the changes in its participants' equity for
the years then ended, and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
February 14, 1996
11
