<PAGE> 1
--------------------------------------------------------------------------------
Dear Participant:
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, Separate Account (B)'s Accumulated
Unit value increased 1.81% while the dividend adjusted Standard & Poor's Index
of 500 stocks (S&P 500) had a negative total return of (0.42%). Separate Account
(B)'s twelve month gain of 15.99% compares favorably to the S&P 500's dividend
adjusted return of 7.24%.
The major factor influencing the direction of stock prices during the first
half was the Federal Reserve's series of Fed funds rate increases. Since June
30, 1999, the Federal Reserve has increased the Fed funds rate six times, three
times in 1999 and three times thus far in 2000. The last rate hike was 50 basis
points on May 16, 2000, its most aggressive increase to date. At its last
meeting, August 22, 2000 the Federal Reserve left the rate unchanged at 6.50%.
The Federal Reserve is concerned about tight labor markets and the potential for
increasing labor costs fostering an increasingly inflationary environment.
Rising interest rates have historically had a negative effect on the stock
market. Although short-term interest rates have risen during the first six
months, interest rates for securities maturing in five years and longer have
actually declined. Thus far, it appears that a combination of higher short-term
interest rates and rising energy prices have had the desired effect of slowing
economic growth. A soft landing scenario, slowing but positive growth, would
probably generate a positive market environment, whereas accelerating growth,
threatening higher inflation, or a recession could have a detrimental effect.
The market reaction to this string of rate hikes has actually not been too
severe. Earnings have generally been solid and have provided support for the
market. We believe that secular trends toward productivity enhancements will
continue to partially offset any cyclical pressures to generate inflation. At
the beginning of the year, Wall Street earnings expectations were in the 8-12%
growth range for 2000. Today, those expectations are more in the 15-18% growth
range.
Your Separate Account (B) portfolio is structured for growth, with a core
holding of high quality, large capitalization growth companies. The median
market capitalization for the portfolio was $44.7 billion as of June 30, 2000,
with eight holdings exceeding $200 billion and no holdings at less than $1
billion. The portfolio has strong representation in both the technology and
health care sectors. During the first two quarters, returns in these two sectors
were almost mirror images of each other. The technology sector was up 13.7% in
the first quarter, but dropped 8.9% in the second quarter for a first half
return of 3.6%. The healthcare sector was up only 0.6% in the first quarter, but
had a smashing 22.7% return in the second quarter for a first half return of
23.5%. The major benefit of diversification is to weather this extent of market
volatility.
Market volatility with little directional pull to either the upside or the
downside has been a fruitful period to write call options on stocks held in the
portfolio. The volatility generates a larger premium that Separate Account (B)
receives when selling an option, but there is also a greater chance that the
option expires out-of-the money and the stock is not called away from the
portfolio. During the first half of 2000, this call writing program generated
net premium of approximately $1.8 million.
The second half of 2000 will continue to present challenges to the stock
market. Valuations, although more moderate than at the end of the first quarter,
are still high by historical standards. The Federal Reserve might or might not
continue to raise Fed funds rates depending on the strength of the economy and
perhaps on the strength of the stock market itself. At a minimum, this creates
uncertainty which acts against a strong stock market rally. Any disappointments,
in earnings or revenues, are severely punished by the market. On the plus side,
there has been some recent improvement in breadth, with over 50% of the stocks
on the New York Stock Exchange now above their 200-day moving average, generally
a healthy sign. Historically, the market has been positive in the third quarter
of an election year. Also, as we pointed out earlier, earnings continue to be
quite strong overall.
Your investment managers will continue to monitor market conditions closely
and make portfolio changes that we believe will enhance relative returns. Thank
you for your continued support and participation.
Cordially,
/s/Marilou R. McGirr
Marilou R. McGirr
Chairman of the Committee
--------------------------------------------------------------------------------
1
<PAGE> 2
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30}
(UNAUDITED) YEAR ENDED DECEMBER 31
-------------- ------------------------------------------------------
(PER ACCUMULATION UNIT OUTSTANDING DURING THE PERIOD) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Value at the beginning of the period $28.78 $21.55 $17.69 $14.14 $11.74
Investment income .10 .17 .20 .23 .19
Fees .12 .20 .16 .13 .10
NET INVESTMENT INCOME (LOSS) (.02) (.03) .04 .10 .09
Net gain on investments .54 7.26 3.82 3.45 2.31
NET INCREASE IN PARTICIPANTS' EQUITY RESULTING
FROM OPERATIONS 0.52 7.23 3.86 3.55 2.40
VALUE AT THE END OF THE PERIOD $29.30 $28.78 $21.55 $17.69 $14.14
Ratio of net investment income to average
participants' equity (0.16)%* (0.13)% 0.20% 0.60% 0.70%
Ratio of fees to average participants' equity .83%* .83% .83% .83% .83%
Portfolio turnover rate 16% 34% 41% 45% 53%
Number of accumulation units outstanding at end of
the period 7,737,217 7,908,845 8,320,912 8,612,630 8,502,140
</TABLE>
--------------------------------------------------------------------------------
* annualized
See Accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
COMMITTEE FOR SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
MEMBERS
--------------------------------------------------------------------------------
Marilou R. McGirr, Chairman
Vice President
Continental Assurance Company
Richard W. Dubberke
Vice President and
Portfolio Manager
Continental Assurance Company
Richard T. Fox
Financial Consultant
William W. Tongue
Professor of Economics
and Finance, Emeritus
University of Illinois at Chicago
Peter J. Wrenn
President
Hudson Technology, Inc.
--------------------------------------------------------------------------------
SECRETARY
Lynne Gugenheim
Group Vice President and
Deputy General Counsel
Continental Assurance Company
AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
CUSTODIAN
Chase Manhattan Trust Company
of Illinois
Chicago, Illinois
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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> 3
---------------------------------------
RECORD OF ACCUMULATION UNIT VALUES
---------------------------------------
<TABLE>
<CAPTION>
UNIT
VALUATION MARKET
DATE VALUE
-------------------------
<S> <C> <C>
2000 June 30 $29.30
1999 December 31 28.78
1998 December 31 21.55
1997 December 31 17.69
1996 December 31 14.14
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
</TABLE>
The Annuity Unit Value shown on 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
---------------------------------------
<TABLE>
<CAPTION>
UNIT
VALUATION MARKET
DATE VALUE
------------------------
<S> <C> <C>
2000 July 1 $9.46
2000 January 1 8.71
1999 January 1 6.69
1998 January 1 6.05
1997 January 1 4.88
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
</TABLE>
--------------------------------------------------------------------------------
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, and at June 30, 2000. The values shown should not be considered
representations of values which may be achieved in the future.
[BAR GRAPH]
<TABLE>
<CAPTION>
UNIT VALUE
----------
<S> <C>
1990 5.45
1991 7.29
1992 7.70
1993 8.91
1994 8.85
1995 11.74
1996 14.14
1997 17.69
1998 21.55
1999 28.78
June 30, 2000 29.30
</TABLE>
--------------------------------------------------------------------------------
3
<PAGE> 4
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
NUMBER OF MARKET
(ALL INVESTMENTS ARE IN SECURITIES OF UNAFFILIATED ISSUERS) SHARES COST VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY:
COMMUNICATION EQUIPMENT-(3.2%)
Nokia Corp. 50,000 $ 2,591,283 $ 2,496,875
Tellabs, Inc.* 71,000 2,945,500 4,859,063
------------ ------------
5,536,783 7,355,938
------------ ------------
COMPUTER HARDWARE-(2.6%)
Sun Microsystems, Inc.* 65,000 1,980,312 5,910,937
------------ ------------
COMPUTER SOFTWARE-(4.1%)
First Data Corp. 75,000 1,756,600 3,721,875
Microsoft Corporation* 41,000 3,262,766 3,280,000
Siebel Systems, Inc.* 15,000 1,413,938 2,453,438
------------ ------------
6,433,304 9,455,313
------------ ------------
COMPUTER SYSTEMS-(9.6%)
Cisco Systems, Inc.* 200,000 1,971,632 12,712,500
EMC Corporation* 86,400 1,313,643 6,647,400
International Business Machines Corporation 25,000 2,104,187 2,739,062
------------ ------------
5,389,462 22,098,962
------------ ------------
ELECTRONIC COMPONENTS-(1.0%)
Solectron Corp.* 55,000 2,301,212 2,303,125
------------ ------------
ELECTRONIC CONNECTORS-(1.3%)
Molex Incorporated/Class A 86,993 828,187 3,044,755
------------ ------------
ELECTRONIC EQUIPMENT-(5.1%)
Applied Materials, Inc.* 91,000 2,915,281 8,246,875
Motorola, Inc. 117,000 3,047,401 3,400,312
------------ ------------
5,962,682 11,647,187
------------ ------------
ELECTRONIC MEASURING INSTRUMENTS-(1.3%)
Agilent Technologies Inc.* 40,000 3,658,438 2,950,000
------------ ------------
ELECTRONIC SEMICONDUCTORS-(5.2%)
Intel Corp. 34,600 2,115,513 4,625,588
LSI Logic Corp.* 30,000 2,003,850 1,623,750
Micron Technology Inc.* 15,000 1,320,107 1,320,938
Texas Instruments Incorporated 65,000 1,657,016 4,464,687
------------ ------------
7,096,486 12,034,963
------------ ------------
INTERNET-(2.1%)
America Online, Inc.* 60,000 3,984,094 3,165,000
PSINet Inc.* 70,000 2,288,656 1,758,750
------------ ------------
6,272,750 4,923,750
------------ ------------
OFFICE EQUIPMENT & SUPPLIES-(0.8%)
Pitney Bowes Inc. 45,000 2,766,825 1,800,000
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
5
<PAGE> 5
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
NUMBER OF MARKET
(ALL INVESTMENTS ARE IN SECURITIES OF UNAFFILIATED ISSUERS) SHARES COST VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS-(1.3%)
Equant NV* 45,000 $ 2,715,400 $ 1,935,000
Loral Space & Communications* 161,500 2,602,899 1,120,406
------------ ------------
5,318,299 3,055,406
------------ ------------
TOTAL TECHNOLOGY-(37.6%) 53,544,740 86,580,336
------------ ------------
CONSUMER STAPLES:
BEVERAGES-(1.8%)
PepsiCo, Inc. 92,000 2,925,018 4,088,250
------------ ------------
COSMETICS & TOILETRIES-(1.4%)
The Gillette Company 94,000 1,968,208 3,284,125
------------ ------------
HOSPITAL SUPPLIES-(2.6%)
Medtronic, Inc. 120,000 2,025,850 5,977,500
------------ ------------
MERCHANDISING-FOOD-(2.7%)
Safeway Inc.* 80,000 2,223,050 3,610,000
The Kroger Co.* 120,000 3,024,930 2,647,500
------------ ------------
5,247,980 6,257,500
------------ ------------
PHARMACEUTICAL-(7.0%)
Pfizer Inc. 133,000 147,049 6,384,000
Pharmacia Corporation 80,000 2,821,024 4,135,000
Schering-Plough Corporation 110,000 951,713 5,555,000
------------ ------------
3,919,786 16,074,000
------------ ------------
TOTAL CONSUMER STAPLES-(15.5%) 16,086,842 35,681,375
------------ ------------
CONSUMER SERVICES:
BROADCASTING-(1.3%)
Infinity Broadcasting Corporation* 80,000 2,551,988 2,915,000
------------ ------------
CABLE SERVICES-(7.7%)
AT&T Corp.-Liberty Media-A* 533,248 1,257,516 12,931,264
Comcast Corporation* 120,000 2,964,297 4,860,000
------------ ------------
4,221,813 17,791,264
------------ ------------
DRUG DISTRIBUTION-(2.1%)
Cardinal Health, Inc. 64,625 3,109,208 4,782,250
------------ ------------
HOSPITAL MANAGEMENT-(1.1%)
HCA Healthcare Corporation 80,000 2,157,618 2,430,000
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
6
<PAGE> 6
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
NUMBER OF MARKET
(ALL INVESTMENTS ARE IN SECURITIES OF UNAFFILIATED ISSUERS) SHARES COST VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUBLISHING-NEWS-(1.2%)
Tribune Company 80,000 $ 2,320,500 $ 2,800,000
------------ ------------
TOTAL CONSUMER SERVICES-(13.4%) 14,361,127 30,718,514
------------ ------------
ENERGY:
NATURAL GAS DIVERSIFIED-(5.2%)
Enron Corporation 140,000 2,424,446 9,030,000
The Williams Companies, Inc. 70,000 2,650,425 2,918,125
------------ ------------
5,074,871 11,948,125
------------ ------------
OIL SERVICES-(3.0%)
Schlumberger Limited 54,600 1,803,997 4,074,525
Transocean Sedco Forex Inc. 50,606 1,764,972 2,704,258
------------ ------------
3,568,969 6,778,783
------------ ------------
TOTAL ENERGY-(8.2%) 8,643,840 18,726,908
------------ ------------
CAPITAL GOODS:
ELECTRICAL EQUIPMENT-MAJOR-(3.7%)
Emerson Electric Co.* 35,000 2,133,716 2,113,125
General Electric Company 120,000 2,014,213 6,360,000
------------ ------------
4,147,929 8,473,125
------------ ------------
MACHINERY INDUSTRIAL-(1.3%)
Illinois Tool Works, Inc. 51,800 217,625 2,952,600
------------ ------------
MULTI-INDUSTRY-(1.7%)
Tyco International Ltd. 82,000 2,197,575 3,884,750
------------ ------------
TOTAL CAPITAL GOODS-(6.7%) 6,563,129 15,310,475
------------ ------------
FINANCIAL SERVICES:
BANKS-(4.7%)
Bank United Corp. 70,000 2,251,875 2,463,125
Citigroup Inc. 73,125 1,137,760 4,405,781
Wells Fargo & Company 100,000 2,381,250 3,875,000
------------ ------------
5,770,885 10,743,906
------------ ------------
FINANCE COMPANIES-(1.9%)
American Express Company 85,000 2,996,937 4,430,625
------------ ------------
TOTAL FINANCIAL SERVICES-(6.6%) 8,767,822 15,174,531
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
7
<PAGE> 7
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
NUMBER OF MARKET
(ALL INVESTMENTS ARE IN SECURITIES OF UNAFFILIATED ISSUERS) SHARES COST VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES:
COMMUNICATIONS-(6.1%)
Bell Atlantic Corporation*(7/1/00 Verizon Communications) 45,000 $ 2,670,119 $ 2,286,563
Intermedia Communications Inc.* 100,000 2,482,812 2,975,000
Sprint Corporation 90,000 3,263,733 4,590,000
WorldCom, Inc.* 90,000 2,321,875 4,128,750
------------ ------------
TOTAL UTILITIES-(6.1%) 10,738,539 13,980,313
------------ ------------
BASIC INDUSTRIES:
METALS-ALUMINUM-(1.3%)
Alcoa Inc. 100,000 3,282,506 2,900,000
------------ ------------
PAPER & FOREST PRODUCTS-(0.3%)
Georgia-Pacific Corporation (Preferred Stock) 25,000 1,109,376 800,000
------------ ------------
TOTAL BASIC INDUSTRIES-(1.6%) 4,391,882 3,700,000
------------ ------------
CONSUMER CYCLICALS:
MERCHANDISING-MASS-(1.3%)
Wal-Mart Stores, Inc. 50,000 2,523,176 2,881,250
------------ ------------
TOTAL CONSUMER CYCLICALS-(1.3%) 2,523,176 2,881,250
------------ ------------
TOTAL COMMON & PREFERRED STOCK-(97.0%) $125,621,097 $222,753,702
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
8
<PAGE> 8
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
NUMBER OF MARKET
(ALL INVESTMENTS ARE IN SECURITIES OF UNAFFILIATED ISSUERS) CONTRACTS VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C>
OPTIONS:
Applied Materials, Inc. 100 $ 20,174
Agilent Technologies Inc. 200 18,997
Cardinal Health, Inc. 100 437
Cisco Systems, Inc. 100 9,499
Equant NV 100 34,499
Enron Corporation 100 21,999
LSI Logic Corp. 100 21,999
Micron Technology Inc. 50 4,749
Schlumberger Limited 50 7,562
Sprint Corporation 100 1,999
Tellabs, Inc. 100 (9,251)
Siebel Systems, Inc. 100 (16,751)
------------
TOTAL OPTIONS-(0.0%) $ 115,912
------------
SHORT-TERM NOTES:
FINANCIAL SERVICES BANK:
Bank One NA Illinois Time Deposit, 6.6% due 7/5/00 6,813,000 6,814,249
------------ ------------
TOTAL SHORT-TERM NOTES-(3.0%) 6,813,000 6,814,249
------------ ------------
TOTAL INVESTMENTS-(100.0%) $132,434,097 $229,683,863
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Non-income producing security in 2000.
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
8
<PAGE> 9
--------------------------------------------------------------------------------
TEN LARGEST COMMON STOCK HOLDINGS
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT ( B )
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET % OF NET
JUNE 30, 2000 VALUE ASSETS
----------------------------------------------------------------------------------------
<S> <C> <C>
AT&T Corp-Liberty Media-A $12,931,264 5.6%
Cisco Systems, Inc. 12,712,500 5.5
Enron Corporation 9,030,000 3.9
Applied Materials, Inc. 8,246,875 3.6
EMC Corporation 6,647,400 2.9
Pfizer Inc. 6,384,000 2.8
General Electric Company 6,360,000 2.8
Medtronic, Inc. 5,977,500 2.6
Sun Microsystems, Inc. 5,910,937 2.6
Schering-Plough Corporation 5,555,000 2.4
----------------------------------------------------------------------------------------
TEN LARGEST COMMON STOCK HOLDINGS $79,755,476 34.7%
========================================================================================
</TABLE>
--------------------------------------------------------------------------------
9
<PAGE> 10
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in securities of unaffiliated issuers: --
Note 1
Common stocks, at market (Cost $124,511,721) $221,953,702
Preferred stocks, at market (Cost $1,109,376) 800,000
Call options written, at market 115,912
Short-term notes, at amortized cost (approximates market) 6,814,249
------------
TOTAL INVESTMENTS 229,683,863
Cash 1,888
Dividends receivable -- Note 1 43,480
Receivable for securities sold 43,986
Receivable from Continental Assurance Company for fund
deposits 54,784
------------
TOTAL ASSETS 229,828,001
------------
LIABILITIES:
Fees Payable to Continental Assurance Company -- Note 4 72,622
Liability for open call options written -- Note 5 391,799
Deferred income on call options written 1,593,269
Payable for securities purchased 863,137
Payable to Continental Assurance Company for fund
withdrawals 301,813
------------
TOTAL LIABILITIES 3,222,640
----------------------------------------------------------------------------
PARTICIPANTS' EQUITY (7,737,217 units issued and outstanding
at $29.30 per unit) - Note 2 $226,605,361
============================================================================
</TABLE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends $ 598,906
Interest and other 160,188
-----------
Total investment income 759,094
-----------
Fees to Continental Assurance Company: -- Note 4
Investment advisory fees 572,591
Service fees 377,910
-----------
Total fees 950,501
-----------
NET INVESTMENT INCOME (LOSS) (191,407)
-----------
Investments: -- Note 3
Net realized gain
Stock 11,304,639
Calls written 1,664,289
Change in unrealized gain (8,658,730)
-----------
NET GAIN ON INVESTMENTS 4,310,198
---------------------------------------------------------------------------
NET INCREASE IN PARTICIPANTS' EQUITY RESULTING FROM
OPERATIONS $ 4,118,791
===========================================================================
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
10
<PAGE> 11
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTICIPANTS' EQUITY
(UNAUDITED)
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Net Investment income (loss) $ (191,407) $ (86,566)
Net realized gain on investments 12,968,928 8,700,494
Change in unrealized gain on investments (8,658,730) 21,760,655
------------ ------------
Net increase in participants' equity resulting from
operations 4,118,791 30,374,583
------------ ------------
From unit transactions:
Sales 4,103,656 368,633
Withdrawals (9,271,427) (6,169,360)
------------ ------------
Net decrease in participants' equity resulting from
unit transactions (5,167,771) (5,800,727)
------------ ------------
TOTAL INCREASE IN PARTICIPANTS' EQUITY (1,048,980) 24,573,856
Participants' equity, January 1 227,654,341 179,345,826
--------------------------------------------------------------------------------------------
PARTICIPANTS' EQUITY, JUNE 30 $226,605,361 $203,919,682
--------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements (Unaudited).
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ORGANIZATION
Continental Assurance Company 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 the Continental
Assurance Company (CAC), 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 87% of the outstanding common stock of CNA.
The operations of CAC include the sale of certain variable annuity
contracts, the proceeds of which are invested in Separate Account (B). CAC 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 CAC.
INVESTMENTS
Investments in securities traded on national securities exchanges are
valued at the last reported sales price. 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 first-in first-out cost method.
There are no differences in cost for financial statement and Federal income tax
purposes.
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 the loaned securities. As
of June 30, 2000 no investment securities owned by Separate
Account (B) were loaned to brokers under loan agreements.
FEDERAL INCOME TAXES
Under existing Federal income tax law, no taxes are payable by Separate
Account (B) on the net investment income and net gain on investments, which are
reinvested in Separate Account (B) and taken into account in determining unit
values.
OTHER
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
--------------------------------------------------------------------------------
12
<PAGE> 12
--------------------------------------------------------------------------------
NOTE 2. PARTICIPANTS' EQUITY - NET ASSETS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Participants' equity consisted of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
JUNE 30, 2000
------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Accumulated investment income - net $ 52,038,855
Accumulated net realized gain on investment transactions 147,403,795
Accumulated unrealized gain 104,509,642
Accumulated unrealized loss (7,261,125)
------------
Accumulated income 296,691,167
From unit transactions:
Accumulated proceeds from sale of units, net of
withdrawals (70,085,806)
------------------------------------------------------------------------------
TOTAL PARTICIPANTS' EQUITY $226,605,361
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
NOTE 3. INVESTMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED GAIN ON INVESTMENTS
SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<S> <C> <C>
Aggregate proceeds $579,475,989
Aggregate cost 566,507,061
------------------------------------------------------------------------------
Net Realized gain $ 12,968,928
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
CHANGE IN UNREALIZED GAIN ON INVESTMENTS
SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
Unrealized gain on investments:
Balance June 30 $ 97,248,517
Less Balance, January 1 105,907,247
------------------------------------------------------------------------------
Change in net unrealized gain $ (8,658,730)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
AGGREGATE COST OF SECURITIES PURCHASED
SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<S> <C> <C>
<S> <C> <C>
Common stocks $ 35,549,114
Short-term notes 541,019,901
------------------------------------------------------------------------------
Total purchases $576,569,015
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
13
<PAGE> 13
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NOTE 4. MANAGEMENT FEES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Separate Account (B) pays fees to CAC for investment advisory and
management services 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 CAC for certain legal, accounting and other expenses. Such
reimbursement of service fees is computed at the rate of 0.33 of one percent per
annum of the average daily net assets of Separate Account (B).
Participants pay fees directly to CAC 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 CAC
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------
<S> <C>
Investment advisory fees $ 572,591
Service fees 377,910
----------
Total fees charged to results from operations 950,501
Sales and administrative fees paid by participants 345
--------------------------------------------------------------------------
Total $ 950,846
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Separate Account (B) invests from time to time in certain derivative
financial instruments, namely call options, to increase investment returns.
Derivatives are carried at fair value which generally reflects the
estimated amounts that Separate Account (B) would receive or pay upon
termination of the contracts at the reporting date. Dealer quotes are available
for all of Separate Account (B)'s derivatives.
The fair values associated with these instruments are generally affected by
changes in the underlying stock price. The credit risk associated with these
instruments is minimal as all transactions are cleared through securities
exchanges.
A summary of the aggregated notional amounts and estimated market values of
call options at June 30, 2000, as well as the monthly average market values and
the average market values and the recognized gain, are presented below.
CALL OPTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
---------------------------------------------------------------------------
<S> <C>
NOTIONAL VALUE $ 9,700,000
MARKET VALUE 115,912
MONTHLY VALUE (49,603)
---------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
---------------------------------------------------------------------------
NET REALIZED GAIN $ 1,664,289
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
These options were collateralized by stock with a market value of
$9,016,562 at June 30, 2000.
--------------------------------------------------------------------------------
13
<PAGE> 14
--------------------------------------------------------------------------------
NOTE 6. ACCOUNTING STANDARDS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires that an entity recognize all
derivative instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This Statement is effective for fiscal years beginning after June 15, 2000.
Separate Account (B) intends to adopt SFAS 133 effective January 1, 2001.
Separate Account (B) management is currently evaluating the effects of this
Statement on its accounting and reporting for derivative securities and hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101. "Revenue Recognition in Financial
Statements." This bulletin summarizes certain of the SEC Staff's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. This bulletin, through its subsequent revised releases SAB
No. 101A and No. 101B, is effective for registrants no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. Separate
Account (B) management does not expect the implementation of this bulletin to
have a significant impact on the results of operations or equity of Separate
Account (B).
--------------------------------------------------------------------------------
NOTE 7. OTHER EVENTS
--------------------------------------------------------------------------------
On March 8, 2000, CNA announced that it was exploring the sale of the
individual life insurance and reinsurance businesses. On August 8, 2000 CNA
announced that it had completed exploring the sale of the individual life
insurance and life reinsurance businesses and that it would retain the
individual life, long term care and retirement services businesses. CNA
announced that it would continue to explore the separate sale of its life
reinsurance business. The sale of the life reinsurance business is not expected
to have any impact on results of operations or equity of Separate Account (B).
--------------------------------------------------------------------------------
15
<PAGE> 15
[LOGO]
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
REPORT TO PARTICIPANTS
Participants Inquiries To:
Continental Assurance Company
Separate Account (B) JUNE 30, 2000
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
800-351-3001
[CNA LOGO]
FOR ALL THE COMMITMENTS YOU MAKE(R)
[LOGO]
Web Site: www.cna.com/sab/
L 554-921 (12/99) (08/00) Internet e-mail: [email protected]
