[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln Life
Variable
Annuity
Fund A
Annual
Report
December 31, 1999
<PAGE>
[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln National Life Insurance Co.
January 2000 1300 S. Clinton St.
P.O. Box 1110
Fort Wayne, IN 46801-1110
Dear Participant:
I am pleased to send you the 1999 Annual Report for Lincoln Life Variable
Annuity Fund A. 1999 was another solid year as the unit value for Fund A
increased 16.7% after fund management and contract expenses, without reduction
for sales loads which may be applied to new deposits.
Please refer to the commentary in this report from Vantage Investment Advisors,
the sub-advisor for Variable Annuity Fund A. Vantage continues to seek
conservative growth, since Fund A is a vehicle for accumulating retirement
savings. In the diverse stock market performance of 1999, these goals were
clearly achieved, once again.
Fund A is managed in a style that is intended to reduce risk. This is, yet,
another good reason for using your Lincoln Life Variable Annuity to build and
protect retirement savings.
Please review the enclosed information carefully. Your sales representative will
help answer any questions you may have. Or you may call Lincoln Life Customer
Service at 1-800-4LINCOLN (454-6265).
Thank you for your continued confidence in allowing Lincoln Life to help you
meet your retirement savings needs. We will continue our efforts to see that we
do.
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]
A healthy economy with low unemployment and inflation fueled continued stock
market growth in 1999. While broad market averages seemed to indicate that
equity investors did well across the board, there was significant disparity
between approaches that emphasize current valuation and those that speculate on
future earnings growth. The S&P 500 is a weighted average of stocks that gives
more emphasis to many of the large growth companies that performed so well. As a
result, there is a perception that all large stocks went up even though only 50%
of the S&P 500 companies had positive returns for the year.
The Fund returned 16.7%, trailing the benchmark S&P 500, which gained 21.1% for
the year. Given the extent to which the value style was out of favor, the Fund's
emphasis on attractively priced companies dragged on returns. Eventually, the
market will cease to favor overpriced companies, no matter how optimistic
investors may be about prospective earnings. At that point, fundamentally sound
companies such as those the Fund selects will be properly rewarded.
Enrique Chang Christopher Harvey
Growth of $10,000 invested 1/1/90 through 12/31/99
1/1/90 12/31/99
Fund A $10,000 $43,960
S&P 500 Index $10,000 $86,077
Average annual return Ended
on investments 12/31/99
- --------------------------------------------
One Year +16.74%
- --------------------------------------------
Five Years +24.86%
- --------------------------------------------
Ten Years +15.96%
- --------------------------------------------
* Standard & Poor's 500 Index - Broad based measurement of changes in stock
market conditions based on average performance of 500 widely held common
stocks. An investor cannot invest directly in the above index/indexes, which
is/are unmanaged.
<PAGE>
Statement of Net Assets
December 31, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ------------------------------------------------------------------------------
Aerospace & Defense: 2.4%
General Dynamics 16,700 $ 880,925
Honeywell International 21,750 1,254,703
United Technologies 23,600 1,534,000
- ------------------------------------------------------------------------------
3,669,628
Automobiles & Auto Parts: 1.9%
- ------------------------------------------------------------------------------
AutoNation* 39,400 364,450
Ford Motor 25,200 1,346,625
Hertz-Class A 2,800 140,350
Navistar International * 22,200 1,051,725
- ------------------------------------------------------------------------------
2,903,150
Banking, Finance & Insurance: 13.1%
- ------------------------------------------------------------------------------
Allstate 8,600 206,400
AmSouth Bancorporation 58,500 1,129,781
Ambac Financial Group 2,400 125,250
American International Group 20,250 2,189,531
Bank One 22,095 708,427
Bank of America 20,600 1,033,863
Bear Stearns 7,035 300,746
Chase Manhattan 25,300 1,965,494
Citigroup 49,498 2,750,233
Conseco 44,600 797,225
Dime Bancorp 32,000 484,000
Federal Home Loan 4,700 221,194
Federal National Mortgage 4,000 249,750
Firstar 12,200 257,725
Fleet Boston Financial 18,239 634,945
Lehman Brothers Holdings 5,600 474,250
MBIA 10,400 549,250
Marsh & McLennan 15,000 1,435,313
Merrill Lynch & Company 4,200 350,700
Metris 20,687 738,274
Morgan (J.P.) 7,700 975,013
Paine Webber Group 34,050 1,321,566
SLM Holding 14,900 629,525
Unionbancal Corporation 3,800 149,863
Washington Mutual 8,300 215,800
- ------------------------------------------------------------------------------
19,894,118
Buildings & Materials: 0.3%
- ------------------------------------------------------------------------------
American Standard * 3,600 165,150
Centex 8,400 207,375
Vulcan Materials 1,400 55,913
- ------------------------------------------------------------------------------
428,438
Cable, Media & Publishing: 3.9%
- ------------------------------------------------------------------------------
Donnelley & Sons 16,200 401,963
Gannett 1,900 154,969
Knight-Ridder 12,600 749,700
McGraw-Hill 16,000 986,000
New York Times 33,200 1,630,950
Omnicom Group 15,500 1,550,000
R.H.Donnelley * 3,840 72,480
Valassis Communications * 2,400 101,400
Wallace Computer Services 11,900 197,838
- ------------------------------------------------------------------------------
5,845,300
Chemicals: 1.6%
- ------------------------------------------------------------------------------
Avery Dennison 2,100 153,038
Cytec Industries * 5,300 122,563
Dow Chemical 12,000 1,603,500
Lubrizol 7,600 234,650
W.R. Grace & Company * 23,400 324,675
- ------------------------------------------------------------------------------
2,438,426
Computers & Technology: 20.6%
- ------------------------------------------------------------------------------
American Power Conversion * 32,000 843,000
Apple Computer * 16,000 1,644,500
- ------------------------------------------------------------------------------
Number Market
Computers & Technology (Cont.) of Shares Value
- ------------------------------------------------------------------------------
BMC Software * 17,300 $ 1,382,378
Cisco Systems * 36,100 3,866,084
Dell Computer * 35,500 1,809,391
EMC * 15,000 1,638,750
Electronics Arts * 7,300 613,656
International Business Machines 19,400 2,095,200
Lexmark International Group A * 18,600 1,683,300
Microsoft * 67,900 7,925,203
Oracle * 27,000 3,024,844
Siebel Systems * 3,800 319,675
Sterling Software * 13,900 437,850
Sun Microsystems * 38,900 3,011,103
Symantec * 8,800 516,725
Unisys * 6,800 217,175
Whittman-Hart * 2,800 150,238
- ------------------------------------------------------------------------------
31,179,072
Consumer Products: 4.3%
- ------------------------------------------------------------------------------
Avon Products 5,400 178,200
Clorox 22,800 1,148,550
Corning 6,600 850,988
Kimberly-Clark 9,500 619,875
Minnesota Mining & Manufacturing 2,200 215,325
Procter & Gamble 15,800 1,731,088
Tyco International 46,200 1,796,025
- ------------------------------------------------------------------------------
6,540,051
Electronics & Electrical Equipment: 7.5%
- ------------------------------------------------------------------------------
FirstEnergy 32,100 728,269
General Electric 39,800 6,159,050
Intel 41,800 3,439,356
Motorola 3,000 441,750
Solectron * 3,900 370,988
Texas Instruments 2,000 193,750
- ------------------------------------------------------------------------------
11,333,163
Energy: 6.6%
- ------------------------------------------------------------------------------
Atlantic Richfield 15,700 1,358,050
Chevron 1,200 103,950
Conoco 5,800 143,550
Enron 20,000 887,500
Exxon Mobil 38,100 3,069,431
Occidental Petroleum 29,000 627,125
Royal Dutch Petroleum 32,800 1,982,350
Texaco 18,600 1,010,213
USX-Marathon Group 33,200 819,625
- ------------------------------------------------------------------------------
10,001,794
Food, Beverage & Tobacco: 4.3%
- ------------------------------------------------------------------------------
CKE Restaurants * 20,790 122,141
Coca Cola 24,000 1,398,000
ConAgra 3,300 74,456
General Mills 31,000 1,108,250
Heinz (H.J.) 22,250 885,828
Philip Morris 45,700 1,059,669
Quaker Oats 11,200 735,000
RJ Reynolds Tobacco Holdings 5,000 88,125
Suiza Foods * 27,800 1,101,560
- ------------------------------------------------------------------------------
6,573,029
Healthcare & Pharmaceuticals: 9.5%
- ------------------------------------------------------------------------------
Amgen * 47,000 2,821,469
Boston Scientific * 13,200 288,750
Bristol-Myers Squibb 29,800 1,912,788
Genzyme-General Division * 2,400 107,850
Johnson & Johnson 11,900 1,108,188
Lilly (Eli) 12,200 811,300
Lincare Holdings * 24,800 861,025
Medtronic 31,062 1,131,822
Merck & Company 32,600 2,186,238
Oxford Health Plans * 4,100 52,147
Pfizer 31,900 1,034,756
Schering-Plough 47,400 1,999,688
- ------------------------------------------------------------------------------
14,316,021
<PAGE>
Number Market
Industrial Machinery: 0.5% of Shares Value
- ------------------------------------------------------------------------------
Applied Materials * 1,900 $ 240,647
Ingersoll-Rand 9,250 509,328
- ------------------------------------------------------------------------------
749,975
Leisure, Lodging & Entertainment: 0.6%
- ------------------------------------------------------------------------------
Carnival Cruise Lines 15,200 726,750
Eastman Kodak 3,700 245,125
- ------------------------------------------------------------------------------
971,875
Metals & Mining: 0.1%
- ------------------------------------------------------------------------------
USX-U.S. Steel Group 6,700 221,100
- ------------------------------------------------------------------------------
Paper & Forrest Products: 0.9%
- ------------------------------------------------------------------------------
Georgia-Pacific 7,200 365,400
Georgia-Pacific (Timber Group) 12,500 307,813
Temple-Inland 2,000 131,875
Weyerhaeuser 6,700 481,144
- ------------------------------------------------------------------------------
1,286,232
Retail: 6.9%
- ------------------------------------------------------------------------------
American Eagle Outfitters * 9,800 441,000
Best Buy * 5,800 291,088
CDW Computer Centers * 4,700 369,391
Federated Department Stores * 1,600 80,900
Gap 30,550 1,405,300
Home Depot 21,600 1,480,950
Jostens 25,800 627,263
Lowe's Companies 18,000 1,075,500
Safeway * 21,000 746,813
Sherwin-Williams 4,500 94,500
TJX 35,900 733,706
Tupperware 2,800 47,425
Wal-Mart Stores 43,800 3,027,675
- ------------------------------------------------------------------------------
10,421,511
Telecommunications: 10.4%
- ------------------------------------------------------------------------------
A T & T 35,700 1,811,775
Bell Atlantic 43,016 2,648,173
BellSouth 55,800 2,612,138
Lucent Technologies 38,500 2,880,281
MCI Worldcom * 3,600 190,913
SBC Communications 52,763 2,572,196
Tellabs * 26,800 1,719,388
U.S.West 17,700 1,274,400
- ------------------------------------------------------------------------------
15,709,264
Textiles, Apparel & Furniture: 1.2%
- ------------------------------------------------------------------------------
Johnson Controls 21,400 1,217,125
Tommy Hilfiger * 22,800 531,525
- ------------------------------------------------------------------------------
1,748,650
Transportation & Shipping: 0.9%
- ------------------------------------------------------------------------------
Alaska Air Group * 9,900 347,738
Canadian National Railway 8,400 221,025
Canadian Pacific Ltd 5,900 127,219
Continental Airlines-Class B * 10,900 483,688
Delta Air Lines 3,800 189,288
- ------------------------------------------------------------------------------
1,368,958
Number Market
Utilities: 1.9% of Shares Value
- ------------------------------------------------------------------------------
CenturyTel 9,100 $ 431,113
General Public Utilities 33,600 1,005,900
Minnesota Power & Light 16,400 277,775
Public Service Enterprise Group 7,300 254,131
Sprint 6,400 430,800
Texas Utilities 14,700 522,769
- ------------------------------------------------------------------------------
2,922,488
Total Common Stock: 99.4%
- ------------------------------------------------------------------------------
(Cost $86,727,774) 150,522,243
Total Investments: 99.4%
- ------------------------------------------------------------------------------
(Cost $86,727,774) 150,522,243
Other Assets Over Liabilities: 0.6% 881,440
- ------------------------------------------------------------------------------
Net Assets: 100.00% 151,403,683
- ------------------------------------------------------------------------------
Net Assets are represented by:
Value of accumulation units:
6,365,652 units at $21.845 unit value $139,055,084
Annuity reserves:
153,454 units at $21.845 unit value 3,352,162
318,329 units at $28.261 unit value 8,996,437
--------
471,783 units
--------
- ------------------------------------------------------------------------------
$151,403,683
- ------------------------------------------------------------------------------
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
Statement of Operations
For the Year Ended December 31, 1999
Investment Income:
Dividends $ 1,982,869
Interest 63,124
-----------
2,045,993
Expenses:
Investment management services $ 467,451
Mortality and expense guarantees 1,380,183 1,847,634
-----------------------
Net Investment Income 198,359
Net Realized and Unrealized Gain on Investments
Net realized gain on investments 19,679,915
Increase in net unrealized appreciation
of investments 2,724,731
-----------
Net Realized and Unrealized Gain on Investments 22,404,646
-----------
Net Increase in Net Assets Resulting from Operations $22,603,005
===========
Statements of Changes in Net Assets
Year Ended Year Ended
12/31/1999 12/31/1998
----------------------------
Changes from operations:
Net investment income $ 198,359 $ 674,715
Net realized gain on investments 19,679,915 15,158,708
Increase in net unrealized
appreciation/depreciation of investments 2,724,731 9,368,090
----------------------------
Net increase in net assets
resulting from operations 22,603,005 25,201,513
Net decrease from equity transactions (17,266,505) (10,592,393)
----------------------------
Total increase in net assets 5,336,500 14,609,120
Net assets at beginning of year 146,067,183 131,458,063
----------------------------
Net assets at end of year $151,403,683 $146,067,183
============================
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
December 31, 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 year ended
December 31, 1999 amounted to $34,719,794 and $51,302,554, 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 .002611% of the current value of the Fund per day (.953% on an annual
basis). In addition, The Lincoln National Life Insurance Company retained $6,920
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 custodial fees when the Fund
maintains a prescribed amount of cash on deposit in certain non-interesting
bearing accounts. For the year ended December 31, 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.
4. Net assets
Net assets at December 31, 1999 consisted of the following:
Equity transactions ($183,069,849)
Accumulated net investment income 74,155,461
Accumulated net realized gain on investments 196,523,602
Net unrealized appreciation of investments 63,794,469
--------------
$151,403,683
==============
<PAGE>
Notes to Financial Statements - (Continued)
5. Summary of changes in equity transactions
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------------------------------------
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of year 7,176,135 ($157,189,530) 7,722,501 ($146,214,289)
Contract purchases 77,390 1,512,095 95,911 1,611,124
Terminated contracts (887,873) (17,101,691) (642,277) (12,586,365)
---------- ------------- ---------- -------------
Balance at end of year 6,365,652 ($172,779,126) 7,176,135 ($157,189,530)
========== ============= ========== =============
Annuity Reserves:
Balance at beginning of year 530,280 ($8,613,814) 600,319 ($7,078,289)
Annuity payments (58,497) (1,676,909) (84,509) (1,535,525)
Receipt of guarantee
mortality adjustments - - 14,470 -
---------- ------------- ---------- -------------
Balance at end of year 471,783 ($10,290,723) 530,280 ($8,613,814)
========== ============= ========== =============
</TABLE>
6. Supplemental information - selected per unit data and ratios
The following is selected financial data for an accumulation unit outstanding
throughout each year:
Year ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------
Investment income $ 0.283 $ 0.301 $ 0.286 $ 0.267 $ 0.251
Expenses 0.256 0.217 0.178 0.139 0.114
------- ------- ------- ------- -------
Net investment income 0.027 0.084 0.108 0.128 0.137
Net realized and unrealized
gain on investments 3.106 3.028 3.755 1.735 2.539
------- ------- ------- ------- -------
Increase in accumulation
unit value 3.133 3.112 3.863 1.863 2.676
Accumulation unit value
at beginning of year 18.712 15.600 11.737 9.874 7.198
------- ------- ------- ------- -------
Accumulation unit value
at end of year $21.845 $18.712 $15.600 $11.737 $9.874
======= ======= ======= ======= =======
Ratio of expenses to average
net assets 1.28% 1.28% 1.27% 1.28% 1.28%
Ratio of net investment income
to average net assets 0.51% 0.54% 0.77% 1.17% 1.65%
Portfolio turnover rate 21.46% 31.10% 32.56% 49.94% 48.95%
Number of accumulation units
outstanding at end of year
(expressed in thousands)
Accumulation units: 6,366 7,176 7,723 8,462 9,569
Reserve units: 472 530 600 700 831
<PAGE>
Lincoln National Variable Annuity Fund A
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Variable Annuity Fund A
We have audited the accompanying statement of net assets of Lincoln National
Variable Annuity Fund A (the "Fund") as of December 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the selected
per unit data and ratios (Note 6 to financial statements) for each of the five
years in the period then ended. These financial statements and per unit data and
ratios are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and per unit data and ratios
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and per
unit data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and per unit data and ratios. Our procedures included
confirmation of securities owned as of December 31, 1999 by correspondence with
the custodian. An audit also includes assessing the accounting principle used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of the Lincoln National Variable Annuity Fund A at December 31, 1999,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the selected per
unit data and ratios for each of the five years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 14, 2000
<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
Vice President and Chief Financial Officer, DeSoto
Memorial Hospital, Arcadia, 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.
<PAGE>
Lincoln National Life Insurance Co. (Lincoln Life)
Fort Wayne, Indiana 46802
800-4LINCOLN (800-454-6265)
www.LincolnLife.com
