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Previous: LINCOLN NATIONAL VARIABLE ANNUITY FUND A, NSAR-A, 1998-08-28 |
Next: CGM CAPITAL DEVELOPMENT FUND, NSAR-A, 1998-08-28 |
LINCOLN LIFE
Variable
Annuity
Fund A
Semiannual report
June 30, 1998
<PAGE>
LINCOLN LIFE
VARIABLE ANNUITY FUND A
August 1998
Dear contractowner:
This booklet contains the semiannual report of the Lincoln Life Variable Annuity
Fund A for the period ending June 30, 1998. Fund A performance for the first six
months of 1998 was 13.6% after the deduction of fund and contract expenses.
The stock market continued its remarkable bull rally in the first half of 1998.
The Standard & Poor's 500 Composite Stock Index (S&P 500) returned 17.7% for the
first six months of the year. However, the stock market was extremely volatile
during the second quarter. This volatility is expected to continue. The second
quarter was mixed for the equity markets. Large stocks ended on a positive note;
small stocks declined. The United States economy is currently strong. Low
interest rates and low inflation provide a solid foundation for corporate
earnings growth. However, there are signs of slowing as the U.S. trade deficit
continues to widen.
We remain optimistic about the long-term prospects in the various financial
markets, however we would caution that the types of returns received over the
last couple of years cannot be expected every year. We believe Vantage Global
Advisor's disciplined approach will continue to prevail for those of you willing
to maintain a long-term investment strategy. Commentary from Vantage Global
Advisors begins on page 3 of this booklet.
Please review the following information carefully. Your Lincoln Life sales
representative will help answer any questions you may have, or you may contact a
customer service representative at 800-4LINCOLN (800-454-6265). We appreciate
your continued confidence in Lincoln Life and look forward to helping you meet
your long-term financial goals.
Sincerely,
/s/ Jeffrey K. Dellinger
- ------------------------
Jeffrey K. Dellinger
Vice President
<PAGE>
PORTFOLIO MANAGER'S SUMMARY AND COMMENTARY
VARIABLE FUND A
Managed by Vantage Global Advisors
Fund A gained 13.6% for the first half of 1998 versus a 17.7% gain for its
index, the S&P 500. The market continued its remarkable bull rally in the first
half of 1998 with the S&P 500 returning 17.7% for the first half of the year.
Fund A has performed well versus other funds in a difficult period for actively
managed funds. The market return has been dominated by the largest 20 companies
in the S&P 500. This narrow market has made it challenging to add value as
opportunities for excess returns resided in a few very large companies. Those
companies tend to be growth oriented and selling at high valuations, and were
unattractive based on Fund A's investment criteria to select undervalued stocks
with above average earnings prospects.
The economic environment is ripe for continued market growth, despite some fears
that markets levels are too high. Interest rates, inflation, and unemployment
are low, providing support for corporate earnings growth and market
appreciation. Anxiety over the Asian economic crisis and fears that earnings may
not grow as expected will likely create significant short-term volatility. The
market will be most sensitive to earnings announcements around companies
currently trading at high valuations such as the top 20 stocks. Fund A steers
clear of overvalued stocks and is situated well to capture the opportunities
presented in the market going forward.
T. Scott Wittman
<PAGE>
STATEMENT OF NET ASSETS - UNAUDITED
June 30, 1998
<TABLE>
<CAPTION>
INVESTMENTS:
Percent of Number of Market
COMMON STOCK: Net Assets Shares Value
---------- --------- ------
<S> <C> <C> <C>
AEROSPACE & DEFENSE: 1.8%
General Dynamics 11,500 $ 534,750
United Technologies 22,800 2,109,000
------------
2,643,750
AUTOMOBILES & AUTO PARTS: 2.6%
Cooper Industries 25,100 1,378,931
Ford Motor 28,200 1,663,800
General Motors 10,500 701,531
------------
3,744,262
BANKING, FINANCE & INSURANCE: 18.6%
Allstate 4,300 393,719
AmSouth Bancorporation 39,000 1,533,187
Associates First Capital Class A 11,243 864,306
Bank of Boston 41,000 2,280,625
Bank of New York 8,800 534,050
Bankers Trust New York 14,000 1,624,875
Bear Stearns 30,915 1,758,291
Chase Manhattan 39,600 2,989,800
Conseco 36,100 1,687,675
First Chicago NBD 13,639 1,208,756
Marsh & McLennan 27,300 1,649,944
MBIA 10,400 778,700
NationsBank 20,600 1,575,900
Paine Webber Group 40,750 1,747,156
SLM Holding 41,300 2,023,700
Torchmark 30,800 1,409,100
Travelers Group 44,799 2,715,939
------------
26,775,723
BUILDINGS & MATERIALS: 1.7%
Centex 31,200 1,177,800
Lafarge 22,500 884,531
Masco 7,100 429,550
------------
2,491,881
CABLE, MEDIA & PUBLISHING: 3.6%
Dun & Bradstreet 19,200 693,600
McGraw-Hill 15,900 1,296,844
New York Times 20,400 1,616,700
Omnicom Group 30,400 1,516,200
------------
5,123,344
CHEMICALS: 2.0%
Dow Chemical 18,200 1,759,713
Lyondell Petrochemicals 36,700 1,117,056
------------
2,876,769
<PAGE>
Percent of Number of Market
Net Assets Shares Value
---------- --------- ------
COMPUTERS & TECHNOLOGY: 7.7%
American Power Conversion* 16,000 $ 478,000
Apple Computer* 47,100 1,352,653
Dell Computer 12,400 1,150,487
HBO & Company 20,800 733,850
Lexmark International Group A* 16,200 988,200
Network Associates 7,650 366,005
PeopleSoft* 33,200 1,559,363
Storage Technology* 37,200 1,613,550
Sun Microsystems* 42,400 1,843,075
Symantec* 38,400 1,000,800
------------
11,085,983
CONSUMER PRODUCTS: 6.8%
Clorox 14,600 1,392,475
General Electric 52,600 4,786,600
Maytag 12,000 592,500
Procter & Gamble 33,600 3,059,700
------------
9,831,275
ELECTRONICS & ELECTRICAL: 1.3%
FirstEnergy 32,100 987,075
Xerox 9,100 924,787
------------
1,911,862
ENERGY: 8.4%
Atlantic Richfield 17,200 1,343,750
ENSCO International 44,600 774,925
Exxon 47,500 3,387,344
Occidental Petroleum 36,000 972,000
Royal Dutch Petroleum 46,800 2,565,225
Texaco 31,600 1,886,125
USX-Marathon Group 33,200 1,139,175
------------
12,068,544
ENVIRONMENTAL SERVICES: 1.2%
Honeywell 2,400 200,550
Republic Industries* 58,300 1,457,500
------------
1,658,050
FOOD, BEVERAGE & TOBACCO: 7.2%
Campbell Soup 16,800 892,500
Coca Cola 19,800 1,692,900
ConAgra 3,300 104,569
Cracker Barrell Old Country Store 4,300 136,928
Heinz (H.J.) 31,650 1,776,356
Hershey Foods 17,000 1,173,000
Philip Morris 82,200 3,236,625
Quaker Oats 11,200 615,300
RJR Nabisco Holdings 32,500 771,875
------------
10,400,053
<PAGE>
Percent of Number of Market
Net Assets Shares Value
---------- --------- ------
HEALTHCARE & PHARMACEUTICALS: 11.4%
Amgen* 33,700 $ 2,204,191
Arterial Vascular Engineering 22,700 810,816
Bristol-Myers Squibb 33,300 3,827,419
Health Management Associates Class A* 13,100 438,031
Johnson & Johnson 23,900 1,762,625
Lincare Holdings* 24,800 1,042,375
Merck & Company 24,600 3,290,250
Rexall Sundown* 6,500 231,969
Schering-Plough 31,000 2,840,375
------------
16,448,051
INDUSTRIAL MACHINERY: 2.6%
Caterpillar 35,800 1,892,925
Deere & Co 17,200 909,450
Ingersoll-Rand 23,250 1,024,453
------------
3,826,828
LEISURE, LODGING & ENTERTAINMENT: 1.2%
Callaway Golf 35,500 698,906
King World Productions* 38,400 979,200
------------
1,678,106
METALS AND MINING: .9%
Bethlehem Steel* 17,600 218,900
USX-U S Steel Group 30,900 1,019,700
------------
1,238,600
MISCELLANEOUS: 1.3%
Cendant* 15,288 319,137
Navistar International* 25,000 721,875
Pitney Bowes 14,900 717,063
Timken 3,100 95,519
------------
1,853,594
RETAIL: 5.1%
Fingerhut 42,700 1,409,100
Gap 18,600 1,146,225
General Nutrition* 10,700 333,706
Jostens 33,000 796,125
Ross Stores 27,800 1,198,875
Safeway* 21,000 854,438
TJX 64,200 1,548,825
------------
7,287,294
TELECOMMUNICATIONS: 8.2%
Ameritech 50,900 2,284,138
AT & T 23,800 1,359,575
Bell Atlantic 51,916 2,368,668
BellSouth 44,600 2,993,775
SBC Communications 13,599 543,960
Tellabs* 20,000 1,431,875
US West 17,700 831,900
------------
11,813,891
<PAGE>
Percent of Number of Market
Net Assets Shares Value
---------- --------- ------
TEXTILES, APPAREL & FURNITURE: 1.8%
Johnson Controls 33,000 $ 1,883,063
Tommy Hilfiger 11,400 712,500
------------
2,595,563
TRANSPORTATION & SHIPPING: 1.3%
Alaska Air Group* 9,900 540,169
AMR 16,000 1,332,000
------------
1,872,169
UTILITIES: 2.2%
General Public Utilities 33,600 1,270,500
Minnesota Power and Light 8,200 325,950
Texas Utilities 38,500 1,602,563
------------
3,199,013
TOTAL COMMON STOCK:
(Cost $ 82,053,753) 98.9% 142,424,605
------------
MONEY MARKET INSTRUMENT: PAR VALUE
---------
Florida Power Corp
5.96%, 7/6/98 $1,000,000 999,174
------------
TOTAL MONEY MARKET INSTRUMENT:
(Cost $999,174) .7% 999,174
------------
TOTAL INVESTMENTS
(Cost $ 83,052,927) 99.6% 143,423,779
------------
Other Assets Over Liabilities: .4% 582,366
------------
NET ASSETS 100.0% $144,006,145
============
Net assets are represented by:
Value of accumulation units:
7,464,694 units at $17.723 unit value $132,298,640
Annuity reserves:
201,063 units at $17.723 unit value 3,563,495
359,617 units at $22.646 unit value 8,144,010
------- ------------
560,680 $144,006,145
============
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
STATEMENT OF OPERATIONS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,199,364
Interest 28,558
-----------
1,227,922
EXPENSES:
Investment management services $ 223,565
Mortality and expense guarantees 660,698 884,263
---------- -----------
NET INVESTMENT INCOME 343,659
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 8,687,103
Increase in net unrealized appreciation of investments 8,669,202
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 17,356,305
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,699,964
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS - UNAUDITED
<TABLE>
<CAPTION>
For the Six Months
Ended June 30 Year Ended
1998 1997 December 31,
Unaudited Unaudited 1997
--------- --------- ------------
<S> <C> <C> <C>
CHANGES FROM OPERATIONS:
Net investment income $ 343,659 $ 473,382 $ 945,635
Net realized gain on investments 8,687,103 6,140,015 15,561,276
Increase in net unrealized
appreciation of investments 8,669,202 12,414,922 17,892,073
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 17,699,964 19,028,319 34,398,984
Net decrease from equity transactions (5,151,882) (5,018,539) (11,845,771)
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 12,548,082 14,009,780 22,553,213
Net assets at beginning of period 131,458,063 108,904,850 108,904,850
------------ ------------ ------------
NET ASSETS AT END OF PERIOD $144,006,145 $122,914,630 $131,458,063
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1998
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%.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
2. INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) during the period ended
June 30, 1998 amounted to $19,420,902 and $24,660,613, respectively.
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
$6,082 02 from the proceeds of the sale of annuity contracts during the six
months ended June 30, 1998 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(CONTINUED)
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-interesting
bearing accounts. For the period ended June 30, 1998, the custodial fee offset
arrangement was not material to either expenses or to the calculation of average
net assets and the ratio of expenses to average net assets.
4. NET ASSETS
Net assets at June 30, 1998 consisted of the following:
Equity transactions ($158,444,460)
Accumulated net investment income 73,626,046
Accumulated net realized gain on investments 170,372,082
Net unrealized appreciation of investments 58,452,477
------------
$144,006,145
============
5. SUMMARY OF CHANGES IN EQUITY TRANSACTIONS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
Units Amount Units Amount
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of period 7,722,501 ($146,214,289) 8,462,449 ($135,982,849)
Contract purchases 45,851 777,265 152,590 2,092,826
Terminated contracts (303,658) (5,151,122) (892,538) (12,324,266)
--------- ------------ --------- ------------
Balance at end of period 7,464,694 ($150,588,146) 7,722,501 ($146,214,289)
========= ============ ========= ============
Annuity Reserves:
Balance at beginning of period 600,319 ($7,078,289) 699,953 ($5,463,958)
Annuity payments (39,639) (778,025) (88,185) (1,400,844)
Receipt of guarantee mortality adjustments 0 0 (11,449) (213,487)
--------- ------------ --------- ------------
Balance at end of period 560,680 ($7,856,314) 600,319 ($7,078,289)
========= ============ ========= ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(CONTINUED)
6. SUPPLEMENTAL INFORMATION - SELECTED PER UNIT DATA AND RATIOS
The following is selected financial data for a unit outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
(Unaudited) 1997 1996 1995 1994 1993
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment income $ .145 $ .286 $ .267 $ .251 $ .217 $ .204
Expenses .104 .178 .139 .114 .095 .090
------- ------- ------- ------ ------ ------
Net investment income .041 .108 .128 .137 .122 .114
Net realized and unrealized
gain(loss) on investments 2.082 3.755 1.735 2.539 (.040) .522
------- ------- ------- ------ ------ ------
Increase in accumulation
unit value 2.123 3.863 1.863 2.676 .082 .636
Accumulation unit value
at beginning of year 15.600 11.737 9.874 7.198 7.116 6.480
------- ------- ------- ------ ------ ------
Accumulation unit value
at end of period $17.723 $15.600 $11.737 $9.874 $7.198 $7.116
======= ======= ======= ====== ====== ======
Ratio of expenses to average
net assets 1.28%* 1.27% 1.28% 1.28% 1.27% 1.27%
Ratio of net investment income
to average net assets .50%* .77% 1.17% 1.65% 1.75% 1.72%
Portfolio turnover rate 14.13% 32.56% 49.94% 48.95% 64.09% 49.90%
Number of accumulation units
outstanding at end of period
(expressed in thousands)
Accumulation units 7,465 7,723 8,462 9,569 9,908 11,538
Reserve units 561 600 700 831 863 945
</TABLE>
* Annualized
<PAGE>
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.
Kenneth G. Stella
President, Indiana Hospital and
Health Association
Indianapolis, IN
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.
(TM) [LINCOLN NATIONAL
LIFE INSURANCE CO. LOGO]
Fort Wayne, Indiana 46801
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