[LOGO OF VANTAGE INVESTMENT ADVISORS]
Lincoln National
Social Awareness Fund, Inc.
Annual Report
December 31, 1998
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Index
Commentary 10
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National
Social Awareness Fund, Inc.
Managed by: [LOGO OF VANTAGE INVESTMENT ADVISORS]
During 1998 the Fund returned 19.89% versus its benchmark, the S&P 500 Index,
which returned 28.76%.
Depending on how you look at it, 1998 was another strong year for stocks. The
largest stocks soared, while medium sized stocks performed well, and the
smallest stocks took up the rear. While the Social Awareness Fund continues to
be a five star fund as measured by Morningstar, delivering impressive long-term
results, the Fund lagged the S&P 500 Index for the year.
A primary factor in Social Awareness Fund's performance was our avoidance of
"supercap" stocks - very large company stocks with relatively high
price/earnings ratios - that led the stock market during 1998. We shunned most
"supercap" stocks because they failed to rate highly - according to our growth
and value investment parameters. Also, some "supercap" companies, such as
General Electric and Exxon, were not able to meet our socially responsible
investment criteria. This made it difficult for us to keep pace with the index.
Our selection process led us instead to large and mid-cap stocks that appeared
to have higher long-term growth potential and could be bought at reasonable
share prices.
Few stocks fared worse during 1998 than those of financial companies. Banks and
investment companies are usually more sensitive to global economic volatility
than many businesses. Financial stocks suffered from successive problems that
started with emerging market currency exposure during the spring and Russia's
debt default last summer. The Fund has a significant weight in such companies.
Financial stocks have historically been the Fund's largest sector because
investment companies and banks are more likely to pass our social screens.
Many of our financial holdings performed poorly during the last half of 1998,
particularly Citigroup. The New York based financial company was formed by a
merger between Travelers and Citicorp last spring - creating the world's largest
financial services company. Investors became concerned that Citigroup's
behemoth size would present certain operational difficulties and the company's
share price subsequently fell. We believe Citigroup will eventually benefit from
economies of scale once the logistics of the merger are better defined. We
limited the Fund's exposure to global financial companies by focusing on smaller
regional U.S. banks. Unfortunately, the share prices of many smaller banks were
unjustly punished, in our view, because of the actions of their larger peers.
The Fund's holdings of AmSouth, a regional bank based in Birmingham, Alabama,
fell in sympathy with larger banks during the market volatility. However, as of
year-end, the bank's share price had bounced back on the resilience of a strong
U.S. economy.
Technology and healthcare stocks bolstered Fund performance. These two sectors
seemed to offer attractive capital appreciation prospects and together accounted
for a significant portion of the Fund. We were encouraged by the performance of
Apple Computer throughout 1998. Our computer analysis indicated that Apple's
stock met both our growth and value parameters. We purchased shares of Apple
last winter and as of year end, Apple's share price had appreciated
substantially. Apple has been successful in marketing its newest addition to the
company's line of computers - the iMAC, a personal computer competitive with
other lower priced models. Apple also appears to have a number of promising new
products in the development pipeline. We believe this bodes well for the
company's long-term profit and earnings growth potential.
<PAGE>
One factor measured by our computer analysis is whether Wall Street analysts
have raised earnings expectations for a stock. Sometimes this leads us to
companies reported to be merger and acquisition targets. The Fund's holdings of
Arterial Vascular Engineering, a mid-cap medical products company, performed
well after some Wall Street analysts indicated the company was a prime takeover
candidate. The reports were confirmed last November when Arterial Vascular
Engineering, which is among the Fund's largest holdings, was acquired by
Medtronic, the world's largest heart pacemaker manufacturer, causing shares to
increase dramatically.
The U.S. economy was still giving off mixed signals at the end 1998.
Manufacturing has been hit hard by an international economic slowdown and many
overseas consumer markets have dried up. Some large manufacturers, such as
Boeing and Caterpillar, have announced plans to lay off thousands of workers.
Yet, more jobs were created than lost during 1998, consumer confidence is high,
and interest rates and inflation are low.
The Social Awareness Fund's investment portfolio has been positioned over the
past year to benefit from U.S. economic growth while escaping the full impact
of struggling international markets. Many of the companies in which we invest
generate the majority of their revenues from U.S. and/or European markets.
Since no country can remain an island in the global economy, we expect
additional stock market volatility in fiscal 1999. Fortunately, we believe our
quantitative investment strategy cannot only endure the short-term effects of
market volatility but also ultimately reward patient, long-term investors.
T. Scott Wittman
Growth of $10,000 invested 1/1/89 through 12/31/98
1/1/89 12/31/98
Social Awareness Fund $10,000 $61,659
S&P 500 Index $10,000 $57,904
This chart illustrates, hypothetically, that $10,000 was invested in the Social
Awareness Fund on 1/1/89. As the chart shows, by December 31, 1998, the value of
the investment at net asset value, with any dividends and capital gains
reinvested, would have grown to $61,659. For comparison, look at how the S&P 500
Index did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $57,904. Past
performance is not indicative of future performance. Remember, an investor
cannot invest directly in an index.
Average annual return Ended
on investments 12/31/98
- --------------------------------------------
One Year +19.89%
- --------------------------------------------
Five Years +24.92%
- --------------------------------------------
Ten Years +19.95%
- --------------------------------------------
<PAGE>
Lincoln National
Social Awareness Fund, Inc.
Statement of Net Assets
December 31, 1998
Investments:
Number Market
Common Stock: of Shares Value
- ---------------------------------------------------------------------------
Automobiles & Auto Parts: 0.1%
- ---------------------------------------------------------------------------
PACCAR 51,200 $2,099,200
- ---------------------------------------------------------------------------
Banking, Finance & Insurance: 22.6%
- ---------------------------------------------------------------------------
Allstate 690,468 26,669,326
American Express 137,000 14,008,249
American International Group 237,500 22,948,437
AmSouth Bancorporation 393,525 17,954,577
Bank One 173,843 8,876,857
BankBoston 173,700 6,763,443
Bankers Trust New York 206,600 17,651,387
Chase Manhattan 590,800 40,211,324
Cigna 110,100 8,512,105
Citigroup 510,199 25,254,850
City National 329,500 13,715,437
Comerica 295,200 20,128,949
Conseco 388,200 11,864,362
Edwards (A.G.) 350,250 13,046,813
EXEL Limited 47,618 3,571,349
Federal National Mortgage Association 210,500 15,577,000
FIRSTPLUS Financial Group * 835,900 2,298,725
First Union 573,200 34,857,725
Marsh & McLennan 245,450 14,343,484
Mellon Bank 67,000 4,606,250
Metris 73,857 3,706,698
Morgan Stanley Dean Witter 117,100 8,314,100
National City 243,060 17,621,850
Old Republic International 336,825 7,578,563
Paine Webber Group 428,750 16,560,469
Reliance Group Holdings 649,200 8,358,450
Republic New York 80,800 3,681,450
SLM Holding 358,900 17,227,200
T. Rowe Price Associates 240,000 8,175,000
Washington Mutual 202,440 7,730,678
- ---------------------------------------------------------------------------
421,815,107
Buildings & Materials: 0.9%
- ---------------------------------------------------------------------------
Kaufman & Broad Home 370,700 10,657,625
Premark International 154,200 5,339,175
- ---------------------------------------------------------------------------
15,996,800
Cable, Media & Publishing: 6.4%
- ---------------------------------------------------------------------------
Dun & Bradstreet 474,700 14,982,719
Ennis Business Forms 176,800 1,756,950
Gannett 288,200 19,075,238
Knight-Ridder 222,900 11,395,763
McGraw-Hill 240,400 24,490,750
New York Times 446,150 15,475,828
Omnicom Group 323,400 18,757,200
R.H.Donnelley 94,940 1,382,564
Time Warner 100,400 6,231,075
World Color Press * 197,300 6,005,319
- ---------------------------------------------------------------------------
119,553,406
Computers & Technology: 16.1%
- ---------------------------------------------------------------------------
American Power Conversion * 547,900 26,521,784
Apple Computer * 550,800 22,565,588
BMC Software * 158,000 7,045,813
Cisco Systems * 298,200 27,686,006
Compaq Computer 171,600 7,196,475
Compuware * 60,000 4,685,625
Dell Computer * 323,400 23,678,944
Deluxe 218,300 7,981,594
Electronics Arts * 88,200 4,944,713
EMC * 208,400 17,714,000
HBO & Co. 858,400 24,652,175
Keane * 202,400 8,083,350
Number Market
of Shares Value
- ---------------------------------------------------------------------------
Lexmark International Group Class A * 356,500 $ 35,828,250
Microsoft * 468,900 64,957,303
Storage Technology * 498,000 17,710,125
- ---------------------------------------------------------------------------
301,251,745
Consumer Products: 2.3%
- ---------------------------------------------------------------------------
Avon Products 312,200 13,814,850
Brinker International * 401,200 11,584,650
Clorox 135,200 15,793,050
United Stationers * 77,600 2,090,350
- ---------------------------------------------------------------------------
43,282,900
Electronics & Electrical Equipment: 2.6%
- ---------------------------------------------------------------------------
Solectron * 466,400 43,346,050
Waters * 52,300 4,563,175
- ---------------------------------------------------------------------------
47,909,225
Energy: 2.0%
- ---------------------------------------------------------------------------
Enron 290,700 16,588,069
Helmerich & Payne 140,000 2,712,500
LG & E Energy 60,000 1,698,750
OGE Energy 446,100 12,909,019
Oryx Energy * 299,200 4,020,500
- ---------------------------------------------------------------------------
37,928,838
Food & Beverage: 4.8%
- ---------------------------------------------------------------------------
Agribrands International * 7,260 217,800
Flowers Industries 527,450 12,625,834
General Mills 139,600 10,853,900
International Multifoods 74,000 1,910,125
Interstate Bakeries 450,400 11,907,450
McCormick and Company 594,500 20,082,953
Quaker Oats 321,600 19,135,200
Ralston-Purina Group 217,800 7,051,275
Suiza Foods * 79,600 4,054,625
Universal Foods 69,000 1,893,188
- ---------------------------------------------------------------------------
89,732,350
Healthcare & Pharmaceuticals: 10.4%
- ---------------------------------------------------------------------------
Allegiance 663,800 30,949,675
Amgen * 353,700 36,961,650
Arterial Vascular Engineering * 492,900 25,831,041
Bard (C.R.) Inc. 190,900 9,449,550
Bergen Brunswig Class A 251,600 8,774,550
Beverly Enterprises * 605,700 4,088,475
Health Management Associates Class A * 622,950 13,471,294
Lilly (Eli) 125,400 11,144,925
Lincare Holdings * 268,200 10,870,481
McKesson 259,300 20,500,906
Mylan Laboratories 698,300 21,996,450
PharMerica * 275,654 1,662,538
- ---------------------------------------------------------------------------
195,701,535
Industrial Machinery: 1.1%
- ---------------------------------------------------------------------------
Deere & Company 358,200 11,865,375
Ingersoll-Rand 202,000 9,481,375
- ---------------------------------------------------------------------------
21,346,750
Leisure, Lodging & Entertainment: 0.6%
- ---------------------------------------------------------------------------
King World Productions * 49,100 1,445,381
McDonald's 118,300 9,064,738
- ---------------------------------------------------------------------------
10,510,119
Metals & Mining: 0.2%
- ---------------------------------------------------------------------------
Cleveland Cliffs Iron 77,900 3,140,344
- ---------------------------------------------------------------------------
Miscellaneous: 0.5%
- ---------------------------------------------------------------------------
PAYCHEX 48,600 2,501,381
Twinlab * 508,400 6,656,863
- ---------------------------------------------------------------------------
9,158,244
Packaging & Containers: 0.3%
- ---------------------------------------------------------------------------
Sealed Air * 99,000 5,055,188
- ---------------------------------------------------------------------------
Retail: 9.7%
- ---------------------------------------------------------------------------
Dollar Tree Stores * 344,500 15,039,578
Federated Department Stores * 347,800 15,151,038
<PAGE>
Number Market
of Shares Value
- ---------------------------------------------------------------------------
Fingerhut 232,000 $ 3,581,500
Gap 380,250 21,389,063
Home Depot 207,200 12,678,050
Jostens 83,300 2,181,419
Ross Stores 386,675 15,213,245
Safeway * 337,624 20,573,963
Staples * 670,600 29,317,794
TJX 753,900 21,863,100
Wal-Mart Stores 296,700 24,162,506
- ---------------------------------------------------------------------------
181,151,256
Telecommunications: 13.4%
- ---------------------------------------------------------------------------
ADC Telecommunications * 143,300 4,961,763
Alltel 288,700 17,267,869
Ameritech 196,700 12,465,863
AT&T 718,700 54,082,175
BellSouth 201,000 59,899,875
SBC Communications 783,064 41,991,807
Tellabs * 336,600 23,078,138
US West 569,500 36,803,938
- ---------------------------------------------------------------------------
250,551,428
Textiles, Apparel & Furniture: 1.1%
- ---------------------------------------------------------------------------
Miller (Herman) 236,200 6,333,113
Tommy Hilfiger * 231,200 13,872,000
- ---------------------------------------------------------------------------
20,205,113
Transportation & Shipping: 1.2%
- ---------------------------------------------------------------------------
AMR * 268,600 15,948,125
Tidewater 189,400 4,391,713
UAL * 38,600 2,303,938
- ---------------------------------------------------------------------------
22,643,776
Total Common Stock: 96.3%
(Cost $1,256,322,240) 1,799,033,324
- ---------------------------------------------------------------------------
Par
Money Market Instruments: Amount
- ---------------------------------------------------------------------------
American Honda Finance
5.4144%, 1/11/99 $9,500,000 9,485,829
5.30%, 1/14/99 1,200,000 1,200,000
Clorox Company
5.151%, 2/19/99 1,300,000 1,290,976
Commercial Credit
5.3266%, 2/2/99 8,600,000 8,559,484
Corporate Asset Funding
5.3456%, 1/15/99 1,600,000 1,596,702
5.27%, 1/19/99 4,500,000 4,488,143
5.4358%, 1/21/99 7,000,000 6,979,000
Marsh & McLennan
5.3999%, 1/12/99 5,200,000 5,191,420
Merrill Lynch
5.2508%, 1/25/99 9,500,000 9,467,066
Prudential Funding
5.1093%, 1/25/99 3,000,000 2,989,920
Salomon Smith Barney Holdings
5.42%, 1/6/99 9,500,000 9,492,849
U.S. Treasury Bill (+)
5.11%, 4/29/99 2,100,000 2,064,826
Volkswagen of America
5.253%, 1/4/99 4,800,000 4,797,900
Wells Fargo
5.2099%, 2/10/99 4,200,000 4,175,687
5.2099%, 3/10/99 3,200,000 3,168,811
- ---------------------------------------------------------------------------
Total Money Market Instruments: 4.0%
(Cost $74,948,613) 74,948,613
- ---------------------------------------------------------------------------
Total Investments: 100.3%
(Cost $1,331,270,853) 1,873,981,937
- ---------------------------------------------------------------------------
Other Assets Under Liabilities: (0.3%) (5,751,006)
- ---------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $ 40.283 per share
based on 46,377,079 shares
issued and outstanding) $1,868,230,931
===========================================================================
(+) Fully or partially pledged as collateral for open futures contracts.
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Statement of Operations
Year ended December 31, 1998
Investment income:
Dividends $19,677,119
- --------------------------------------------------------------------
Interest 3,731,178
- --------------------------------------------------------------------
Total investment income 23,408,297
- --------------------------------------------------------------------
Expenses:
Management fees 5,287,914
- --------------------------------------------------------------------
Accounting fees 491,939
- --------------------------------------------------------------------
Printing and postage 142,996
- --------------------------------------------------------------------
Directors fees 4,200
- --------------------------------------------------------------------
Other 65,490
- --------------------------------------------------------------------
Total expenses 5,992,539
- --------------------------------------------------------------------
Net investment income 17,415,758
- --------------------------------------------------------------------
Net realized and unrealized gain on investments
and futures contracts:
- --------------------------------------------------------------------
Net realized gain on investment transactions and
futures contracts 75,145,967
- --------------------------------------------------------------------
Net change in unrealized appreciation
of investments and futures contracts 185,333,835
- --------------------------------------------------------------------
Net realized and unrealized gain on investments and
futures contracts 260,479,802
- --------------------------------------------------------------------
Net increase in net assets
resulting from operations $277,895,560
====================================================================
Statements of Changes in Net Assets
Years ended December 31, 1998 and 1997
Year ended Year ended
12/31/98 12/31/97
----------------------------
Changes from operations:
- -----------------------------------------------------------------------------
Net investment income $ 17,415,758 $ 12,806,273
- -----------------------------------------------------------------------------
Net realized gain on investment transactions
and futures contracts 75,145,967 54,631,990
- -----------------------------------------------------------------------------
Net change in unrealized appreciation of
investments and futures contracts 185,333,835 224,321,657
- -----------------------------------------------------------------------------
Net increase in net assets
resulting from operations 277,895,560 291,759,920
- -----------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (27,514,961) -
- -----------------------------------------------------------------------------
Net realized gain on investments (54,631,990) (36,341,046)
- -----------------------------------------------------------------------------
Total distributions to shareholders (82,146,951) (36,341,046)
- -----------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 416,987,975 363,480,930
- -----------------------------------------------------------------------------
Total increase in net assets 612,736,584 618,899,804
- -----------------------------------------------------------------------------
Net Assets, beginning of year 1,255,494,347 636,594,543
- -----------------------------------------------------------------------------
Net Assets, end of year $1,868,230,931 $1,255,494,347
=============================================================================
See accompanying notes to financial statements.
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Period ended December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 35.657 $ 27.316 $ 22.590 $ 16.642 $ 17.915
Income (loss) from investment operations:
Net investment income 0.367 0.364 0.389 0.432 0.377
Net realized and unrealized gain (loss)
on investments and futures contracts 6.414 9.447 5.748 6.491 (0.461)
Total from investment operations 6.781 9.811 6.137 6.923 (0.084)
Less dividends and distributions:
Dividends from net investment income (0.672) - (0.389) (0.432) (0.377)
Distributions from net realized gain on
investment transactions (1.483) (1.470) (1.022) (0.543) (0.812)
Total dividends and distributions (2.155) (1.470) (1.411) (0.975) (1.189)
Net asset value, end of year $ 40.283 $ 35.657 $ 27.316 $ 22.590 $ 16.642
Total Return(1) 19.89% 37.53% 28.94% 42.83% 0.19%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.38% 0.41% 0.46% 0.50% 0.53%
Ratio of net investment income
to average net assets 1.10% 1.37% 1.58% 2.21% 2.22%
Portfolio Turnover 37.55% 34.84% 45.90% 54.02% 64.97%
Net assets, end of year (000 omitted) $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
percentages in the letter at the front of this booklet (those percentages
are based upon the change in unit value).
See accompanying notes to financial statements.
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Notes to Financial Statements
December 31, 1998
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.
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 year ended December 31, 1998, the
custodial fees offset arrangements amounted to $5,630.
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. Other Assets Under Liabilities
The statement of net assets account "Other Assets Under Liabilities" at December
31, 1998 consisted of the following assets (liabilities):
Cash $307,847
- ----------------------------------------------------
Receivable for dividends earned 1,897,022
- ----------------------------------------------------
Receivable for interest earned 4,063
- ----------------------------------------------------
Receivable for securities sold 22,127,761
- ----------------------------------------------------
Receivable for capital shares sold 945,449
- ----------------------------------------------------
Payable for securities purchased (30,418,729)
- ----------------------------------------------------
Payable for capital shares redeemed (42,721)
- ----------------------------------------------------
Management fees payable (614,199)
- ----------------------------------------------------
Other, net 42,501
- ----------------------------------------------------
$(5,751,006)
============
3. 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.
<PAGE>
Notes to Financial Statements - (Continued)
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 year
ended December 31, 1998.
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 is borne by the Fund.
4. Analysis of Net Assets
Net Assets at December 31, 1998 consisted of the following:
Common Stock, par value $.01 per share** $ 463,771
- ------------------------------------------------------------
Paid in capital in excess of par value of
shares issued 1,246,572,238
- ------------------------------------------------------------
Undistributed net investment income 2,707,070
- ------------------------------------------------------------
Accumulated net realized gain on investments
and futures contracts 75,145,968
- ------------------------------------------------------------
Net unrealized appreciation of investments
and futures contracts 543,341,884
- ------------------------------------------------------------
$1,868,230,931
===============
** The Fund has 100,000,000 authorized shares.
5. 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 year ended December 31, 1998 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at December 31, 1998 are as
follows:
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
------------------------------------------------------------------------
$922,173,706 $562,439,565 $606,184,462 $(63,473,378) $542,711,084
6. Supplemental Financial Instrument Information
Financial Futures Contracts: The Fund may purchase or sell financial futures
contracts, which are exchange traded. The Fund bears the market risk that arises
from changes in the value of these financial instruments. The Fund deposits with
its custodian a specified amount of cash or eligible securities called "initial
margin" or "variation margin". The market value of investments pledged to cover
margin requirements for open positions at December 31, 1998 was $2,064,826. The
Unrealized gain or loss on the contracts is reflected in the accompanying
financial statements. The Fund is subject to the market risks of unexpected
changes in the underlying markets and interest rates. Financial futures
contracts open at December 31, 1998 were as follows:
Notional Expiration Unrealized
Contracts Cost Amount Date Gain
- -----------------------------------------------------------------
100 S&P 500 contracts $14,937,950 March 1999 $630,800
7. 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>
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
Year ended
December 31, 1997: 10,416,924 322,889,993 1,581,459 43,404,427 (92,914) (2,813,490) 11,905,469 363,480,930
</TABLE>
8. 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.
<PAGE>
Lincoln National Social Awareness Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Social Awareness Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Social Awareness Fund, Inc. (the "Fund") as of December 31, 1998, 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 financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles 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 financial highlights referred to
above present fairly, in all material respects, the financial position of
Lincoln National Social Awareness Fund, Inc. at December 31, 1998, 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 its financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 5, 1999
