[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln
National
Variable
Annuity
Fund A
Semi-Annual
Report
June 30, 2000
<PAGE>
[LOGO OF LINCOLN FINANCIAL GROUP]
July 2000
Dear Participant:
I am pleased to send you the semi-annual report for the Lincoln National
Variable Annuity Fund A for the period ending June 30, 2000.
The first half of 2000 was a tale of two quarters. The first quarter saw a
continuation of the generally strong market performance of the last several
years. Equity funds, generally fared much better than fixed-income funds and
growth-oriented investing continued to outpace value-oriented investing.
The second quarter saw a reversal of that trend. Equity funds generally had
negative returns. In addition, growth-oriented investing generally was hurt more
than value-oriented investing.
For the first six months of 2000, Variable Annuity Fund A returned -0.6%
compared to its benchmark, the S & P 500 Index*, which returned -0.5%. SEC
required annualized performance figures for the period-ending June 30, 2000 were
1.7% for 1 year, 19.4% for 5 years and 15.0% for 10 years.
Since Fund A is a vehicle for accumulating retirement savings, the sub-advisor,
Vantage Investment Advisors, continues to manage the fund to seek conservative
growth. We believe this conservative growth investment style, focused on
reducing risk, is appropriate for retirement savings plans like Fund A.
Please review the semi annual report carefully, including the commentary, to
learn more about the holdings and performance of the fund. Your sales
representative will be happy to answer your questions or you may call Lincoln
Life customer service at 1-800-4LINCOLN (800-454-6265) or visit us at our web
site, www.LincolnLife.com.
Thank you for allowing Lincoln Life to be a part of your retirement planning. We
appreciate your continued confidence in us to help meet your financial goals.
Sincerely yours,
Kelly D. Clevenger
Vice President
*An index is unmanaged and one cannot invest directly in an index.
<PAGE>
Portfolio manager's
summary and comparison
Managed by [LOGO OF VANTAGE INVESTMENT ADVISORS]
For the period ended June 30, 2000, the Fund's return of -0.6% was in line with
that of its benchmark, the S&P 500 Index, return of -0.5%.
Stocks had mixed results in the first half of 2000, with various market segments
delivering dramatically different returns in both positive and negative
territory. The year began with a sigh of relief after Y2K passed without
incident, followed by a sell-off with investors reaping the bounty of the
previous year's gains. By the end of February, technology stocks and growth
stocks were delivering robust, positive returns and old economy stocks and value
stocks were losing money. The biggest driver for broad market returns this year
was the future direction of interest rates. Any indication of higher rates led
to market declines while economic releases that argued for stable rate policy
were reasons for celebration. The Fed raised rates three times in the first six
months of the year in response to the perceived threat of inflation, beginning
in February.
Growth stocks outperformed value stocks in the first six months only because
they got off to a large head start in January and February. As the forecasted
effects of the Fed's tightening policy began to impact future earnings
projections for growth companies, these companies corrected and value stocks
held up on a relative basis. This helped Variable Fund A which places a strong
emphasis on companies with attractive current valuations.
Enrique Chang Christopher Harvey
<PAGE>
Statement of Net Assets - Unaudited
June 30, 2000
Investments:
Number Market
Common Stock: of Shares Value
-------------------------------------------------------------------
Aerospace & Defense: 0.7%
-------------------------------------------------------------------
General Dynamics 15,100 $ 788,975
Northrop 2,500 165,625
-------------------------------------------------------------------
954,600
Automobiles & Auto Parts: 1.6%
-------------------------------------------------------------------
AutoNation * 39,400 278,262
Ford Motor 25,200 1,083,600
General Motors 4,400 255,475
Hertz-Class A 4,200 117,862
Navistar International * 14,100 437,981
Visteon * 3,300 40,007
-------------------------------------------------------------------
2,213,187
Banking, Finance & Insurance: 12.8%
-------------------------------------------------------------------
Allstate 8,600 191,350
Ambac Financial Group 3,200 175,400
American International Group 10,000 1,175,000
AmeriTrade Holding Class A * 13,200 153,450
AmSouth Bancorporation 58,500 921,375
Astoria Financial 6,000 154,500
Bank of America 20,600 885,800
Bank One 22,095 586,903
Bear Stearns 7,035 292,832
Chase Manhattan 35,850 1,651,341
Cigna 3,000 280,500
Citigroup 49,498 2,982,254
Conseco 44,600 434,850
Dime Bancorp 32,000 504,000
E*Trade Group * 9,600 158,400
Edwards (A.G.) 5,000 195,000
Federal Home Loan 4,700 190,350
Federal National Mortgage 4,000 208,750
Firstar 12,200 256,962
Fleet Boston Financial 18,239 620,126
Lehman Brothers Holdings 5,600 529,550
MBIA 10,400 501,150
Merrill Lynch & Company 4,200 483,000
Metris 16,181 406,542
MGIC Investment 4,200 191,100
Morgan (J.P.) 7,700 847,963
Morgan Stanley Dean Witter 11,400 949,050
Paine Webber Group 30,900 1,405,950
SLM Holding 14,900 557,819
Washington Mutual 8,300 239,663
-------------------------------------------------------------------
18,130,930
Buildings & Materials: 0.3%
-------------------------------------------------------------------
American Standard * 3,900 159,900
Centex 8,400 197,400
-------------------------------------------------------------------
357,300
Business Services: 0.1%
-------------------------------------------------------------------
Young & Rubicam 3,200 183,000
-------------------------------------------------------------------
Cable, Media & Publishing: 4.4%
-------------------------------------------------------------------
Donnelley & Sons 30,200 681,387
Dow Jones 3,300 241,725
Gannett 2,800 167,475
Harte-Hanks 7,300 182,500
Knight-Ridder 12,600 670,163
McGraw-Hill 20,200 1,090,800
New York Times 33,200 1,311,400
Omnicom Group 15,500 1,380,469
Readers Digest Association 6,000 238,500
Valassis Communications * 5,000 190,625
Wallace Computer Services 11,900 117,513
-------------------------------------------------------------------
6,272,557
Number Market
Chemicals: 1.4% of Shares Value
-------------------------------------------------------------------
Avery Dennison 2,700 $ 181,237
Beckman Coulter 3,300 192,637
Cytec Industries * 5,300 130,844
Dow Chemical 36,000 1,086,750
Lubrizol 7,600 159,600
W.R. Grace & Company * 23,400 283,725
-------------------------------------------------------------------
2,034,793
Computers & Technology: 20.8%
-------------------------------------------------------------------
3Com * 5,400 311,175
Adobe Systems 5,500 715,000
America Online * 31,100 1,640,525
Apple Computer * 13,600 712,300
BMC Software * 4,600 167,828
Cisco Systems * 72,200 4,589,212
CMGI * 3,100 142,019
Compaq Computer 13,600 347,650
Computer Associates International 7,831 400,849
Dell Computer * 25,800 1,272,262
Electronic Data Systems 3,200 132,000
EMC * 23,400 1,800,337
First Data 8,300 411,887
Hewlett-Packard 10,200 1,273,725
Infospace.com * 3,000 165,750
International Business Machines 23,200 2,541,850
Jabil Circuit * 8,700 431,738
Lexmark International Group A * 2,000 134,500
Macromedia * 3,000 290,063
Micron Technology * 8,900 783,756
Microsoft * 45,400 3,632,000
Oracle * 32,000 2,690,000
PerkinElmer 2,900 191,763
Pitney Bowes 4,000 160,000
Priceline.com * 4,000 151,938
Scient * 3,000 132,375
SDL * 800 228,150
Siebel Systems * 2,500 408,906
Sun Microsystems * 23,200 2,109,750
Symantec * 7,300 393,744
Unisys * 6,800 99,025
VeriSign * 1,613 284,606
Veritas Software * 1,800 203,428
WebMethods * 1,200 188,625
Xerox 6,700 139,025
Yahoo * 2,000 247,750
-------------------------------------------------------------------
29,525,511
Consumer Products: 2.6%
-------------------------------------------------------------------
Avon Products 5,400 240,300
Clorox 4,200 188,212
Corning 6,600 1,781,175
Kimberly-Clark 9,500 545,063
Minnesota Mining & Manufacturing 2,200 181,500
Procter & Gamble 11,600 664,100
-------------------------------------------------------------------
3,600,350
Electronics & Electrical Equipment: 13.0%
-------------------------------------------------------------------
Advanced Micro Devices * 2,000 154,500
Agilent Technologies * 3,890 286,887
Analog Devices * 10,000 760,000
Arrow Electronics * 4,600 142,600
Avnet 3,400 201,450
AVX 11,600 266,075
Broadcom-Class A * 1,100 240,831
Eaton 8,400 562,800
FirstEnergy 32,100 750,337
General Electric 119,400 6,328,200
Intel 41,800 5,588,138
JDS Uniphase * 3,500 419,563
Motorola 18,000 523,125
National Semiconductor * 7,000 397,250
Solectron * 7,800 326,625
Texas Instruments * 17,400 1,195,163
Vishay Intertechnology * 8,550 324,366
-------------------------------------------------------------------
18,467,910
<PAGE>
Number Market
Energy: 6.4% of Shares Value
-------------------------------------------------------------------
Amerada Hess 2,700 $ 166,725
BP Amoco - ADR 24,300 1,374,469
Chevron 1,900 161,144
Conoco 7,100 156,200
Enron 15,000 967,500
Exxon Mobil 38,100 2,990,850
Occidental Petroleum 29,000 610,813
Royal Dutch Petroleum 18,000 1,108,125
Texaco 13,600 724,200
USX-Marathon Group 33,200 832,075
-------------------------------------------------------------------
9,092,101
Environmental Services: 0.1%
-------------------------------------------------------------------
PE Corp - PE Biosystems Group 2,600 171,275
-------------------------------------------------------------------
Food, Beverage & Tobacco: 4.2%
-------------------------------------------------------------------
Coca Cola 3,700 212,519
ConAgra 7,900 150,594
Fortune Brands 7,000 161,437
General Mills 30,700 1,174,275
Heinz (H.J.) 22,250 973,437
Philip Morris 45,700 1,213,906
Quaker Oats 11,200 841,400
Ralston-Purina Group 8,500 169,469
RJ Reynolds Tobacco Holdings 20,800 581,100
Suiza Foods * 10,000 488,750
-------------------------------------------------------------------
5,966,887
Healthcare & Pharmaceuticals: 10.7%
-------------------------------------------------------------------
Allergan 3,700 275,650
Amgen * 14,500 1,018,625
Boston Scientific * 13,200 289,575
Bristol-Myers Squibb 31,000 1,805,750
Cardinal Health 9,400 695,600
Genzyme-General Division * 3,100 184,256
Johnson & Johnson 11,900 1,212,313
Lilly (Eli) 12,200 1,218,475
Mallinckrodt 6,400 278,000
Medtronic 12,862 640,689
Merck & Company 32,600 2,497,975
Millipore 2,500 188,438
Pfizer 54,725 2,626,800
Schering-Plough 45,000 2,272,500
-------------------------------------------------------------------
15,204,646
Industrial Machinery: 1.5%
-------------------------------------------------------------------
Applied Materials * 13,800 1,250,625
Dover 7,900 320,444
Ingersoll-Rand 9,250 372,312
SPX * 1,600 193,500
-------------------------------------------------------------------
2,136,881
Leisure, Lodging & Entertainment: 0.9%
-------------------------------------------------------------------
Carnival Cruise Lines 15,200 296,400
Eastman Kodak 7,500 446,250
Walt Disney 12,200 473,512
-------------------------------------------------------------------
1,216,162
Metals & Mining: 0.1%
-------------------------------------------------------------------
USX-U.S. Steel Group 7,900 146,644
-------------------------------------------------------------------
Paper & Forest Products: 0.6%
-------------------------------------------------------------------
Georgia-Pacific 7,200 189,000
Georgia-Pacific (Timber Group) 12,500 270,312
Temple-Inland 3,600 151,200
Weyerhaeuser 6,700 288,100
-------------------------------------------------------------------
898,612
Retail: 4.0%
-------------------------------------------------------------------
Albertson's 6,000 199,500
Best Buy * 4,400 278,300
CDW Computer Centers * 2,800 175,000
Gap 3,000 93,750
Home Depot 21,600 1,078,650
Lowe's 18,000 739,125
Number Market
Retail (Cont.) of Shares Value
-------------------------------------------------------------------
Sears, Roebuck 5,100 $ 166,388
Sherwin-Williams 7,100 150,431
Tiffany 3,000 202,500
TJX Companies New 28,600 536,250
Wal-Mart Stores 36,100 2,080,263
-------------------------------------------------------------------
5,700,157
Telecommunications: 9.7%
-------------------------------------------------------------------
ADC Telecommunications * 2,300 192,912
A T & T 35,700 1,129,012
Bell Atlantic * 41,000 2,083,312
BellSouth 49,800 2,122,725
Copper Mountain Networks * 2,900 255,562
GTE 8,800 547,800
Lucent Technologies 38,500 2,281,125
Network Appliance * 2,000 161,000
Quallcomm * 5,900 354,000
SBC Communications 52,763 2,282,000
Tellabs * 6,100 417,469
U.S.West 14,800 1,269,100
Worldcom * 15,800 724,825
-------------------------------------------------------------------
13,820,842
Textiles, Apparel & Furniture: 0.9%
-------------------------------------------------------------------
Johnson Controls 21,400 1,098,088
Tommy Hilfiger * 22,800 171,000
-------------------------------------------------------------------
1,269,088
Transportation & Shipping: 0.9%
-------------------------------------------------------------------
Canadian National Railway 8,400 245,175
Canadian Pacific 7,400 193,787
Continental Airlines Class B * 10,900 512,300
Delta Air Lines 3,800 192,137
Union Pacific 4,100 152,469
-------------------------------------------------------------------
1,295,868
Utilities: 1.6%
-------------------------------------------------------------------
General Public Utilities 33,600 909,300
Minnesota Power & Light 16,400 283,925
Public Service Enterprise Group 7,300 252,763
Sprint 6,400 326,400
TXU 14,700 433,650
-------------------------------------------------------------------
2,206,038
Total Common Stock: 99.3%
(Cost $95,815,515) 140,865,339
-------------------------------------------------------------------
Total Investments: 99.3%
-------------------------------------------------------------------
(Cost $95,815,515) 140,865,339
-------------------------------------------------------------------
Other Assets Over Liabilities: 0.7% 993,389
-------------------------------------------------------------------
Net Assets: 100.00% 141,858,728
-------------------------------------------------------------------
Net Assets are represented by:
Value of accumulation units:
6,008,358 units at $21.706 unit value $130,417,338
Annuity reserves:
139,984 units at $21.706 unit value 3,038,499
297,996 units at $28.198 unit value 8,402,891
--------
437,980 units
========
-------------------------------------------------------------------
$141,858,728
-------------------------------------------------------------------
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
<PAGE>
Statement of Operations - Unaudited
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Dividends $ 947,328
Interest 2,119
-----------
949,447
Expenses:
Investment management services $ 231,709
Mortality and expense guarantees 683,532 915,241
-------------------------
Net Investment Income 34,206
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments 17,690,745
Decrease in net unrealized appreciation/depreciation
of investments (18,744,645)
-----------
Net Realized and Unrealized Gain (Loss) on Investments (1,053,900)
-----------
Net Decrease in Net Assets Resulting from Operations $(1,019,694)
-----------
</TABLE>
Statements of Changes in Net Assets
Six Months
Ended 6/30/2000 Year Ended
(Unaudited) 12/31/1999
--------------------------------
Changes from operations:
Net investment income $ 34,206 $ 198,359
Net realized gain on investments 17,690,745 19,679,915
Increase (decrease) in net unrealized
appreciation/depreciation of investments (18,744,645) 2,724,731
--------------------------------
Net increase (decrease) in net assets
resulting from operations (1,019,694) 22,603,005
Net decrease from equity transactions (8,525,261) (17,266,505)
--------------------------------
Total increase (decrease) in net assets (9,544,955) 5,336,500
Net assets at beginning of period 151,403,683 146,067,183
--------------------------------
Net assets at end of period $141,858,728 $151,403,683
================================
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements - Unaudited
June 30, 2000
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: All equity securities are valued at the last quoted sales price as
of the close of the New York Stock Exchange (NYSE) on the valuation date. If on
a particular day an equity security does not trade, then the mean between the
bid and asked prices will be used. Money market instruments having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith or under the
direction of the Company's Board of Directors.
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
accounting principles generally accepted in the United States 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, 2000 amounted to $27,893,200 and $36,496,204, 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 $3,614
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, 2000, 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, 2000 consisted of the following:
Equity transactions ($191,595,110)
Accumulated net investment income 74,189,667
Accumulated net realized gain on investments 214,214,347
Net unrealized appreciation of investments 45,049,824
-------------
$141,858,728
=============
<PAGE>
Notes to Financial Statements - Unaudited (Continued)
5. Summary of changes in equity transactions
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 (Unaudited) December 31, 1999
------------------------------------------------------
Units Amount Units Amount
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of period 6,365,652 ($172,779,126) 7,176,135 ($157,189,530)
Contract purchases 47,158 975,492 77,390 1,512,095
Terminated contracts (404,452) (8,648,292) (887,873) (17,101,691)
--------- ------------- --------- -------------
Balance at end of period 6,008,358 ($180,451,926) 6,365,652 ($172,779,126)
========= ============= ========= =============
Annuity Reserves:
Balance at beginning of period 471,783 ($10,290,723) 530,280 ($8,613,814)
Annuity payments (33,803) (852,461) (58,497) (1,676,909)
Receipt of guarantee
mortality adjustments - - - -
--------- ------------- --------- -------------
Balance at end of period 437,980 ($11,143,184) 471,783 ($10,290,723)
========= ============= ========= =============
</TABLE>
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 6/30/00 Year ended December 31,
--------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income $0.143 $ 0.283 $ 0.301 $ 0.286 $ 0.267 $ 0.251
Expenses 0.138 0.256 0.217 0.178 0.139 0.114
------- ------- ------- ------- ------- -------
Net investment income 0.005 0.027 0.084 0.108 0.128 0.137
Net realized and unrealized
gain (loss) on investments (0.144) 3.106 3.028 3.755 1.735 2.539
Increase (decrease) in
accumulation unit value (0.139) 3.133 3.112 3.863 1.863 2.676
Accumulation unit value
at beginning of period 21.845 18.712 15.600 11.737 9.874 7.198
------- ------- ------- ------- ------- -------
Accumulation unit value
at end of period $21.706 $21.845 $18.712 $15.600 $11.737 $9.874
======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets 1.31%* 1.28% 1.28% 1.27% 1.28% 1.28%
Ratio of net investment income
to average net assets 0.53%* 0.51% 0.54% 0.77% 1.17% 1.65%
Portfolio turnover rate 19.46% 21.46% 31.10% 32.56% 49.94% 48.95%
Number of accumulation units
outstanding at end of period
(expressed in thousands)
Accumulation units: 6,008 6,366 7,176 7,723 8,462 9,569
Reserve units: 438 472 530 600 700 831
</TABLE>
* Annualized
