[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln Life Variable Annuity
Fund A
Semi-Annual
Report
June 30, 1999
<PAGE>
[LOGO OF LINCOLN FINANCIAL GROUP]
July 1999
Dear Participant:
I am pleased to send you the semi-annual report for Lincoln Life Variable
Annuity Fund A for the period ending June 30, 1999.
Included in this report is a letter from Vantage Investment Advisors, the sub
advisor for Fund A. This fund has been very consistent in adhering to its
conservative growth investment management style. Over the long term, such
consistency has clearly worked to the benefit of contract owners.
We continue to believe that a conservative growth investment management style,
focused on reducing risk, is appropriate for a retirement savings plan such as
Fund A.
Please review the enclosed information carefully. Your sales representative can
answer any questions you may have, or you may call Lincoln Life Customer
Service, toll free, 1-800-4-Lincoln (454-6265). We appreciate your continued
confidence and will continue our efforts to help you reach your financial goals.
Sincerely yours,
/s/ Kelly D. Clevenger
Kelly D. Clevenger
Vice President
<PAGE>
Portfolio manager's
summary and comparison
Managed by [LOGO OF VANTAGE INVESTMENT ADVISORS]
The Fund had a return of 10.3% for the first six months of 1999 while its
benchmark, the S&P 500 Index, returned 12.2% for the same period.
During the first quarter of 1999, investors heralded the day when the Dow Jones
Industrial Average broke through the 10,000 mark. That Index consists of only 30
large companies and the S&P 500's return is driven by the largest 20 companies.
The equity market as a whole did not experience the same success. The market
broadened in the second quarter, with attractively priced companies rallying
across the board.
Not surprisingly, the Fund, which provides broad-based equity market exposure to
attractively priced companies struggled in the first quarter, but rebounded as
the market broadened in the second quarter. The economic environment is ripe for
continued strong equity market returns and Fund A is well positioned to capture
opportunities as they arise.
Enrique Chang Christopher Harvey
<PAGE>
Statement of Net Assets - Unaudited
For the Six Months Ended June 30, 1999
Investments:
Percent of Number Market
Common Stock: Net Assets of Shares Value
- -----------------------------------------------------------------------
Aerospace & Defense: 1.9%
Gulfstream Aerospace * 16,700 $1,128,294
United Technologies 1,691,825
-------------
2,820,119
Automobiles & Auto Parts: 2.4%
Autonation * 39,400 701,812
Ford Motor 25,200 1,422,225
Hertz Class A 2,800 173,600
Navistar International * 25,000 1,250,000
-------------
3,547,637
Banking, Finance & Insurance: 15.2%
Allstate 8,600 308,525
AmSouth Bancorporation 58,500 1,356,469
American International Group 16,200 1,896,412
BankBoston 15,400 787,325
Bank of America 20,600 1,510,237
Bank One 22,095 1,316,044
Chase Manhattan 27,000 2,338,875
Citigroup 57,599 2,735,929
Conseco 44,600 1,357,512
Dime Bancorp 32,000 644,000
Federal Home Loan Bank 4,700 272,600
Federal National Mortgage Association 4,000 273,500
Firstar 12,200 341,600
Marsh & McLennan 21,600 1,630,800
MBIA 10,400 673,400
Merrill Lynch & Company 4,200 335,738
Metris 27,187 1,107,877
Morgan (J.P.) 7,700 1,081,850
Paine Webber Group 34,050 1,591,838
SLM Holding 19,600 897,925
Washington Mutual 8,300 293,613
-------------
22,752,069
Buildings & Materials: 0.8%
Centex 16,200 608,512
Lafarge 12,500 442,969
Vulcan Materials 3,100 149,575
-------------
1,201,056
<PAGE>
Percent of Number Market
Net Assets of Shares Value
- -----------------------------------------------------------------------
Cable, Media & Publishing: 3.8%
Centurytel 9,100 $ 361,725
Donnelley & Sons 16,200 600,413
Knight-Ridder 8,100 444,994
McGraw-Hill 18,700 1,008,631
New York Times 40,800 1,501,950
Omnicom Group 21,100 1,688,000
R.H.Donnelley 3,840 75,120
Valassis Communications * 2,400 87,900
-------------
5,768,733
Chemicals: 1.8%
Avery Dennison 2,100 126,787
Cytec Industries * 5,300 168,938
Dow Chemical 14,800 1,877,750
Lubrizol 5,100 143,119
W.R. Grace & Company * 23,400 429,975
-------------
2,746,569
Computers & Technology: 14.2%
American Power Conversion * 32,000 643,000
Apple Computer * 32,000 1,484,000
BMC Software * 17,300 933,659
Cisco Systems * 26,600 1,713,206
Dell Computer * 35,500 1,312,391
Electronics Arts * 7,300 395,113
International Business Machines 19,400 2,507,450
Keane * 7,900 178,738
Lexmark International Group Class A * 21,200 1,400,525
Microsoft * 67,900 6,119,487
Oracle * 27,000 1,002,375
Sterling Software * 13,900 370,956
Sun Microsystems * 29,500 2,032,734
Symantec * 8,800 224,675
Xerox 18,200 1,074,938
-------------
21,393,247
Consumer Products: 2.3%
Avon Products 5,400 299,700
Clorox 12,000 1,281,750
Procter & Gamble 21,700 1,936,725
-------------
3,518,175
Electronics & Electrical Equipment: 6.7%
FirstEnergy 32,100 995,100
General Electric 45,300 5,118,900
Honeywell 11,600 1,344,150
Intel 44,300 2,634,466
-------------
10,092,616
Energy: 7.3%
Atlantic Richfield 17,200 1,437,275
Enron 10,000 817,500
<PAGE>
Percent of Number Market
Energy (Cont.) Net Assets of Shares Value
- -----------------------------------------------------------------------
Exxon 38,100 $ 2,938,462
Occidental Petroleum 36,000 760,500
Royal Dutch Petroleum 32,800 1,976,200
Texaco 31,600 1,975,000
USX-Marathon Group 33,200 1,081,075
-------------
10,986,012
Food, Beverage & Tobacco: 5.9%
CKE Restaurants 20,790 337,837
Coca Cola 24,000 1,500,000
ConAgra 3,300 87,863
General Mills 16,200 1,302,075
Heinz (H.J.) 26,650 1,335,831
Philip Morris 58,800 2,363,025
Quaker Oats 11,200 743,400
Suiza Foods * 27,800 1,164,125
-------------
8,834,156
Healthcare & Pharmaceuticals: 11.6%
Amgen * 34,100 2,074,772
Boston Scientific * 13,200 579,975
Bristol-Myers Squibb 31,800 2,239,912
Johnson & Johnson 11,900 1,166,200
Lilly (Eli) 12,200 873,825
Lincare Holdings * 24,800 620,775
Medtronic 15,531 1,209,477
Merck & Company 32,600 2,412,400
Oxford Health Plans * 4,100 63,678
Pfizer 9,500 1,042,625
Schering-Plough 55,500 2,941,500
Tyco International 23,100 2,188,725
-------------
17,413,864
Industrial Machinery: 0.8%
Ingersoll-Rand 18,750 1,211,719
-------------
1,211,719
Leisure, Lodging & Entertainment: 0.7%
Carnival Cruise Lines 15,200 737,200
Eastman Kodak 3,700 250,675
-------------
987,875
Metals & Mining: 0.9%
AK Steel Holding 33,000 742,500
USX-U.S. Steel Group 20,200 545,400
-------------
1,287,900
Paper & Forrest Products: 0.2%
Weyerhaeuser 4,200 288,750
-------------
288,750
Retail: 6.6%
Best Buy * 5,800 391,500
Gap 34,350 1,730,381
<PAGE>
Percent of Number Market
Retail (Cont.) Net Assets of Shares Value
- -----------------------------------------------------------------------
Home Depot 14,400 $ 927,900
Jostens 33,000 695,062
Kroger * 11,600 324,075
Lowe's Companies 18,000 1,020,375
Safeway * 21,000 1,039,500
Sherwin-Williams 4,500 124,875
TJX 53,500 1,782,219
Wal-Mart Stores 40,000 1,930,000
-------------
9,965,887
Telecommunications: 11.6%
Ameritech 32,800 2,410,800
A T & T 35,700 1,992,506
Bell Atlantic 46,216 3,021,371
BellSouth 63,200 2,962,500
Lucent Technologies 36,800 2,481,700
MCI Worldcom * 2,400 206,475
SBC Communications 13,599 788,742
Sprint 6,400 338,000
Tellabs * 32,000 2,163,000
U.S.West 17,700 1,039,875
-------------
17,404,969
Textiles, Apparel & Furniture: 1.5%
Johnson Controls 21,400 1,483,287
Tommy Hilfiger * 11,400 837,188
-------------
2,320,475
Transportation & Shipping: 1.0%
Alaska Air Group * 9,900 413,325
AMR * 3,200 218,400
Canadian National Railway 4,200 281,400
Canadian Pacific 5,900 140,494
Continental Airlines-Class B * 10,900 411,475
-------------
1,465,094
Utilities: 1.8%
General Public Utilities 33,600 1,417,500
Minnesota Power and Light 16,400 325,950
Public Service Enterprise Group 7,300 298,388
Texas Utilities 14,700 606,375
-------------
2,648,213
------
Total Common Stock
(Cost $86,105,639) 99.0% 148,655,135
------ -------------
<PAGE>
Par
Amount
- -----------------------------------------------------------------------
Money Market Instruments:
Kimberly Clark $1,400,000 1,400,000
-------------
Total Money Market Instruments:
(Cost $1,400,000) 0.9% 1,400,000
Total Investments
(Cost $87,505,639) 99.9% 150,055,135
Other Assets Over Liabilities: 0.1% 181,655
------ -------------
Net Assets 100.0% $150,236,790
====== =============
Net assets are represented by:
Value of accumulation units:
6,688,458 units at $20.646 unit value $138,089,278
Annuity reserves:
163,790 units at $20.646 unit value 3,381,549
329,557 units at $26.599 unit value 8,765,963
-------------
493,347
$150,236,790
=============
*Non-income producing security
See accompanying notes to financial statements.
<PAGE>
Statement of Operations (Unaudited)
For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Dividends $ 1,010,313
Interest 33,513
-----------
1,043,826
Expenses:
Investment management services $ 232,005
Mortality and expense guarantees 685,040 917,045
----------- -----------
Net Investment Income 126,781
Net Realized and Unrealized Gain on Investments
Net realized gain on investments 12,744,432
Increase in net unrealized appreciation of investments 1,479,758
-----------
Net Realized and Unrealized Gain on Investments 14,224,190
-----------
Net Increase in Net Assets Resulting from Operations $14,350,971
===========
</TABLE>
Statements of Changes in Net Assets
Six Months
Ended
6/30/99 Year Ended
(unaudited) 12/31/98
------------ ------------
Changes from operations:
Net investment income $ 126,781 674,715
Net realized gain on investments 12,744,432 15,158,708
Increase in net unrealized
appreciation of investments 1,479,758 9,368,090
------------ ------------
Net increase in net assets
resulting from operations 14,350,971 25,201,513
Net decrease from equity transactions (10,181,364) (10,592,393)
------------ ------------
Total increase in net assets 4,169,607 14,609,120
Net assets at beginning of period 146,067,183 131,458,063
------------ ------------
Net assets at end of period $150,236,790 $146,067,183
============ ============
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements - Unaudited
June 30, 1999
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 six months
ended June 30, 1999 amounted to $21,431,788 and $31,701,196, 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 $3,967
from the proceeds of the sale of annuity contracts during the period 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-interesting
bearing accounts. For the six months ended June 30, 1999, 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.
<PAGE>
Notes to Financial Statements - Unaudited (Continued)
4. Net assets
Net assets at June 30, 1999 consisted of the following:
Equity transactions ($175,984,708)
Accumulated net investment income 74,083,883
Accumulated net realized gain on investments 189,588,119
Net unrealized appreciation of investments 62,549,496
--------------
$150,236,790
==============
5. Summary of changes in equity transactions
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
(unaudited)
----------------------------- ----------------------------
Units Amount Units Amount
----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of period 7,176,135 ($157,189,530) 7,722,501 ($146,214,289)
Contract purchases 49,368 939,399 95,911 1,611,124
Terminated contracts (537,045) (10,287,047) (642,277) (12,586,365)
---------- -------------- --------- -------------
Balance at end of period 6,688,458 ($166,537,178) 7,176,135 ($157,189,530)
========== ============== ========= =============
Annuity Reserves:
Balance at beginning of period 530,280 ($8,613,814) 600,319 ($7,078,289)
Annuity payments (36,933) (833,716) (84,509) (1,535,525)
Receipt of guarantee
mortality adjustments - - 14,470 -
---------- -------------- --------- -------------
Balance at end of period 493,347 ($9,447,530) 530,280 ($8,613,814)
========== ============== ========= =============
</TABLE>
<PAGE>
Notes to Financial Statements - Unaudited (Continued)
6. Supplemental information - selected per unit data and ratios
The following is selected financial data for an accumulation unit outstanding
throughout each period:
<TABLE>
<CAPTION>
Six months ended
June 30, 1999 Year ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income $0.140 $ 0.301 $ 0.286 $ 0.267 $0.251 $0.217
Expenses 0.123 0.217 0.178 0.139 0.114 0.095
-------- -------- -------- -------- ------- -------
Net investment income 0.017 0.084 0.108 0.128 0.137 0.122
Net realized and unrealized
gain (loss) on investments 1.917 3.028 3.755 1.735 2.539 (0.040)
-------- -------- -------- -------- ------- -------
Increase in accumulation
unit value 1.934 3.112 3.863 1.863 2.676 0.082
Accumulation unit value
at beginning of year 18.712 15.600 11.737 9.874 7.198 7.116
-------- -------- -------- -------- ------- -------
Accumulation unit value
at end of year $20.646 $18.712 $15.600 $11.737 $9.874 $7.198
======== ======== ======== ======== ======= =======
Ratio of expenses to average
net assets 1.28%(1) 1.28% 1.27% 1.28% 1.28% 1.27%
Ratio of net investment income
to average net assets 0.18% 0.54% 0.77% 1.17% 1.65% 1.75%
Portfolio turnover rate 14.94% 31.10% 32.56% 49.94% 48.95% 64.09%
Number of accumulation units
outstanding at end of year
(expressed in thousands)
Accumulation units: 6,688 7,176 7,723 8,462 9,569 9,908
Reserve units: 493 530 600 700 831 863
</TABLE>
(1) 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
Chief Financial Officer, University of Miami School of
Medicine, Bascom Palmer Eye Institute, Miami, Fla.
John B. Borsch, Jr., Manager
Associate Vice President, Investments, Northwestern
University, Evanston, Ill.
Kenneth G. Stella, Manager
President, Indiana Hospital and Health Association,
Indianapolis, Ind.
Barbara S. Kowalczyk, Manager
Senior Vice President, Lincoln National Corp.,
Fort Wayne, Ind.
Safekeeper of Securities
Chase Manhattan Bank, NA for Chase MetroTech
Center, Brooklyn, NY
Independent Auditors
Ernst & Young LLP
Fort Wayne, Ind.
Investment manager
Lincoln National Life Insurance Co.
Fort Wayne, Ind.
