<PAGE>
<TABLE>
<CAPTION>
Fund B Statement of Net Assets - Unaudited
October 4, 1995
Percent of Number of Market
Net Assets Shares Value
---------- --------- -------
INVESTMENTS
<S> <C> <C> <C>
Common Stocks:
Aerospace: 0.9%
McDonnell Douglas Corporation 900 70,200
Banking and Insurance: 10.4%
AllState Corp. 741 126,224
American General Corp. 2,900 149,625
Aon Corp. 1,000 132,563
Bank of Boston Corp. 2,100 139,875
Bank of New York Inc. 3,000 100,800
Chase Manhattan Corp. 2,100 42,375
Cigna Corp. 1,400 106,213
First Chicago Corp. 1,800 25,009
-------
822,684
Chemicals: 2.7%
Du Pont E I De Nemours & Co. 1,600 113,900
Olin Corp. 1,700 104,200
-------
218,100
Consumer Products and Services: 3.8%
Omnicom Group Inc. 500 270,399
Philip Morris Co. Inc. 3,200 32,375
-------
302,774
Drug and Hospital Supplies: 8.0%
Baxter Intl Inc. 3,200 106,200
Bristol Myers Squibb Co. 1,500 206,624
Lilly (Eli) & Co. 800 73,400
Schering-Plough Corp. 3,800 114,375
Upjohn Co. 2,400 132,400
-------
632,999
Electrical and Electronics: 5.1%
Arrow Electrics Inc. * 1,400 51,000
General Electric Co. 3,800 241,774
Teradyne Inc. * 1,600 71,050
Texas Instruments Inc. 300 21,975
-------
385,799
Entertainment: 1.4%
Mirage Resorts Inc. * 3,500 107,188
Financial Services: 1.7%
Household Intl Inc. 2,200 135,575
Food and Beverage: 8.2%
Coca Cola Co. 1,600 56,200
CPC Intl Inc. 500 133,599
Heinz H.J. Co. 1,300 100,598
IBP Inc. 2,900 151,525
RJR Nabisco Holding Corp. 3,060 60,938
Safeway Inc. * 3,200 33,375
Universal Foods Corp. 1,600 114,600
-------
650,835
Industrial: 1.3%
TRW Inc. 1,400 101,325
Machinery and Engineering: 2.4%
Illinois Tool Works Inc. 1,400 108,538
Novellus Systems Inc. 1,900 78,575
-------
187,113
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Number of Market
Net Assets Shares Value
---------- --------- --------
<S> <C> <C> <C>
Metals and Mining: 1.9%
Cleveland-Cliffs Inc. 900 114,074
Phelps Dodge Corp. 1,800 36,000
-------
150,074
Miscellaneous:
Mallinckrodt Inc. 1,400 54,600
Motor Vehicles and Equipment: 2.1%
Eaton Corp. 1,800 73,600
Navistar Intl Corp. * 6,400 92,475
-------
166,075
Office and Business Equipment and Services: 9.3%
Broderbund Software Inc. 1,200 62,200
Cadence Design Systems Inc. * 2,300 139,125
Computer Associates Intl Inc. 600 135,613
IBM 2,200 206,250
Micron Technology Inc. 1,900 22,500
Reynolds & Reynolds Co. 4,200 85,100
Seagate Technology * 1,600 85,200
-------
735,988
Paper: 2.7%
Federal Paper Board Co. 3,300 16,688
Stone Container Corp. 4,200 75,600
Union Camp Corp. 300 124,988
-------
217,276
Petroleum and Petroleum Related: 10.6%
Atlantic Richfield Co. 500 63,200
Exxon Corp. 2,700 137,775
Halliburton Co. 1,700 78,625
Lyondell Petrochemical Co. 2,500 172,975
Mobil Corp. 1,700 60,938
Occidental Petroleum Corp. 3,700 71,400
Royal Dutch Petroleum Co. 1,100 198,450
Williams Companies Inc. 1,600 53,438
-------
836,801
Printing and Publishing: 0.3%
New York Times Co. 1,000 27,250
Public Utilities: 4.6%
Baltimore Gas & Electric Co. 3,400 85,000
Consolidated Edison Co. 2,600 59,800
General Public Utilities Corp. 1,600 50,600
Ohio Edison Co. 2,600 79,950
SCE Corp. 5,000 88,400
-------
363,750
Retail: 3.5%
Kroger Co. * 2,400 85,500
Sears, Roebuck & Co. 800 68,400
Staples Inc. * 450 12,094
Waban Inc. * 3,800 28,300
Wal-Mart Stores 3,600 80,100
-------
274,394
Securities Dealers
Dean Witter Discover & Co. 800 43,200
Shoes
Nike Inc. 1,000 111,750
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Number of Market
Net Assets Shares Value
---------- --------- --------
<S> <C> <C> <C>
Soaps, Cleaner and Cosmetics: 3.8%
Clorox Co. 2,300 137,094
Colgate-Palmolive Co. 2,050 161,863
-------
298,957
Telecommunications: 9.7%
American Telephone & Telegraph Co. 2,400 111,375
Ameritech Corp. 3,800 80,275
Bellsouth Corp. 2,500 43,500
Comsat Corp. 2,000 185,000
Pacific Telesis Group 2,600 194,750
Sprint Corp. 3,300 154,499
-------
769,399
Transportation: 2.0%
Illinois Central Corp. 2,700 57,688
PHH Corp. 1,300 104,625
-------
162,313
TOTAL COMMON STOCKS
(Cost - $5,908,015) 98.7% 7,826,419
TOTAL INVESTMENTS
(Cost - $5,908,015) 98.7% 7,826,419
Excess of other assets over total liabilities 1.3% 104,925
NET ASSETS 100.0% 7,931,344
Net assets are represented by:
Value of accumulation units:
897,517 units at $7.975 unit value 7,157,881
Annuity reserves:
96,984 units at $7.975 unit value 773,463
7,931,344
</TABLE>
* Non-income producing
See Notes to Financial Statements.
<PAGE>
Fund B Statement of Operations
Period Ended October 4, 1995 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $160,722
Interest 1,471
----------
162,193
Expenses
Investment management services $18,007
Mortality and expense guarantees 55,852 73,859
-----------
NET INVESTMENT INCOME 88,334
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 282,721
Increase in net unrealized appreciation of investments 1,581,592
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,864,313
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,952,647
===========
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<S> <C> <C>
Period ended
October 4, Year Ended
1995 December 31,
(Unaudited) 1994
------------ ------------
Changes from operations:
Net investment income $88,334 $119,852
Net realized gain on investments 282,721 549,563
Increase (decrease) in net unrealized
appreciation of investments 1,581,592 (747,573)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 1,952,647 (78,158)
Net decrease from equity transactions (728,441) (1,407,953)
----------- ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 1,224,206 (1,486,111)
Net assets at beginning of period 6,707,138 8,193,249
----------- ------------
NET ASSETS AT END OF PERIOD $7,931,344 $6,707,138
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
Fund B Notes to Financial Statements - Unaudited
October 4, 1995
NOTE 1-ACCOUNTING POLICIES
The Fund: The Lincoln National Variable Annuity Fund B 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.
Basis for Presentation: The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
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 will form a part of, and be
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%.
NOTE 2-INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) during the period ended
October 4, 1995 amounted to $2,650,687 and $3,106,360 respectively. At October
4, 1995, the excess of other assets over total liabilities includes no amounts
receivable from brokers for securities sold.
NOTE 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).
No amounts were retained from the proceeds of the sale of annuity contracts by
The Lincoln National Life Insurance Company, an affiliated underwriter, for
sales and administrative charges.
NOTE 4-NET ASSETS
Net assets at October 4, 1995 consisted of the following:
Equity transactions ($8,628,191)
Accumulated net investment income 7,860,863
Accumulated net realized gain on investments 6,780,268
Net unrealized appreciation of investments 1,918,404
--------------
$7,931,344
==============
<PAGE>
Fund B Notes to Financial Statements - Unaudited (Continued)
NOTE 5--SUMMARY OF CHANGES IN EQUITY TRANSACTIONS
<TABLE>
<CAPTION>
Period Ended Year Ended December 31,
October 4, 1995 (Unaudited) 1994
--------------------------- -----------------------------
Units Amount Units Amount
--------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of year 950,570 ($6,770,443) 1,151,371 ($5,521,042)
Contract purchases 1,073 35,941 10,492 48,164
Terminated contracts (54,126) (397,691) (211,293) (1,297,565)
--------- ------------- ----------- -------------
BALANCE AT END OF PERIOD 897,517 ($7,132,193) 950,570 ($6,770,443)
========= ============= =========== =============
Annuity Reserves:
Balance at beginning of year 145,778 ($1,129,307) 171,412 ($970,755)
Annuity payments (45,114) (344,179) (27,474) (169,808)
Receipt of guarantee mortality adjustments (3,680) (22,512) 1,840 11,256
--------- ------------- ----------- -------------
BALANCE AT END OF PERIOD 96,984 ($1,495,998) 145,778 ($1,129,307)
========= ============= =========== =============
</TABLE>
NOTE 6--MERGER
Effective October 4, 1995, an Agreement and Plan of Reorganization was executed
to merge the Lincoln National Variable Annuity Fund A ( Fund A ), 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 A 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 Fund A for all of the 897,517 accumulation units and 96,984 annuity
reserve units of the Fund outstanding on the date of exchange. The Fund'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 Fund A, whose net assets
prior to the merger were $92,566,438.
NOTE 7--SUPPLEMENTAL INFORMATION - SELECTED PER UNIT DATA AND RATIOS
The following is selected financial data for an accumulation unit outstanding
throughout each period/year:
<TABLE>
<CAPTION>
Period ending Year Ended December 31
October 4, 1995
(Unaudited) 1994 1993 1992 1991 1990
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income $0.160 $0.181 $0.176 $0.179 $0.159 $0.128
Expenses 0.087 0.082 0.079 0.072 0.067 0.056
----------- ------- ------- ------- ------- -------
Net investment income 0.073 0.099 0.097 0.107 0.092 0.072
Net realized and unrealized
gain/(loss) on investment 1.784 (0.175) 0.454 (0.101) 1.224 (0.090)
----------- ------- ------- ------- ------- -------
Increase (decrease) in
accumulation unit value 1.857 (0.076) 0.551 0.006 1.316 (0.018)
Accumulation unit value at
beginning of year 6.118 6.194 5.643 5.637 4.321 4.339
----------- ------- ------- ------- ------- -------
ACCUMULATION UNIT VALUE AT
END OF PERIOD $7.975 $6.118 $6.194 $5.643 $5.637 $4.321
=========== ======= ======= ======= ======= =======
Ratio of expenses to average
net assets 1.14%* 1.31% 1.32% 1.32% 1.32% 1.33%
Ratio of net investment income
net assets to average assets 2.09%* 1.59% 1.64% 1.96% 1.82% 1.69%
Portfolio Turnover Rate 10.85%* 65.59% 64.70% 71.26% 38.71% 60.48%
Number of accumulation units
outstanding at end of
period (expressed in thousands) 898 951 1,151 1,333 1,428 1,623
</TABLE>
* Ratios and portfolio turnover rate are NOT on an annualized basis.