LOEWS CORP, 10-Q, 2000-08-07

LOEWS CORP
10-Q, 2000-08-07
FIRE, MARINE & CASUALTY INSURANCE

Previous: LOEHMANNS INC, SC 13G/A, 2000-08-07

Next: LOEWS CORP, 10-Q, EX-27.1, 2000-08-07

==============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000
-------------
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
------------ ------------

Commission file number 1-6541
------

LOEWS CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in is charter)

Delaware 13-2646102
------------------------------- -------------------
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

667 MADISON AVENUE, NEW YORK, N.Y. 10021-8087
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)

(212) 521-2000
-----------------------------------------------------
(Registrant's telephone number, including area code)

NOT APPLICABLE
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes X No
--------- ---------

Class Outstanding at July 31, 2000
-------------------------- -----------------------------
Common stock, $1 par value 98,614,000 shares
==============================================================================

INDEX

Part I. Financial Information Page No.
--------

Item 1. Financial Statements

Consolidated Condensed Balance Sheets--
June 30, 2000 and December 31, 1999 . . . . . . . . . . . . 3

Consolidated Condensed Statements of Income--
Three and six months ended June 30, 2000 and 1999 . . . . . 4

Consolidated Condensed Statements of Cash Flows--
Six months ended June 30, 2000 and 1999 . . . . . . . . . . 5

Notes to Consolidated Condensed Financial Statements . . . . 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 29

Item 3. Quantitative and Qualitative Disclosures about Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Part II. Other Information

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 48

Item 4. Submission of Matters to a Vote of Security Holders . . 58

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 60

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.
--------------------

<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
------------------------------------------------------------------------------
(Amounts in millions of dollars) June 30, December 31,
2000 1999
--------------------------
<S> <C> <C>
Assets:

Investments:
Fixed maturities, amortized cost of
$24,955.7 and $28,637.7 . . . . . . . . . . $ 24,388.2 $27,924.4
Equity securities, cost of $1,552.6 and
$1,870.2 . . . . . . . . . . . . . . . . . 3,209.3 4,023.5
Other investments . . . . . . . . . . . . . 1,545.8 1,367.3
Short-term investments . . . . . . . . . . . 11,034.4 7,317.8
--------------------------
Total investments . . . . . . . . . . . . 40,177.7 40,633.0
Cash . . . . . . . . . . . . . . . . . . . . . 236.3 183.9
Receivables-net . . . . . . . . . . . . . . . 15,273.7 13,528.7
Property, plant and equipment-net . . . . . . 3,156.2 2,952.7
Deferred income taxes . . . . . . . . . . . . 866.6 773.9
Goodwill and other intangible assets-net . . . 405.2 409.5
Other assets . . . . . . . . . . . . . . . . . 4,098.4 3,943.3
Deferred policy acquisition costs of insurance
subsidiaries . . . . . . . . . . . . . . . . 2,556.1 2,435.6
Separate Account business . . . . . . . . . . 4,455.0 4,603.1
--------------------------
Total assets . . . . . . . . . . . . . . $ 71,225.2 $69,463.7
==========================

Liabilities and Shareholders' Equity:

Insurance reserves and claims . . . . . . . . $ 39,406.3 $39,164.7
Payable for securities purchased . . . . . . . 1,340.0 516.6
Securities sold under repurchase agreements . 1,949.0 1,647.3
Long-term debt, less unamortized discount . . 6,023.7 5,706.3
Other liabilities . . . . . . . . . . . . . . 5,923.6 5,497.7
Separate Account business . . . . . . . . . . 4,455.0 4,603.1
--------------------------
Total liabilities . . . . . . . . . . . . 59,097.6 57,135.7
Minority interest . . . . . . . . . . . . . . 2,163.2 2,350.3
Shareholders' equity . . . . . . . . . . . . . 9,964.4 9,977.7
--------------------------
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . . . $ 71,225.2 $69,463.7
==========================

See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>

<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Statements of Income
------------------------------------------------------------------------------------------------
(In millions, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
2000 1999 2000 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums . . . . . . . . . . $2,777.4 $3,504.9 $ 5,546.3 $ 6,942.9
Investment income, net of expenses . . 578.9 573.8 1,137.1 1,138.2
Investment gains . . . . . . . . . . . 397.9 58.1 312.9 139.0
Manufactured products (including excise
taxes of $178.5, $132.0, $337.3 and
$251.1) . . . . . . . . . . . . . . . 1,150.2 1,030.6 2,163.7 1,960.6
Other . . . . . . . . . . . . . . . . . 427.5 444.5 845.7 911.5
---------------------------------------------------
Total . . . . . . . . . . . . . . . 5,331.9 5,611.9 10,005.7 11,092.2
---------------------------------------------------
Expenses:
Insurance claims and policyholders'
benefits . . . . . . . . . . . . . . 2,348.0 2,970.2 4,691.1 5,851.0
Amortization of deferred policy
acquisition costs . . . . . . . . . . 532.3 531.4 925.3 1,108.1
Cost of manufactured products sold . . 599.4 532.2 1,145.2 1,010.6
Other operating expenses . . . . . . . 902.9 1,023.9 1,868.0 2,093.8
Interest . . . . . . . . . . . . . . . 85.2 81.9 173.6 195.6
---------------------------------------------------
Total . . . . . . . . . . . . . . . 4,467.8 5,139.6 8,803.2 10,259.1
---------------------------------------------------
864.1 472.3 1,202.5 833.1
---------------------------------------------------
Income tax . . . . . . . . . . . . . . 300.9 160.2 415.1 259.7
Minority interest . . . . . . . . . . 52.6 57.8 93.2 115.8
---------------------------------------------------
Total . . . . . . . . . . . . . . . 353.5 218.0 508.3 375.5
---------------------------------------------------
Income before cumulative effect of
changes in accounting principles . . . . 510.6 254.3 694.2 457.6

Cumulative effect of changes in
accounting principles-net . . . . . . . (157.9)
---------------------------------------------------
Net income . . . . . . . . . . . . . . . $ 510.6 $ 254.3 $ 694.2 $ 299.7
===================================================
Net income per share:
Income before cumulative effect of
changes in accounting principles . . . $ 5.17 $ 2.33 $ 6.93 $ 4.14
Cumulative effect of changes in
accounting principles-net . . . . . . (1.43)
---------------------------------------------------
Net income . . . . . . . . . . . . . . . $ 5.17 $ 2.33 $ 6.93 $ 2.71
===================================================
Cash dividends per share . . . . . . . . $ .25 $ .25 $ .50 $ .50
===================================================

Weighted average number of shares
outstanding . . . . . . . . . . . . . . 98.7 109.2 100.1 110.5
===================================================

See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>

<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
------------------------------------------------------------------------------------------------
(Amounts in millions) Six Months Ended June 30,
2000 1999
----------------------------
<S> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 694.2 $ 299.7
Adjustments to reconcile net income to net cash provided by
operating activities-net . . . . . . . . . . . . . . . . (1.1) 107.2
Cumulative effect of changes in accounting principles . . 157.9
Changes in assets and liabilities-net:
Reinsurance receivable . . . . . . . . . . . . . . . . . (1,184.4) 515.0
Other receivables . . . . . . . . . . . . . . . . . . . (457.3) (512.7)
Prepaid reinsurance premiums . . . . . . . . . . . . . . (86.9) (136.5)
Deferred policy acquisition costs . . . . . . . . . . . (134.0) (155.2)
Insurance reserves and claims . . . . . . . . . . . . . 298.7 421.3
Other liabilities . . . . . . . . . . . . . . . . . . . 760.8 (97.8)
Trading securities . . . . . . . . . . . . . . . . . . . (60.5) 379.7
Other-net . . . . . . . . . . . . . . . . . . . . . . . (49.6) 327.3
----------------------------
(220.1) 1,305.9
----------------------------
Investing Activities:
Purchases of fixed maturities . . . . . . . . . . . . . . (26,108.9) (32,295.8)
Proceeds from sales of fixed maturities . . . . . . . . . 28,565.5 31,008.5
Proceeds from maturities of fixed maturities . . . . . . . 1,132.8 1,639.4
Change in securities sold under repurchase agreements . . 301.7 2,303.7
Purchases of equity securities . . . . . . . . . . . . . . (952.0) (375.5)
Proceeds from sales of equity securities . . . . . . . . . 1,255.0 723.2
Change in short-term investments . . . . . . . . . . . . . (3,185.5) (3,478.0)
Purchases of property, plant and equipment . . . . . . . . (415.7) (339.7)
Purchases of subsidiary common stock . . . . . . . . . . . (39.4)
Change in other investments . . . . . . . . . . . . . . . (3.8) 98.4
----------------------------
589.1 (755.2)
----------------------------
Financing Activities:
Dividends paid to shareholders . . . . . . . . . . . . . . (50.4) (55.3)
Dividends paid to minority interests . . . . . . . . . . . (17.3) (19.3)
Purchases of treasury shares . . . . . . . . . . . . . . . (305.7) (308.6)
Purchases of treasury shares by subsidiaries . . . . . . . (38.3) (1.0)
Issuances of long-term debt . . . . . . . . . . . . . . . 425.6 195.3
Principal payments on long-term debt . . . . . . . . . . . (111.4) (318.6)
Redemption of CNA preferred stock . . . . . . . . . . . . (150.0)
Receipts credited to policyholders . . . . . . . . . . . . 2.5 4.3
Withdrawals of policyholders account balances . . . . . . (71.6) (40.0)
----------------------------
(316.6) (543.2)
----------------------------
Net change in cash . . . . . . . . . . . . . . . . . . . . . 52.4 7.5
Cash, beginning of period . . . . . . . . . . . . . . . . . 183.9 287.4
----------------------------
Cash, end of period . . . . . . . . . . . . . . . . . . . . $ 236.3 $ 294.9
============================

See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>

Loews Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
------------------------------------------------------------------------------
(Dollars in millions, except per share data)

1. General:

Reference is made to the Notes to Consolidated Financial Statements in
the 1999 Annual Report to Shareholders which should be read in conjunction
with these consolidated condensed financial statements.

Accounting Changes

In the first quarter of 2000, the Company adopted the American Institute
of Certified Public Accountants ("AICPA") Statement of Position ("SOP")
98-7, "Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk." Adoption of SOP 98-7 did not have a material
impact on the financial position or results of operations of the Company.

Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," and
SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 97-3
requires insurance companies to recognize liabilities for insurance-
related assessments when an assessment is probable and will be imposed,
when it can be reasonably estimated, and when the event obligating an
entity to pay an imposed or probable assessment has occurred. The Company
had previously accounted for these assessments as they were paid.

SOP 98-5 requires costs of start-up activities and organization costs,
as defined, to be expensed as incurred. The Company had previously
deferred recognition of these costs and amortized them over a period
following the completion of the start-up activities.

The cumulative effect of these accounting changes resulted in a charge
for the six months ended June 30, 1999 as follows:

<S> <C>
Accounting by Insurance and Other Enterprises for Insurance-
Related Assessments (net of income taxes and minority
interest of $95.4 and $26.5) . . . . . . . . . . . . . . . $150.8
Costs of Start-Up Activities (net of income taxes of $3.8) . 7.1
------
$157.9
======
</TABLE>

Comprehensive income

Comprehensive income includes all changes to shareholders' equity,
including net income, except those resulting from investments by
shareholders and distributions to shareholders. For the three and six
months ended June 30, 2000 and 1999, comprehensive income (loss) totaled
$154.6, $(124.8), $342.8 and $511.4, respectively. Comprehensive income
(loss) includes net income, unrealized appreciation (depreciation) and
foreign currency translation gains or losses.

Net income per share

Companies with complex capital structures are required to present basic
and diluted earnings per share. Basic earnings per share excludes dilution
and is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. Earnings per common share-assuming dilution is not presented
because securities that could potentially dilute basic earnings per common
share in the future would have been antidilutive for the periods
presented.

Stock Option Plan

In May 2000, shareholders approved the Loews Corporation 2000 Stock
Option Plan (the "Plan"). The aggregate number of shares of Common Stock
for which options may be granted under the Plan is 1,000,000; and the
maximum number of shares of Common Stock with respect to which options may
be granted to any individual in any calendar year is 200,000. The exercise
price per share may not be less than the fair market value of the Common
Stock on the date of grant. Pursuant to the Plan, options were granted for
a total of 132,000 shares of Common Stock at an exercise price of $60.28
per share, the fair market value on the date of grant. These options vest
ratably over a four year period and expire in ten years. The Company has
elected to follow Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options and awards. Under APB No. 25, no
compensation expense is recognized when the exercise price of options
equals the fair value (market price) of the underlying stock on the date
of grant.

Reclassifications

Certain amounts applicable to prior periods have been reclassified to
conform to the classifications followed in 2000.

2. Reinsurance:

The effects of reinsurance on earned premiums are shown in the following
table.

Direct Assumed Ceded Net
-------------------------------------------
Six Months Ended June 30, 2000
-------------------------------------------

<S> <C> <C> <C> <C>
Property and casualty . . . . . . . . . . . . $ 4,019.0 $ 903.0 $1,700.0 $ 3,222.0
Accident and health . . . . . . . . . . . . . 1,967.0 169.0 261.0 1,875.0
Life . . . . . . . . . . . . . . . . . . . . 594.0 98.0 243.0 449.0
-------------------------------------------
Total . . . . . . . . . . . . . . . . . $ 6,580.0 $1,170.0 $2,204.0 $ 5,546.0
===========================================

Direct Assumed Ceded Net
-------------------------------------------
Six Months Ended June 30, 1999
-------------------------------------------

<S> <C> <C> <C> <C>
Property and casualty . . . . . . . . . . . . $ 4,534.0 $ 835.0 $ 648.0 $ 4,721.0
Accident and health . . . . . . . . . . . . . 1,921.0 83.0 204.0 1,800.0
Life . . . . . . . . . . . . . . . . . . . . 534.0 87.0 199.0 422.0
-------------------------------------------
Total . . . . . . . . . . . . . . . . . $ 6,989.0 $1,005.0 $1,051.0 $ 6,943.0
===========================================
</TABLE>

See Note 6 for discussion of the Personal Insurance business, which had
the effect of increasing ceded earned premiums for the six months ended
June 30, 2000 by $918.0.

3. Receivables:

The Company's receivables are comprised of the following:

June 30, December 31,
2000 1999
-----------------------

<S> <C> <C>
Reinsurance . . . . . . . . . . . . . . . . . $ 8,574.8 $ 7,390.4
Other insurance . . . . . . . . . . . . . . . 5,470.9 5,114.8
Security sales . . . . . . . . . . . . . . . 921.3 308.6
Accrued investment income . . . . . . . . . . 377.5 400.6
Other . . . . . . . . . . . . . . . . . . . . 262.2 651.1
-----------------------
Total . . . . . . . . . . . . . . . . . 15,606.7 13,865.5

Less allowance for doubtful accounts and cash
discounts . . . . . . . . . . . . . . . . . 333.0 336.8
-----------------------
Receivables-net . . . . . . . . . . . . $15,273.7 $13,528.7
=======================
</TABLE>

4. Shareholders' equity:

<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-----------------------
<S> <C> <C>
Preferred stock, $.10 par value,
Authorized--100,000,000 shares
Common stock, $1 par value:
Authorized--400,000,000 shares
Issued-104,480,600 shares . . . . . . . . . $ 104.5 $ 104.5
Additional paid-in capital . . . . . . . . . 150.7 150.7
Earnings retained in the business . . . . . . 9,349.7 8,705.9
Accumulated other comprehensive income . . . 665.2 1,016.6
-----------------------
Total . . . . . . . . . . . . . . . . . 10,270.1 9,977.7
Less common stock (5,866,600 shares) held in
treasury, at cost . . . . . . . . . . . . . 305.7
-----------------------
Total shareholders' equity . . . . . . . . . $ 9,964.4 $ 9,977.7
=======================
</TABLE>

The change in accumulated other comprehensive income is primarily
related to the change in unrealized holding gains on CNA's investment in
Global Crossing Ltd. ("Global Crossing") common stock. As of June 30,
2000, CNA held 28.2 million shares of Global Crossing common stock. During
the first quarter of 2000, CNA entered into option agreements intended to
hedge market risk associated with approximately 19.3 million shares of
Global Crossing common stock. These option agreements were structured as
collars in which CNA purchased put options and sold call options on Global
Crossing common stock. As of June 30, 2000, the average exercise prices
were $51.70 and $64.93 on the put options and call options, subject to
adjustments on the call options under certain limited circumstances. The
options expire in the first half of 2002 and are only exercisable on their
expiration dates. CNA has designated the collars as hedges of its
investment in Global Crossing. Accordingly, the fair value of the collars
is presented in equity securities available-for-sale in the accompanying
consolidated condensed balance sheet, consistent with the hedged item. The
unrealized gain, including the fair market value of the collar, on CNA's
position in Global Crossing was $1,105.0 as of June 30, 2000. Changes in
CNA's investment in Global Crossing before taxes and minority interest
were as follows:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------
2000 1999 2000 1999
---------------------------------------

<S> <C> <C> <C> <C>
Increase (decrease) in
unrealized gain on Global
Crossing common stock . . . . . $(736.0) $(294.0) $(1,079.0) $655.0
Increase in unrealized gain on
collar . . . . . . . . . . . . 252.0 419.0
----------------------------------------
Net increase (decrease) in
unrealized gain on
position in Global Crossing . . $(484.0) $(294.0) $ (660.0) $655.0
========================================
Realized gains on sales of
Global Crossing common stock . $ 242.0 $ 222.0 $ 256.0 $222.0
========================================
</TABLE>

5. Restructuring and Other Related Charges:

As part of CNA's restructuring plan (the "Plan") that was initiated in
August 1998, restructuring-related charges of $54.0 were recorded in the
six months ended June 30, 1999. These charges did not qualify for the
initial restructuring accrual under generally accepted accounting
principles at the end of the third quarter of 1998 and therefore, were
expensed as incurred. The charges included the following:

In the first six months of 1999, restructuring-related charges for
Agency Market Operations totaled approximately $37.0. The charges included
employee severance and outplacement costs of $15.0 related to the planned
net reduction in the workforce. The Agency Market Operations charges also
included consulting costs of $5.0 and parallel processing charges of $4.0.
Other charges, including relocation and facility charges, totaled
approximately $13.0.

In the first six months of 1999, restructuring-related charges for Risk
Management totaled approximately $8.0. The charges included parallel
processing costs of approximately $3.0, and employee severance and
outplacement costs of approximately $2.0. Other charges, including
consulting and facility charges, totaled approximately $3.0.

In the first six months of 1999, restructuring-related charges for Group
Operations totaled approximately $5.0 related primarily to employee
severance and other charges.

For the other segments of CNA, restructuring-related charges totaled
approximately $5.0 for the first six months of 1999 and related primarily
to employee severance costs.

No restructuring-related charges related to the Plan have been incurred
in 2000; however, payments were made during 2000 related to amounts
accrued under the Plan as of December 31, 1999. The following table sets

forth the major categories of the restructuring accrual and changes
therein during the first six months of 2000.

<TABLE>
<CAPTION>
Employee
Termination
and Lease
Related Benefit Termination Business
Costs Costs Exit Costs Total
-------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Accrued costs at December 31, 1999 . . $ 4.0 $ 27.0 $15.0 $ 46.0
Payments charged against liability . . (4.0) (10.0) (6.0) (20.0)
-------------------------------------------------------------------------------------------
Accrued costs at June 30, 2000 . . . . $ 17.0 $ 9.0 $ 26.0
===========================================================================================
</TABLE>

6. Significant Transactions:

Personal Insurance Transaction

On October 1, 1999, certain subsidiaries of CNA completed a transaction
with The Allstate Corporation ("Allstate"), whereby CNA's personal lines
insurance business ("CNA Personal Insurance") and related employees were
transferred to Allstate. Approximately $1,100.0 of cash and $1,100.0 of
additional assets (primarily premium receivables and deferred policy
acquisition costs) were transferred to Allstate, and Allstate assumed
$2,200.0 of claim and claim adjustment expense reserves and unearned
premium reserves. Additionally, CNA received $140.0 in cash which
consisted of (i) $120.0 in ceding commission for the reinsurance of the
CNA Personal Insurance business by Allstate, and (ii) $20.0 for an option
exercisable during 2002 to purchase 100% of the common stock of five CNA
insurance subsidiaries at a price equal to the carrying value in
accordance with generally accepted accounting principles as of the
exercise date. Also, CNA invested $75.0 in a ten year equity-linked note
issued by Allstate.

CNA will continue to write new and renewal Personal Insurance policies
and to reinsure this business with Allstate companies, until such time as
Allstate exercises its option to buy the five CNA subsidiaries. Prior to
2002, CNA will concentrate the direct writing of Personal Insurance
business into the five optioned companies, such that most, if not all,
business related to this transaction will be written by those companies by
the date Allstate exercises its option. CNA continues to have primary
liability on policies reinsured by Allstate.

CNA will continue to have an ongoing interest in the profitability of
CNA Personal Insurance business and the related successor business through
an agreement licensing the "CNA Personal Insurance" trademark and a
portion of CNA's Agency Market Operations distribution system to Allstate
for use in Allstate's personal insurance agency business for a period of
five years. Under this agreement, CNA will receive a royalty fee based on
the business volume of Personal Insurance policies sold through the CNA
agents for a period of six years. In addition, the $75.0 equity-linked
note will be redeemed on September 30, 2009 (subject to earlier redemption
on stated contingencies) for an amount equal to the face amount plus or
minus an amount not exceeding $10.0, depending on the underwriting
profitability of the CNA Personal Insurance business.

CNA also shares in any reserve development related to claim and claim
adjustment expense reserves transferred to Allstate at the transaction
date. Under the reserve development sharing agreement, 80% of any
favorable or adverse reserve development up to $40.0 and 90% of any
favorable or adverse reserve development in excess of $40.0 inures to CNA.
CNA's obligation with respect to unallocated loss adjustment expense
reserves was settled at the transaction date, and is therefore not subject
to the reserve sharing arrangement.

The retroactive portion of the reinsurance transaction, consisting
primarily of the cession of claim and claim adjustment expense reserves
approximating $1,000.0, was not recognized as reinsurance because criteria
for risk transfer was not met for this portion of the transaction. The
related consideration paid was recorded as a deposit and is included in
reinsurance receivables in the consolidated balance sheets. The
prospective portion of the transaction, which as of the transaction date
consisted primarily of the cession of $1,100.0 of unearned premium
reserves, has been recorded as reinsurance. The related consideration paid
was recorded as prepaid reinsurance premiums. Premiums ceded after the
transaction date will follow this same treatment. The $20.0 received from
Allstate for the option to purchase the five CNA subsidiaries was deferred
and will not be recognized until Allstate exercises its option, at which
time it will be recorded in realized gains and losses.

The ceding commission related to the prospective portion of the
transaction will be recognized in proportion to the recognition of the
unearned premium reserve to which it relates. Approximately $24.0 and
$61.0 of the ceding commission was earned for the three and six months
ended June 30, 2000, respectively.

The Personal Insurance business (which was transferred to Allstate)
contributed net earned premiums of $448.0 and $895.0, and net operating
income of $12.8 and $21.3, during the three and six months ended June 30,
1999, respectively.

Sale of AMS Services, Inc.

On November 30, 1999, CNA sold the majority of its interest in AMS
Services, Inc. ("AMS"), a software development company serving the
insurance agency market. Prior to the sale, CNA owned 89% of AMS and
consolidated AMS in its financial statements. As a result of the sale, CNA
owns 9% of AMS and therefore AMS is no longer consolidated. CNA's share of
the AMS operating results were $61.0 and $120.0 of operating revenue and
$1.7 and $8.5 of net operating losses for the three and six months ended
June 30, 1999, respectively.

7. Business Segments:

Loews Corporation is a holding company. Its subsidiaries are engaged in
the following lines of business: property, casualty and life insurance
(CNA Financial Corporation, an 87% owned subsidiary); the production and
sale of cigarettes (Lorillard, Inc., a wholly owned subsidiary); the
operation of hotels (Loews Hotels Holding Corporation, a wholly owned
subsidiary); the operation of offshore oil and gas drilling rigs (Diamond
Offshore Drilling, Inc., a 52% owned subsidiary); and the distribution and
sale of watches and clocks (Bulova Corporation, a 97% owned subsidiary).
Each operating entity is responsible for the operation of its specialized
business and is headed by a chief executive officer having the duties and
authority commensurate with that position.

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in Note 1 of the Notes
to Consolidated Financial Statements in the Annual Report on Form 10-K for
the year ended December 31, 1999. In addition, CNA does not maintain a
distinct investment portfolio for each of its insurance segments, and
accordingly, allocation of assets to each segment is not performed.
Therefore, investment income and investment gains (losses) are allocated
based on each segment's carried insurance reserves, as adjusted.

The following tables set forth the Company's consolidated revenues and
income by business segment:

Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2000 1999 2000 1999
-----------------------------------------------

<S> <C> <C> <C> <C>
Revenues (a):
CNA Financial:
Property and casualty . . . . . . . $2,522.3 $3,013.7 $ 4,764.0 $ 5,995.5
Life . . . . . . . . . . . . . . . 423.7 313.5 819.1 695.3
Group . . . . . . . . . . . . . . . 947.8 984.1 1,881.0 1,904.1
Other Insurance . . . . . . . . . . (39.2) 36.6 (100.3) 99.7
----------------------------------------------
Total CNA Financial . . . . . . . . 3,854.6 4,347.9 7,363.8 8,694.6
Lorillard . . . . . . . . . . . . . . 1,145.1 1,017.5 2,142.8 1,929.9
Loews Hotels . . . . . . . . . . . . 86.1 68.2 164.6 128.6
Diamond Offshore . . . . . . . . . . 153.3 224.1 343.8 460.5
Bulova . . . . . . . . . . . . . . . 36.5 30.8 72.8 61.0
Corporate . . . . . . . . . . . . . . 56.3 (76.6) (82.1) (182.4)
-----------------------------------------------

Total . . . . . . . . . . . . . . . . $5,331.9 $5,611.9 $10,005.7 $11,092.2
===============================================

Income before taxes, minority interest
and cumulative effect of changes in
accounting principles:
CNA Financial:
Property and casualty . . . . . . . $ 480.1 $ 253.8 $ 712.9 $ 487.5
Life . . . . . . . . . . . . . . . 65.8 1.2 119.4 74.5
Group . . . . . . . . . . . . . . . 39.2 22.7 56.7 36.5
Other Insurance . . . . . . . . . . (86.8) (58.6) (182.0) (166.0)
-----------------------------------------------
Total CNA Financial . . . . . . . . 498.3 219.1 707.0 432.5
Lorillard . . . . . . . . . . . . . . 333.6 276.9 585.7 484.6
Loews Hotels . . . . . . . . . . . . 12.2 9.2 26.7 11.4
Diamond Offshore . . . . . . . . . . 5.0 81.9 49.8 161.6
Bulova . . . . . . . . . . . . . . . 8.7 3.9 13.6 8.1
Corporate . . . . . . . . . . . . . . 6.3 (118.7) (180.3) (265.1)
-----------------------------------------------
Total . . . . . . . . . . . . . . . . $ 864.1 $ 472.3 $ 1,202.5 $ 833.1
===============================================
</TABLE>

Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2000 1999 2000 1999
-----------------------------------------------

<S> <C> <C> <C> <C>
Net income (a):
CNA Financial:
Property and casualty . . . . . . $ 274.3 $ 151.0 $ 410.8 $ 292.2
Life . . . . . . . . . . . . . . . 38.1 1.0 68.9 41.9
Group . . . . . . . . . . . . . . 22.6 13.9 33.3 22.6
Other Insurance . . . . . . . . . (47.0) (34.3) (101.1) (79.5)
-----------------------------------------------
Total CNA Financial .. . . . . . . 288.0 131.6 411.9 277.2
Lorillard . . . . . . . . . . . . . 205.1 165.7 360.6 289.7
Loews Hotels . . . . . . . . . . . . 7.9 5.9 17.1 7.3
Diamond Offshore . . . . . . . . . .9 26.1 14.7 51.6
Bulova . . . . . . . . . . . . . . . 4.8 2.3 7.5 4.5
Corporate . . . . . . . . . . . . . 3.9 (77.3) (117.6) (172.7)
-----------------------------------------------
510.6 254.3 694.2 457.6
Cumulative effect of changes in
accounting principles . . . . . . (157.9)
-----------------------------------------------

Total . . . . . . . . . . . . . . . $ 510.6 $ 254.3 $ 694.2 $ 299.7
===============================================
</TABLE>

(a) Investment gains (losses) included in Revenues and Net income are as follows:

Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2000 1999 2000 1999
-----------------------------------------------

<S> <C> <C> <C> <C>
Revenues (a):
CNA Financial:
Property and casualty . . . . . . $ 352.4 $ 171.2 $ 446.8 $ 354.4
Life . . . . . . . . . . . . . . (4.1) (46.3) (11.6) (28.6)
Group . . . . . . . . . . . .. . . 23.4 (.5) 30.3 10.8
Other Insurance . . . . . . . . . 1.4 43.0 (3.8) 52.7
-----------------------------------------------
Total CNA Financial . . . . . . . . 373.1 167.4 461.7 389.3
Corporate and other . . . . . . . . 24.8 (109.3) (148.8) (250.3)
-----------------------------------------------
Total . . . . . . . . . . . . . . . $ 397.9 $ 58.1 $ 312.9 $ 139.0
===============================================
Net income:
CNA Financial:
Property and casualty . . . . . . $ 198.4 $ 95.1 $ 251.3 $ 196.4
Life . . . . . . . . . . . . . . . (1.7) (25.4) (6.2) (15.6)
Group . . . . . . . . . . . . . . 13.2 (.2) 17.1 6.0
Other Insurance . . . . . . . . . .6 24.1 (2.4) 29.2
-----------------------------------------------
Total CNA Financial . . . . . . . . 210.5 93.6 259.8 216.0
Corporate and other . . . . . . . . 16.1 (71.0) (96.7) (162.7)
-----------------------------------------------
Total . . . . . . . . . . . . . . . $ 226.6 $ 22.6 $ 163.1 $ 53.3
===============================================
</TABLE>

8. Legal Proceedings and Contingent Liabilities:

INSURANCE RELATED

Tobacco Litigation
------------------

Four insurance subsidiaries of CNA are defendants in a lawsuit arising
out of policies allegedly issued to Liggett Group, Inc. ("Liggett"). The
lawsuit was filed by Liggett and its current parent, Brooke Group Holding
Inc., in Delaware Superior Court, New Castle County on January 26, 2000.
Although it did not issue policies to Liggett, CNA also was named as a
defendant. Subsequently, Liggett voluntarily dismissed CNA. The lawsuit,
which involves numerous insurers, concerns coverage issues relating to
hundreds of tobacco-related claims asserted against Liggett over the past
twenty years. However, Liggett only began submitting claims for coverage
under the policies in January 2000. CNA believes its coverage defenses are
strong. Based on facts and circumstances currently known, management
believes that the ultimate outcome of the pending litigation should not
materially affect the financial condition or operations of CNA.

IGI Contingency
---------------

In 1997, CNA Reinsurance Company Limited ("CNA Re Ltd.") entered into an
arrangement with IOA Global, Ltd. ("IOA"), an independent managing general
agent based in Philadelphia, Pennsylvania, to develop and manage a book of
accident and health coverages. Pursuant to this arrangement, IGI
Underwriting Agencies, Ltd. ("IGI"), a personal accident reinsurance
managing general underwriter, was appointed to underwrite and market the
book under the supervision of IOA. Between April 1, 1997 and December 1,
1999, IGI underwrote a number of reinsurance arrangements with respect to
personal accident insurance worldwide (the "IGI Program"). Under various
arrangements, CNA Re Ltd. both assumed risks as a reinsurer and also ceded
a substantial portion of those risks to other companies, including other
CNA insurance subsidiaries and ultimately a group of reinsurers
participating in a reinsurance pool known as the Associated Accident and
Health Reinsurance Underwriters ("AAHRU") Facility. CNA's Group Operations
business unit participated as a pool member in the AAHRU Facility in
varying percentages over the past three years.

CNA has undertaken a review of the IGI Program and, among other things,
has determined that a small portion of the premium assumed under the IGI
Program related to United States workers' compensation "carve-out"
business. CNA is aware that a number of reinsurers with workers'
compensation carve-out insurance exposure have disavowed their obligations
under various legal theories. If one or more such companies are successful
in avoiding or reducing their liabilities, then it is likely that CNA's
liability will also be reduced. Moreover, based on information known at
this time, CNA reasonably believes it has strong grounds for avoiding
altogether a substantial portion of its United States workers'
compensation carve-out exposure through legal action.

As noted, CNA arranged substantial reinsurance protection to manage its
exposures under the IGI Program. CNA believes it has valid and enforceable
reinsurance contracts with the AAHRU Facility and other reinsurers with
respect to the IGI Program, including the United States workers'
compensation carve-out business. It is likely that certain reinsurers will
dispute their liabilities to CNA; however, CNA is unable to predict the

extent of such potential disputes at this time. Legal actions could
result, and the resolution of any such actions could take years.

Based on CNA's review of the entire IGI program, CNA recorded a loss
provision of $90.0 in the fourth quarter of 1999. The loss provision was net
of estimated recoveries from retrocessionaires.

CNA is pursuing a number of loss mitigation strategies. Although the
results of these various actions to date are consistent with the previous
loss estimates, the estimate of ultimate losses is subject to considerable
uncertainty. As a result of these uncertainties, the results of operations
in future years may be adversely affected by potentially significant
reserve additions. Management does not believe that any such future
reserve additions will be material to equity.

Environmental Pollution and Other Mass Tort and Asbestos
--------------------------------------------------------

CNA's property/casualty insurance companies have potential exposures
related to environmental pollution and other mass tort and asbestos
claims.

Environmental pollution clean-up is the subject of both federal and
state regulation. By some estimates, there are thousands of potential
waste sites subject to clean-up. The insurance industry is involved in
extensive litigation regarding coverage issues. Judicial interpretations
in many cases have expanded the scope of coverage and liability beyond the
original intent of the policies.

The Comprehensive Environmental Response Compensation and Liability Act
of 1980 ("Superfund") and comparable state statutes ("mini-Superfunds")
govern the clean-up and restoration of abandoned toxic waste sites and
formalize the concept of legal liability for clean-up and restoration by
potentially responsible parties ("PRP's"). Superfund and the mini-
Superfunds establish mechanisms to pay for clean-up of waste sites if PRPs
fail to do so, and to assign liability to PRPs. The extent of liability to
be allocated to a PRP is dependent on a variety of factors. Further, the
number of waste sites subject to clean-up is unknown. To date,
approximately 1,300 clean-up sites have been identified by the
Environmental Protection Agency ("EPA") on its National Priorities List
("NPL"). The addition of new clean-up sites to the NPL has slowed in
recent years. Many clean-up sites have been designated by state
authorities as well.

Many policyholders have made claims against various CNA insurance
subsidiaries for defense costs and indemnification in connection with
environmental pollution matters. These claims relate to accident years
1989 and prior, which coincides with CNA's adoption of the Simplified
Commercial General Liability coverage form, which includes an absolute
pollution exclusion. CNA and the insurance industry are disputing coverage
for many such claims. Key coverage issues include whether clean-up costs
are considered damages under the policies, trigger of coverage, allocation
of liability among triggered policies, applicability of pollution
exclusions and owned property exclusions, the potential for joint and
several liability and definition of an occurrence. To date, courts have
been inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various
parties. However, no reforms have been enacted by Congress in 1999 or thus

far in 2000 and it is unclear as to what positions the Congress or the
Administration will take and what legislation, if any, will result in the
future. If there is legislation, and in some circumstances even if there
is no legislation, the federal role in environmental clean-up may be
significantly reduced in favor of state action. Substantial changes in the
federal statute or the activity of the EPA may cause states to reconsider
their environmental clean-up statutes and regulations. There can be no
meaningful prediction of the pattern of regulation that would result.

Due to the inherent uncertainties described above, including the
inconsistency of court decisions, the number of waste sites subject to
clean-up, and the standards for clean-up and liability, the ultimate
liability of CNA for environmental pollution claims may vary substantially
from the amount currently recorded.

As of June 30, 2000 and December 31, 1999, CNA carried $393.0 and
$463.0, respectively, of claim and claim expense reserves, net of
reinsurance recoverables, for reported and unreported environmental
pollution and other mass tort claims.

CNA's property/casualty insurance subsidiaries have exposure to asbestos
claims. Estimation of asbestos claim reserves involves many of the same
limitations discussed above for environmental pollution claims, such as
inconsistency of court decisions, specific policy provisions, allocation
of liability among insurers, missing policies and proof of coverage. As of
June 30, 2000 and December 31, 1999, CNA carried approximately $598.0 and
$684.0, respectively, of claim and claim expense reserves, net of
reinsurance recoverables, for reported and unreported asbestos-related
claims, including those related to Fibreboard Corporation.

Unfavorable asbestos claim reserve development totaled $5.0, $95.0,
$31.0 and $129.0 for the three and six months ended June 30, 2000 and
1999, respectively. Unfavorable environmental pollution and other mass
tort reserve development totaled $21.0 for the three and six months ended
June 30, 2000. Favorable environmental pollution and other mass tort
reserve development totaled $16.0 for the three and six months ended June
30, 1999.

The results of operations in future years may continue to be adversely
affected by environmental pollution and other mass tort, and asbestos
claims and claim expenses. Management will continue to monitor these
liabilities and make further adjustments as warranted.

The following table provides additional data related to CNA's
environmental pollution, other mass tort and asbestos-related claim and
claim adjustment expense reserves.

<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
-------------------------------------------------
Environmental Environmental
Pollution Pollution
and Other Mass and Other Mass
Tort Asbestos Tort Asbestos
-------------------------------------------------

<S> <C> <C> <C> <C>
Reported Claims:
Gross reserves . . . . . . . . . . $ 577.0 $ 894.0 $ 618.0 $ 946.0
Less ceded reserves . . . . . . . (184.0) (296.0) (155.0) (262.0)
-------------------------------------------------
Net reserves . . . . . . . . . . . . $ 393.0 $ 598.0 $ 463.0 $ 684.0
=================================================
</TABLE>

NON-INSURANCE

TOBACCO RELATED

Lawsuits continue to be filed with increasing frequency against
Lorillard and other manufacturers of tobacco products. Approximately 1,385
product liability cases are pending against U.S. cigarette manufacturers,
including approximately 680 cases filed by flight attendants alleging
injury from exposure to environmental tobacco smoke in the aircraft cabin.
Of these 1,385 cases, Lorillard is a defendant in approximately 975,
including each of the flight attendant cases filed and served to date.

Tobacco litigation includes various types of claims. In these actions,
plaintiffs claim substantial compensatory, statutory and punitive damages,
as well as equitable and injunctive relief, in amounts ranging into the
billions of dollars. These claims are based on a number of legal theories
including, among other things, theories of negligence, fraud,
misrepresentation, strict liability, breach of warranty, enterprise
liability, civil conspiracy, intentional infliction of harm, violation of
consumer protection statutes, violation of anti-trust statutes, and
failure to warn of the allegedly harmful and/or addictive nature of
tobacco products.

Some cases have been brought by individual plaintiffs who allege cancer
and/or other health effects claimed to have resulted from an individual's
use of cigarettes and/or smokeless tobacco products, addiction to smoking,
or exposure to environmental tobacco smoke ("Conventional Product
Liability Cases"). Approximately 875 such actions are pending against
Lorillard, including each of the approximately 680 flight attendant cases.
In other cases, plaintiffs have brought claims as purported class actions
on behalf of large numbers of individuals for damages allegedly caused by
smoking ("Class Actions"). Approximately 35 such cases are pending against
Lorillard. In some cases, plaintiffs are governmental entities or entities
such as labor unions, private companies, Indian Tribes, or private
citizens suing on behalf of taxpayers. Plaintiffs in these cases seek
reimbursement of health care costs allegedly incurred as a result of
smoking, as well as other alleged damages ("Reimbursement Cases").
Approximately 50 such cases are pending, including suits brought by the
U.S. federal government and the governments of several foreign nations.
There also are claims for contribution and/or indemnity in relation to
asbestos claims filed by asbestos manufacturers or the insurers of
asbestos manufacturers ("Claims for Contribution"). Approximately eight

such actions are pending against Lorillard, and a ninth case has been
served on some of the defendants but not Lorillard.

In addition to the above, claims have been brought against Lorillard
seeking damages resulting from alleged exposure to asbestos fibers which
were incorporated, for a limited period of time, ending more than forty
years ago, into filter material used in one brand of cigarettes
manufactured by Lorillard ("Filter Cases"); approximately 25 such actions
are pending.

SETTLEMENT OF STATE REIMBURSEMENT LITIGATION

On November 23, 1998, Lorillard, Philip Morris Incorporated, Brown &
Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the
"Original Participating Manufacturers") entered into a Master Settlement
Agreement (the "Master Settlement Agreement") with 46 states, the District
of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin
Islands, American Samoa and the Northern Marianas (collectively, the
"Settling States") to settle the asserted and unasserted health care cost
recovery and certain other claims of those states. The Original
Participating Manufacturers had previously settled similar claims brought
by Mississippi, Florida, Texas, and Minnesota (together with the Master
Settlement Agreement, the "State Settlement Agreements").

The Master Settlement Agreement is subject to final judicial approval in
each of the Settling States. In the Company's opinion, final judicial
approval has been achieved in each of the Settling States, and a condition
known as "State-Specific Finality" has been achieved in 50 of the 52
Settling States. The Master Settlement Agreement provides that it is not
an admission or concession or evidence of any liability or wrongdoing on
the part of any party, and was entered into by the Original Participating
Manufacturers to avoid the further expense, inconvenience, burden and
uncertainty of litigation. Five suits filed by local governments also are
pending against cigarette manufacturers, although the Master Settlement
Agreement purportedly resolves those actions.

Lorillard recorded pre-tax charges of $287.8, $258.1, $547.9 and $484.5
for the three and six months ended June 30, 2000 and 1999, respectively,
related to the settlement of tobacco litigation. Lorillard's portion of
ongoing adjusted payments and legal fees is based on its share of domestic
cigarette shipments in the year preceding that in which the payment is
due. Accordingly, Lorillard records its portions of ongoing settlement
payments as part of cost of manufactured products sold as the related
sales occur.

The State Settlement Agreements require that the domestic tobacco
industry make annual payments in the following amounts, subject to
adjustment for several factors, including inflation, market share and
industry volume: 2000, $9,200.0; 2001, $9,900.0; 2002, $11,300.0; 2003,
$10,900.0; 2004 through 2007, $8,400.0; and thereafter, $9,400.0. In
addition, the domestic tobacco industry is required to pay settling
plaintiffs' attorneys' fees, subject to an annual cap of $500.0, as well
as additional amounts as follows: 2000, $416.0; and 2001 through 2003,
$250.0. These payment obligations are the several and not joint
obligations of each settling defendant.

The State Settlement Agreements also include provisions relating to
significant advertising and marketing restrictions, public disclosure of

certain industry documents, limitations on challenges to tobacco control
and underage use laws, and other provisions.

The Original Participating Manufacturers have also, as part of the
Master Settlement Agreement, committed to work cooperatively with the
tobacco grower community to address concerns about the potential adverse
economic impact on that community. On January 21, 1999, the Original
Participating Manufacturers reached an agreement in principle to establish
a $5,150.0 trust fund payable over 12 years to compensate the tobacco
growing communities in 11 states. Payments to the trust fund are to be
allocated among the Original Participating Manufacturers according to
their relative market share of domestic cigarette shipments, except that
Philip Morris will pay more than its market share in the first year of the
agreement but will have its payment obligations reduced in years 11 and 12
to make up for the overpayment. Lorillard's payments under the agreement
will total approximately $515.0. All payments will be adjusted for
inflation, changes in the unit volume of domestic cigarette shipments, and
for the effect of any new increases in state or federal excise taxes on
tobacco products which benefits the growing community.

The Company believes that the State Settlement Agreements will
materially adversely affect its cash flows and operating income in future
years. The degree of the adverse impact will depend, among other things,
on the rates of decline in United States cigarette sales in the full price
and discount segments, Lorillard's share of the domestic full price and
discount cigarette segments, and the effect of any resulting cost
advantage of manufacturers not subject to the State Settlement Agreements.
Almost all domestic manufacturers have agreed to become subject to the
terms of the Master Settlement Agreement.

CONVENTIONAL PRODUCT LIABILITY CASES- There are approximately 1,255
cases filed by individual plaintiffs against manufacturers of tobacco
products pending in the United States federal and state courts in which
individuals allege they or their decedents have been injured due to
smoking cigarettes, due to exposure to environmental tobacco smoke, or due
to nicotine dependence. Approximately 680 of the cases have been filed by
flight attendants purportedly injured by their exposure to environmental
tobacco smoke in the aircraft cabin. Lorillard is a defendant in
approximately 875 of these cases, including each of the approximately 680
flight attendant cases. The Company is a defendant in seventeen of the
cases filed by individuals, although eleven of them have not been served.
The Company is not named as a defendant in any of the flight attendant
cases served to date.

Plaintiffs in most of these cases seek unspecified amounts in
compensatory and punitive damages. Plaintiffs in the flight attendant
cases may not seek punitive damages as to injuries that arose prior to
January 15, 1997.

On June 27, 2000, a jury in the Supreme Court of Kings County, New York,
returned a verdict in favor of Lorillard and the other defendants in the
case of Anderson v. American Tobacco, et al. The court has not ruled on
plaintiffs' post-trial motion to set aside the verdict and to enter a
verdict in favor of the plaintiffs.

in the alternative, for new trial. Neither the Company nor Lorillard were
defendants in the case.

On March 20, 2000, the jury in the case of Whiteley v. Raybestos-
Manhattan, Inc., et al. (Superior Court, City and County of San Francisco,
California, filed April 30, 1999) returned a verdict in plaintiffs' favor
in an individual smoking and health lawsuit brought against Philip Morris
and R.J. Reynolds and awarded them $1.7 in actual damages. On March 27,
2000, the jury awarded plaintiffs $20.0 in punitive damages. The court
denied Philip Morris' and R.J. Reynolds' motions for judgment
notwithstanding the verdict and for new trial. Philip Morris and R.J.
Reynolds have noticed an appeal from the judgment entered by the trial
court to the California Court of Appeals. Neither Lorillard nor the
Company were defendants in the action.

Since 1998, a total of eleven trials were held involving fourteen cases
filed by individual plaintiffs. Lorillard and the Company were defendants
in one of the cases and Lorillard was a defendant in two additional cases.
Juries returned verdicts in favor of the defendants in the cases tried
against Lorillard and the Company. No appeals are pending in these
matters, although the court has not ruled on plaintiffs' motion for new
trial in the case of Anderson, which was tried against Lorillard during
2000. In the eleven remaining cases, verdicts were returned in favor of
the defendants in seven of the matters. Juries found in plaintiffs' favor
in the remaining four cases. In these four verdicts, juries awarded
plaintiffs a total of $154.5 in actual damages and punitive damages. One
of the four verdicts in favor of plaintiffs has been vacated on appeal. In
two of the remaining cases, the courts have reduced the verdicts from
$131.8 to a total of $59.4. Appeals are pending in the three remaining
actions.

CLASS ACTIONS - There are approximately 55 purported class actions
pending against cigarette manufacturers and other defendants. Lorillard is
a defendant in 35 of the 55 cases seeking class certification. The Company
is a defendant in eleven of the purported class actions in which Lorillard
is a defendant. Many of the purported class actions are in the pre-trial,
discovery stage. Most of the suits seek class certification on behalf of
residents of the states in which the cases have been filed, although some
suits seek class certification on behalf of residents of multiple states.
All but one of the purported class actions seek class certification on
behalf of individuals who smoked cigarettes or were exposed to
environmental tobacco smoke. One case seeks class certification on behalf
of individuals who have paid insurance premiums to Blue Cross and Blue
Shield organizations. The second part of the second phase of trial in the
case of Engle, discussed below, concluded during July 2000 and resulted in
a jury award of punitive damages. Trial is scheduled to begin during
October 2000 in one of the pending class actions and during January 2001
in another. The remainder of the purported class actions are in the pre-
trial, discovery stage.

Theories of liability asserted in the purported class actions include a
broad range of product liability theories, including those based on
consumer protection statutes and fraud and misrepresentation. Plaintiffs
seek damages in each case that range from unspecified amounts to the
billions of dollars. Most plaintiffs seek punitive damages and some seek
treble damages. Plaintiffs in many of the cases seek medical monitoring.
Plaintiffs in several of the purported class actions are represented by a
well-funded and coordinated consortium of over 60 law firms from
throughout the United States.

Trial began during July 1998 in the case of Engle v. R.J. Reynolds
Tobacco Co., et al. (Circuit Court, Dade County, Florida, filed May 5,
1994). The trial court granted class certification on behalf of Florida
residents and citizens, and survivors of such individuals, who suffered
injury or have died from medical conditions allegedly caused by their
addiction to cigarettes containing nicotine.

The case is being tried in three phases. The first phase involved
consideration of certain issues "common" to the members of the class and
their asserted causes of action.

On July 7, 1999, the jury returned a verdict against defendants at the
conclusion of the first phase. The jury found, among other things, that
cigarette smoking is addictive and causes lung cancer and a variety of
other diseases, that the defendants concealed information about the health
risks of smoking, and that defendants' conduct "rose to a level that would
permit a potential award or entitlement to punitive damages." The verdict
permitted the trial to proceed to a second phase. The jury was not asked
to award damages in the Phase One verdict.

The first portion of Phase Two of the trial began on November 1, 1999
before the same jury which returned the verdict in Phase One. In the first
part of Phase Two, the jury determined issues of specific causation,
reliance, affirmative defenses, and other individual-specific issues
related to the claims of three named plaintiffs and their entitlement to
damages, if any.

On April 7, 2000, the jury found in favor of two of the three plaintiffs
and awarded them a total of $6.9 in economic damages, pain and suffering
damages and damages for loss of consortium. The jury awarded damages to
the third smoker but also found that his claim was barred by the statute
of limitations. The parties have filed various post-trial motions and
motions to amend the trial plan that have not been ruled on by the court.

By order dated July 30, 1999 and supplemented on August 2, 1999
(together, the "Order"), the trial judge amended the trial plan in respect
to the manner of determining punitive damages. The Order provided that the
jury determine punitive damages, if any, on a lump-sum dollar amount basis
for the entire qualified class. The Third District of the Florida Court of
Appeal rejected as premature defendants' appeals from these rulings, and
the Florida Supreme Court declined to review the Orders on the same basis.

The second part of Phase Two of the trial began on May 22, 2000 and was
heard by the same jury that heard the trial's prior phases. The jury heard
evidence as to the punitive damages to be awarded to the class. On July
14, 2000, the jury awarded a total of $145,000.0 in punitive damages
against all defendants, including $16,250.0 against Lorillard.

Defendants have filed various post-trial motions, including a motion for
new trial and a motion seeking a reduction of the punitive damages award.
These motions have not been ruled on by the court, and the court has not
entered a final judgment respecting the punitive damage award at this
time.

Following the July 2000 verdict, a motion for intervention was filed on
behalf of a purported class of third party payors who purportedly paid for
medical care received by some of the class members. Based upon the
intervention motion, defendants have removed the case to the United States

District Court for the Southern District of Florida. At this time, the
federal court may rule on some, or all of the parties' post-trial motions
or remand the case back to state court. A status conference with the
federal court is scheduled for August 8, 2000, to address these issues.

Now that the jury has awarded punitive damages, it is unclear how the
Order will be implemented should the case be remanded to state court. The
August 2, 1999 order provides that the lump-sum punitive damage amount, if
any, will be allocated equally to each class member and acknowledges that
the actual size of the class will not be known until the last case has
withstood appeal, i.e., the punitive damage amount, if any, determined for
the entire qualified class, would be divided equally among those
plaintiffs who are ultimately successful. The Order does not address
whether defendants would be required to pay the punitive damage award, if
any, prior to a determination of claims of all class members, which is
Phase Three of the trial plan, a process that could take years to
conclude. Phase Three would address potentially hundreds of thousands of
other class members' claims, including issues of specific causation,
reliance, affirmative defenses and other individual-specific issues
regarding entitlement to damages, in individual trials before separate
juries. Lorillard does not believe that the adverse class-wide punitive
damage award in Phase Two permits entry of a judgment at this time that
would require the posting of a bond to stay its execution pending appeal
or that any party would be entitled to execute on such a judgment in the
absence of a bond. However, in a worst case scenario, it is possible that
a final judgment for punitive damages could be entered in an amount not
capable of being bonded, resulting in an execution of the judgment before
it could be set aside on appeal. Lorillard believes that such a result
would be unconstitutional and would also violate Florida law. Lorillard
intends to take all appropriate steps to seek to prevent this worst case
scenario from occurring and believes these efforts should be successful.

On May 5, 2000, the Florida legislature passed legislation that limits
the size of a bond that must be posted in order to stay execution of a
judgment for punitive damages in a certified class action to the lower of
(i) the amount of punitive damages plus twice the statutory rate of
interest or (ii) ten percent of the defendant's net worth, provided, that
in no case shall the amount of the required bond exceed $100.0, regardless
of the amount of punitive damages. The legislation has been signed by the
Governor of Florida and took effect as the law of Florida on May 9, 2000.
Although the legislation is intended to apply to the Engle case, Lorillard
cannot predict the outcome of any challenges to the possible application
or constitutionality of this legislation.

Lorillard remains of the view that the Engle case should not have been
certified as a class action. That certification is inconsistent with the
overwhelming majority of federal and state court decisions which have held
that mass smoking and health claims are inappropriate for class treatment.
Lorillard intends to challenge the class certification, as well as other
numerous reversible errors that it believes occurred during the trial to
date, at the earliest time that an appeal of these issues is appropriate
under Florida or federal law. The Company and Lorillard believe that an
appeal of these issues on the merits should prevail.

On October 10, 1997, the parties to Broin v. Philip Morris Companies,
Inc., et al. (Circuit Court, Dade County, Florida, October 31, 1991), a
class action brought on behalf of flight attendants claiming injury as a
result of exposure to environmental tobacco smoke, entered into a
settlement agreement which permits the plaintiff class members to file

individual suits, but they may not seek punitive damages. As of August 1,
2000, approximately 680 such cases were pending against U.S. cigarette
manufacturers, including Lorillard.

REIMBURSEMENT CASES - In addition to the suits settled by the State
Settlement Agreements described above, approximately 50 other suits are
pending comprised of cases brought by the U.S. federal government, unions,
Indian tribes, private companies and health plans, and foreign governments
filing suit in U.S. courts, in which plaintiffs seek recovery of funds
allegedly expended by them to provide health care to individuals with
injuries or other health effects allegedly caused by use of tobacco
products or exposure to cigarette smoke. These cases are based on, among
other things, equitable claims, including injunctive relief, indemnity,
restitution, unjust enrichment and public nuisance, and claims based on
anti-trust laws and state consumer protection acts. Plaintiffs seek
damages in each case that range from unspecified amounts to the billions
of dollars. Most plaintiffs seek punitive damages and some seek treble
damages. Plaintiffs in many of the cases seek medical monitoring.
Lorillard is named as a defendant in most such actions. The Company is
named as a defendant in 12 of them, although four additional cases have
not been served.

U.S. Federal Government Action - The federal government of the United
States filed a reimbursement suit on September 22, 1999 in federal court
in the District of Columbia against Lorillard, other U.S. cigarette
manufacturers, some parent companies (but not the Company) and two trade
associations. Plaintiff asserts claims under the Medical Care Recovery
Act, the Medicare Secondary Payer provisions of the Social Security Act,
and the Racketeer Influenced and Corrupt Organizations Act. The government
alleges in the complaint that it has incurred costs of more than $20,000.0
annually in providing health care costs under certain federal programs,
including Medicare, military and veterans' benefits programs, and the
Federal Employee Health Benefits Program. The federal government seeks to
recover an unspecified amount of health care costs, and various types of
declaratory relief, including disgorgement, injunctive relief and
declaratory relief that defendants are liable for the government's future
costs of providing health care resulting from the defendants' alleged
wrongful conduct. On December 27, 1999, defendants filed a motion to
dismiss all claims. The court has heard argument on the motion but has not
issued a ruling to date.

Reimbursement Cases filed by Foreign Governments in U.S. Courts - Cases
have been brought in U.S. courts by the nations of Bolivia, Ecuador,
Guatemala, Nicaragua, Panama, Thailand, Ukraine and Venezuela, as well as
by the Brazilian States of Espirito Santo, Goias, Mato Grosso do Sul, Rio
de Janeiro and Sao Paolo and the Canadian Province of Ontario. Lorillard
is a defendant in the cases filed by Bolivia, Ecuador, Ukraine, Venezuela,
the five Brazilian states and the Province of Ontario. The Company is a
defendant in the cases filed by Bolivia, Ecuador, Ukraine and Venezuela,
as well as those filed by the five Brazilian states and the Province of
Ontario, although the Company has not received service of process of the
cases filed by the State of Sao Paolo, Brazil, or Venezuela. None of the
defendants have received service of process to date in the case filed by
the State of Mato Grosso do Sul, Brazil. The suit filed by Thailand has
been voluntarily dismissed by the plaintiffs. The cases filed by
Guatemala, Nicaragua and Ukraine have been dismissed, although the
plaintiffs have noticed appeals in each of the cases. Each of the
remaining cases is in the pre-trial, discovery stage. In 1977, Lorillard
sold its major trademarks outside of the United States and the

international sales business in cigarettes associated with those brands.
Performance by Lorillard of obligations under the 1977 agreement was
guaranteed by the Company. Lorillard and the Company have received notice
from Brown & Williamson Tobacco Corporation, which claims to be a
successor to the purchaser, that indemnity will be sought under certain
indemnification provisions of the 1977 agreement with respect to suits
brought by various of the foregoing foreign jurisdictions, concerning
periods prior to June 1977 and during portions of 1978.

Reimbursement Cases by Indian Tribes - Indian Tribes have filed eleven
reimbursement suits against cigarette manufacturers. Most of these cases
have been filed in tribal courts. Five of the eleven cases have been
dismissed. Lorillard is a defendant in each of the cases. The Company is
not named as a defendant in any of the tribal suits filed to date. Each of
the pending cases is in the pre-trial, discovery stage.

Reimbursement Cases Filed By Private Companies and Health Plans - Three
cases are pending against cigarette manufacturers in which the plaintiffs
are private companies. Three similar suits have been dismissed. Lorillard
has been named as a defendant in each of the six cases filed to date by
private companies. The Company has not been named as a defendant in any of
the actions filed to date by private companies. In one of the cases, an
appeal is pending from the final judgment entered in favor of the
defendants by the trial court. Trial is scheduled to begin during October
2000 in one of the suits. The remaining case is in the pre-trial,
discovery stage. In addition, four suits have been filed by hospitals or
hospital districts. Two of the cases have been dismissed and plaintiffs
have appealed both dismissal orders to the respective appellate courts.
The two remaining cases are in the pre-trial, discovery stage. One of the
two cases is brought on behalf of approximately 175 hospitals operating in
the State of New York. Lorillard has been named as a defendant in each of
the four cases.

Reimbursement Cases by Labor Unions - Approximately 25 reimbursement
suits are pending in various federal or state courts in which the
plaintiffs are labor unions, their trustees or their trust funds.
Lorillard is a defendant in each of these suits. The Company is named as a
defendant in two of them. Fourteen of the approximately 25 cases are on
appeal from final judgments entered in defendants' favor by the trial
courts. The Second, Third, Fifth, Seventh and Ninth Circuit Courts of
Appeal have affirmed various rulings entered by trial courts that
dismissed several of the labor union actions, and the U.S. Supreme Court
has denied petitions for writ of certiorari that sought review of some of
these decisions. Except for a case in which trial is scheduled to begin
during January 2001, each of the cases pending before trial courts is in
the pre-trial, discovery stage.

On April 18, 2000, a federal judge in the Eastern District of New York
issued an order that consolidates, for settlement purposes only, seven
pending cases involving Lorillard as well as other industry defendants.
These cases include three contribution cases, two union cases, one private
company and health plan case and one smoking and health class action. The
judge's order directed the parties to select a mediator or special master
in order to facilitate settlement discussions and also invited the federal
government to join in the settlement discussions. On July 31, 2000, the
federal judge orally proposed the formation of a national punitive damages
class action for the purposes of settlement. The Company does not
undertake to provide updates of the status of the foregoing matters.

CONTRIBUTION CLAIMS - In addition to the foregoing cases, nine cases are
pending in which private companies seek recovery of funds expended by them
to individuals whose asbestos disease or illness was alleged to have been
caused in whole or in part by smoking-related illnesses. Lorillard is
named as a defendant in each action, although it has not received service
of process of one of them. The Company is named as a defendant in four of
the cases, although it has not received service of process of one of the
actions. Three of the cases are scheduled for trial during the first
quarter of 2001. It is possible that trial will be held during 2000 or
2001 in another of the cases. The remaining cases are in the pre-trial,
discovery stage.

FILTER CASES - A number of cases have been filed against Lorillard
seeking damages for cancer and other health effects claimed to have
resulted from exposure to asbestos fibers which were incorporated, for a
limited period of time, ending more than forty years ago, into the filter
material used in one of the brands of cigarettes manufactured by
Lorillard. Approximately 25 such cases are pending in federal and state
courts against Lorillard. The Company is not named as a defendant in any
of the pending actions. Allegations of liability include negligence,
strict liability, fraud, misrepresentation and breach of warranty.
Plaintiffs in most of these cases seek unspecified amounts in compensatory
and punitive damages. Trials have been held in 15 such cases. Three of the
trials have been held to date in 2000 and another two cases were tried in
1999. Juries have returned verdicts in favor of Lorillard in 11 of the 15
cases, including two of the three cases tried to date in 2000 and one of
the cases tried during 1999. Four verdicts have been returned in
plaintiffs' favor.

On March 6, 2000, the jury in the case of Carlson v. Lorillard, Inc., et
al. (District Court, St. Louis County, Minnesota, filed October 1, 1996),
returned a verdict in favor of Lorillard and Hollingsworth & Vose.
Plaintiff did not file any post-trial motions and did not seek an appeal.

On May 8, 2000, the jury in the case of Traverso v. Asbestos Defendants
BHC, et al. (Superior Court, San Francisco County, California, filed
October 27, 1997), awarded plaintiff $1.1 in actual damages. The case was
settled prior to any determination of punitive damages. Lorillard was the
only defendant in the case at trial.

On June 2, 2000, the jury in the case of McDowell v. GAF Corporation, et
al. (Court of Common Pleas, Delaware County, Pennsylvania, filed November
21, 1995), returned a verdict in favor of Lorillard, the only defendant in
the case at the time of trial. The court has not ruled on plaintiff's
post-trial motion.

In the 1999 trial in which the jury returned a verdict in plaintiffs'
favor, the plaintiffs were awarded $2.2 in actual damages. Lorillard has
noticed an appeal from this verdict.

CALIFORNIA BUSINESS AND PROFESSIONS CODE CASES - Two California cities,
Los Angeles and San Jose, suing on behalf of the People of the State of
California, have filed suits alleging cigarette manufacturers, including
Lorillard, have violated a California statute, commonly known as
"Proposition 65," by failing to warn California residents of the alleged
health risks of environmental tobacco smoke. Plaintiffs in both suits
further allege defendants violated certain provisions of the California
Business and Professions Code. Two other cases that make similar
allegations against manufacturers of other types of tobacco products have

been dismissed by the trial courts and are pending on appeal. The two
suits pending against Lorillard have been transferred to a coordinated
proceeding in the Superior Court of San Diego County, California. The
court has entered an order dismissing the "Proposition 65" claims but
certain causes of action remain pending. The California Court of Appeals
declined to review at this time the order that dismissed the "Proposition
65" claims. The two cases are set for trial on September 25, 2000.

OTHER TOBACCO-RELATED LITIGATION

Antitrust Cases

Wholesalers and Direct Purchasers Suits - Lorillard and other domestic
and international cigarette manufacturers and their parent companies,
including the Company, have been named as defendants in nine separate
federal court actions brought by tobacco product wholesalers for
violations of U.S. antitrust laws and international law. Some of the cases
have not been served. The complaints allege that defendants conspired to
fix the price of cigarettes to wholesalers since 1988 in violation of the
Sherman Act. The actions seek class certification on behalf of all
domestic and international wholesalers similarly affected by such alleged
conduct, and seek damages, injunctive relief and attorneys' fees.

Approximately 35 suits are pending in various state courts alleging
violations of state antitrust laws which permit indirect purchasers, such
as retailers and consumers, to sue under price fixing or consumer fraud
statutes. Approximately 18 states permit such suits. Some of the cases
have not been served. The Company was named as a defendant in many of the
cases but has been dismissed from most of the actions.

Tobacco Growers Case - A purported class action on behalf of tobacco
growers and quota holders has been filed against the major U.S. cigarette
manufacturers and other entities in which the plaintiffs allege in an
amended complaint that the defendants conspired to displace the tobacco
quota and price support system that is administered by the federal
government, to fix the price of tobacco leaf purchased under the federal
system, and to allocate purchases of leaf to unfairly deflate the price of
tobacco.

* * * *

Lorillard believes that it has a number of defenses to pending cases and
Lorillard will continue to maintain a vigorous defense in all such
litigation. These defenses, where applicable, include, among others,
preemption, statutes of limitations or repose, assumption of the risk,
comparative fault, the lack of proximate causation, the lack of any defect
in the product alleged by a plaintiff, defenses based upon the Master
Settlement Agreement and defenses available under general antitrust law.
Lorillard believes that some or all of these defenses may, in many of the
pending or anticipated cases, be found by a jury or court to bar recovery
by a plaintiff. Application of various defenses are likely to be the
subject of further legal proceedings in the litigation. Lorillard may
enter into discussions in an attempt to settle particular cases if it
believes it is appropriate to do so.

While Lorillard intends to defend vigorously all smoking and health
related litigation which may be brought against it, it is not possible to
predict the outcome of any of this litigation. Litigation is subject to

many uncertainties, and it is possible that some of these actions could be
decided unfavorably.

Many of the recent developments in relation to smoking and health
discussed above have received wide-spread media attention including the
release of industry documents. These developments may reflect adversely on
the tobacco industry and could have adverse effects on the ability of
Lorillard and other cigarette manufacturers to prevail in smoking and
health litigation.

Except for the impact of the State Settlement Agreements as described
above, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of pending
litigation. It is possible that the Company's results of operations or
cash flows in a particular quarterly or annual period or its financial
position could be materially affected by an unfavorable outcome of certain
pending litigation.

OTHER LITIGATION - The Company and its subsidiaries are also parties to
other litigation arising in the ordinary course of business. The outcome
of this other litigation will not, in the opinion of management,
materially affect the Company's results of operations or equity.

9. In the opinion of Management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of June 30, 2000 and December 31, 1999 and the results of operations for
the three and six months and changes in cash flows for the six months
ended June 30, 2000 and 1999.

Results of operations for the second quarter and the first six months of
each of the years is not necessarily indicative of results of operations
for that entire year.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------------

OVERVIEW

Loews Corporation (the "Company") reported net operating income, which
excludes net investment gains and losses, for the second quarter of $284.0
million or $2.88 per share, compared to $231.7 million or $2.12 per share in
1999.

Net income for the second quarter ended June 30, 2000 of $510.6 million was
$5.17 per share compared to $254.3 million or $2.33 per share in 1999. Net
investment gains amounted to $226.6 million in the second quarter of 2000,
compared to gains of $22.6 million in the second quarter of 1999.

Net investment gains in 1999 and the first half of 2000 were impacted by
losses on put options purchased on the S&P 500 index. These losses were offset
by net investment gains at CNA Financial. Loews has maintained short
positions, in the form of futures or options - most recently as put options -
since 1996. Substantially all of the index short positions were closed during
the second quarter of 2000.

For the six months ended June 30, 2000 net operating income, which excludes
net investment gains and losses and 1999 accounting changes, was $531.1
million or $5.30 per share versus $404.3 million or $3.66 per share in the
first six months of 1999.

Net income for the six month period in 2000 was $694.2 million or $6.93 per
share, compared to $299.7 million or $2.71 per share in 1999, reflecting net
investment gains of $163.1 million in the first half of 2000 compared to gains
of $53.3 million in the first half of the prior year.

Revenues in the second quarter amounted to $5.3 billion compared to $5.6
billion in the comparable 1999 quarter. First half revenues were $10.0 billion
in 2000, compared to $11.1 billion in 1999. Revenues in the second quarter and
first half declined primarily due to the transfer of CNA's Personal Insurance
business to Allstate in October 1999.

At June 30, 2000, the Company had a book value of $101.04 per share compared
to a book value of $95.30 per share in 1999.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

CNA Financial
-------------

Insurance operations are conducted by subsidiaries of CNA Financial
Corporation ("CNA"). CNA is an 87.0% owned subsidiary of the Company.

Property and Casualty
---------------------

The property and casualty segment is comprised of the following operating
units of CNA: Agency Markets Operations, Risk Management, Specialty
Operations, Global Operations and Reinsurance Operations.

Net earned premiums for the property/casualty segment decreased $671.0
million for the second quarter of 2000 as compared with the same period in

1999. This decline in net earned premiums was primarily comprised of decreases
in Agency Market Operations of $500.0 million, Specialty Operations of $116.0
million, Risk Management of $50.0 million, and Reinsurance Operations of $8.0
million. These decreases were partially offset by an increase in net earned
premiums for Global Operations of $3.0 million.

The decrease in net earned premiums of Agency Market Operations was
primarily attributable to the transfer of the personal insurance line of
business to The Allstate Corporation ("Allstate") on October 1, 1999. Net
earned premiums for the second quarter of 1999 included $448.0 million of
premiums related to CNA's personal lines business. Aside from the effects of
the personal lines transaction, commercial insurance premiums declined
slightly, due to continued efforts to re-underwrite business, obtain adequate
rates for exposure and the increased use of reinsurance.

The premium decline for Specialty Operations related principally to active
decisions to renew only those accounts which meet current underwriting
guidelines supporting CNA's ongoing commitment to underwriting discipline and
the reserve for retrospective return premium increase as a result of favorable
loss development in the retrospectively rated Architects and Engineers
business. Net earned premiums for Risk Management decreased as a result of the
decision to cede a larger portion of its direct premiums, as well as a
continued focus on re-underwriting its book of business. Reinsurance
Operations also experienced a decrease in premiums that reflects decisions not
to renew a number of contracts that do not meet profitability targets,
partially offset by modest rate increases. The increase in net earned premiums
for Global Operations was a direct result of continued growth in surety and
European operations.

Underwriting results improved $84.0 million for the second quarter of 2000
as compared with the same period in 1999. The combined ratio decreased 0.3
points for the property/casualty segment to 111.4% for the second quarter of
2000 as compared with the same period in 1999. This decrease is due to a
decrease in the loss ratio of 1.3 points to 77.8% which is primarily
attributable to the impact of increased reinsurance, continued efforts to
achieve rate adequacy and the shedding of unprofitable business. Offsetting
the decrease in loss ratio was a slight increase in the expense ratio of 0.1
points to 32.3% and an increase in the dividend ratio of 1.1 points to 1.3%.

Net operating income improved 35.8% to $75.9 million for the three months
ended June 30, 2000 as compared with the same period in 1999. The net
operating income improvements were primarily driven by improved underwriting
results from a lower loss ratio, partially offset by lower investment income
and higher taxes.

Net earned premiums for the property/casualty segment decreased $1,328.0
million for the first six months of 2000 as compared with the same period in
1999. This decline in net earned premiums was primarily comprised of decreases
in Agency Market Operations of $1,026.0 million, Specialty Operations of
$200.0 million, Risk Management of $115.0 million, and Reinsurance Operations
of $18.0 million. These decreases were partially offset by an increase in net
earned premiums for Global Operations of $31.0 million.

The decrease in net earned premiums of Agency Market Operations was
primarily attributable to the transfer of the personal insurance line of
business to Allstate on October 1, 1999. Net earned premiums for the first six
months of 1999 included $895.0 million of premiums related to CNA's personal
lines business. Aside from the effects of the personal lines transaction,

commercial insurance premiums declined slightly due to a continued focus on
underwriting initiatives.

The premium decline for Specialty Operations resulted from the increased use
of reinsurance for the medical professional liability lines, the retrospective
return premium increase and continued underwriting discipline. Net earned
premium decreased for the six months ended June 30, 2000 as compared with the
same period in 1999 for both Risk Management and Reinsurance Operations
consistent with the second quarter fluctuations. The increase in net earned
premiums for Global Operations was a direct result of continued growth in
surety and European operations.

Underwriting results improved $204.0 million for the first six months of
2000 as compared with the same period in 1999. The combined ratio decreased
1.4 points for the property/casualty segment to 110.7% for the six months
ended June 30, 2000 as compared with the same period in 1999. This decrease is
due to a decrease in the loss ratio of 2.5 points to 77.1% which is primarily
attributable to the impact of reinsurance, continued efforts to achieve rate
adequacy and the non-renewal of unprofitable business. Offsetting the decrease
in loss ratio was an increase in the dividend ratio of 1.0 points to 1.2%.

Net operating income improved 66.5% to $159.5 million for the six months
ended June 30, 2000 as compared with the same period in 1999. The net
operating income improvements were primarily driven by improved underwriting
results, partially offset by decreased investment income and higher taxes.

Life
----

Life Operations provides financial protection to individuals through a full
product line of term life insurance, universal life insurance, long-term care
insurance, annuities and other products. Life Operations also provides
retirement services products to institutions in the form of various investment
products and administration services.

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------
2000 1999 2000 1999
-------------------------------------
(In millions)

<S> <C> <C> <C> <C>
Sales volume*. . . . . . . . . . . . $666.0 $850.0 $1,683.0 $1,635.0
Net earned premiums . . . . . . . . 226.0 214.0 438.0 417.0
Net operating income . . . . . . . . 40.0 26.5 75.5 57.1
</TABLE>

*Sales volume is a cash-based measure including premium and annuity
considerations, investment contract deposits, and other sales activity that
are not reported as premium under generally accepted accounting principles.

For the second quarter of 2000, sales volume declined primarily as a result
of a reduction in retirement products sold to institutions. These products
tend to be "large case" institutional markets' sales, which can be sporadic,
opportunistic and sensitive to independent agency ratings. Net earned premiums

increased 5.6% to $226.0 million for the second quarter of 2000 as compared to
$214.0 million for the second quarter of 1999. Net earned premiums increased
from strong renewals and growth in term products, long-term care and the
annuity business in Chile, partially offset by the sales declines in
structured settlements and single premium group annuities in the retirement
related products. For the second quarter, net operating income increased to
$40.0 million in 2000 as compared to $26.5 million in 1999. The increase was
primarily due to favorable mortality experience in universal life and term
insurance, and favorable investment results, principally in retirement
products.

Sales volume increased by $48.0 million in the first six months of 2000 as
compared with the same period in 1999. Life Operations had strong sales volume
in the first three months, particularly in its variable annuity products, as
well as an increasing base of direct premiums for life and long-term care,
partially offset by reductions in the second quarter as described above. Net
earned premiums for Life Operations increased 5.0% to $438.0 million for the
first six months of 2000 as compared to $417.0 million in the same period of
1999. Net operating income for the first six months of 2000 was $18.4 million
higher than net operating income for the same period of 1999. The increase was
principally attributable to favorable mortality experience and investment
results.

Group
-----

Group Operations provides a broad array of group life and health insurance
products and services to employers, affinity groups and other entities that
purchase insurance as a group. Group Operations also provides health insurance
to federal employees, retirees and their families; managed care and self-
funded medical excess insurance; medical provider network management and
administration services; and reinsurance for life and health insurers.

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------
2000 1999 2000 1999
-------------------------------------
(In millions)

<S> <C> <C> <C> <C>
Net earned premiums $878.0 $942.0 $1,760.0 $1,809.0
Net operating income 9.6 13.7 16.4 17.1
</TABLE>

Group Operations net earned premiums for the second quarter of 2000
decreased $64.0 million to $878.0 million as compared with the same period in
1999. This decrease is primarily attributable to the Federal Markets business,
partially offset by growth in the life reinsurance business.

Net operating income for the second quarter of 2000 decreased to $9.6
million from $13.7 million in the second quarter of 1999. This decrease
related to costs incurred from the exit of the Management Services
Organization ("MSO") business and adverse development on medical stop loss
business. The MSO business was a suite of comprehensive administrative
services designed to enable physician and hospital networks to assume

financial risk for the health care services they provide. The decision to
shutdown the MSO business was based on lack of demand as providers are backing
away from risk contracting.

Net earned premiums for the six months ended June 30, 2000 decreased $49.0
million to $1,760.0 million as compared with the same period of 1999. This
decrease was mainly attributable to second quarter declines related to the
Federal Markets business. Net operating income for the six months ended June
30, 2000 remained essentially flat as compared with the same period in 1999.

Other Insurance
---------------

The Other Insurance segment results consist of interest expense on corporate
borrowings, certain run-off insurance operations, asbestos claims related to
Fibreboard Corporation, financial guarantee insurance contracts, and certain
non-insurance operations.

Net operating loss declined to a loss of $47.6 million for the second
quarter of 2000 as compared with a loss of $58.4 million for the same period
during 1999. For the first six months of 2000, net operating loss declined to
a loss of $98.7 million as compared to a loss of $108.7 million for the same
period of 1999.

Lorillard
---------

Lorillard, Inc. and subsidiaries ("Lorillard"). Lorillard, Inc. is a wholly
owned subsidiary of the Company.

Operating Results

Revenues increased by $127.6 and $212.9 million, or 12.5% and 11.0%,
respectively, and net income increased by $39.4 and $70.9 million, or 23.8%
and 24.5%, respectively, for the quarter and six months ended June 30, 2000 as
compared to the corresponding periods of the prior year.

The increase in revenue is primarily composed of an increase of
approximately $168.6 and $296.1 million, or 16.6% and 15.3%, due to higher
average unit prices, including $53.0 and $100.6 million from the increase in
federal excise tax, partially offset by a decrease of approximately $49.2 and
$99.5 million, or 4.8% and 5.1%, reflecting lower unit sales volume for the
quarter and six months ended June 30, 2000, as compared to the corresponding
periods of the prior year.

Net income for the quarter and six months ended June 30, 2000 and 1999
includes pre-tax charges of $287.8, $258.1, $547.9 and $484.5 million ($171.4,
$154.3, $326.9 and $289.7 million after taxes), respectively, related to the
settlement of tobacco litigation. Lorillard's portion of ongoing adjusted
payments and legal fees is based on its share of domestic cigarette shipments
in the year preceding that in which the payment is due. Accordingly, Lorillard
records its portions of ongoing settlement payments as part of cost of
manufactured products sold as the related sales occur. Funds required to meet
the industry payment obligations have been provided by Lorillard's operating
activities. See Note 8 of the Notes to Consolidated Condensed Financial
Statements in Part I.

The Company believes that the implementation of the State Settlement
Agreements will materially adversely affect its consolidated results of

operations and cash flows in future periods. The degree of the adverse impact
will depend, among other things, on the rates of decline in United States
cigarette sales in the full price and discount segments, Lorillard's share of
the domestic full price and discount segments, and the effect of any resulting
cost advantage of manufacturers not subject to the Master Settlement
Agreement.

Lorillard's unit sales volume decreased by 5.3% and 4.7%, while Newport's
unit sales volume increased by 3.7% and 4.7% as a result of increased
promotional activities for the quarter and six months ended June 30, 2000, as
compared to the corresponding periods of the prior year. The decrease in
Lorillard's overall unit sales volume reflects lower unit sales of its
Maverick and Old Gold brands in the discount market segment. This decline
reflects reduced sales promotion activities for these brands in 2000, as
compared to the prior year. Overall industry unit sales volume is up by 2.9%
through June 30, 2000.

Newport's market share was 7.8% and 7.7% at June 30, 2000 and December 31,
1999. Newport, a full price brand, accounted for 78.6% of Lorillard's unit
sales. Discount brand sales have decreased from an average of 31.4% of
industry sales during 1994 to an average of 25.0% during 1999. At June 30,
2000, they represented 24.3% of industry sales.

On July 28, 2000, Lorillard increased the list price of all of its brands by
$3.00 per thousand cigarettes ($.06 per pack of 20 cigarettes).

Loews Hotels
------------

Loews Hotels Holding Corporation and subsidiaries ("Loews Hotels"). Loews
Hotels Holding Corporation is a wholly owned subsidiary of the Company.

Revenues increased by $17.9 and $36.0 million, or 26.2% and 28.0%,
respectively, and income before cumulative effect of a change in accounting
principles increased by $2.0 and $9.8 million, respectively, for the quarter
and six months ended June 30, 2000, as compared to the corresponding periods
of the prior year.

Revenues and income increased primarily due to higher overall average room
rates, the addition of the Loews Coronado Bay Hotel acquired in January 2000
and, for the six month period, increased occupancy rates. These increases were
partially offset by the sale of two hotel properties in December 1999 and, for
the three month period, lower occupancy rates. In addition, revenues and
income increased due to renovation of a hotel property in the 1999 period.

Diamond Offshore
----------------

Diamond Offshore Drilling, Inc. and subsidiaries ("Diamond Offshore").
Diamond Offshore Drilling, Inc. is a 52% owned subsidiary of the Company.

Revenues decreased by $70.8 and $116.7 million, or 31.6% and 25.3%,
respectively, and net income decreased by $25.2 and $36.9 million, or 96.6%
and 71.5%, respectively, for the quarter and six months ended June 30, 2000,
as compared to the corresponding periods of the prior year. Revenues and net
income include a gain from the sale of a drilling rig of $14.0 and $4.7
million, respectively, for the six months ended June 30, 2000.

Revenues from high specification floaters and other semisubmersible rigs
decreased by $78.5 and $136.5 million, or 35.0% and 29.6%, respectively, due
primarily to a decline in dayrates ($39.2, and $95.0 million) and lower
utilization rates ($38.3 and $40.5 million) for the quarter and six months
ended June 30, 2000, respectively, as compared to the corresponding periods of
the prior year. Revenues from jackup rigs increased by $7.1 and $4.0 million,
or 3.2% and .9%, due to increased utilization rates ($14.4 and $19.1 million)
for the quarter and six months ended June 30, 2000, respectively. These
increases were partially offset by reduced revenues due to the sale of the
Ocean Scotian ($7.3 and $15.1 million) for the quarter and six months ended
June 30, 1999, respectively.

Net income for the quarter and six months ended June 30, 2000 decreased due
primarily to the lower overall utilization rates and dayrates discussed above.

Bulova
------

Bulova Corporation and subsidiaries ("Bulova"). Bulova Corporation is a 97%
owned subsidiary of the Company.

Revenues increased by $5.7 and $11.8 million, or 18.5% and 19.3%,
respectively, and net income increased by $2.5 and $3.0 million, for the
quarter and six months ended June 30, 2000, respectively, as compared to the
corresponding periods of the prior year.

Revenues increased due primarily to an increase in royalty income of $5.5
million from the settlement of a contract dispute. Increased revenues in the
six month period also reflect higher unit sales volume.

Net income increased due primarily to a $3.0 million gain from the
settlement of a contract dispute, partially offset by higher brand support and
advertising expenses.

Corporate
---------

Corporate operations consist primarily of investment income, including
investment gains (losses) from the Company's investment portfolio, as well as
corporate interest expenses and other corporate overhead costs.

The components of investment gains (losses) included in Corporate operations
are as follows:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------------------------------------
(In Millions)

<S> <C> <C> <C> <C>
Revenues:
Derivative instruments (1) . . . . . . . $ (25.6) $(128.8) $ (137.2) $(236.3)
Fixed maturities . . . . . . . . . . . . 1.7 (5.7) 4.0 (6.1)
Equity securities, including short
positions (1) . . . . . . . . . . . . . 49.0 27.5 (11.9) (14.1)
Short-term investments, primarily U.S.
government securities . . . . . . . . . (.2) (2.3) (1.7) 6.2
---------------------------------------------------
24.9 (109.3) (146.8) (250.3)
Income tax (expense) benefit . . . . . . . (8.7) 38.3 51.4 87.6
---------------------------------------------------
Net income (loss) . . . . . . . . . . $ 16.2 $ (71.0) $ (95.4) $(162.7)
===================================================
</TABLE>

(1) Includes gains (losses) on short sales, equity index futures and
options aggregating $14.8, $(156.1), $(127.2) and $(304.2), for the
quarter and six months ended June 30, 2000 and 1999, respectively. The
Company has maintained short positions, in the form of futures or
options - most recently as put options - since 1996. Substantially all
of the index short positions were closed during the second quarter of
2000. See Item 3, "Quantitative and Qualitative Disclosures About
Market Risk."

Exclusive of securities transactions, revenues decreased by $1.3 and $3.2
million and net income decreased $5.9 and $10.9 million for the quarter and
six months ended June 30, 2000, respectively, as compared to the corresponding
periods of the prior year, due primarily to losses from the Company's
investment in shipping operations in the current year, compared to income in
the prior year.

Liquidity and Capital Resources:
-------------------------------

CNA Financial
-------------

The principal operating cash flow sources of CNA's property/casualty and
life insurance subsidiaries are premiums and investment income. The primary
operating cash flow uses are payments for claims, policy benefits and
operating expenses.

For the six months ended June 30, 2000, net cash used in operating
activities was $733.0 million as compared with a net cash outflow of $123.0
million for the same period in 1999. The significant increase in net cash used
in operating activities was attributable to cash outflows for increased paid
claims and claim adjustment expenses of approximately $500.0 million,
accelerated health and benefit plan fundings of approximately $180.0 million,
and estimated foregone net cash flows from CNA Personal Insurance of
approximately $190.0 million, partially offset by increased federal income tax
refunds of approximately $120.0 milion and improved operating earnings.

For the six months ended June 30, 2000, net cash inflows from investment
activities was $1,120.0 million as compared with $501.0 million for the same
period in 1999. Cash flows from investing activities were principally related
to purchases and sales of invested assets. Cash inflows increased from the
prior year as invested asset sales increased.

For the six months ended June 30, 2000, net cash used in financing
activities was relatively flat with $356.0 million as compared with $360.0
million for the same period in 1999. Cash flows from financing activities
include proceeds from the issuance of debt or equity, outflows for dividends
or repayment of debt, and outlays to reacquire equity instruments.

On May 26, 2000, CNA announced that Continental Casualty Company ("CCC"), a
wholly owned subsidiary, has withdrawn its March 20, 2000 proposal to make a
tender offer for the shares of CNA Surety Corporation not already owned by CCC
and its affiliates. This decision was based on market conditions that no
longer made the proposed cash tender offer a favorable transaction.

On February 15, 2000, Standard's & Poor's lowered CNA's senior debt rating
from A- to BBB and lowered CNA's preferred stock rating from BBB to BB+. As a
result of these actions, the facility fee payable on the aggregate amount of
CNA's $795.0 million revolving credit facility ("Facility") was increased 12.5
basis points per annum and the interest rate was increased to London Interbank
Offered Rate ("LIBOR") plus 27.5 basis points. Effective April 1, 2000, CNA's
revolving credit facility was reduced from $795.0 million to $770.0 million.
As a result of Standard & Poor's actions, CNA repurchased and retired all of
its outstanding $150.0 million of money market preferred stock in the first
six months of 2000. In addition, on April 28, 2000, CNA repaid the $77.0
million bank loan outstanding under the syndicated bank revolving credit
facility.

During the first six months of 2000, CNA repurchased approximately $33.0
million of its senior notes.

On August 3, 2000, CNA announced that the process of exploring the sale of
its life insurance businesses was complete. CNA will retain the individual
life, long-term care and retirement services businesses. CNA will continue to
explore the separate sale of the viatical settlements and life reinsurance
businesses.

CNA sold shares of its two largest equity investments, Global Crossing and
Canary Wharf subsequent to June 30, 2000 and through August 4, 2000. For
Global Crossing, CNA sold approximately 8.9 million common shares resulting in
pre-tax realized gains of $229.0 million. For Canary Wharf, CNA sold 25
million common shares resulting in pre-tax realized gains of $163.0 million.
The subsequent sales of Global Crossing bring CNA's holdings down to 19.3
million shares, which is the number of shares hedged via the collar discussed
in Note 4 of the Notes to Consolidated Condensed Financial Statements.

Moody's and Fitch removed the ratings from under review and affirmed the
rating for Continental Assurance Company ("CAC") and Valley Forge Life ("VFL"),
CNA's life insurance subsidiaries, following CNA's recent announcement that it
would retain CAC's individual life and retirement services businesses. Moody's
and Fitch cited their outlook for CAC and VFL's rating as negative.

Lorillard
---------

Lorillard and other cigarette manufacturers continue to be confronted with
an increasing level of litigation and regulatory issues. Approximately 1,385
product liability cases are pending against U.S. cigarette manufacturers.
Lorillard is a defendant in approximately 975 of these cases and the Company
is a defendant in approximately 50 of these cases, although the Company has
not received service of approximately 20 of them. Plaintiffs claim substantial
compensatory and punitive damages in amounts ranging into the billions of
dollars.

The terms of the State Settlement Agreements require significant payments to
be made to the Settling States which began in 1998 and continue in perpetuity.
See "Results of Operations" and Note 8 of the Notes to Consolidated Condensed
Financial Statements for additional information regarding this settlement and
litigation generally.

On July 14, 2000, the jury in Engle v. R.J. Reynolds Tobacco Co., et al.
awarded a total of $145.0 billion in punitive damages against all defendants,
including $16.3 billion against Lorillard. Defendants have filed various post-
trial motions and the court has not entered a final judgment respecting the
punitive damage award at this time. Lorillard remains of the view that the
Engle case should not have been certified as a class action. That
certification is inconsistent with the overwhelming majority of federal and
state court decisions which have held that mass smoking and health claims are
inappropriate for class treatment. Lorillard intends to challenge the class
certification, as well as other numerous reversible errors that it believes
occurred during the trial to date, at the earliest time that an appeal of
these issues is appropriate under Florida or federal law. The Company and
Lorillard believe that an appeal of these issues on the merits should prevail.

The United States federal excise tax on cigarettes is presently $17 per
1,000 cigarettes ($.34 per pack of 20 cigarettes). The federal excise tax on
cigarettes is scheduled to increase by $2.50 per 1,000 cigarettes in the year
2002. Various states have proposed, and certain states have recently passed,
increases in their state tobacco excise taxes. Such actions may adversely
affect Lorillard's volume, operating revenues and operating income.

Loews Hotels
------------

Loews Hotels is developing two hotels with its partners at Universal Orlando
in Florida, the first of which is scheduled to open in January 2001.

Capital expenditures in relation to these hotel projects are being funded by
a combination of equity and mortgages.

Funds from operations continue to exceed operating requirements. Funds for
other capital expenditures and working capital requirements are expected to be
provided from existing cash balances and operations.

Diamond Offshore
----------------

The offshore drilling industry is showing signs of recovery in drilling
markets around the world as strong oil and gas prices have provided an
environment of improved drilling economics for customers, leading to greater
demand for drilling services offshore. The announcement by a major oil

producer of its plans to increase exploration and production spending over the
next three years further indicates support for a long-anticipated recovery in
the offshore drilling industry. Although Diamond Offshore cannot predict the
extent to which current industry conditions may or may not continue, there is
reason to be optimistic that oil and gas companies will increase their
spending on exploration and development in the future, potentially resulting
in increased utilization levels and dayrates for offshore drilling rigs.

Diamond Offshore continues to see improvement in the domestic jack-up market
along with some stability in its high specification floater business as the
industry concentrates on shallow water natural gas and deep water prospects
offshore. While some high specification floating units have seen idle time
around the world, Diamond Offshore has maintained high utilization for its
rigs in this class. With a strategy of trying to maintain utilization through
short-term commitments, Diamond Offshore expects it will be in a position to
respond as the high specification floater market improves. In response to high
gas prices, Diamond Offshore's jack-up fleet expects to see improved results
throughout the rest of the year as dayrates and utilization continue to
improve.

The market for shallow water semisubmersibles is expected to tighten in the
near term due to escalating jack-up dayrates in the Gulf of Mexico. The market
for mid-water semisubmersibles remains weak although there are signs of good
opportunities and improvements in the Gulf of Mexico for the second half of
2000.

On June 6, 2000, Diamond Offshore issued zero coupon convertible debentures
due June 6, 2020 with a face value of $805.0 million. The debentures were
issued at a discount providing a yield to maturity of 3.5%, and are
convertible into 8.6075 shares of Diamond Offshore common stock per $1,000
debentures.

During the six months ended June 30, 2000, Diamond Offshore purchased
308,800 shares of its outstanding Common Stock at an aggregate cost of
approximately $8.5 million. Depending on market conditions, Diamond Offshore
from time to time purchases additional shares in the open market or otherwise.

Bulova
------

Funds from operations continue to exceed operating requirements. Bulova's
cash and cash equivalents, and investments amounted to $39.3 million at June
30, 2000, as compared to $34.1 million at December 31, 1999. Funds for capital
expenditures and working capital requirements are expected to be provided from
operations.

Majestic Shipping
-----------------

As previously reported in the Company's 1999 Annual Report on Form 10-K, a
subsidiary and an affiliate of the Company have entered into agreements for
newbuilding of six supertankers. A subsidiary of the Company also has an
option for newbuilding of two additional supertankers, including one option
which was exercised. Should the subsidiary exercise its remaining option, the
total cost of the eight ships is estimated to amount to approximately $700.0
million. The financing for these ships will be provided by bank debt supported
by the Company.

Parent Company
--------------

During the quarter and six months ended June 30, 2000, the Company purchased
332,700 and 5,866,600 shares of its outstanding Common Stock at an aggregate
cost of approximately $17.0 and $305.7 million, respectively. Depending on
market conditions, the Company from time to time purchases additional shares
in the open market or otherwise.

Investments:
-----------

Investment activities of non-insurance companies include investments in
fixed income securities, equity securities including short sales, derivative
instruments and short-term investments, and are carried at fair value. Equity
securities, which are considered part of the Company's trading portfolio,
short sales and derivative instruments are marked to market and reported as
investment gains or losses in the income statement. The remaining securities
are carried at fair value which approximated carrying value at June 30, 2000
and December 31, 1999.

The Company enters into short sales and invests in certain derivative
instruments for a number of purposes, including; (i) for its asset and
liability management activities, (ii) for income enhancements for its
portfolio management strategy, and (iii) to benefit from anticipated future
movements in the underlying markets that Company management expects to occur.
If such movements do not occur or if the market moves in the opposite
direction than what management expects, significant losses may occur.

Monitoring procedures include senior management review of daily detailed
reports of existing positions and valuation fluctuations to ensure that open
positions are consistent with the Company's portfolio strategy.

The credit exposure associated with these instruments is generally limited
to the positive market value of the instruments and will vary based on changes
in market prices. The Company enters into these transactions with large
financial institutions and considers the risk of nonperformance to be remote.

The Company does not believe that any of the derivative instruments utilized
by it are unusually complex, nor do these instruments contain imbedded
leverage features which would expose the Company to a higher degree of risk.
See "Results of Operations" and "Quantitative and Qualitative Disclosures
about Market Risk" for additional information with respect to derivative
instruments, including recognized gains and losses on these instruments. See
also Note 4 of the Notes to Consolidated Financial Statements in the 1999
Annual Report on Form 10-K.

Insurance
---------

A summary of CNA's general account investments, at carrying value, are as
follows:

Change in
Unrealized
June 30, December 31, Gains
2000 1999 (Losses)
----------------------------------
(In millions)

<S> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of government agencies . $ 5,487.0 $ 8,318.0 $ 165.0
Asset-backed securities . . . . . . . 5,380.0 7,039.0 66.0
Tax exempt securities . . . . . . . . 3,984.0 4,396.0 96.0
Taxable securities . . . . . . . . . 8,875.0 7,365.0 (121.0)
Redeemable preferred stock . . . . . 50.0 130.0 (67.0)
---------------------------------
Total fixed maturity securities . 23,776.0 27,248.0 139.0
Equity securities . . . . . . . . . . . 2,982.0 3,610.0 (721.0)
Short-term and other investments . . . 8,134.0 4,702.0 (64.0)
---------------------------------
Total . . . . . . . . . . . . . . $34,892.0 $35,560.0 $(646.0)
=================================

June 30, December 31,
2000 1999
------------------------
(In millions)

<S> <C> <C>
Short-term and other investments:
Commercial paper . . . . . . . . . . . . . . . . . $5,618.0 $ 1,988.0
Money market funds . . . . . . . . . . . . . . . . 443.0 904.0
U.S. Treasury securities . . . . . . . . . . . . . 125.0 41.0
Others . . . . . . . . . . . . . . . . . . . . . . 418.0 422.0
Other investments . . . . . . . . . . . . . . . . . . 1,530.0 1,347.0
---------------------
Total short-term and other
investments . . . . . . . . . . . . . . . . . . $8,134.0 $ 4,702.0
=====================
</TABLE>

The Company's general investment portfolio consists primarily of publicly
traded government bonds, asset-backed securities, mortgage-backed securities,
municipal bonds and corporate bonds.

A primary objective in the management of the fixed maturity portfolio is to
maximize total return relative to underlying liabilities and respective
liquidity needs. In achieving this goal, assets may be sold to take advantage

of market conditions, other investment opportunities, credit and tax
considerations. This activity will produce realized gains and losses depending
on market conditions including interest rates.

Total net unrealized gains for investments at June 30 2000 was $1,176.0
million, down from $1,822.0 million at December 31, 1999. The unrealized
position at June 30, 2000, was composed of an unrealized loss of $560.0
million for fixed maturity securities and an unrealized gain of $1,736.0
million for equity securities and other. The unrealized position at December
31, 1999 was composed of an unrealized loss of $700.0 million for fixed
maturity securities and an unrealized gain of $2,522.0 million for equity
securities and other. See Note 4 of the Notes to Consolidated Condensed
Financial Statements for a discussion of the unrealized portion of CNA's
ownership in Global Crossing.

CNA's investment policies for both the general and separate accounts
emphasize high credit quality and diversification by industry, issuer and
issue. Assets supporting interest rate sensitive liabilities are segmented
within the general account to facilitate asset/liability duration management.

The general account portfolio consists primarily of high quality (rated BBB
or higher) bonds, 92.9% and 94.2% of which are rated as investment grade at
June 30, 2000 and December 31, 1999, respectively.

Below investment grade bonds are high yield securities rated below BBB by
bond rating agencies, as well as other unrated securities which, in the
opinion of management, are below investment grade. High yield securities
generally involve a greater degree of risk than investment grade securities.
However, expected returns should compensate for the added risk. This risk is
also considered in the interest rate assumptions in the underlying insurance
products. CNA's concentration in high yield bonds was 7.1% and 5.8% of its
total investments as of June 30, 2000 and December 31, 1999, respectively.

Included in CNA's fixed maturity securities at June 30, 2000 are $5.4
billion of asset-backed securities, at fair value, consisting of approximately
18.2% in U.S. government agency issued pass-through certificates, 52.2% in
collateralized mortgage obligations ("CMOs"), 18.2% in corporate asset-backed
obligations and 11.4% in corporate mortgage-backed pass-through certificates.
The majority of CMOs held are actively traded in liquid markets and are priced
by broker-dealers.

CNA invests in certain derivative financial instruments primarily to reduce
its exposure to market risk (principally interest rate, equity price and
foreign currency risk). CNA considers the derivatives in its general account
to be held for purposes other than trading. Derivative securities, except for
interest rate swaps associated with certain corporate borrowings, are recorded
at fair value at the reporting date. The interest rate swaps on corporate
borrowings are accounted for using accrual accounting with the related income
or expense recorded as an adjustment to interest expense. Adjustments to fair
value are not recognized.

Certain derivatives in the separate accounts are held for trading purposes.
CNA uses these derivatives to mitigate market risk by purchasing Standard &
Poor's 500 ("S&P 500") futures contracts in a notional amount equal to the
contract liability relating to Life Operations' Index 500 group annuity
contract exposure. Changes in fair value of S&P 500 separate account
derivatives held for trading purposes are reported as a component of net
operating income.

CNA's largest equity holding in a single issuer is Global Crossing common
stock. See Note 4 of the Notes to Consolidated Condensed Financial Statements
for a discussion of CNA's ownership in Global Crossing.

CNA's second largest equity holding is Canary Wharf plc ("Canary Wharf").
During the first six months of 2000, CNA experienced a net decrease in
unrealized gains of $91.0 million on its position in Canary Wharf common
stock, which was valued at $535.0 million on June 30, 2000, including the
related currency hedge. The majority of this decline was due to a sale of 10.2
million shares, resulting in pre-tax realized gain of $61.0 million.

See the Liquidity and Capital Resources section for discussion of sales of
shares of Global Crossing and Canary Wharf subsequent to June 30, 2000.

Accounting Standards
--------------------

In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." This statement
addresses a limited number of issues causing implementation difficulties for
entities applying SFAS No. 133. SFAS No. 133 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 (i) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (iii) 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 all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company is currently evaluating the
effects of this Statement on its accounting and reporting of derivative
securities and hedging activities.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain of the SEC staff's views 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. The
Company does not expect the implementation of this bulletin to have a
significant impact on its results of operations or equity.

Forward-Looking Statements
--------------------------

When included in this Report, the words "believes," "expects," "intends,"
"anticipates," "estimates," and analogous expressions are intended to identify
forward-looking statements. Such statements inherently are subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, among
others, the impact of competitive products, policies and pricing; product and
policy demand and market responses; development of claims and the effect on
loss reserves; the performance of reinsurance companies under reinsurance
contracts; general economic and business conditions; changes in financial

markets (interest rate, credit, currency, commodities and equities) or in the
value of specific investments; changes in foreign, political, social and
economic conditions; regulatory initiatives and compliance with governmental
regulations; changes in foreign and domestic oil and gas exploration and
production activity, and expenditures related to rig conversion and upgrade;
changes in rating agency policies and practices, the results of financing
efforts, the actual closing of contemplated transactions and agreements and
various other matters and risks, many of which are beyond the Company's
control.

The tobacco industry continues to be subject to health concerns relating to
the use of tobacco products and exposure to environmental tobacco smoke,
legislation, including actual and potential excise tax increases, increasing
marketing and regulatory restrictions, governmental regulation, privately
imposed smoking restrictions, litigation, including risks associated with
adverse jury and judicial determinations, courts reaching conclusions at
variance with the general understandings of applicable law, bonding
requirements and the absence of adequate appellate remedies to get timely
relief from any of the foregoing, and the effects of price increases related
to concluded tobacco litigation settlements and excise tax increases on
consumption rates. Developments in any of these areas, which are more fully
described elsewhere in this Report could cause the Company's results to differ
materially from results that have been or may be projected by or on behalf of
the Company. These forward-looking statements speak only as of the date of
this Report. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any statement is based.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------

The Company is a large diversified financial services company. As such, it
has significant amounts of financial instruments that involve market risk. The
Company's measure of market risk exposure represents an estimate of the change
in fair value of its financial instruments. Changes in the trading portfolio
would be recognized as investment gains (losses) in the income statement.
Market risk exposure is presented for each class of financial instrument held
by the Company at June 30, 2000 and December 31, 1999, assuming immediate
adverse market movements of the magnitude described below. The Company
believes that the various rates of adverse market movements represent a
measure of exposure to loss under hypothetically assumed adverse conditions.
The estimated market risk exposure represents the hypothetical loss to future
earnings and does not represent the maximum possible loss nor any expected
actual loss, even under adverse conditions, because actual adverse
fluctuations would likely differ. In addition, since the Company's investment
portfolio is subject to change based on its portfolio management strategy as
well as in response to changes in the market, these estimates are not
necessarily indicative of the actual results which may occur.

The following tables present the Company's market risk by category (equity
markets, interest rates, foreign currency exchange rates and commodity prices)
on the basis of those entered into for trading purposes and other than trading
purposes.

Trading portfolio:

Fair Value
Category of risk exposure: Asset (Liability) Market Risk
------------------------------------------------------------------------------
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
------------------------------------------------------------------------------
(In millions)

<S> <C> <C> <C> <C>
Equity markets (1):
Equity securities $ 199.7 $ 225.0 $ 50.0 $ 57.0
Options purchased 27.1 188.9 (12.0) (154.0)
Options written (25.5) (25.8) 14.0 10.0
Index based futures-long 51.0
Index based futures-short (3.0) (6.0)
Short sales (412.5) (218.5) (103.0) (55.0)
Separate Accounts -
Equity securities 19.0 19.0 (5.0) (5.0)
Separate Accounts -
Equity index futures (a) (278.0) (261.0)
Interest rate (2):
Futures-long 18.0
Futures-short (48.0)
Separate Accounts -
Fixed maturity securities 368.0 333.0 (15.0) (12.0)
Commodities:
Gold (3):
Options purchased 11.4 15.6 (5.0) (14.0)
Options written (4.1) (5.2) 4.0 5.0
------------------------------------------------------------------------------

Note: The calculation of estimated market risk exposure is based on assumed
adverse changes in the underlying reference price or index of (1) an increase
in equity prices of 25%, (2) a decrease in interest rates of 100 basis points
and (3) an increase in gold prices of 20%. Adverse changes on options which
differ from those presented above would not necessarily result in a
proportionate change to the estimated market risk exposure.

(a) This market risk would be offset by decreases in liabilities to customers
under variable insurance contracts.

Historically, the most significant areas of market risk in the Company's
trading portfolio resulted from positions held in S&P futures contracts, short
sales of certain equity securities and put options purchased on the S&P 500
index. The Company entered into these positions primarily to benefit from
anticipated future movements in the underlying markets that Company management
expects to occur. If such movements do not occur or if the market moves in the
opposite direction from what management expects, significant losses may occur.
The Company has maintained short positions, in the form of futures or options
- most recently as put options - since 1996. Substantially all of the index
short positions were closed during the second quarter of 2000.

Exposure to market risk is managed and monitored by senior management.
Senior management approves the overall investment strategy employed by the

Company and has responsibility to ensure that the investment positions are
consistent with that strategy and the level of risk acceptable to it. The
Company may manage risk by buying or selling instruments or entering into
offsetting positions.

Other than trading portfolio:

</TABLE>
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C>
Equity market (1):
Equity securities:
General accounts (a) $ 2,982.5 $ 3,609.6 $ (571.0) $ (902.0)
Separate accounts 241.0 240.0 (61.0) (60.0)
Interest rate(2):
Fixed maturities (a) 24,388.2 27,924.4 (1,269.0) (1,286.0)
Short-term investments (a) 11,034.4 7,317.8 (4.0) (2.0)
Other derivative securities 29.2 16.0 (75.0) 16.0
Separate Accounts (a):
Fixed maturities 2,536.7 2,927.0 (111.0) (115.0)
Short-term investments 134.6 59.0
Long-term debt (5,738.0) (5,292.0)
------------------------------------------------------------------------------
</TABLE>

Note: The calculation of estimated market risk exposure is based on assumed
adverse changes in the underlying reference price or index of (1) a decrease
in equity prices of 25% and (2) an increase in interest rates of 100 basis
points.

(a) Certain securities are denominated in foreign currencies. An assumed 20%
decline in the underlying exchange rates would result in an aggregate foreign
currency exchange rate risk of $(287.0) and $(673.0) at June 30, 2000 and
December 31, 1999, respectively.

Equity Price Risk - The Company has exposure to equity price risk as a
result of its investment in equity securities and equity derivatives. Equity
price risk results from changes in the level or volatility of equity prices
that affect the value of equity securities or instruments that derive their
value from such securities or indexes.

Equity price risk was measured assuming an instantaneous 25% change in the
underlying reference price or index from its level at June 30, 2000 and
December 31, 1999, with all other variables held constant.

Interest Rate Risk - The Company has exposure to interest rate risk, arising
from changes in the level or volatility of interest rates. The Company
attempts to mitigate its exposure to interest rate risk by utilizing
instruments such as interest rate swaps, interest rate caps, commitments to
purchase securities, options, futures and forwards. The Company monitors its

sensitivity to interest rate risk by evaluating the change in its financial
assets and liabilities relative to fluctuations in interest rates. The
evaluation is made using an instantaneous change in interest rates of varying
magnitudes on a static balance sheet to determine the effect such a change in
rates would have on the recorded market value of the Company's investments and
the resulting effect on shareholders' equity. The analysis presents the
sensitivity of the market value of the Company's financial instruments to
selected changes in market rates and prices which the Company believes are
reasonably possible over a one-year period.

The sensitivity analysis estimates the change in the market value of the
Company's interest sensitive assets and liabilities that were held on June 30,
2000 and December 31, 1999 due to instantaneous parallel shifts in the yield
curve of 100 basis points, with all other variables held constant. The
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Accordingly the analysis may not
be indicative of, is not intended to provide, and does not provide a precise
forecast of the effect of changes of market interest rates on the Company's
earnings or shareholders' equity. Further, the computations do not contemplate
any actions the Company could undertake in response to changes in interest
rates.

The Company's long-term debt, including interest rates swap agreements, as
of June 30, 2000 and December 31, 1999 are denominated in U.S. Dollars. The
Company's debt has been primarily issued at fixed rates, and as such, interest
expense would not be impacted by interest rate shifts. The impact of a 100
basis point increase in interest rates on fixed rate debt would result in a
decrease in market value of $358.5 and $301.7 million at June 30, 2000 and
December 31, 1999, respectively. A 100 basis point decrease would result in an
increase in market value of $405.9 and $335.9 million at June 30, 2000 and
December 31, 1999, respectively.

The sensitivity analysis assumes an instantaneous shift in market interest
rates increasing 100 basis points from their levels at June 30, 2000 and
December 31, 1999, with all other variables held constant.

Foreign Exchange Rate Risk - Foreign exchange rate risk arises from the
possibility that changes in foreign currency exchange rates will impact the
value of financial instruments. The Company has foreign exchange exposure when
it buys or sells foreign currencies or financial instruments denominated in a
foreign currency. This exposure is mitigated by the Company's asset/liability
matching strategy and through the use of futures for those instruments which
are not matched. The Company's foreign transactions are primarily denominated
in Canadian Dollars, British Pounds, German Marks, Chilean Pesos, Argentinean
Pesos and Japanese Yen. The sensitivity analysis also assumes an instantaneous
20% change in the foreign currency exchange rates versus the U.S. Dollar from
their levels at June 30, 2000 and December 31, 1999, with all other variables
held constant.

Commodity Price Risk - The Company has exposure to commodity price risk as a
result of its investments in oil swaps and options, gold options and other
investments. Commodity price risk results from changes in the level or
volatility of commodity prices that impact instruments which derive their
value from such commodities. Commodity price risk was measured assuming an
instantaneous change of 20% for oil and gold, and 10% in the value of other
underlying commodities.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.
-----------------

1. CNA is involved in various lawsuits involving environmental pollution
claims and litigation with Fibreboard Corporation. Information involving such
lawsuits is incorporated by reference to Note 8 of the Notes to Consolidated
Condensed Financial Statements in Part I.

2. As noted in Item 3 Legal Proceedings of the Company's Report on Form 10-K
for the year ended December 31, 1999, Lorillard is defendant in various
lawsuits seeking damages for cancer and health effects claimed to have
resulted from the use of cigarettes or from exposure to tobacco smoke.
Information involving such lawsuits is incorporated by reference to such Item
3 Legal Proceedings. Material developments in relation to the foregoing are
described below and incorporated by reference to Note 8 of the Notes to
Consolidated Condensed Financial Statements in Part I.

CONVENTIONAL PRODUCT LIABILITY CASES -

On June 27, 2000, a jury in the Supreme Court of Kings County, New York,
returned a verdict in favor of Lorillard and the other defendants in the case
of Anderson v. American Tobacco, et al. The court has not ruled on plaintiffs'
post-trial motion to set aside the verdict and to enter a verdict in favor of
the plaintiffs.

On July 12, 2000, a jury in the Circuit Court of DeSoto County, Mississippi,
returned a verdict in favor of R.J. Reynolds, the only defendant, in the case
of Nunnally v. R.J. Reynolds. The deadline has not expired for plaintiff to
file any post-trial motions or to appeal from the judgment entered by the
trial court. The court has not ruled on plaintiff's motion for judgment
notwithstanding the verdict or, in the alternative, for new trial. Neither the
Company nor Lorillard were defendants in the case.

On March 20 and 27, 2000, a jury in the Superior Court of San Francisco
County, California, returned verdicts in favor of the plaintiffs and against
the two cigarette manufacturing defendants in the case of Whiteley v.
Raybestos-Manhattan, Inc., et al. The jury awarded plaintiffs $1.7 million in
actual damages and $20.0 million in punitive damages, from the two cigarette
manufacturers, Philip Morris and R.J. Reynolds. The court denied Philip
Morris' and R.J. Reynolds' motions for judgment notwithstanding the verdict
and for new trial. Philip Morris and R.J. Reynolds have noticed an appeal from
the judgment entered by the trial court to the California Court of Appeals.
Neither the Company nor Lorillard were defendants in the case.

During June 2000, the Indiana Court of Appeals reversed the judgment entered
in favor of the defendants following a 1996 trial in the case of Rogers v.
R.J. Reynolds Tobacco Company, et al. (Superior Court, Marion County, Indiana,
filed March 27, 1987), due to the trial judge's ex parte contact with the
jury. The Court of Appeals has not ruled on defendants' motion for
reconsideration of the ruling that reversed the judgment. Neither the Company
nor Lorillard are defendants in this matter.

CLASS ACTIONS -

Trial began during July 1998 in the case of Engle v. R.J. Reynolds Tobacco
Co., et al. (Circuit Court, Dade County, Florida, filed May 5, 1994). Prior to
trial, plaintiffs were granted class certification on behalf of Florida

residents and citizens, and survivors of such individuals, who allege injury
or have died from medical conditions caused by their addiction to cigarettes
containing nicotine. Defendants are the major U.S. cigarette manufacturers,
including Lorillard, the parent company of one of the manufacturers, The
Tobacco Institute and the Council for Tobacco Research. The Company is not a
defendant in the case. The jury awarded $145.0 billion in punitive damages
against the defendants, including $16.3 billion against Lorillard. The Company
and Lorillard believe that an appeal of these issues on the merits should
prevail. See Note 8 of the Notes to Consolidated Condensed Financial
Statements, included in Part I, for a discussion of the verdicts and certain
other developments in this case.

In the case of Aksamit v. Brown & Williamson Tobacco Corporation, et al.
(U.S. District Court, South Carolina, filed November 20, 1997), the court has
heard argument on plaintiffs' motion for class certification and has taken it
under advisement. The Company is a defendant in the case.

In the case of Avallone v. The American Tobacco Company, Inc., et al.
(Superior Court, Middlesex County, New Jersey, filed April 23, 1998),
plaintiffs have attempted to appeal to the New Jersey Supreme Court from the
trial court's order that denied their motion for class certification.

In the case of Blankenship v. American Brands, Inc., et al. (Circuit Court,
Ohio County, West Virginia, filed January 31, 1997), the court has heard
argument on plaintiffs' motion for class certification and has taken it under
advisement. The case is now assigned to the West Virginia Mass Litigation
Panel.

In the case of Brown v. The American Tobacco Company, Inc., et al. (Superior
Court, San Diego County, California, filed June 10, 1997), the court has
denied plaintiffs' motion for class certification on behalf of California
residents who began smoking cigarettes before September 1, 1988, and who
smoked at least 15 packages of cigarettes each year.

In the case of Cole v. The Tobacco Institute, Inc., et al. (U.S. District
Court, Eastern District, Texas, filed May 5, 1997), the court granted
defendants' motion for judgment on the pleadings and entered final judgment in
their favor. Plaintiffs have noticed an appeal to the U.S. Court of Appeals
for the Fifth Circuit.

In the case of Daniels v. Philip Morris Companies, Inc., et al. (Superior
Court, San Diego County, California, filed April 2, 1998), the court has
denied plaintiffs' motion for class certification. Plaintiffs sought class
certification on behalf of California residents who as minors smoked
cigarettes on or after April 2, 1994.

In the case of Nwanze v. Philip Morris Companies, Inc., et al. (U.S.
District Court, Southern District, New York, filed September 29, 1997), the
court granted without prejudice defendants' motion to dismiss the complaint.
Plaintiffs have noticed an appeal to the U.S. Court of Appeals for the Second
Circuit from the trial court's final judgment.

In the case of Richardson v. Philip Morris Incorporated, et al. (Circuit
Court, Baltimore City, Maryland, filed May 24, 1996), the Maryland Court of
Special Appeals issued a ruling during May 2000 that reversed the class
certification order entered by the trial court.

In the case of Simon v. Philip Morris Incorporated, et al. (U.S. District
Court, Eastern District, New York, filed April 9, 1999), the court has heard

argument on plaintiffs' motion for class certification and reserved its
ruling. The court has directed that additional briefing, an evidentiary
hearing and possible amendment of the pleadings may be required in order for
the court to determine plaintiffs' class certification motion.

In the case of Taylor v. The American Tobacco Company, et al. (Circuit
Court, Wayne County, Michigan, filed May 23, 1997), plaintiffs have
voluntarily dismissed the case with prejudice.

The following Class Actions have been filed in which Lorillard or Loews
Corporation are named as defendants:

The case of Force v. Brown & Williamson Tobacco Corporation, et al. (U.S.
District Court, Southern District, Illinois, filed March 29, 2000).

The case of Decie v. The American Tobacco Company, et al. (U.S. District
Court, Eastern District, New York, filed April 21, 2000).

The case of Arnitz v. Philip Morris Incorporated, et al. (Circuit Court,
Hillsborough County, Florida, filed June 6, 2000; amended complaint filed in
order to pursue class action claims, June 30, 2000).

REIMBURSEMENT CASES -

Governmental Reimbursement Cases:

Judgment has become final, pursuant to the MSA, in the cases brought by the
settling states that are listed below:

State of Alabama (by Attorney General Pryor) v. Philip Morris Incorporated,
et al. (Circuit Court, Montgomery County, Alabama, filed November 12, 1998).

State of Alabama (by Governor James) v. The American Tobacco Company, et al.
(Circuit Court, Montgomery County, Alabama, filed November 12, 1998).

State of Arizona v. The American Tobacco Company, et al. (Superior Court,
Maricopa County, Arizona, filed August 20, 1996).

State of Tennessee v. Brown & Williamson Tobacco Corporation, et al.
(Chancery Court, Davidson County, Tennessee, filed December 21, 1998).

In the case of The Republic of Guatemala v. The Tobacco Institute, Inc., et
al. (U.S. District Court, District of Columbia, filed May 11, 1998), the court
granted defendants' motion to dismiss the case with prejudice. Plaintiff has
noticed an appeal to the U.S. Court of Appeals for the District of Columbia.
Neither the Company nor Lorillard are defendants in this matter.

In the case of Nicaragua v. Liggett Group, Inc., et al. (U.S. District
Court, District of Columbia, filed December 10, 1998), the court has granted
defendants' motion to dismiss the complaint with prejudice. Plaintiff has
noticed an appeal to the U.S. Court of Appeals for the District of Columbia.
Neither the Company nor Lorillard are defendants in this matter.

In the case of Ukraine v. American Brands, Inc., et al. (U.S. District
Court, District of Columbia, filed November 19, 1999), the court has granted
defendants' motion to dismiss the complaint with prejudice. Plaintiff has
noticed an appeal to the U.S. Court of Appeals for the District of Columbia.
The Company is a defendant in the case.

In the case of City of New York, et al. v. The Tobacco Institute, Inc., et
al. (Supreme Court, New York County, New York, filed October 17, 1996), the
court entered a stipulation dismissing the action with prejudice.

The following additional Governmental Reimbursement Cases have been filed:

The case of Her Majesty the Queen in Right of Ontario [Canada] v. Imperial
Tobacco Company, et al. (U.S. District Court, Southern District, New York,
filed March 1, 2000). The Company is a defendant in the case. The case has
been transferred to the Multi-District Litigation Panel in Washington, D.C.

The case of State of Espirito Santo, Brazil, et al. v. The Brooke Group
Ltd., Inc., et al. (U.S. District Court, Southern District, Florida, filed
March 20, 2000). The Company is a defendant in the case. The case has been
transferred to the Multi-District Litigation Panel in Washington, D.C.

The case of The State of Mato Grosso do Sul, Brazil v. Philip Morris
Companies, Inc., et al. (Circuit Court, Dade County, Florida, filed on or
about July 18, 2000). Both the Company and Lorillard are named as defendants
in the complaint. To date, none of the defendants have received service of
process.

Reimbursement Cases filed by Private Citizens:

In the case of Beckom v. The American Tobacco Company, et al. (Chancery
Court, Monroe County, Tennessee, filed May 8, 1997). the U.S. Court of Appeals
for the Sixth Circuit affirmed the ruling by the U.S. District Court for the
Eastern District of Tennessee that dismissed the action due to plaintiffs'
lack of standing to pursue claims in federal court, but it remanded the case
to the trial court with directions that the case be remanded to the Chancery
Court of Monroe County, Tennessee, in order to determine whether any of
plaintiffs' state law claims survive. The Company is a defendant in the case.

In the case of Mason v. The American Tobacco Company, et al. (U.S. District
Court, Eastern District, New York, filed December 23, 1997), the U.S. District
Court for the Western District of Texas, where the case was initiated, granted
plaintiffs' motion to transfer the case to the U.S. District Court for the
Eastern District of New York.

In the case of The State of North Carolina, et al. v. The American Tobacco
Company, et al. (U.S. District Court, Middle District, North Carolina, filed
February 13, 1998), the court has entered the parties' stipulation dismissing
the case without prejudice.

Reimbursement Cases filed by Private Companies and Health Plans:

In the case of Blue Cross and Blue Shield of New Jersey, Inc., et al. v.
Philip Morris, Incorporated, et al. (U.S. District Court, Eastern District,
New York, filed April 29, 1998), the court has continued the trial date to
October 10, 2000.

In the case of Group Health Plan, Inc., et al. v. Philip Morris
Incorporated, et al. (U.S. District Court, Minnesota, filed March 11, 1998),
the court has certified to the Minnesota Supreme Court certain questions to
enable it to determine whether to grant in its entirety defendants' motion to
dismiss the complaint.

In the case of Health Care Services Corporation, et al. v. Philip Morris,
Incorporated, et al. (U.S. District Court, Northern District, Illinois, filed

April 29, 1998), the United States Court of Appeals for the Seventh Circuit
affirmed the trial court's final judgment in favor of the defendants. The
Seventh Circuit Court of Appeals denied plaintiffs' motion for rehearing and
for rehearing en banc. Plaintiffs did not seek further appellate review of the
rulings and the case is concluded.

The following additional Reimbursement Cases by Private Companies or Health
Plans have been filed:

The case of A.O. Fox Memorial Hospital, et al. v. The American Tobacco
Company, et al. (Supreme Court, Nassau County, New York, filed March 30,
2000). Plaintiffs are approximately 175 New York hospitals.

The case of County of McHenry, Randolph Hospital District, et al. v. Philip
Morris, Inc., et al. (Circuit Court, Cook County, Illinois, filed July 13,
2000).

Reimbursement Cases filed by Indian tribes:

In the case of Lower Brule Sioux Tribe v. The American Tobacco Company, et
al. (Tribal Court, Lower Brule Sioux Tribe, filed May 28, 1997), plaintiff
voluntarily dismissed the case without prejudice.

Reimbursement Cases filed by Labor Unions:

In the case of Day Care Council - Local 205 D.C. 1707 Welfare Fund v. Philip
Morris, Inc., et al. (Supreme Court, New York County, New York, filed December
8, 1997), plaintiffs have noticed an appeal to the New York Court of Appeals
from the trial court's March 2000 order that granted defendants' motion to
dismiss the complaint without prejudice.

In the case of Eastern States Health and Welfare Fund, et al. v. Philip
Morris, Inc., et al. (Supreme Court, New York County, New York, filed July 28,
1997), plaintiffs have noticed an appeal to the New York Court of Appeals from
the trial court's March 2000 order that granted defendants' motion to dismiss
the complaint without prejudice.

In the case of IBEW Local 25 Health and Benefit Fund v. Philip Morris, Inc.
et al. (Supreme Court, New York County, New York, filed November 25, 1997),
plaintiffs have noticed an appeal to the New York Court of Appeals from the
trial court's March 2000 order that granted defendants' motion to dismiss the
complaint without prejudice.

In the case of IBEW Local 363 Welfare Fund v. Philip Morris, Inc., et al.
(Supreme Court, New York County, New York, filed November 25, 1997),
plaintiffs have noticed an appeal to the New York Court of Appeals from the
trial court's March 2000 order that granted defendants' motion to dismiss the
complaint without prejudice.

In the case of Local 138, 138A and 138B International Union of Operating
Engineers Welfare Fund v. Philip Morris, Inc., et al. (Supreme Court, New York
County, New York, filed November 25, 1997), plaintiffs have noticed an appeal
to the New York Court of Appeals from the trial court's March 2000 order that
granted defendants' motion to dismiss the complaint without prejudice.

In the case of Local 840, International Brotherhood of Teamsters Health and
Insurance Fund v. Philip Morris, Inc., et al. (Supreme Court, New York County,
New York, filed November 25, 1997), plaintiffs have noticed an appeal to the

New York Court of Appeals from the trial court's March 2000 order that granted
defendants' motion to dismiss the complaint without prejudice.

In the case of Local 1199 Home Care Industry Benefit Fund v. Philip Morris,
Inc., et al. (Supreme Court, New York County, New York, filed December 8,
1997), plaintiffs have noticed an appeal to the New York Court of Appeals from
the trial court's March 2000 order that granted defendants' motion to dismiss
the complaint without prejudice.

In the case of Local 1199 National Benefit Fund for Health and Human
Services Employees v. Philip Morris, Inc., et al. (Supreme Court, New York
County, New York, filed December 8, 1997), plaintiffs have noticed an appeal
to the New York Court of Appeals from the trial court's March 2000 order that
granted defendants' motion to dismiss the complaint without prejudice.

In the case of Long Island Council of Regional Carpenters Welfare Fund v.
Philip Morris, Inc., et al. (Supreme Court, New York County, New York, filed
November 25, 1997), plaintiffs have noticed an appeal to the New York Court of
Appeals from the trial court's March 2000 order that granted defendants'
motion to dismiss the complaint without prejudice.

In the case of Massachusetts Laborers Health and Welfare Fund v. Philip
Morris Inc., et al. (U.S. District Court, Massachusetts, filed June 2, 1997),
plaintiffs voluntarily dismissed the case without prejudice.

In the case of National Asbestos Workers, et al. v. Philip Morris
Incorporated, et al. (U.S. District Court, Eastern District, New York, filed
February 27, 1998), the U.S. Court of Appeals for the Second Circuit has
ordered the trial court to determine plaintiffs' motion for class
certification prior to trial. The trial court has directed the parties to
submit briefs on the class certification issue. The Company is a defendant in
the case. Trial is scheduled to begin on January 16, 2001.

In the case of New Mexico and West Texas Multi-Craft Health and Welfare
Trust Fund, et al. v. Philip Morris, Inc., et al. (Second Judicial District
Court, Bernalillo County, New Mexico, filed October 10, 1997), plaintiffs have
voluntarily dismissed their appeal with prejudice.

In the case of Operating Engineers Local 12 Health and Welfare Trust, et al.
v. American Tobacco Company, et al. (Superior Court, Los Angeles County,
California, filed September 16, 1997; transferred to a Coordinated Proceeding
before the Superior Court of San Diego County, California), the court granted
the plaintiffs' motion to voluntarily dismiss the case during April 2000
without prejudice. Plaintiffs have noticed an appeal to the California Court
of Appeals, contending that the trial court's interlocutory rulings limited
their claims. The case had been transferred to a Coordinated Proceeding before
the Superior Court of San Diego County, California.

In the case of Puerto Rican ILGWU Health & Welfare Fund v. Philip Morris
Inc., et al. (Supreme Court, New York County, New York, filed September 17,
1997), plaintiffs have noticed an appeal to the New York Court of Appeals from
the trial court's March 2000 order that granted defendants' motion to dismiss
the complaint without prejudice.

In the case of Rhode Island Laborers v. The American Tobacco Company, et al.
(U.S. District Court, Rhode Island, filed July 24, 1997), the court adopted
the report and recommendation of the U.S. Magistrate Judge that defendants'
motion to dismiss be granted without prejudice and dismissed the case.

In the case of Utah Laborers Health & Welfare Trust Fund, et al. v. Philip
Morris Incorporated, et al. (U.S. District Court, Utah, Central Division,
filed June 4, 1998), plaintiffs have voluntarily dismissed the case with
prejudice. The Company was a defendant in the case.

The following additional reimbursement case has been filed by labor unions:

Obra Social de Empleados de la Marina Mercante, et al. v. The American
Tobacco Company, et al. (Superior Court, District of Columbia, filed March 8,
2000).

A motion for reinstatement has been filed in the following labor union
reimbursement case:

Connecticut Pipe Trades, et al. v. Philip Morris Incorporated, et al. (U.S.
District Court, Connecticut, filed July 1, 1997). Plaintiffs voluntarily
dismissed the case during September 1998 but filed a motion to reinstate the
case during April 2000. Defendants have filed an opposition to the attempted
reinstatement.

CONTRIBUTION CLAIMS -

In the case of Falise, et al. v. The American Tobacco Company, et al. (U.S.
District Court, Eastern District, New York, filed November 12, 1999), the U.S.
Court of Appeals for the Second Circuit has ruled that trial cannot begin
until it rules on defendants' petition for writ of mandamus, which contends
that the trial court should have granted defendants' motion to dismiss the
case. The Second Circuit Court of Appeals is scheduled to hear argument of the
defendant's petition during September 2000. It is not known when, or if, trial
will begin. Trial had been scheduled to start during July 2000.

In the case of H.K. Porter Company v. B.A.T Industries, PLC, et al. (U.S.
District Court, Eastern District, New York, filed June 19, 1998), the court
has continued the trial date to January 2001.

In the case of Raymark Industries v. The American Tobacco Company, et al.
(U.S. District Court, Eastern District, New York, filed January 30, 1998), the
court has continued the trial date to March 2001.

FILTER CASES -

In the case of Carlson v. Lorillard, Inc., et al. (District Court, St. Louis
County, Minnesota, filed October 1, 1996), the jury returned a verdict in
favor of Lorillard and Hollingsworth & Vose during March 2000. Plaintiff did
not file any post-trial motions and did not seek an appeal.

In the case of Traverso v. Asbestos Defendants BHC, et al. (Superior Court,
San Francisco County, California, filed October 27, 1997), the jury awarded
plaintiff $1.1 million in actual damages. The case was settled prior to any
determination of punitive damages. Lorillard was the only defendant in the
case at trial.

In the case of McDowell v. GAF Corporation, et al. (Court of Common Pleas,
Delaware County, Pennsylvania, filed November 21, 1995), the jury returned a
verdict in favor of Lorillard, which was the only defendant in the case at the
time of trial. The court has not ruled on plaintiff's post-trial motion.

OTHER TOBACCO-RELATED LITIGATION

Anti-trust cases -

The following anti-trust cases have been served:

The case of Smith v. Philip Morris Companies, Inc., et al. (District Court,
Seward County, Kansas, filed February 7, 2000). The Company is a defendant in
the case.

The case of Nierman v. Philip Morris Companies, Inc., et al. (Supreme Court,
New York County, New York, filed March 6, 2000). The court has entered a
stipulation that dismissed the Company from the case without prejudice.

The case of Sylvester v. Philip Morris Companies, Inc., et al. (Supreme
Court, New York County, New York, filed March 8, 2000). The court has entered
a stipulation that dismissed the Company from the case without prejudice.

The case of Taylor v. Philip Morris Companies, et al. (Superior Court,
Cumberland County, Maine, filed March 24, 2000). The court has approved the
parties' stipulation dismissing the Company from the case without prejudice.

The case of Belch v. R.J. Reynolds Tobacco Company, et al. (Superior Court,
Alameda County, California, filed April 11, 2000). The Company is a defendant
in the case but has not received service of process to date. The case has been
assigned to a coordinated proceeding in the Superior Court of Alameda County,
California.

The case of Belmonte v. R.J. Reynolds Tobacco Company, et al. (Superior
Court, Alameda County, California, filed April 11, 2000. The Company is a
defendant in the case but has not received service of process to date. The
case has been assigned to a coordinated proceeding in the Superior Court of
Alameda County, California.

The case of Shafer v. Philip Morris Companies, Inc., et al. (District Court,
South Central Judicial District, Morton County, North Dakota, filed April 18,
2000). The Company is a defendant in the case. The court has entered an order
approving plaintiff's motion voluntarily dismissing the Company without
prejudice from the case. The court has entered final judgment in favor of the
Company reflecting the dismissal order.

The case of Swanson v. Philip Morris Companies, Inc., et al. (Circuit Court,
Hughes County, South Dakota, filed April 18, 2000). The parties have signed a
stipulation dismissing the Company from the case without prejudice but the
court has not approved the stipulation to date.

The case of Kissel v. Philip Morris Companies, Inc., et al. (Circuit Court,
Brooke County, West Virginia, filed May 2, 2000). The Company is a defendant
in the case. The parties have submitted to the court a stipulation dismissing
the Company from the case without prejudice. To date, the court has not
entered an order approving the stipulation.

The case of Cusatis v. Philip Morris Companies, Inc., et al. (Circuit Court,
Milwaukee County, Wisconsin, filed May 5, 2000). The court has entered an
order granting plaintiff's motion to voluntarily dismiss the Company from the
case without prejudice.

The case of Barnes v. Philip Morris Companies, Inc., et al. (Superior Court,
District of Columbia, filed May 11, 2000. The case has been transferred to a

Multi-District Litigation Proceeding pending in the U.S. District Court for
the Northern District of Georgia. The court has entered an order granting
plaintiff's motion to voluntarily dismiss the Company from the case without
prejudice.

The case of Aguayo v. R.J. Reynolds Tobacco Company, et al. (Superior Court,
Alameda County, California, filed May 15, 2000). The Company is a defendant in
the case. The case has been assigned to a coordinated proceeding in the
Superior Court of Alameda County, California.

The case of Campe v. R.J. Reynolds Tobacco Company, et al. (Superior Court,
Alameda County, California, filed May 15, 2000). The Company is a defendant in
the case. The case has been assigned to a coordinated proceeding in the
Superior Court of Alameda County, California.

The case of Phillips v. R.J. Reynolds Tobacco Company, et al. (Superior
Court, Alameda County, California, filed May 15, 2000). The Company is a
defendant in the case. The case has been assigned to a coordinated proceeding
in the Superior Court of Alameda County, California.

The case of Anderson v. Philip Morris Companies, Inc., et al. (U.S. District
Court, Minnesota, filed May 17, 2000). The Company is a defendant in the case.
The case has been transferred to a Multi-District Litigation Proceeding
pending in the U.S. District Court for the Northern District of Georgia.

The case of Lau v. R.J. Reynolds Tobacco Company, et al. (Superior Court,
Alameda County, California, filed May 25, 2000). The Company is a defendant in
the case. The case has been assigned to a coordinated proceeding in the
Superior Court of Alameda County, California.

The case of Unruh v. R.J. Reynolds Tobacco Company, et al. (Second Judicial
District Court, Washoe County, Nevada, filed June 9, 2000). The Company is not
named as a defendant in this matter.

The case of Baker v. R.J. Reynolds Tobacco Company, et al. (Superior Court,
Alameda County, California, filed June 15, 2000). The Company is a defendant
in the case. The case has been assigned to a coordinated proceeding in the
Superior Court of Alameda County, California.

In the case of Barnes v. Philip Morris Companies, Inc., et al. (Superior
Court, District of Columbia, filed February 10, 2000), the court granted
plaintiff's motion to voluntarily dismiss the case without prejudice.

In the case of Brownstein v. Philip Morris Companies, Inc., et al. (Circuit
Court, Broward County, Florida, filed February 8, 2000), the court has entered
a stipulation dismissing the Company from the case without prejudice.

In the case of Cusatis v. Philip Morris Companies, Inc., et al. (Circuit
Court, Milwaukee County, Wisconsin, filed February 17, 2000), the court
granted plaintiff's motion to voluntarily dismiss the case without prejudice.

In the case of Del Serrone v. Philip Morris Companies, Inc., et al. (Circuit
Court, Wayne County, Michigan, filed February 8, 2000), the court has entered
a stipulation dismissing the Company from the case without prejudice.

In the case of Faherty v. Philip Morris Companies, Inc., et al. (Superior
Court, Cumberland County, Maine, filed February 16, 2000), the court granted
plaintiff's motion to voluntarily dismiss the case without prejudice.

In the case of Gray v. Philip Morris Companies, Inc., et al. (Superior
Court, Pima County, Arizona, filed February 11, 2000), the court has entered
the parties' stipulation dismissing the Company from the case without
prejudice.

In the case of Lennon v. Philip Morris Companies, Inc., et al. (Supreme
Court, New York County, New York, filed February 9, 2000), the court has
entered the parties' stipulation dismissing the Company from the case without
prejudice.

In the case of Ludke v. Philip Morris Companies, Inc., et al. (District
Court, Hennepin County, Minnesota, filed February 14, 2000), the parties have
signed a stipulation dismissing the Company from the case without prejudice
but the court has not approved the stipulation to date.

In the case of Romero v. Philip Morris Companies, Inc., et al. (U.S.
District Court, New Mexico, filed February 9, 2000), the court has entered the
parties' stipulation dismissing the Company from the case without prejudice.

In the case of Rowlen v. Philip Morris Companies, et al. (U.S. District
Court, Southern District, filed February 16, 2000), plaintiffs have
voluntarily dismissed the case without prejudice. The Company was a defendant
in the case.

In the case of Shafer v. Philip Morris Companies, Inc., et al. (District
Court, South Central Judicial District, Morton County, North Dakota, filed
February 16, 2000), the court granted plaintiff's motion to voluntarily
dismiss the case without prejudice.

In the case of Vetter v. Philip Morris Companies, Inc., et al. (Circuit
Court, Hughes County, South Dakota, filed February 22, 2000), the court has
entered an order granting plaintiffs' motion to voluntarily dismiss the case
without prejudice.

In the case of Withers v. Philip Morris Companies, Inc., et al. (Circuit
Court, Jefferson County, Tennessee, filed February 9, 2000), the court has
entered a stipulation dismissing the Company from the case without prejudice.

Wholesalers and Other Direct Purchasers Suits -

The following suits filed by wholesalers and other direct purchasers of
cigarettes have been served:

The case of Amsterdam Tobacco Company, et al. v. Philip Morris Companies,
Inc., et al. (U.S. District Court, District of Columbia, filed March 6, 2000).
The court has entered the parties' stipulation dismissing the Company from the
case without prejudice.

The case of I. Goldschlack Company v. Philip Morris Companies, Inc., et al.
(U.S. District Court, Eastern District, Pennsylvania, filed March 9, 2000).
The case has been transferred to a Multi-District Litigation Proceeding
pending in the U.S. District Court for the Northern District of Georgia. The
court has entered the parties' stipulation dismissing the Company from the
case without prejudice.

The case of Suwanee Swifty Stores, Inc., et al. v. Philip Morris Companies,
Inc., et al. (U.S. District Court, Northern District, Georgia, filed March 14,
2000). The case has been transferred to a Multi District Litigation Proceeding
pending in the U.S. District Court for the Northern District of Georgia. The

court has entered the parties' stipulation dismissing the Company from the
case without prejudice.

The case of Holiday Markets, Inc., et al. v. Philip Morris Companies, Inc.,
et al. (U.S. District Court, Northern District, Georgia, filed March 17,
2000). The case has been transferred to a Multi District Litigation Proceeding
pending in the U.S. District Court for the Northern District of Georgia. The
court has entered the parties' stipulation dismissing the Company from the
case without prejudice.

The case of Marcus Distributors v. Philip Morris Companies, Inc., et al.
(U.S. District Court, Southern District, Illinois, filed April 25, 2000). The
court has approved the plaintiffs' motion to voluntarily dismiss the case
without prejudice. The Company was a defendant in the case.

The case of Hartz Foods v. Philip Morris Companies, Inc., et al. (U.S.
District Court, District of Columbia, filed May 10, 2000). The Company is a
defendant in the case. To our knowledge, none of the defendants have received
service of process.

In the case of Buffalo Tobacco Products, et al. v. Philip Morris Companies,
Inc., et al. (U.S. District Court, District of Columbia, filed February 8,
2000), the court entered an order granting the parties' stipulation dismissing
the Company without prejudice.

In the case Rog-Glo Ltd. v. R.J. Reynolds Tobacco Company, et al. (U.S.
District Court, Southern District, New York, filed February 8, 2000),
plaintiff voluntarily dismissed the case without prejudice.

In the case of Williamson Oil Company Inc. v. Philip Morris Companies, Inc.,
et al. (U.S. District Court, Northern District, Georgia, filed February 28,
2000), the court has entered the parties' stipulation dismissing the Company
from the case without prejudice.

Tobacco Growers Suit:

In the case of DeLoach v. Philip Morris Companies Inc., et al. (U.S.
District Court, District of Columbia, filed February 16, 2000), plaintiffs
have filed an amended complaint in which they no longer assert claims against
the Company. Lorillard remains a defendant in the action.

Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------

Set forth below is information relating to the 2000 Annual Meeting of
Shareholders of the Registrant:

The annual meeting was called to order at 11:00 A.M., May 9, 2000.
Represented at the meeting, in person or by proxy, were 90,343,630 shares,
approximately 90.7% of the issued and outstanding shares entitled to vote.

The following business was transacted:

Election of Directors
---------------------

Over 84% of the votes cast for directors were voted for the election of
the following directors. The number of votes for and withheld with respect to
each director was as follows:

Votes For Votes Withheld
--------- --------------

Charles B. Benenson 89,049,505 1,294,125
John Brademas 76,707,155 13,636,475
Dennis H. Chookaszian 89,102,718 1,240,912
Paul J. Fribourg 87,581,488 2,762,142
Bernard Myerson 89,057,052 1,286,578
Edward J. Noha 89,078,899 1,264,731
Gloria R. Scott 89,122,828 1,220,802
Andrew H. Tisch 87,809,244 2,534,386
James S. Tisch 87,787,401 2,546,229
Jonathan M. Tisch 87,797,631 2,545,999
Laurence A. Tisch 87,796,197 2,547,433
Preston R. Tisch 87,800,786 2,542,844
Fred Wilpon 89,139,438 1,204,192

Ratification of the appointment of Independent Certified Public Accountants
---------------------------------------------------------------------------

Approved - 89,970,323 shares, approximately 99.6% of the shares voting,
voted to ratify the appointment of Deloitte & Touche, LLP as independent
certified public accountants for the Company. 79,612 shares, approximately 0.1
% of the shares voting, voted against, and 293,695 shares, approximately 0.3%
of the shares voting, abstained.

Approval of the Loews Corporation 2000 Stock Option Plan
--------------------------------------------------------

Approved - 67,995,675 shares, approximately 75.2% of the shares voting,
voted to approve the adoption of the Loews Corporation 2000 Stock Option Plan.
21,923,569 shares, approximately 24.3% of the shares voting, voted against,
and 424,384 shares, approximately 0.5% of the shares voting, abstained.

Shareholder proposal relating to reporting of executive compensation
--------------------------------------------------------------------

Rejected - 76,540,146 shares, approximately 93.2% of the shares voting,
voted against this shareholder proposal. 2,986,007 shares, approximately 3.6%
of the shares voting, were cast for, and 2,595,568 shares, approximately 3.2%
of the shares voting, abstained. In addition, there were 8,221,909 shares as
to which brokers indicated that they did not have authority to vote ("broker
non-votes").

Shareholder proposal relating to tobacco advertising
----------------------------------------------------

Rejected - 69,433,210 shares, approximately 84.6% of the shares voting,
voted against this shareholder proposal. 3,401,451 shares, approximately 4.1%
of the shares voting, were cast for, and 9,287,060 shares, approximately 11.3%
of the shares voting, abstained. In addition, there were 8,221,909 broker non-
votes.

Shareholder proposal relating to Newport advertising
----------------------------------------------------

Rejected - 69,638,369 shares, approximately 84.8% of the shares voting,
voted against this shareholder proposal. 3,153,479 shares, approximately 3.8%
of the shares voting, were cast for, and 9,329,873 shares, approximately 11.4%
of the shares voting, abstained. In addition, there were 8,221,909 broker non-
votes.

Item 6. Exhibits and Reports on Form 8-K.
--------------------------------

(a) Exhibits--

(27.1) Financial Data Schedule for the six months ended June 30,
2000.

(b) Current reports on Form 8-K--There were no reports on Form 8-K filed
for the three months ended June 30, 2000.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

LOEWS CORPORATION
-------------------------
(Registrant)

Dated: August 7, 2000 By /s/ Peter W. Keegan
-------------------------
PETER W. KEEGAN
Senior Vice President and
Chief Financial Officer
(Duly authorized officer
and principal financial
officer)