<PAGE>
Lincoln Life
Variable Annuity Fund A
August 1996
Dear contractowner:
This booklet contains the latest semiannual report for the Lincoln National
Variable Annuity Fund A.
The first half of 1996 has been a bumpy ride for equity investors. Fund A
performance for the first six months of 1996 was 8.91% after the deduction
of fund and contract expenses.
Page 3 contains commentary from Vantage Global Advisors, the portfolio manager
for Fund A, regarding the Funds performance so far in 1996.
Please review this information carefully. Your Lincoln Life representative will
help answer any questions that you may have.
We would like to take this opportunity to thank you for your continued
confidence in Lincoln Life. We look forward to reporting to you again in six
months.
Sincerely,
/s/ Kelly D. Clevenger
Kelly D. Clevenger
Vice President
<PAGE>
Portfolio manager's
summary and commentary
Variable Fund A
The surge of the stock market that began in 1995 carried into the first half of
1996, overcoming the fears of many that the economy might slow, corporate
earnings might decline, and the stock market may end its bull run.
The market has been influenced in a seemingly perverse manner by economic
events. Positive economic news has often been followed by a market decline, and
signs that the economy might slow were greeted with muffled enthusiasm. The key
to this conundrum is the degree to which market watchers focus on interest rates
and Federal Reserve policy. Negative economic news might indicate a Federal
Reserve interest rate cut while good economic news could signal the Federal
Reserve might begin to tighten. Should the Federal Reserve tighten, its actions
would not affect the economy and the market until at least 1997. Therefore, the
market over the next six months will largely by influenced by current earnings
announcements and the psychological reaction to current Federal Reserve policy
moves. The Federal Reserve will likely raise interest rates should the strength
of the economy become inflationary. Such a move would illicit a negative
reaction from the market. However, over the next six months, as long as
corporate earnings remain strong, the bull market probably still has some fuel.
Small stocks outpaced larger stocks for the first time in quite some time, with
technology stocks leading the small pack up and down. Nonetheless while stocks
related to the Internet seemed to get the most press, corporate earnings, not
the World Wide Web, were the driving force behind the market's year-to-date
success. As companies reported strong earnings in the face of economic
uncertainty, the market reacted positively, latching on to those companies that
can succeed in any economic scenario. Variable Fund A captures this sentiment by
looking at companies with positive earnings and below-market valuation that have
all the ingredients for long-term financial success.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS - UNAUDITED
30-Jun-96
INVESTMENTS
Percent of Number of Market
COMMON STOCKS: Net Assets Shares Value
---------- --------- ----------
<S> <C> <C> <C>
Aerospace: 2.2%
McDonnell Douglas Corp. 29,000 $1,406,500
United Technologies Corp. 8,800 1,012,000
----------
2,418,500
Air Transportation: 1.4%
AMR Corp.* 8,000 728,000
Northwest Airlines Corp.* 20,400 805,800
----------
1,533,800
Banking and Insurance: 10.7%
Bank of Boston Corp. 28,300 1,400,850
Bank of New York Inc. 29,400 1,506,750
Chase Manhattan Corp. New 25,800 1,822,125
Cigna Corp. 13,200 1,555,950
First Chicago NBD Corp. 33,339 1,304,388
Marsh & McLennan Companies Inc. 2,000 193,000
Nations Bank Corp. 10,300 851,038
Transamerica Corp. 10,300 834,300
Travelers Inc. 44,100 2,012,063
----------
11,480,463
Broadcasting: 0.6%
King World Productions Inc.* 19,200 698,400
Building Materials: 0.8%
Dover Corp. 17,900 825,638
Building and Construction: 0.1%
Kaufman & Broad Home Corp. 7,100 102,950
Chemicals: 2.1%
Dow Chemical Co. 14,300 1,086,800
Eastman Chemical Co. 5,000 304,375
Olin Corp. 10,300 919,275
----------
2,310,450
Consumer Products and Services: 8.3%
American Brands Inc. 16,500 748,688
Black & Decker Corp. 8,000 309,000
Johnson & Johnson 30,000 1,485,000
Omnicom Group Inc. 23,400 1,088,100
Philip Morris Co. Inc. 32,200 3,348,800
Procter & Gamble Co. 21,600 1,957,500
----------
8,937,088
Drug and Hospital Supplies: 8.5%
Abbott Laboratories 25,600 1,113,600
Baxter International Inc. 35,600 1,682,100
Bristol Myers Squibb Co. 27,300 2,457,000
Lilly (Eli) & Co. 22,400 1,456,000
Merck & Co. Inc. 8,000 517,000
Schering-Plough Corp. 31,800 1,995,450
----------
9,221,150
Electrical and Electronics: 7.5%
Analog Devices Inc.* 8,000 204,000
Applied Materials Inc.* 39,700 1,210,850
General Electric Co. 39,400 3,408,100
Harris Corp. 13,800 841,800
International Rectifier Corp.* 51,800 835,275
KLA Instruments Corp.* 30,300 704,475
Komag Inc.* 33,600 886,200
----------
8,090,700
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Number of Market
Net Assets Shares Value
---------- --------- ----------
<S> <C> <C> <C>
Entertainment: 2.4%
Callaway Golf Co. 36,800 $1,223,600
Mirage Resorts Inc. * 24,400 1,317,600
----------
2,541,200
Finance: 1.0%
Student Loan Marketing Association 14,000 1,036,000
Food and Beverage: 6.6%
Campbell Soup Co. 8,400 592,200
Coca Cola Co. 41,600 2,033,200
ConAgra Inc. 14,000 635,250
CPC International Inc. 7,400 532,800
Heinz H.J. Co. 18,450 560,419
IBP Inc. 32,400 895,050
RJR Nabisco Holding Corp. 16,600 514,600
Safeway Inc. * 38,100 1,257,300
Universal Foods Corp. 1,600 59,000
----------
7,079,819
Machinery and Engineering: 0.7%
Novellus Systems Inc. 22,100 795,600
Metals and Mining: 1.6%
ASARCO Inc. 16,600 458,575
Cleveland-Cliffs Inc. 900 35,213
Phelps Dodge Corp. 18,900 1,178,888
----------
1,672,675
Motor Vehicles and Equipment: 3.3%
Chrysler Corp. 29,000 1,798,000
Dana Corp. 26,300 815,300
Ford Motor Co. 8,500 275,188
Goodrich BF Co. 17,800 665,275
----------
3,553,763
Office and Business Equipment and Services: 7.4%
Adaptec Inc. * 5,100 241,613
Cabletron Systems Inc. * 12,900 885,263
Cadence Design Systems Inc. * 30,675 1,035,281
Cisco Systems Inc. * 19,400 1,098,525
Computer Associates International Inc. 5,800 413,250
Digital Equipment Corp. * 6,900 310,500
Honeywell Inc. 15,500 844,750
Pitney Bowes Inc. 17,300 826,075
Reynolds & Reynolds Co. 4,200 223,650
Sun Microsystems Inc. * 26,500 1,560,188
U.S. Robotics Corp. * 6,100 521,550
----------
7,960,644
Paper: 2.2%
Avery Dennison Corp. 22,400 1,229,200
Bowater Inc. 14,300 538,038
Stone Container Corp. 23,400 321,750
Union Camp Corp. 4,700 229,125
----------
2,318,113
Petroleum and Petroleum Related: 10.6%
Amoco Corp. 10,100 730,988
Atlantic Richfield Co. 8,600 1,019,100
Exxon Corp. 31,900 2,771,313
Halliburton Co. 16,200 899,100
Mobil Corp. 17,400 1,950,975
Occidental Petroleum Corp. 47,000 1,163,250
Royal Dutch Petroleum Co. 13,600 2,091,000
Seagull Energy Corp. * 23,900 597,500
Williams Companies Inc. 5,100 252,450
----------
11,475,675
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Number of Market
Net Assets Shares Value
---------- --------- ------------
<S> <C> <C> <C>
Printing and Publishing: 0.5%
New York Times Co. 15,200 $ 495,900
Public Utilities: 3.3%
Consolidated Edison Co. 42,700 1,248,975
Edison International 19,100 336,638
General Public Utilities Corp. 14,700 518,175
Ohio Edison Co. 32,100 702,188
Texas Utilities Co. 11,400 487,350
Unicom Corp. 10,600 295,475
------------
3,588,800
Retail: 4.6%
Eckerd Corp. * 7,200 162,900
Jostens Inc. 43,000 849,250
Ross Stores Inc. 5,300 184,175
Sears, Roebuck & Co. 12,600 612,675
Staples Inc. * 49,575 966,713
The Gap Inc. 34,600 1,111,525
Waban Inc. * 44,800 1,069,600
------------
4,956,838
Securities Dealers: 1.7%
Bear, Stearns & Co. Inc. 44,205 1,044,343
Morgan Stanley Group Inc. 6,300 309,488
Paine Webber Group Inc. 19,900 472,625
------------
1,826,456
Shoes: 0.8%
Nike Inc. 8,200 842,550
Soaps, Cleaner and Cosmetics: 0.6%
Clorox Co. 7,300 646,963
Telecommunications: 8.4%
American Telephone & Telegraph Co. 28,700 1,779,400
Ameritech Corp. 33,500 1,989,063
Bellsouth Corp. 50,600 2,144,175
Nynex Corp. 33,800 1,605,500
Pacific Telesis Group 46,600 1,572,750
------------
9,090,888
Transportation: 0.8%
PHH Corp. 14,800 843,600
---------- ------------
TOTAL COMMON STOCKS
(Cost $76,274,738) 98.7% 106,344,619
Percent of Par Market
Net Assets Amount Value
---------- --------- ------------
COMMERCIAL PAPER:
(Cost $998,960)
Merrill Lynch
6.35%, 7/1/96 0.9% $998,960 $998,960
---------- ------------
TOTAL INVESTMENTS
(Cost $77,273,698) 99.6% 107,343,579
Excess of other assets over
liabilities 0.4% 433,133
---------- ------------
NET ASSETS 100.0% $107,776,712
========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Net assets are represented by:
Value of accumulation units:
9,118,753 units at $10.754 unit value $ 98,064,005
Annuity reserves:
299,844 units at $10.754 unit value 3,224,550
480,021 units at $13.516 unit value 6,488,157
------- ------------
779,865 9,712,707
------- ------------
$107,776,712
============
</TABLE>
* Non-income producing
See accompanying notes to financial statements.
<PAGE>
Statement of Operations - Unaudited
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Dividends $1,224,809
Interest 32,596
----------
1,257,405
Expenses:
Investment management services $ 171,018
Mortality and expense guarantees 503,991 675,009
--------- ----------
NET INVESTMENT INCOME 582,396
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 4,717,240
Increase in net unrealized appreciation of investments 3,792,148
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 8,509,388
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,091,784
==========
</TABLE>
Statements of Changes in Net Assets - Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
1996 1995 December 31
(Unaudited) (Unaudited) 1995
------------- ------------ -------------
<S> <C> <C> <C>
Changes from operations:
Net investment income $ 582,396 $ 729,878 $ 1,473,052
Net realized gain on investments 4,717,240 3,338,572 9,013,278
Increase (decrease) in net unrealized appreciation
of investments 3,792,148 11,012,670 17,280,315
------------- ------------ -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 9,091,784 15,081,120 27,766,645
Net decrease from equity transactions (5,269,722) (6,168,005) (2,346,263)
------------- ------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,822,062 8,913,115 25,420,382
Net assets at beginning of year 103,954,650 78,534,268 78,534,268
------------- ------------ -------------
NET ASSETS AT END OF YEAR $107,776,712 $87,447,383 $103,954,650
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund: The Lincoln National Variable Annuity Fund A (Fund) is a segregated
investment account of The Lincoln National Life Insurance Company. The Fund is
registered under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. The Fund's investment objective is to
maximize long-term growth of capital. The Fund invests primarily in equity
securities diversified over industries and companies.
Investments: Security transactions are accounted for on the date the
securities are purchased or sold. Stocks are valued at the closing sales prices
for those traded on a national stock exchange and the mean between the quoted
bid and asked prices for those traded over-the-counter. Short-term investments
are stated at cost which approximates market. The cost of investments sold is
determined using the specific identification method.
Federal Income Taxes: Operations of the Fund form a part of, and are taxed
with, operations of The Lincoln National Life Insurance Company, which is taxed
as a "life insurance company" under the Internal Revenue Code. Under current
law, no federal income taxes are payable with respect to the investment income
and gains on investments of the Fund. Accordingly, no provision for any such
liability has been made.
Income: Dividends are recorded as earned on the ex-dividend date and interest
is accrued as earned.
Annuity Reserves: Reserves on contracts not involving life contingencies are
calculated using assumed investment rates of 3.5%, 4.5%, 5%, or 6%. Reserves on
contracts involving life contingencies are calculated using the Progressive
Annuity Table with the age adjusted for persons born before 1900 or after 1919
and assumed investment rates of 3.5%, 4.5%, 5%, or 6%.
2. INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) during the six months
ended June 30, 1996 amounted to $29,846,597 and $27,837,158 respectively. At
June 30, 1996 the excess of other assets over total liabilities includes an
amount receivable from brokers for securities sold of $520,012.
3. EXPENSES AND SALES CHARGES
Amounts are paid to The Lincoln National Life Insurance Company for investment
management services at the rate of .000885% of the current value of the Fund per
day (.323% on an annual basis) and for mortality and expense guarantees at the
rate of .002745% of the current value of the Fund per day (1.002% on an annual
basis). In addition, The Lincoln National Life Insurance Company retained from
the proceeds of the sale of annuity contracts $6,069 during the six months ended
June 30, 1996 for sales and administrative charges. Accordingly, The Lincoln
National Life Insurance Company is responsible for all sales, general, and
administrative expenses applicable to the Fund.
The custodian bank of the Fund has agreed to waive its custodial fees when the
Fund maintains a prescribed amount of cash on deposit in certain non-interest
bearing accounts. For the six months ended June 30, 1996, the custodial fee
offset arrangement was not material to either total expenses or to the
calculation of average net assets and the ratio of expenses to average net
assets.
4. NET ASSETS
<TABLE>
<CAPTION>
Net assets at June 30, 1996 consisted of the following:
<S> <C>
Equity transactions ($132,990,066)
Accumulated net investment income 71,670,629
Accumulated net realized gain on investments 140,944,672
Net unrealized appreciation of investments 28,151,477
------------
$107,776,712
============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (CONTINUED)
5. MERGER
Effective October 4, 1995, an Agreement and Plan of Reorganization was executed
to merge the Lincoln National Variable Annuity Fund B (Fund B), a segregated
investment account of The Lincoln National Life Insurance Company, into the
Fund. The merger received approval of regulators and contract owners of the Fund
and Fund B at a special meeting on August 1, 1995. The merger was accomplished
by a tax-free exchange of 763,488 accumulation units and 82,501 annuity reserve
units of the Fund for all of the 897,517 accumulation units and 96,984 annuity
reserve units of Fund B outstanding on the date of exchange. Fund B's net assets
at the merger date of $7,931,344, including unrealized appreciation on
investments of $1,918,404, were combined with those of the Fund, whose net
assets prior to the merger were $92,566,438. The statements of operations and
changes in net assets have not been restated for Fund B's operations prior to
the merger date. For the period January 1, 1995 to October 4, 1995, Fund B had
net investment income of $88,334 and net realized and unrealized gains of
$1,864,313.
6. SUMMARY OF CHANGES IN EQUITY TRANSACTIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995
(Unaudited)
------------------------------ -----------------------------
Units Amount Units Amount
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of year 9,568,929 ($123,869,196) 9,907,664 ($121,421,039)
Contract purchases 96,416 997,620 84,705 701,434
Issued in connection with
merger of Fund B 763,488 7,157,877
Terminated contracts (546,592) (5,376,754) (1,186,928) (10,307,468)
---------- ------------- ---------- -------------
BALANCE AT END OF YEAR 9,118,753 ($128,248,330) 9,568,929 ($123,869,196)
========== ============= ========== =============
Annuity Reserves:
Balance at beginning of year 831,033 ($3,851,148) 862,789 ($3,953,042)
Annuity payments (27,334) (605,690) (144,037) (1,077,169)
Issued in connection with
merger of Fund B 82,501 773,467
Receipt of guarantee mortality
adjustments (23,834) (284,898) 29,780 405,596
---------- ------------- ---------- -------------
BALANCE AT END OF YEAR 779,865 ($4,741,736) 831,033 ($3,851,148)
========== ============= ========== =============
</TABLE>
<PAGE>
Notes to Financial Statements - Unaudited (Continued)
7. SUPPLEMENTAL INFORMATION - SELECTED PER UNIT DATA AND RATIOS
The following is selected financial data for an accumulation unit outstanding
throughout each year.
<TABLE>
<CAPTION>
Six
Months Ended
June 30, 1996 Year Ended December 31,
(Unaudited) 1995 1994 1993 1992
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Investment income $ 0.123 $0.251 $0.217 $0.204 $0.206
Expenses 0.068 0.114 0.095 0.090 0.083
------------- ------ ------ ------ ------
Net investment income 0.055 0.137 0.122 0.114 0.123
Net realized and unrealized
gain(loss) on investments 0.825 2.539 (0.040) 0.522 (0.099)
------------- ------ ------ ------ ------
Increase in accumulation
unit value 0.880 2.676 0.082 0.636 0.024
Accumulation unit value at
beginning of year 9.874 7.198 7.116 6.480 6.456
------------- ------ ------ ------ ------
ACCUMULATION UNIT VALUE AT
END OF YEAR $10.754 $9.874 $7.198 $7.116 $6.480
============= ====== ====== ====== ======
Ratio of expenses to average
net assets 0.63%* 1.28% 1.27% 1.27% 1.27%
Ratio of net investment income
to average net assets 0.54%* 1.65% 1.75% 1.72% 2.01%
Portfolio turnover rate 26.51%* 48.95% 64.09% 49.90% 70.97%
Number of accumulation units
outstanding at end of
year (expressed in thousands) 9,119 9,569 9,908 11,538 12,742
Average Commission Rate 0.047** - - - -
</TABLE>
* Ratios and portfolio turnover rate are NOT on an annualized basis.
** The average commission rate is required to be disclosed for fiscal years
beginning on or after September 1, 1995. The rate is the average commission paid
per share for security trades on which a commission is charged. This amount may
vary from period to period and from fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
<PAGE>
Fund A Annual Report
BOARD OF MANAGERS
Kelly D. Clevenger
Chairman, Board of Managers
Vice President, Lincoln National Life Insurance
Co., Fort Wayne, Ind.
Nancy L. Frisby, CPA, Manager
Regional Vice President/Chief Financial Officer,
St. Joseph Medical Center,
Fort Wayne, Ind.
John B. Borsch, Jr., Manager
Associate Vice President, Investments,
Northwestern University, Evanston, Ill.
Stanley R. Nelson, Manager
Executive in Residence,
Program in Health Services Administration,
University of Minnesota, Minneapolis, Minn.
Barbara S. Kowalczyk, Manager
Senior Vice President, Lincoln National Corp.,
Fort Wayne, Ind. and Lincoln National China
(China, Inc.)
SAFEKEEPER OF SECURITIES
Bankers Trust Company
New York, N.Y.
INDEPENDENT AUDITORS
Ernst & Young LLP
Fort Wayne, Ind.
INVESTMENT MANAGER
Lincoln National Life Insurance Co.
Fort Wayne, Ind.
[LINCOLN LOGO]
LINCOLN NATIONAL
LIFE INSURANCE CO.
- ------------------
A part of LINCOLN NATIONAL CORPORATION
Fort Wayne, Indiana 46801
Semiannual report
June 30, 1996
Form 10688A-SA 8/96
