LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
COMBINED BALANCE SHEET
June 30, 1998
ASSETS
Investments at Market Value (Notes 1 and 2):
Seligman Growth Fund, Inc.
1,616,099 qualified shares (Cost $10,280,503) $11,829,848
234,880 non-qualified shares (Cost $1,911,073) $1,719,325
Oppenheimer Multiple Strategies Fund (formerly Oppenheimer Fund)
98,386 qualified shares (Cost $1,052,780) $1,516,135
18,195 non-qualified shares (Cost $210,635) $280,388
Delaware Group Decatur Fund, Inc.
737,661 qualified shares (Cost $9,409,409) $16,007,240
199,651 non-qualified shares (Cost $2,357,101) $4,332,425
Windsor Fund
771,419 qualified shares (Cost $9,442,115) $14,356,100
93,558 non-qualified shares (Cost $1,296,555) $1,741,116
Dreyfus Third Century Fund
909,292 qualified shares (Cost $4,200,242) $11,293,396
27,760 non-qualified shares (Cost $156,954) $344,776
Windsor Fund B
240,356 qualified shares (Cost $4,065,149) $4,473,035
100,574 non-qualified shares (Cost $1,617,276) $1,871,685
CIGNA High Yield Fund, Inc.
49,750 qualified shares (Cost $529,965) $500,488
129,469 non-qualified shares (Cost $1,239,229) $1,302,464
Total Assets $71,568,421
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
Seligman Growth Fund, Inc.
702,500 qualified accumulation ($16.8396408 per unit) $11,829,848
units outstanding
126,461 non-qualified accumulation ($13.5956950 per unit) $1,719,325
units outstanding
Oppenheimer Multiple Strategies Fund (formerly Oppenheimer Fund)
172,993 qualified accumulation ($8.7641426 per unit) $1,516,135
units outstanding
32,672 non-qualified accumulation ($8.5819082 per unit) $280,388
units outstanding
Delaware Group Decatur Fund, Inc.
575,042 qualified accumulation ($27.8366446 per unit) $16,007,240
units outstanding
159,974 non-qualified accumulation ($27.0820576 per unit) $4,332,425
units outstanding
Windsor Fund
681,879 qualified accumulation ($21.0537348 per unit) $14,356,100
units outstanding
93,494 non-qualified accumulation ($18.6227523 per unit) $1,741,116
units outstanding
Dreyfus Third Century Fund
416,248 qualified accumulation ($27.1314131 per unit) $11,293,396
units outstanding
14,409 non-qualified accumulation ($23.9278171 per unit) $344,776
units outstanding
Windsor Fund B
184,319 qualified accumulation ($24.2678993 per unit) $4,473,035
units outstanding
76,393 non-qualified accumulation ($24.5007459 per unit) $1,871,685
units outstanding
CIGNA High Yield Fund, Inc.
68,220 qualified accumulation ($7.3363818 per unit) $500,488
units outstanding
174,846 non-qualified accumulation ($7.4492062 per unit) $1,302,464
units outstanding
Contract Owners' Equity $71,568,421
The accompanying notes are an integral part of these financial statements
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
INDIVIDUAL STATEMENTS OF OPERATIONS
Period Ended June 30, 1998
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Investment Income:
Dividends $ 0 $ 0
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 49,997 7,170
Investment income - net (49,997) (7,170)
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 366,135 27,934
Cost of shares sold 307,984 24,345
Net realized gain (loss) on investments 58,151 3,589
Net unrealized gain (loss) on investments 1,994,165 290,317
Net realized and unrealized gain on investments 2,052,316 293,906
Net Increase in Net Assets
from Investment Operations 2,002,319 286,736
Oppenheimer Oppenheimer
Multiple Multiple
Strategies Fund Strategies Fund
(formerly (formerly
Oppenheimer) Oppenheimer)
Qualified Non-Qualified
Investment Income:
Dividends $ 25,013 $ 4,732
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 6,719 1,285
Investment income - net 18,294 3,447
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 71,521 20,929
Cost of shares sold 68,826 19,665
Net realized gain (loss) on investments 2,695 1,264
Net unrealized gain (loss) on investments 80,696 14,787
Net realized and unrealized gain on investments 83,391 16,051
Net Increase in Net Assets
from Investment Operations 101,685 19,498
Delaware Delaware
Group Group
Decatur Decatur
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Income:
Dividends $ 177,326 $ 49,586
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 70,261 19,620
Investment income - net 107,065 29,966
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 411,060 332,434
Cost of shares sold 401,642 316,333
Net realized gain (loss) on investments 9,418 16,101
Net unrealized gain (loss) on investments 1,145,401 306,604
Net realized and unrealized gain on investments 1,154,819 322,705
Net Increase in Net Assets
from Investment Operations 1,261,884 352,671
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends $ 91,908 $ 11,163
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 68,648 7,608
Investment income - net 23,260 3,555
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 1,678,982 7,608
Cost of shares sold 1,583,129 6,987
Net realized gain (loss) on investments 95,853 621
Net unrealized gain (loss) on investments 1,285,254 151,606
Net realized and unrealized gain on investments 1,381,107 152,227
Net Increase in Net Assets
from Investment Operations 1,404,367 155,782
Dreyfus Dreyfus
Third Century Third Century
Qualified Non-Qualified
Investment Income:
Dividends $ 0 $ 0
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 47,134 1,423
Investment income - net (47,134) (1,423)
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 282,339 1,851
Cost of shares sold 259,035 1,636
Net realized gain (loss) on investments 23,304 215
Net unrealized gain (loss) on investments 1,741,432 52,992
Net realized and unrealized gain on investments 1,764,736 53,207
Net Increase in Net Assets
from Investment Operations 1,717,602 51,784
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Investment Income:
Dividends $ 28,603 $ 11,995
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 20,669 8,314
Investment income - net 7,934 3,681
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 451,942 49,677
Cost of shares sold 380,011 43,427
Net realized gain (loss) on investments 71,931 6,250
Net unrealized gain (loss) on investments 384,853 162,332
Net realized and unrealized gain on investments 456,784 168,582
Net Increase in Net Assets
from Investment Operations 464,718 172,263
CIGNA High CIGNA High
Yield Fund, Inc. Yield Fund, Inc.
Qualified Non-Qualified
Investment Income:
Dividends $ 21,696 $ 50,367
Expenses:
Mortality risk and expense fees guarantees
(Note 3) 2,231 4,960
Investment income - net 19,465 45,407
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 0 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 34,989 3,126
Cost of shares sold 34,353 3,144
Net realized gain (loss) on investments 636 (18)
Net unrealized gain (loss) on investments (5,435) (17,411)
Net realized and unrealized gain on investments (4,799) (17,429)
Net Increase in Net Assets
from Investment Operations 14,666 27,978
The accompanying notes are an integral part of these financial statements
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
INDIVIDUAL STATEMENTS OF CHANGES IN TOTAL ASSETS
Period Ended June 30, 1998
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net ($49,997) ($7,170)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 58,151 3,589
Net unrealized gain (loss) on investment 1,994,165 290,317
Net increase (decrease) in net assets from
investment operations 2,002,319 286,736
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 6,751 0
Net contract surrenders and transfers
out (Note 3) (226,295) (10,265)
Benefit payments to annuitants (76,564) (10,498)
Net increase from accumulation unit transaction (296,108) (20,763)
Net Increase (Decrease) in Net Assets $1,706,211 $265,973
Net Assets:
Net assets at December 31, 1997 10,123,637 1,453,352
Net assets at June 30, 1998 $11,829,848 $1,719,325
Multiple Multiple
Strategies Strategies
Fund Fund
(formerly (formerly
Oppenheimer ) Oppenheimer )
Investment Operations:
Investment income-net $18,294 $3,447
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 2,695 1,264
Net unrealized gain (loss) on investment 80,696 14,787
Net increase (decrease) in net assets from
investment operations 101,685 19,498
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 1,160 0
Net contract surrenders and
transfers out (Note 3) (56,373) (186)
Benefit payments to annuitants (3,731) (19,458)
Net increase from accumulation unit transaction (58,944) (19,644)
Net Increase (Decrease) in Net Assets $42,741 ($146)
Net Assets:
Net assets at December 31, 1997 1,473,394 280,534
Net assets at June 30, 1998 $1,516,135 $280,388
Delaware Delaware
Group Group
Decatur Decatur
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net $107,065 $29,966
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 9,418 16,101
Net unrealized gain (loss) on investments 1,145,401 306,604
Net increase (decrease) in net assets from
investment operations 1,261,884 352,671
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 98,278 0
Net contract surrenders and
transfers out (Note 3) (319,850) (277,874)
Benefit payments to annuitants (41,937) (34,940)
Net increase from accumulation unit transaction (263,509) (312,814)
Net Increase (Decrease) in Net Assets $998,375 $39,857
Net Assets:
Net assets at December 31, 1997 15,008,865 4,292,568
Net assets at June 30, 1998 $16,007,240 $4,332,425
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $23,260 $3,555
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 95,853 621
Net unrealized gain (loss) on investments 1,285,254 151,606
Net increase (decrease) in net assets from
investment operations 1,404,367 155,782
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 110,899 0
Net contract surrenders and
transfers out (Note 3) (1,401,363) 0
Benefit payments to annuitants (88,699) 0
Net increase from accumulation unit transaction (1,379,163) 0
Net Increase (Decrease) in Net Assets $25,204 $155,782
Net Assets:
Net assets at December 31, 1997 14,330,896 1,585,334
Net assets at June 30, 1998 $14,356,100 $1,741,116
Dreyfus Dreyfus
Third Century Third Century
Qualified Non-Qualified
Investment Operations:
Investment income-net ($47,134) ($1,423)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 23,304 215
Net unrealized gain (loss) on investments 1,741,432 52,992
Net increase (decrease) in net assets from
investment operations 1,717,602 51,784
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 3,039 0
Net contract surrenders and
transfers out (Note 3) (187,418) 0
Benefit payments to annuitants (10,646) (429)
Net increase from accumulation unit transaction (195,025) (429)
Net Increase (Decrease) in Net Assets $1,522,577 $51,355
Net Assets:
Net assets at December 31, 1997 9,770,819 293,421
Net assets at June 30, 1998 $11,293,396 $344,776
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Investment Operations:
Investment income-net $7,934 $3,681
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 71,931 6,250
Net unrealized gain (loss) on investments 384,853 162,332
Net increase (decrease) in net assets from
investment operations 464,718 172,263
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 66,152 0
Net contract surrenders and
transfers out (Note 3) (442,925) (40,164)
Benefit payments to annuitants (1,512) (1,199)
Net increase (decrease) from accumulation
unit transaction (378,285) (41,363)
Net Increase (Decrease) in Net Assets $86,433 $130,900
Net Assets:
Net assets at December 31, 1997 4,386,602 1,740,785
Net assets at June 30, 1998 $4,473,035 $1,871,685
CIGNA High CIGNA High
Yield Fund, Inc. Yield Fund, Inc.
Non-Qualified Non-Qualified
Investment Operations:
Investment income-net $19,465 $45,407
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 636 (18)
Net unrealized gain (loss) on investments (5,435) (17,411)
Net increase (decrease) in net assets from
investment operations 14,666 27,978
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 323,340
Net contract surrenders and
transfers out (Note 3) (32,758) (1,102)
Benefit payments to annuitants 0 0
Net increase from accumulation unit transaction (32,758) 322,238
Net Increase (Decrease) in Net Assets ($18,092) $350,216
Net Assets:
Net assets at December 31, 1997 518,580 952,248
Net assets at June 30, 1998 $500,488 $1,302,464
Year Ended December 31, 1997
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net ($88,850) ($12,696)
Realized capital gain distributions 1,187,359 169,266
Net realized gain (loss) on investments 81,816 13,687
Net unrealized gain (loss) on investments 375,448 47,572
Net increase (decrease) in net assets from
investments operations 1,555,773 217,829
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 13,012 0
Net contract surrenders and
transfers out (Note 3) (728,383) (70,004)
Benefit payments to annuitants (39,997) (18,945)
Net increase (Decrease) from accumulation
unit transactions (755,368) (88,949)
Net Increase (Decrease) in Net Assets $800,405 $128,880
Net Assets:
Net assets at December 31, 1996 9,323,232 1,324,472
Net assets at December 31, 1997 $10,123,637 $1,453,352
Multiple Multiple
Strategies Strategies
Fund Fund
(formerly (formerly
Oppenheimer ) Oppenheimer )
Investment Operations:
Investment income-net $43,282 $8,165
Realized capital gain distributions 217,823 36,783
Net realized gain (loss) on investments 157,369 820
Net unrealized gain (loss) on investments (19,955) 5,688
Net increase (decrease) in net assets from
investment operations 398,519 51,456
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 4,780 0
Net contract surrenders and
transfers out (Note 3) (535,348) 0
Benefit payments to annuitants (6,927) (7,428)
Net increase (decrease) from accumulation
unit transactions (537,495) (7,428)
Net Increase (Decrease) in Net Assets ($138,976) $44,028
Net Assets:
Net assets at December 31, 1996 1,612,370 236,506
Net assets at December 31, 1997 $1,473,394 $280,534
Delaware Delaware
Group Group
Decatur Decatur
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net $837,463 $237,932
Realized capital gain distributions 1,413,813 404,241
Net realized gain (loss) on investments 122,855 18,742
Net unrealized gain (loss) on investments 1,122,353 321,660
Net increase (decrease) in net assets from
investment operations 3,496,484 982,575
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 124,184 0
Net contract surrenders and
transfers out (Note 3) (1,220,653) (225,262)
Benefit payments to annuitants (58,819) (60,234)
Net increase (decrease) from accumulation
unit transactions (1,155,288) (285,496)
Net Increase (Decrease) in Net Assets $2,341,196 $697,079
Net Assets:
Net assets at December 31, 1996 12,667,669 3,595,489
Net assets at December 31, 1997 $15,008,865 $4,292,568
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $727,599 $79,504
Realized capital gain distributions 1,448,303 160,034
Net realized gain (loss) on investments 552,562 5,905
Net unrealized gain (loss) on investments 19,955 21,529
Net increase (decrease) in net assets from
investment operations 2,748,419 266,972
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 219,230 66,991
Net contract surrenders and
transfers out (Note 3) (1,916,725) (58,760)
Benefit payments to annuitants (94,819) 0
Net increase (decrease) from accumulation
unit transactions (1,792,314) 8,231
Net Increase (Decrease) in Net Assets $956,105 $275,203
Net Assets:
Net assets at December 31, 1996 13,374,791 1,310,131
Net assets at December 31, 1997 $14,330,896 $1,585,334
Dreyfus Dreyfus
Third Century Third Century
Qualified Non-Qualified
Investment Operations:
Investment income-net $158,149 $4,677
Realized capital gain distributions 549,264 16,216
Net realized gain (loss) on investments 92,057 2,549
Net unrealized gain (loss) on investments 1,429,978 42,261
Net increase (decrease) in net assets from
investment operations 2,229,448 65,703
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 19,625 4,612
Net contract surrenders and transfers out
(Note 3) (605,093) (22,476)
Benefit payments to annuitants (29,242) (744)
Net increase (decrease) from accumulation
unit transactions (614,710) (18,608)
Net Increase (Decrease) in Net Assets $1,614,738 $47,095
Net Assets:
Net assets at December 31, 1996 8,156,081 246,326
Net assets at December 31, 1997 $9,770,819 $293,421
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Investment Operations:
Investment income-net $228,221 $87,765
Realized capital gain distributions 457,654 175,744
Net realized gain (loss) on investments 16,888 6,332
Net unrealized gain (loss) on investments 94,029 39,594
Net increase (decrease) in net assets from
investment operations 796,792 309,435
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 39,318 0
Net contract surrenders and transfers out
(Note 3) (373,799) (84,585)
Benefit payments to annuitants (2,701) (2,183)
Net increase (decrease) from accumulation
unit transactions (337,182) (86,768)
Net Increase (Decrease) in Net Assets $459,610 $222,667
Net Assets:
Net assets at December 31, 1996 3,926,992 1,518,118
Net assets at December 31, 1997 $4,386,602 $1,740,785
CIGNA High CIGNA High
Yield Fund, Inc. Yield Fund, Inc.
Non-Qualified Non-Qualified
Investment Operations:
Investment income-net $44,726 $96,939
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (1,641) 28,812
Net unrealized gain (loss) on investments 17,632 3,957
Net increase (decrease) in net assets from
investment operations 60,717 129,708
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (366,223) (512,728)
Benefit payments to annuitants 0 0
Net increase (decrease) from accumulation
unit transactions (366,223) (512,728)
Net Increase (Decrease) in Net Assets ($305,506) ($383,020)
Net Assets:
Net assets at December 31, 1996 824,086 1,335,268
Net assets at December 31, 1997 $518,580 $952,248
The accompanying notes are an integral part of these financial statements
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note 1. Organization
Life Insurance Company of North America - Separate Account A (the
"Separate Account"), a separate account of Life Insurance Company
of North America ("LINA"), is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust. The
Separate Account consists of seven divisions, corresponding to
the specific mutual fund shares underlying the values of such
division. Variable annuity contract payments allocated to the
Separate Account, except as modified by Note 5, are invested by
LINA in shares of a designated mutual fund for allocation to the
corresponding Separate Account division. The current divisions
of the Separate Account are designated as follows: Delaware Group
Decatur Fund, Inc., Seligman Growth Fund, Inc., Oppenheimer
Multiple Strategies Fund (formerly Oppenheimer Fund, Windsor
Fund, Windsor Fund B, Dreyfus Third Century Fund, and CIGNA High
Yield Fund, Inc. (the "Funds").
The Windsor Fund has, with certain exceptions, ceased offering
shares to investors; however, the Separate Account has obtained
confirmation from the fund that it will continue to provide its
shares for use as an underlying investment medium for eligible
variable annuity contract holders.
Each of the seven mutual fund divisions contains two
subdivisions, one for the tax-qualified and one for the
allocation of non-tax qualified variable annuity contract values.
The contract owners' equity is affected by the investment results
of the appropriate mutual fund designated for the subdivision and
the mortality risk and expense fees guarantees assessed on
Separate Account assets (See Note 3).
Under the current provisions of the Internal Revenue Code (the
"Code"), transfers of contract values from one division of the
Separate Account to another division of the Separate Account, or
from the Separate Account to the General account, are not subject
to current taxation. There can be no assurance that future
changes in the Code will subject such transfers to current
taxation.
Note 2. Significant Accounting Policies
The accompanying financial statements include only the contract
owners' payments pertaining to the variable portion of their
contracts, and exclude any payments for fixed dollar benefits,
the latter being included in the general account of LINA.
Following is a summary of the significant accounting policies of
the Separate Account: (a) the market value investments is based
on closing bid prices (net asset value) at June 30, 1998; (b)
investment transactions are accounted for on the trade date and
income is recorded on the ex-dividend date; (c) the cost of the
investments sold is determined on the specific identification
method. See Notes 4 through 6 with respect to income taxes.
Note 3. Contract Owner Transactions
Net contract considerations represent gross contributions
allocated to the Separate Account by the contract owners less a
deduction by LINA for sales and administrative expenses, death
benefits for group contracts and any applicable premium taxes.
These deductions, exclusive of premium taxes, are charged against
the gross contributions and vary as follows: group contracts
from 1% to 6%; individual contracts from 4% to 8.5%. Net
contract considerations for the period ended June 30, 1998 were
$609,619 after deductions for sales and administrative expenses.
Contract owners unaffected by Revenue Ruling 81-225 (See Note 5)
have limited rights to transfer their investment between the
Separate Account subdivisions and to transfer from and to the
General Account of LINA. Contract owners affected by Revenue
Ruling 81-225 have limited rights to transfer certain contract
values to the General Account of LINA to lessen the impact of
the Ruling (See Note 5). The amounts of all transfers for the
period ended June 30, 1998 were as follows:
Transfers between Separate
Account A subdivisions $634,777
Transfers from the General
Account $737,937
Transfers to the General
Account $466,391
LINA charges a fee to each Separate Account subdivision for
assuming the mortality risk and expense fee guarantees. The
daily equivalent of the annual charge of 0.90% is made against
the average net asset value of the Separate Account.
Note 4. Income Taxes
The Separate Account is taxed as part of LINA. For the period
ended June 30, 1998, LINA was taxed as a casualty insurance
company as part of the consolidated group of CIGNA Corporation,
its ultimate parent. LINA anticipates that, for calendar year
1998, it will be taxed as a casualty insurance company as part of
CIGNA Corporation's consolidated group. Although LINA may be
taxed as a casualty insurance company, it treats the operations
of the Separate Account as if it were part of a life insurance
company. Under the current provisions of the Internal Revenue
Code, no federal income taxes are payable by a company taxed as a
life insurance company with respect to investment income and
capital gains of the assets of a separate account when used to
determine contract values. LINA reserves the right to make
adjustments for taxes to the assets of the Separate Account
should future changes in the Internal Revenue Code applicable to
life insurance companies so warrant.
Note 5. Effect of Revenue Ruling 81-225
Revenue Ruling 81-225 was issued by the Internal Revenue Service
on September 25, 1981. The Ruling pertains to variable
annuities, where the insurance company, through a separate
account, holds mutual funds shares which are also sold to the
public independent of the variable annuity contracts. The Ruling
also questioned the tax treatment of variable annuity contracts
where the underlying mutual funds are not managed by the issuing
insurance company or an affiliate, and where the policyholder may
initially allocate and subsequently reallocate his contract
values among several underlying funds.
The Ruling adversely affected the tax status of the Separate
Account variable annuity contracts issued on a non-tax qualified
basis after December 31, 1980, and those issued after September
25, 1981 which were intended to qualify under Internal Revenue
Code Sections 403(a), 403(b) or 408(b).
In order to comply with the IRS opinions expressed in Revenue
Ruling 81-225, allocations to the Separate Account resulting from
new purchases were terminated except as noted below. In
addition, LINA suspended new contract sales which permitted
allocations to the Separate Account in both the non-tax qualified
and tax qualified markets described above.
Payments on behalf of individuals who were participants under
contracts before September 25, 1981 may continue to be allocated
to the Separate Account where such contracts were issued to
qualify pursuant to Code Sections 403(a), 403(b) or 408(b), or
where the contract owner is not subject to federal income tax.
Note 6. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue
Code, a variable annuity contract, other than a contract issued
in connection with certain types of employee benefit plans, will
not be treated as an annuity contract for federal tax purposes
for any period for which the investments of the segregated asset
account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification
requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under section
817(h) of the Code. LINA believes that the Separate Account
satisfies the current requirements of the regulations, and it
intends that the Separate Account will continue to meet such
requirements.
Note 7. Accumulation unit transactions
The changes in the number of accumulation units
(the measure of ownership in the Separate Account) during 1998,
and units outstanding at June 30, 1998 were as follows:
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Units outstanding at December 31, 1997 720,560 128,134
Units purchased and transfers in 401 0
Benefits, surrenders and transfers out (18,461) (1,673)
Units outstanding at June 30, 1998 702,500 126,461
Oppenheimer Oppenheimer
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1997 179,887 34,996
Units purchased and transfers in 815 0
Benefits, surrenders and transfers out (7,709) (2,324)
Units outstanding at June 30, 1998 172,993 32,672
Delaware Delaware
Group Group
Decatur Decatur
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Units outstanding at December 31, 1997 584,884 171,929
Units purchased and transfers in 1,055 0
Benefits, surrenders and transfers out (10,897) (11,955)
Units outstanding at June 30, 1998 575,042 159,974
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1997 747,640 93,494
Units purchased and transfers in 12,820 0
Benefits, surrenders and transfers out (78,581) 0
Units outstanding at June 30, 1998 681,879 93,494
Dreyfus Dreyfus
Third Century Third Century
Qualified Non-Qualified
Units outstanding at December 31, 1997 423,700 14,428
Units purchased and transfers in 1,784 0
Benefits, surrenders and transfers out (9,236) (19)
Units outstanding at June 30, 1998 416,248 14,409
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Units outstanding at December 31, 1997 198,377 78,031
Units purchased and transfers in 2,712 0
Benefits, surrenders and transfers out (16,770) (1,638)
Units outstanding at June 30, 1998 184,319 76,393
CIGNA High CIGNA High
Yield Fund, IncYield Fund, Inc.
Qualified Non-Qualified
Units outstanding at December 31, 1997 72,762 131,589
Units purchased and transfers in 0 43,257
Benefits, surrenders and transfers out (4,542) 0
Units outstanding at June 30, 1998 68,220 174,846
The accumulation units for eleven of the subdivisions include units
units applicable to contract owners who are "on benefit annuitants."
At June 30, 1998 the number of accumulation units, the aggregate
value of the subdivisions' equity and the number of monthly annuity
units and value per unit of "on benefit annuitants" are as follows:
Accumulation Aggregate
Units Value
Seligman Growth Fund, Inc. Qualified ........ 29,689 $499,952
Seligman Growth Fund, Inc. Non-Qualified .... 15,278 $207,715
Oppenheimer Fund Qualified .................. 5,127 $44,934
Oppenheimer Fund Non-Qualified .............. 10,586 $90,848
Delaware Group Decatur Fund, Inc. Qualified . 30,081 $837,354
Delaware Group Decatur Fund, Inc. Non-Qualifi 33,406 $904,703
Windsor Fund Qualified ...................... 51,197 $1,077,888
Dreyfus Third Century Qualified ............. 10,407 $282,357
Dreyfus Third Century Non-Qualified ......... 458 $10,959
Windsor Fund B Qualified .................... 1,439 $34,922
Windsor Fund B Non-Qualified ................ 1,486 $36,408
Monthly Annuity
Annuity Units Unit Value
Seligman Growth Fund, Inc. Qualified ........ 1,197 6.5038535
Seligman Growth Fund, Inc. Non-Qualified .... 969 5.2520546
Oppenheimer Fund Qualified .................. 245 3.4002912
Oppenheimer Fund Non-Qualified .............. 198 3.3306742
Delaware Group Decatur Fund, Inc. Qualified . 860 10.8365298
Delaware Group Decatur Fund, Inc. Non-Qualifi 700 10.4721742
Windsor Fund Qualified ...................... 1,300 8.1709087
Dreyfus Third Century Qualified ............. 458 5.5502954
Dreyfus Third Century Non-Qualified ......... 19 5.4906994
Windsor Fund B Qualified .................... 108 3.2943668
Windsor Fund B Non-Qualified ................ 103 2.0895494
