LIFE INSURANCE COMPANY
OF NORTH AMERICA
SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
December 31, 1998
(Audited)
This report is submitted for the general information of owners of Life Insurance
Company of North America Separate Account A contracts. The Separate Account does
not issue new contracts; accordingly, this report is not authorized for
distribution to prospective purchasers of variable annuity contracts.
Life Insurance Company of North America
Philadelphia, PA
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Report of Independent Accountants
To the Contract Owners of Life Insurance Company of North America Separate
Account A and the Board of Directors of Life Insurance Company of North America
In our opinion, the accompanying combined balance sheet and the related
individual statements of operations and of changes in total assets present
fairly, in all material respects, the combined financial position of the
subdivisions comprising the Life Insurance Company of North America Separate
Account A (the Separate Account) at December 31, 1998, the results of each of
their operations for the year then ended and the changes in each of their total
assets for the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Separate Account's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made management, and
evaluating the overall financial statement presentation. We believe that our
audits which included confirmation of securities at December 31, 1998 by
correspondence with the underlying funds provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 19, 1999
<PAGE>
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
COMBINED BALANCE SHEET
As Of December 31, 1998
ASSETS
Investments at Market Value (Notes 1 and 2):
Seligman Growth Fund, Inc.
1,697,857 qualified shares (Cost $10,888,999) 12,598,088
246,577 non-qualified shares (Cost $2,002,659) 1,829,612
Oppenheimer Multiple Strategies Fund
(formerly Oppenheimer Fund)
101,450 qualified shares (Cost $1,086,541) 1,401,018
19,910 non-qualified shares (Cost $233,536) 274,955
Delaware Group Decatur Fund, Inc.
843,527 qualified shares (Cost $11,270,650) 15,436,533
235,764 non-qualified shares (Cost $3,007,095) 4,314,477
Windsor Fund
794,413 qualified shares (Cost $9,677,487) 12,369,017
101,728 non-qualified shares (Cost $1,415,537) 1,583,902
Dreyfus Third Century Fund
954,270 qualified shares (Cost $4,771,700) 11,718,448
28,662 non-qualified shares (Cost $169,682) 351,968
Windsor Fund B
252,910 qualified shares (Cost $4,195,011) 3,937,802
109,293 non-qualified shares (Cost $1,743,906) 1,701,704
CIGNA High Yield Fund, Inc.
52,145 qualified shares (Cost $551,545) 457,310
135,701 non-qualified shares (Cost $1,295,390) 1,190,097
Total Assets 69,164,931
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
Seligman Growth Fund, Inc.
668,941 qualified accumulation
units outstanding (18.8328838 Per Unit) 12,598,088
120,334 non-qualified accumulation
units outstanding (15.2044482 Per Unit) 1,829,612
Oppenheimer Multiple Strategies Fund
(formerly Oppenheimer Fund)
161,220 qualified accumulation
units outstanding (8.6900984 Per Unit) 1,401,018
32,314 non-qualified accumulation
units outstanding (8.508861 Per Unit) 274,955
Delaware Group Decatur Fund, Inc.
552,419 qualified accumulation (27.9435233 Per Unit) 15,436,533
units outstanding
158,694 non-qualified accumulation (27.1873978 Per Unit) 4,314,477
units outstanding
Windsor Fund
645,749 qualified accumulation (19.154528 Per Unit) 12,369,017
units outstanding
93,494 non-qualified accumulation (16.941211 Per Unit) 1,583,902
units outstanding
Dreyfus Third Century Fund
393,324 qualified accumulation (29.7933722 Per Unit) 11,718,448
units outstanding
13,414 non-qualified accumulation (26.238853 Per Unit) 351,968
units outstanding
Windsor Fund B
178,420 qualified accumulation (22.0704046 Per Unit) 3,937,802
units outstanding
76,345 non-qualified accumulation (22.2896527 Per Unit) 1,701,704
units outstanding
CIGNA High Yield Fund, Inc.
68,220 qualified accumulation (6.7034531 Per Unit) 457,310
units outstanding
174,846 non-qualified accumulation (6.8065435 Per Unit) 1,190,097
units outstanding
Contract Owners' Equity 69,164,931
The accompanying notes are an integral part of these financial statements
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
INDIVIDUAL STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Investment Income:
Dividends 17,288 2,467
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 101,101 14,514
Investment income - net (83,813) (12,047)
Net Realized and Unrealized Gain
on Investments:
Net realized capital gain distributions 1,143,452 162,787
Net realized gain (loss) on investments:
Proceeds from sale of shares 981,785 113,220
Cost of shares sold 860,228 98,012
Net realized gain (loss) on investments 121,557 15,208
Net unrealized gain (loss) on investments 2,153,909 309,018
Net realized and unrealized gain (Loss)
on investments 3,418,918 487,013
Net Increase (Decrease) in Net Assets
from Investment Operations 3,335,105 474,966
The accompanying notes are an integral part of these financial statements
Oppenheimer Oppenheimer
Multiple Multiple
Strategies Strategies
Fund (formerly Fund (formerly
Oppenheimer) Oppenheimer)
Qualified Non-Qualified
Investment Income:
Dividends 50,017 9,545
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 12,956 2,476
Investment income - net 37,061 7,069
Net Realized and Unrealized Gain
on Investments:
Net realized capital gain distributions 112,996 22,153
Net realized gain (loss) on investments:
Proceeds from sale of shares 173,890 25,033
Cost of shares sold 173,066 23,731
Net realized gain (loss) on investments 824 1,302
Net unrealized gain (loss) on investments (68,182) (13,547)
Net realized and unrealized gain (Loss)
on investments 45,638 9,908
Net Increase (Decrease) in Net Assets
from Investment Operations 82,699 16,977
Delaware Delaware
Group Group
Decatur Decatur
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Income:
Dividends 799,676 223,128
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 137,475 38,231
Investment income - net 662,201 184,897
Net Realized and Unrealized Gain
on Investments:
Net realized capital gain distributions 1,888,067 527,749
Net realized gain (loss) on investments:
Proceeds from sale of shares 1,177,252 383,943
Cost of shares sold 1,146,830 367,630
Net realized gain (loss) on investments 30,422 16,313
Net unrealized gain (loss) on investments (1,286,547) (361,338)
Net realized and unrealized gain (Loss)
on investments 631,942 182,724
Net Increase (Decrease) in Net Assets
from Investment Operations 1,294,143 367,621
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends 186,509 23,279
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 123,632 14,507
Investment income - net 62,877 8,772
Net Realized and Unrealized Gain
on Investments:
Net realized capital gain distributions 895,070 114,633
Net realized gain (loss) on investments:
Proceeds from sale of shares 2,665,488 14,508
Cost of shares sold 2,599,780 14,754
Net realized gain (loss) on investments 65,708 (246)
Net unrealized gain (loss) on investments (937,201) (124,591)
Net realized and unrealized gain (Loss)
on investments 23,577 (10,204)
Net Increase (Decrease) in Net Assets
from Investment Operations 86,454 (1,432)
Dreyfus Dreyfus
Third Century Third Century
Qualified Non-Qualified
Investment Income:
Dividends 186,164 5,537
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 94,993 3,091
Investment income - net 91,171 2,446
Net Realized and Unrealized Gain
on Investments:
Net realized capital gain distributions 973,251 28,945
Net realized gain (loss) on investments:
Proceeds from sale of shares 906,316 27,817
Cost of shares sold 851,671 23,390
Net realized gain (loss) on investments 54,645 4,427
Net unrealized gain (loss) on investments 1,595,026 47,456
Net realized and unrealized gain (Loss)
on investments 2,622,922 80,828
Net Increase (Decrease) in Net Assets
from Investment Operations 2,714,093 83,274
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Investment Income:
Dividends 25,008 25,008
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 38,286 15,728
Investment income - net (13,278) 9,280
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions 285,754 123,118
Net realized gain (loss) on investments:
Proceeds from sale of shares 574,239 58,118
Cost of shares sold 532,457 52,927
Net realized gain (loss) on investments 41,782 5,191
Net unrealized gain (loss) on investments (280,242) (134,279)
Net realized and unrealized gain (Loss)
on investments 47,294 (5,970)
Net Increase (Decrease) in Net Assets
from Investment Operations 34,016 3,310
CIGNA CIGNA
High Yield High Yield
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Income:
Dividends 45,424 112,118
Expenses:
Mortality risk and expense fees
guarantees (Notes 3) 4,329 10,429
Investment income - net 41,095 101,689
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 37,087 8,585
Cost of shares sold 36,502 8,734
Net realized gain (loss) on investments 585 (149)
Net unrealized gain (loss) on investments (70,193) (185,939)
Net realized and unrealized gain (Loss)
on investments (69,608) (186,088)
Net Increase (Decrease) in Net Assets
from Investment Operations (28,513) (84,399)
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
INDIVIDUAL STATEMENTS OF CHANGES IN TOTAL ASSETS
Year Ended December 31, 1998
Seligman Seligman
Growth Fund Growth Fund
Inc. Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net ($83,813) ($12,047)
Realized capital gain distributions 1,143,452 162,787
Net realized gain (loss) on investments 121,557 15,208
Net unrealized gain (loss) on investments 2,153,909 309,018
Net Increase (Decrease) in net assets
from investment operations 3,335,105 474,966
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 11,090 0
Net contract surrenders and
transfers out (Note 3) (745,799) (78,113)
Benefit payments to annuitants (125,945) (20,593)
Net Increase (Decrease) from
accumulation unit transactions (860,654) (98,706)
Net Increase (Decrease) in Net Assets $2,474,451 $376,260
Net Assets:
Net assets at December 31, 1997 10,123,637 1,453,352
Net assets at December 31, 1998 $12,598,088 $1,829,612
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 investment 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 $37,061 $7,069
Realized capital gain distributions 112,996 22,153
Net realized gain (loss) on investments 824 1,302
Net unrealized gain (loss) on investments (68,182) (13,547)
Net Increase (Decrease) in net assets
from investment operations 82,699 16,977
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 1,330 0
Net contract surrenders and
transfers out (Note 3) (149,210) (185)
Benefit payments to annuitants (7,195) (22,371)
Net Increase (Decrease) from
accumulation unit transactions (155,075) (22,556)
Net Increase (Decrease) in Net Assets ($72,376) ($5,579)
Net Assets:
Net assets at December 31, 1997 1,473,394 280,534
Net assets at December 31, 1998 $1,401,018 $274,955
Year Ended December 31, 1997
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 $662,201 $184,897
Realized capital gain distributions 1,888,067 527,749
Net realized gain (loss) on investments 30,422 16,313
Net unrealized gain (loss) on investments (1,286,547) (361,338)
Net Increase (Decrease) in net assets
from investment operations 1,294,143 367,621
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 47,625 0
Net contract surrenders and
transfers out (Note 3) (833,765) (278,898)
Benefit payments to annuitants (80,335) (66,814)
Net Increase (Decrease) from
accumulation unit transactions (866,475) (345,712)
Net Increase (Decrease) in Net Assets $427,668 $21,909
Net Assets:
Net assets at December 31, 1997 15,008,865 4,292,568
Net assets at December 31, 1998 $15,436,533 $4,314,477
Year Ended December 31, 1997
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 $62,877 $8,772
Realized capital gain distributions 895,070 114,633
Net realized gain (loss) on investments 65,708 (246)
Net unrealized gain (loss) on investments (937,201) (124,591)
Net Increase (Decrease) in net assets
from investment operations 86,454 (1,432)
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 322,791 0
Net contract surrenders and
transfers out (Note 3) (2,238,922) 0
Benefit payments to annuitants (132,202) 0
Net Increase (Decrease) from
accumulation unit transactions (2,048,333) 0
Net Increase (Decrease) in Net Assets ($1,961,879) ($1,432)
Net Assets:
Net assets at December 31, 1997 14,330,896 1,585,334
Net assets at December 31, 1998 $12,369,017 $1,583,902
Year Ended December 31, 1997
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 $91,171 $2,446
Realized capital gain distributions 973,251 28,945
Net realized gain (loss) on investments 54,645 4,427
Net unrealized gain (loss) on investments 1,595,026 47,456
Net Increase (Decrease) in net assets
from investment operations 2,714,093 83,274
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 10,603 0
Net contract surrenders and
transfers out (Note 3) (755,943) (23,878)
Benefit payments to annuitants (21,124) (849)
Net Increase (Decrease) from
accumulation unit transactions (766,464) (24,727)
Net Increase (Decrease) in Net Assets $1,947,629 $58,547
Net Assets:
Net assets at December 31, 1997 9,770,819 293,421
Net assets at December 31, 1998 $11,718,448 $351,968
Year Ended December 31, 1997
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 ($13,278) $9,280
Realized capital gain distributions 285,754 123,118
Net realized gain (loss) on investments 41,782 5,191
Net unrealized gain (loss) on investments (280,242) (134,279)
Net Increase (Decrease) in net assets
from investment operations 34,016 3,310
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 75,498 0
Net contract surrenders and
transfers out (Note 3) (555,599) (40,166)
Benefit payments to annuitants (2,715) (2,225)
Net Increase (Decrease) from
accumulation unit transactions (482,816) (42,391)
Net Increase (Decrease) in Net Assets ($448,800) ($39,081)
Net Assets:
Net assets at December 31, 1997 4,386,602 1,740,785
Net assets at December 31, 1998 $3,937,802 $1,701,704
Year Ended December 31, 1997
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 CIGNA
High Yield High Yield
Fund, Inc. Fund, Inc.
Qualified Non-Qualified
Investment Operations:
Investment income-net $41,095 $101,689
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 585 (149)
Net unrealized gain (loss) on investments (70,193) (185,939)
Net Increase (Decrease) in net assets
from investment operations (28,513) (84,399)
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 323,340
Net contract surrenders and
transfers out (Note 3) (32,757) (1,092)
Benefit payments to annuitants 0 0
Net Increase (Decrease) from
accumulation unit transactions (32,757) 322,248
Net Increase (Decrease) in Net Assets ($61,270) $237,849
Net Assets:
Net assets at December 31, 1997 518,580 952,248
Net assets at December 31, 1998 $457,310 $1,190,097
Year Ended December 31, 1997
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
LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
December 31, 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 not 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 December 31, 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 December 31, 1998 were $ 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 December
31, 1998 were as follows:
Transfers between Separate
Account A subdivisions $ 99,205
Transfers from the General
Account $ 541,449
Transfers to the General
Account $ 527,384
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 December 31,
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 1999, 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.
LIFE INSURANCE COMPANY OF NORTH AMERICA
Note 7. Accumulation unit transactions
Period Ended 12/31/98
The changes in the number of accumulation units (the measure of ownership in the
Separate Account) during 1998, and units outstanding at December 31, 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 650 0
Benefits, surrenders and transfers out (52,269) (7,800)
Units outstanding at December 31, 1998 668,941 120,334
Oppenheimer Oppenheimer
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1997 179,887 34,996
Units purchased and transfers in 834 0
Benefits, surrenders and transfers out (19,501) (2,682)
Units outstanding at December 31, 1998 161,220 32,314
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 1,670 0
Benefits, surrenders and transfers out (34,135) (13,235)
Units outstanding at December 31, 1998 552,419 158,694
Windsor Windsor
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1997 747,640 93,494
Units purchased and transfers in 22,701 0
Benefits, surrenders and transfers out (124,592) 0
Units outstanding at December 31, 1998 645,749 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 2,091 0
Benefits, surrenders and transfers out (32,467) (1,014)
Units outstanding at December 31, 1998 393,324 13,414
Windsor Windsor
Fund B Fund B
Qualified Non-Qualified
Units outstanding at December 31, 1997 198,377 78,031
Units purchased and transfers in 3,139 0
Benefits, surrenders and transfers out (23,096) (1,686)
Units outstanding at December 31, 1998 178,420 76,345
CIGNA CIGNA
High Yield High Yield
Fund, Inc. 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 December 31, 1998 68,220 174,846
The accumulation units for eleven of the subdivisions include units applicable
to contract owners who are "on benefit annuitants." At December 31, 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 31,083 $585,383
Seligman Growth Fund, Inc. Non-Qualified 14,507 $220,571
Oppenheimer Fund Qualified 4,706 $40,896
Oppenheimer Fund Non-Qualified 10,227 $87,020
Delaware Group Decatur Fund, Inc. Qualified 32,029 $895,003
Delaware Group Decatur Fund, Inc.
Non-Qualified 32,167 $874,537
Windsor Fund Qualified 48,818 $935,086
Dreyfus Third Century Qualified 10,000 $297,934
Dreyfus Third Century Non-Qualified 440 $11,545
Windsor Fund B Qualified 1,383 $30,523
Windsor Fund B Non-Qualified 1,438 $32,053
Monthly Annuity
Annuity Units Unit Value
Seligman Growth Fund, Inc. Qualified 1,256 7.1707038
Seligman Growth Fund, Inc. Non-Qualified 969 5.7903583
Oppenheimer Fund Qualified 245 3.3135632
Oppenheimer Fund Non-Qualified 198 3.2455162
Delaware Group Decatur Fund, Inc. Qualified 941 10.6910023
Delaware Group Decatur Fund, Inc.
Non-Qualifed 700 10.3320572
Windsor Fund Qualified 1,300 7.3059481
Dreyfus Third Century Qualified 458 5.9900083
Dreyfus Third Century Non-Qualified 19 5.9174346
Windsor Fund B Qualified 108 1.0089538
Windsor Fund B Non-Qualified 103 1.8682724
