[LOGO OF VANTAGE INVESTMENT ADVISORS]
Lincoln National
Social Awareness Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Index
Commentary
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
<PAGE>
Lincoln National
Social Awareness Fund, Inc.
Managed by: [LOGO OF VANTAGE INVESTMENT ADVISORS]
The Fund had a return of 6.3% for the first six months of 1999 while its
benchmark, the S&P 500 Index, returned 12.2% for the same period.
1999 has been difficult for the Social Awareness Fund. The first quarter was a
continuation of a period in which diversification has not worked. The largest
companies trading at high valuations significantly outperformed other, more
attractively priced companies. It was a "narrow" market in which a few companies
thrived and others lagged behind. Given that the Social Awareness Fund provides
broad-based, diversified equity exposure in undervalued companies that meet the
Fund's stated criteria for social responsibility, those investments did not fare
as well.
The market broadened somewhat in the second quarter as value-oriented consumer
cyclical and industrial companies rallied in response to increasing economic
optimism. However, many of these companies violate the social criteria for the
Fund. As a result, the Fund did not benefit from the sectors that were favored.
While social screens should not significantly impact returns over the long-term,
in any given quarter, the industry exposures created by the screens can have
positive or negative effects.
The Fund has historically delivered superior returns based on the approach and
disciplines it employs, and will continue to seek out financially attractive
companies that help investors achieve investment goals in a manner consistent
with their values.
Enrique Chang Christopher Harvey
Social Awareness Fund 1
<PAGE>
Lincoln National
Social Awareness Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ----------------------------------------------------------------------------
Automobiles & Auto Parts: 0.1%
- ----------------------------------------------------------------------------
PACCAR 51,200 $ 2,734,400
- ----------------------------------------------------------------------------
Banking, Finance & Insurance: 21.5%
- ----------------------------------------------------------------------------
Allstate 690,468 24,770,540
AmSouth Bancorporation 750,287 17,397,280
Ambac Financial Group 109,500 6,255,188
American Express 81,600 10,618,200
American International Group 237,500 27,802,344
Bank One 173,843 10,354,524
BB&T 222,100 8,148,294
Chase Manhattan 349,500 30,275,438
Cigna 61,800 5,500,200
Citigroup 765,298 36,351,655
City National 329,500 12,335,656
Comerica 272,700 16,208,606
Conseco 388,200 11,815,838
Edwards (A.G.) 350,250 11,295,563
Federal National Mortgage 276,500 18,905,688
FIRSTPLUS Financial Group* 661,600 206,750
First Union 573,200 26,940,400
Marsh & McLennan 245,450 18,531,475
Mellon Bank 239,300 8,704,538
Merrill Lynch & Company 53,200 4,252,675
Metris 147,714 6,019,346
Morgan (J.P.) 67,400 9,469,700
Morgan Stanley Dean Witter 207,500 21,268,750
National City 243,060 15,920,430
Old Republic International 336,825 5,831,283
Paine Webber Group 428,750 20,044,063
Reliance Group Holdings 649,200 4,828,425
SLM Holding 254,100 11,640,956
T. Rowe Price Associates 240,000 9,202,500
Washington Mutual 202,440 7,161,315
- ----------------------------------------------------------------------------
418,057,620
Buildings & Materials: 1.7%
- ----------------------------------------------------------------------------
Centex 155,800 5,852,238
D.R. Horton 155,100 2,578,538
Kaufman & Broad Home 370,700 9,221,163
Martin Marietta Materials 143,800 8,484,200
Premark International 154,200 5,782,500
- ----------------------------------------------------------------------------
31,918,639
Cable, Media & Publishing: 7.0%
- ----------------------------------------------------------------------------
Centurytel 121,000 4,809,750
Dun and Bradstreet 474,700 16,822,181
Ennis Business Forms 176,800 1,513,850
Gannett 288,200 20,570,275
Knight-Ridder 222,900 12,245,569
McGraw-Hill 439,800 23,721,713
New York Times 446,150 16,423,897
Omnicom Group 258,700 20,696,000
R.H.Donnelley* 94,940 1,857,264
Time Warner 100,400 7,228,800
Valassis Communications* 131,850 4,829,006
World Color Press* 197,300 5,425,750
- ----------------------------------------------------------------------------
136,144,055
Chemicals: 0.3%
- ----------------------------------------------------------------------------
Avery Dennison 10,115 610,693
Nalco Chemical 99,300 5,151,188
- ----------------------------------------------------------------------------
5,761,881
Computers & Technology: 19.4%
- ----------------------------------------------------------------------------
Adaptec* 9,400 331,644
Adobe Systems 149,100 12,249,497
American Power Conversion* 1,079,000 21,681,156
Apple Computer* 550,800 25,543,350
Number Market
Computers & Technology (Cont.) of Shares Value
- ----------------------------------------------------------------------------
BMC Software* 439,500 $ 23,719,266
Comverse Technology* 150,000 11,315,625
Cisco Systems* 704,200 45,354,881
Compaq Computer 276,600 6,551,963
Computer Associates International 277,300 15,251,500
Compuware* 502,000 15,954,188
Dell Computer* 632,700 23,390,128
Deluxe 218,300 8,500,056
Electronics Arts* 180,400 9,764,150
EMC* 515,000 28,325,000
Keane* 202,400 4,579,300
Lexmark International Group* 487,600 32,212,075
Microsoft* 1,029,400 92,774,661
- ----------------------------------------------------------------------------
377,498,440
Consumer Products: 3.3%
- ----------------------------------------------------------------------------
Avon Products 312,200 17,327,100
Brinker International * 483,200 13,137,000
Clorox 135,200 14,441,050
Corning 193,800 13,590,225
Gillete 81,800 3,353,800
United Stationers* 77,600 1,709,625
- ----------------------------------------------------------------------------
63,558,800
Electronics & Electrical Equipment: 1.2%
- ----------------------------------------------------------------------------
Altera 206,100 7,580,619
Waters* 308,200 16,373,125
- ----------------------------------------------------------------------------
23,953,744
Energy: 2.0%
- ----------------------------------------------------------------------------
Enron 290,700 23,764,725
Helmerich & Payne 88,000 2,095,500
LG & E Energy 60,000 1,260,000
OGE Energy 446,100 10,594,875
Questar 70,000 1,356,250
- ----------------------------------------------------------------------------
39,071,350
Food, Beverage & Tobacco: 3.9%
- ----------------------------------------------------------------------------
Agribrands International* 7,260 287,224
Flowers Industries 315,000 6,831,563
General Mills 139,600 11,220,350
International Multifoods 74,000 1,669,625
Interstate Bakeries 368,300 8,263,731
McCormick and Company 316,400 9,986,375
Quaker Oats 321,600 21,346,200
Ralston-Purina Group 217,800 6,629,288
Suiza Foods* 186,200 7,797,125
Universal Foods 69,000 1,457,625
- ----------------------------------------------------------------------------
75,489,106
Healthcare & Pharmaceuticals: 8.9%
- ----------------------------------------------------------------------------
Amgen* 586,550 35,687,902
Bergen Brunswig Class A 612,404 10,563,969
Beverly Enterprises* 262,300 2,114,794
Boston Scientific* 163,000 7,161,813
C.R. Bard 329,400 15,749,438
Cardinal Health 228,005 14,620,821
Health Management Associates * 622,950 7,008,188
Lilly (Eli) 125,400 8,981,775
Lincare Holdings* 268,200 6,713,381
McKesson HBOC 519,408 16,685,982
Medtronic 378,182 29,450,924
Mylan Laboratories 698,300 18,504,950
Pacificare Health Systems* 3,000 215,906
- ----------------------------------------------------------------------------
173,459,843
Industrial Machinery: 0.8%
- ----------------------------------------------------------------------------
Ingersoll-Rand 224,000 14,476,000
- ----------------------------------------------------------------------------
Leisure, Lodging & Entertainment: 0.8%
- ----------------------------------------------------------------------------
McDonald's 236,600 9,774,538
Sabre Group Holdings* 33,900 2,330,625
Walt Disney 131,000 4,036,438
- ----------------------------------------------------------------------------
16,141,601
Metals & Mining: 0.1%
- ----------------------------------------------------------------------------
Cleveland Cliffs Iron 77,900 2,522,013
- ----------------------------------------------------------------------------
Social Awareness Fund 2
<PAGE>
Number Market
of Shares Value
- ----------------------------------------------------------------------------
Miscellaneous: 0.4%
- ----------------------------------------------------------------------------
PAYCHEX 129,600 $ 4,122,900
Twinlab* 332,700 2,853,942
- ----------------------------------------------------------------------------
6,976,842
Packaging & Containers: 0.3%
- ----------------------------------------------------------------------------
Sealed Air* 99,000 6,422,625
- ----------------------------------------------------------------------------
Retail: 10.3%
- ----------------------------------------------------------------------------
Dollar Tree Stores* 344,500 15,147,234
Federated Department Stores* 347,800 18,411,663
Gap 570,375 28,732,641
Home Depot 318,000 20,491,125
Jostens 83,300 1,754,506
Ross Stores 386,675 19,442,502
Safeway* 337,624 16,712,388
Staples* 842,100 26,026,153
TJX 753,900 25,114,294
Wal-Mart Stores 593,400 28,631,550
- ----------------------------------------------------------------------------
200,464,056
Telecommunications: 11.9%
- ----------------------------------------------------------------------------
ALLTEL 288,700 20,642,050
Ameritech 196,700 14,457,450
A T & T 834,450 46,572,741
BellSouth 842,400 39,487,500
SBC Communications 783,064 45,417,712
Tellabs* 444,900 30,072,452
U.S.West 569,500 33,458,125
- ----------------------------------------------------------------------------
230,108,030
Texttiles, Apparel & Furniture: 0.9%
- ----------------------------------------------------------------------------
Tommy Hilfiger* 231,200 16,978,750
- ----------------------------------------------------------------------------
Transportation & Shipping: 1.8%
- ----------------------------------------------------------------------------
AMR* 268,600 18,331,950
Tidewater 344,600 10,510,300
UAL* 96,200 6,253,000
- ----------------------------------------------------------------------------
35,095,250
Total Common Stock: 96.6%
(Cost $1,288,067,381) 1,876,833,045
- ----------------------------------------------------------------------------
Par
Money Market Instruments: Amount
- ----------------------------------------------------------------------------
American Honda Finance
4.92%, 7/7/99 $4,000,000 3,996,733
5.02%, 7/19/99 11,100,000 11,072,250
5.00%, 7/27/99 1,500,000 1,500,000
Corporate Asset Funding
5.22%, 7/21/99 2,600,000 2,592,489
Marsh USA
5.15%, 7/8/99 3,700,000 3,700,000
5.14%, 7/23/99 8,000,000 8,000,000
Merrill Lynch
4.92%, 7/12/99 1,400,000 1,397,908
Metlife Funding
4.88%, 7/12/99 7,200,000 7,189,308
Salomon Smith Barney
4.95%, 7/15/99 4,000,000 3,992,331
5.06%, 7/21/99 2,900,000 2,891,880
Sony Capital
5.75%, 7/1/99 5,000,000 5,000,000
Toyota Motor Credit
5.00%, 7/27/99 3,900,000 3,886,001
Wells Fargo
5.14%, 8/16/99 8,000,000 7,947,867
- ----------------------------------------------------------------------------
Total Money Market Instruments: 3.2%
(Cost $63,166,767) 63,166,767
- ----------------------------------------------------------------------------
Total Investments: 99.8%
(Cost $1,351,234,148) 1,939,999,812
- ----------------------------------------------------------------------------
Other Assets and liabilities: 0.2% 3,056,582
- ----------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $ 41.013 per share
based on 47,376,421 shares
issued and outstanding) $1,943,056,394
- ----------------------------------------------------------------------------
Components of Net Assets at June 30, 1999:
- ----------------------------------------------------------------------------
Common Stock, $.01 par value
100,000,000 authorized shares 473,764
Paid in capital in excess of par value
of shares issued 1,284,035,045
Undistributed net investment income 7,409,965
Accumulated net realized gain on
investments and futures contracts 62,371,956
Net unrealized appreciation of
investments 588,765,664
- ----------------------------------------------------------------------------
Total Net Assets $1,943,056,394
- ----------------------------------------------------------------------------
* Non-income producing security.
See accompanying notes to financial statements.
Social Awareness Fund 3
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 1999
Investment income:
Dividends $ 9,573,561
- ---------------------------------------------------------------------------
Interest 1,337,478
- ---------------------------------------------------------------------------
Total investment income 10,911,039
- ---------------------------------------------------------------------------
Expenses:
Management fees 3,072,309
- ---------------------------------------------------------------------------
Accounting fees 308,000
- ---------------------------------------------------------------------------
Printing and postage 67,500
- ---------------------------------------------------------------------------
Custodial fees 23,785
- ---------------------------------------------------------------------------
Directors fees 2,100
- ---------------------------------------------------------------------------
Other 36,177
- ---------------------------------------------------------------------------
3,509,871
- ---------------------------------------------------------------------------
Less expenses paid indirectly (8,797)
- ---------------------------------------------------------------------------
Total expenses 3,501,074
- ---------------------------------------------------------------------------
Net investment income 7,409,965
- ---------------------------------------------------------------------------
Net realized and unrealized gain on investments and futures contracts:
- ---------------------------------------------------------------------------
Net realized gain on investment transactions and
futures contracts 63,147,739
- ---------------------------------------------------------------------------
Net change in unrealized appreciation
of investments and futures contracts 45,423,780
- ---------------------------------------------------------------------------
Net realized and unrealized gain on investments and
futures contracts 108,571,519
- ---------------------------------------------------------------------------
Net increase in net assets
resulting from operations $115,981,484
- ---------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Year ended
(Unaudited) 12/31/98
-------------------------------
<S> <C> <C>
Changes from operations:
Net investment income $ 7,409,965 $ 17,415,758
- -------------------------------------------------------------------------------------------
Net realized gain on investments and futures contracts 63,147,739 75,145,967
- -------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments
and futures contracts 45,423,780 185,333,835
- -------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 115,981,484 277,895,560
- -------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (2,707,070) (27,514,961)
- -------------------------------------------------------------------------------------------
Net realized gain on investments (75,921,751) (54,631,990)
- -------------------------------------------------------------------------------------------
Total distributions to shareholders (78,628,821) (82,146,951)
- -------------------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 37,472,800 416,987,975
- -------------------------------------------------------------------------------------------
Total increase in net assets 74,825,463 612,736,584
- -------------------------------------------------------------------------------------------
Net Assets, beginning of period 1,868,230,931 1,255,494,347
- -------------------------------------------------------------------------------------------
Net Assets, end of period $1,943,056,394 $1,868,230,931
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Social Awareness Fund 4
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Year ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 40.283 $ 35.657 $ 27.316 $ 22.590 $ 16.642 $ 17.915
Income from investment operations:
Net investment income 0.143 0.367 0.364 0.389 0.432 0.377
Net realized and unrealized gain (loss)
on investments and futures contracts 2.309 6.414 9.447 5.748 6.491 (0.461)
------------------------------------------------------------------------
Total from investment operations 2.452 6.781 9.811 6.137 6.923 (0.084)
------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.059) (0.672) - (0.389) (0.432) (0.377)
Distributions from net realized gain on
investment transactions (1.663) (1.483) (1.470) (1.022) (0.543) (0.812)
------------------------------------------------------------------------
Total dividends and distributions (1.722) (2.155) (1.470) (1.411) (0.975) (1.189)
------------------------------------------------------------------------
Net asset value, end of period $ 41.013 $ 40.283 $ 35.657 $ 27.316 $ 22.590 $ 16.642
------------------------------------------------------------------------
Total Return(1) 6.28% 19.89% 37.53% 28.94% 42.83% 0.19%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.38%(2) 0.38% 0.41% 0.46% 0.50% 0.53%
Ratio of net investment income
to average net assets 0.79%(2) 1.10% 1.37% 1.58% 2.21% 2.22%
Portfolio Turnover 14.07% 37.55% 34.84% 45.90% 54.02% 64.97%
Net assets, end of period (000 omitted) $1,943,056 $1,868,231 $1,255,494 $636,595 $297,983 $163,514
</TABLE>
(1) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares. The total return percentages in
the table are NOT calculated on the same basis as the performance in the
letter at the front of this booklet (those percentages are based upon the
change in unit value).
(2) Annualized
See accompanying notes to financial statements.
Social Awareness Fund 5
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National Social Awareness Fund, Inc. (the "Fund") is
registered as an open-end, diversified management investment company under the
Investment Company Act of 1940, as amended. The Fund's shares are sold only to
The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company
of New York (the "Companies") for allocation to their variable annuity products
and variable universal life products.
The Fund's investment objective is to maximize long-term capital appreciation.
The Fund buys stocks of established companies, which adhere to certain specific
social criteria.
1. Significant Accounting Policies
Investment Valuation: Portfolio securities which are traded on an exchange are
valued at the last reported sale price on the exchange or market where primarily
traded or listed or, in the absence of recent sales, at the mean between the
last reported bid and asked prices. Financial futures are valued at the
settlement price established each day by the board of trade or exchange on which
they are traded. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors. Money market instruments
having less than 60 days to maturity are stated at amortized cost, which
approximates market value.
Investment Transactions and Investment Income: Investment transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis and includes
amortization of any premium and discount. Realized gains or losses from
investment transactions are reported on an identified cost basis.
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.
Expenses: 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-interest bearing accounts. For the six months ended June 30, 1999, the
custodial fees offset arrangements amounted to $8,797.
Taxes: The Fund has complied with the special provisions of the Internal Revenue
Code for regulated investment companies. As such, the Fund is not subject to
U.S. federal income taxes to the extent that it distributes all of its taxable
income for its fiscal year.
2. Management Fees and Other Transactions With Affiliates
Lincoln Investment Management Company (the "Advisor") and its affiliates manage
the Fund's investment portfolio and maintain its accounts and records. For these
services, the Advisor receives a management fee at an annual rate of .48% of the
first $200,000,000 of the average daily net assets of the Fund, .40% of the next
$200,000,000, and .30% of the average daily net assets of the Fund in excess of
$400,000,000. The sub-advisor, Vantage Investment Advisors, an affiliate of the
Advisor, is paid directly by the Advisor.
Delaware Service Company ("Delaware"), an affiliate of the Advisor, provides
accounting services and other administration support to the Fund. For these
services, the Fund pays Delaware a monthly fee based on average net assets,
subject to certain minimums.
If the aggregate annual expenses of the Fund, including the management fee, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses, exceed
1.50% of the average daily net assets of the Fund, the Advisor will reimburse
the Fund in the amount of such excess. No reimbursement was due for the six
months ended June 30, 1999.
Social Awareness Fund 6
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
Certain officers and directors of the Fund are also officers or directors of the
Companies and receive no compensation from the Fund. The compensation of
unaffiliated directors of the Fund is borne by the Fund.
3. Investments
The cost of investments for federal income tax purposes approximates cost for
book purposes. The aggregate cost of investments purchased and the aggregate
proceeds from investments sold for the six months ended June 30, 1999 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$257,383,852 $287,306,123 $672,496,029 $(83,730,365) $588,765,664
</TABLE>
4. Summary of Changes From Capital Share Transactions
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase
Capital Reinvestment of Capital Shares Resulting From Capital
Shares Sold Dividends Redeemed Share Transactions
------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six months ended
June 30, 1999 (unaudited): 1,408,082 $ 57,207,690 1,998,562 $78,628,821 (2,407,302) $(98,363,711) 999,342 $ 37,472,800
Year ended
December 31, 1998: 10,472,068 390,645,188 2,315,866 82,146,951 (1,621,323) (55,804,164) 11,166,611 416,987,975
</TABLE>
5. Distributions to Shareholders
The Fund declares and distributes dividends on net investment income, if any,
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
Social Awareness Fund 7
