[LOGO OF DELAWARE INVESTMENTS]
Lincoln National
International Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National International 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 International Fund, Inc.
Managed by: [LOGO OF DELAWARE INVESTMENTS]
The Fund had a return of 9.6% for the first six months of 1999 while its
benchmark, the Morgan Stanley EAFE Index, returned 4.1% for the same period.
1999 has, so far, been marked by three key themes. In the Pacific, markets rose
sharply and even the relative laggards, Japan and Australia, returned 21% and
14% respectively. The euro, following its debut in January, has performed poorly
depreciating 12.2% against the US dollar. Lastly, the surprising strength of
economic growth in the United States has encouraged a rally in cyclical and
commodity stocks worldwide.
In analyzing the returns so far this year, we believe the Fund performed well
for several reasons. Our aggregate overweight position in Asia benefited
returns, though our exposure to New Zealand and our low exposure to Japan
dampened the effect. During the period, we had a defensive currency hedge in
place to protect your UK sterling assets against currency weakness. This proved
a profitable strategy over the period as sterling depreciated. Overall, the
largest contributor to returns was the selection of individual securities in the
portfolio. We had strongly performing securities across a range of markets and
while at risk of highlighting the exceptional, Wharf Holdings in Hong Kong more
than doubled over the last six months.
Our ongoing strategy for the portfolio will continue to be low weighting in the
overvalued Japanese market, overweight positions in the Australasian markets,
the UK and selected Continental European equity markets.
Elizabeth A. Desmond
Clive Gillmore
International Fund 1
<PAGE>
Lincoln National
International Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ---------------------------------------------------------------------------
Australia: 11.2%
- ---------------------------------------------------------------------------
Amcor Limited 2,351,000 $ 13,134,495
CSR Limited 3,762,900 10,814,123
Foster's Brewing Group 5,160,800 14,618,660
National Australia Bank 922,700 15,345,654
Orica Limited 1,037,100 5,692,619
- ---------------------------------------------------------------------------
59,605,551
Belgium: 1.5%
- ---------------------------------------------------------------------------
Electrabel 24,654 7,986,788
- ---------------------------------------------------------------------------
France: 9.1%
- ---------------------------------------------------------------------------
Alcatel 86,500 12,220,504
Compagnie De Saint-Gobain 66,100 10,569,886
Elf Aquitaine 106,600 15,700,101
Societe Generale 59,150 10,462,541
- ---------------------------------------------------------------------------
48,953,032
Germany: 10.1%
- ---------------------------------------------------------------------------
Bayer 371,500 15,514,676
Bayerische Hypo-Und Verensbank 201,400 12,861,303
Continental 178,600 4,288,543
Rheinisch Westfaelisches Elektric 206,900 9,614,953
Siemens 155,900 12,069,466
- ---------------------------------------------------------------------------
54,348,941
Hong Kong: 4.9%
- ---------------------------------------------------------------------------
Hong Kong Electric 2,473,000 7,968,474
Jardine Matheson Holdings 1,682,000 8,410,000
Peregrine Investment Holdings* 2,484,500 3,202
Wharf Holdings 3,202,000 9,987,292
- ---------------------------------------------------------------------------
26,368,968
Japan: 13.5%
- ---------------------------------------------------------------------------
Canon 667,000 19,183,134
Eisai 495,000 9,756,815
Hitachi 1,408,000 13,207,268
Matsushita Electric Industrial 685,000 13,303,714
Nichido Fire & Marine 1,061,000 5,462,833
West Japan Railway 3,023 11,592,328
- ---------------------------------------------------------------------------
72,506,092
Malaysia: 1.3%
- ---------------------------------------------------------------------------
Sime Darby Berhad 5,300,000 6,945,789
- ---------------------------------------------------------------------------
Netherlands: 6.8%
- ---------------------------------------------------------------------------
Elsevier 757,900 8,824,798
ING Groep 160,400 8,715,734
Royal Dutch Petroleum 323,100 18,994,403
- ---------------------------------------------------------------------------
36,534,935
New Zealand: 3.6%
- ---------------------------------------------------------------------------
Carter Holt Harvey 5,390,700 6,494,139
Telecom Corp Of New Zealand 2,965,600 12,804,586
- ---------------------------------------------------------------------------
19,298,725
South Africa: 0.9%
- ---------------------------------------------------------------------------
Sanlam Limited* 1,634,418 1,942,420
Sasol Limited 394,600 2,823,608
- ---------------------------------------------------------------------------
4,766,028
Spain: 6.3%
- ---------------------------------------------------------------------------
Banco Santander Central Hispanoamericano 882,340 9,223,541
Iberdrola 840,900 12,854,796
Telefonica de Espana 239,215 11,564,813
- ---------------------------------------------------------------------------
33,643,150
Number Market
of Shares Value
- ---------------------------------------------------------------------------
United Kingdom: 27.9%
- ---------------------------------------------------------------------------
Associated British Food 736,208 $ 4,814,628
Bass 948,100 13,807,661
BG 2,207,300 13,529,210
Blue Circle Industry 1,856,100 12,372,875
Boots Company 1,081,400 12,923,551
British Airways 1,688,300 11,627,455
Cable & Wireless 1,117,500 14,245,893
GKN 877,000 15,035,886
Glaxo Wellcome 429,500 11,947,270
Great Universal Stores 901,800 10,100,950
PowerGen 1,253,100 13,501,686
Rio Tinto 673,040 11,220,298
Taylor Woodrow 1,433,400 4,141,123
- ---------------------------------------------------------------------------
149,268,486
Total Common Stock: 97.1%
(Cost $493,745,345) 520,226,485
- ---------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
- ---------------------------------------------------------------------------
State Street Bank and Trust Co.
Repurchase Agreement, dated 6/30/99, 4.40%,
maturing 7/1/99, collateralized by
$11,045,000 U.S. Treasury Bond, 8.50%,
2/15/20, market value $14,177,584 $13,773,000 13,773,000
- ---------------------------------------------------------------------------
Total Repurchase Agreement: 2.6%
(Cost $13,773,000) 13,773,000
- ---------------------------------------------------------------------------
Total Investments: 99.7%
(Cost $507,518,345) 553,999,485
- ---------------------------------------------------------------------------
Other Assets Over Liabilities: 0.3% 2,004,727
- ---------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $13.584 per share
based on 39,457,935 shares issued and outstanding) $536,004,212
- ---------------------------------------------------------------------------
Components of Net Assets at June 30, 1999:
- ---------------------------------------------------------------------------
Common Stock, $.01 par value
100,000,000 authorized shares 394,579
Paid in capital in excess of par value of
shares issued 490,568,233
Undistributed net investment income 2,060,388
Accumulated net realized gain on investments 15,657,512
Net unrealized appreciation of investments
and foreign currencies 27,323,500
- ---------------------------------------------------------------------------
Total Net Assets $536,004,212
- ---------------------------------------------------------------------------
*Non-income producing security.
See accompanying notes to financial statements
International Fund 2
<PAGE>
Lincoln National International Fund, Inc.
Statement of Operations - Unaudited
June 30, 1999
Investment income:
Dividends $ 9,425,360
- -----------------------------------------------------------------------------
Interest 336,064
- -----------------------------------------------------------------------------
Less: Foreign withholding tax (917,017)
- -----------------------------------------------------------------------------
Total investment income 8,844,407
- -----------------------------------------------------------------------------
Expenses:
Management fees 1,973,603
- -----------------------------------------------------------------------------
Accounting fees 166,500
- -----------------------------------------------------------------------------
Custodial fees 122,000
- -----------------------------------------------------------------------------
Printing and postage 71,300
- -----------------------------------------------------------------------------
Directors fees 2,100
- -----------------------------------------------------------------------------
Other 5,151
- -----------------------------------------------------------------------------
Total expenses 2,350,454
- -----------------------------------------------------------------------------
Net investment income 6,493,953
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency related transactions:
Net realized gain (loss) on:
Investment transactions 6,828,027
- -----------------------------------------------------------------------------
Foreign currency transactions 1,297,080
- -----------------------------------------------------------------------------
Net realized gain on investment and
foreign currency transactions 8,125,107
- -----------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) of:
Investments 30,076,735
- -----------------------------------------------------------------------------
Foreign currency 281,329
- -----------------------------------------------------------------------------
Net change in unrealized appreciation of investments
and foreign currency 30,358,064
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency related transactions 38,483,171
- -----------------------------------------------------------------------------
Net increase in net assets
resulting from operations $44,977,124
- -----------------------------------------------------------------------------
Statements of Changes in Net Assets
Six months
ended
6/30/99 Year ended
(Unaudited) 12/31/98
---------------------------
Changes from operations:
- ------------------------------------------------------------------------------
Net investment income $ 6,493,953 $ 7,975,000
- ------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency related transactions 8,125,107 118,404,110
- ------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments and foreign currency 30,358,064 (61,910,646)
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 44,977,124 64,468,464
- ------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (9,937,473) (5,842,740)
- ------------------------------------------------------------------------------
Net realized gain on investments (109,585,193) (18,026,179)
- ------------------------------------------------------------------------------
Total distributions to shareholders (119,522,666) (23,868,919)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions 108,895,452 (5,174,443)
- ------------------------------------------------------------------------------
Total increase in net assets 34,349,910 35,425,102
- ------------------------------------------------------------------------------
Net Assets, beginning of period 501,654,302 466,229,200
- ------------------------------------------------------------------------------
Net Assets, end of period $536,004,212 $501,654,302
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
International Fund 3
<PAGE>
Lincoln National International Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Period ended December 31,
(unaudited) 1998 1997 1996 1995 1994(3)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.982 $ 14.673 $ 14.556 $ 13.398 $ 13.027 $ 12.642
Income from investment operations:
Net investment income(2) 0.192 0.253 0.066 0.071 0.069 0.033
Net realized and unrealized gain
on investments 1.287 1.838 0.771 1.244 0.892 0.385
-----------------------------------------------------------------
Total from investment operations 1.479 2.091 0.837 1.315 0.961 0.418
-----------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.322) (0.189) - (0.071) (0.069) (0.033)
Distributions from net realized gain on
investment transactions (3.555) (0.593) (0.720) (0.086) (0.521) -
-----------------------------------------------------------------
Total dividends and distributions (3.877) (0.782) (0.720) (0.157) (0.590) (0.033)
-----------------------------------------------------------------
Net asset value, end of period $ 13.584 $ 15.982 $ 14.673 $ 14.556 $ 13.398 $ 13.027
-----------------------------------------------------------------
Total Return(1) 9.55% 14.65% 6.00% 9.52% 8.89% 3.28%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.92% 0.93% 0.93% 1.19% 1.27% 1.24%
Ratio of net investment income
to average net assets 2.55% 1.63% 0.44% 0.51% 0.59% 0.25%
Portfolio Turnover 9.16% 123.11% 77.58% 68.67% 63.15% 52.78%
Net assets, end of period (000 omitted) $536,004 $501,654 $466,229 $440,375 $358,391 $316,350
</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).
(2) Per share information for the six months ended June 30, 1999 and year ended
December 31, 1998 was based on the average shares outstanding method.
(3) The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on May 1,
1994 through December 31, 1994. Accordingly, the total return and portfolio
turnover have NOT been calculated on an annualized basis.
See accompanying notes to financial statements.
International Fund 4
<PAGE>
Lincoln National International Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National International 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 trades in securities issued outside the United States - mostly stocks,
with an occasional bond or money market security.
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. Forward foreign currency contracts are
valued at the forward exchange rates prevailing on the day of valuation. 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. Realized gains or
losses from investment transactions are reported on an identified cost basis.
Foreign Currency Transactions: The books and records of the Fund are maintained
in U.S. dollars. All assets and liabilities denominated in a foreign currency
are translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the year. Income and expenses and purchases and sales of investments
are translated into U.S. dollars at the rate of exchange prevailing on the
respective dates of such transactions. It is not practical to isolate that
portion of both realized and unrealized gains and losses on investments in
equity securities that result from fluctuations in foreign currency exchange
rates in the statement of operations. The Fund does isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Reported net realized gains and losses on foreign currency transactions arise
from sales and maturities of forward foreign currency contracts, currency gains
and losses between the trade and settlement dates on securities transactions,
and the differences between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net change in unrealized appreciation or
depreciation on translation of assets and liabilities in foreign currencies
arise from changes in the value of other assets and liabilities at the end of
the period resulting from changes in the exchange rates.
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.
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.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the applicable country's tax rates.
International Fund 5
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
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 .90% of the
first $200,000,000 of the average daily net assets of the Fund, .75% of the next
$200,000,000, and .60% of the average daily net assets of the Fund in excess of
$400,000,000. The sub-advisor, Delaware Investment Advisors Ltd. ("DIAL"), which
is 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.
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.
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>
$44,357,855 $51,369,031 $60,958,666 $(34,477,526) $26,481,140
</TABLE>
4. Supplemental Financial Instrument Information
Forward Foreign Currency Contracts: The Fund may purchase or sell forward
foreign currency contracts to hedge risks of fluctuations in specific
transactions or portfolio positions. Forward foreign currency contracts obligate
the Fund to take or deliver a financial instrument of foreign currency at a
future date at a specified price. The realized and unrealized gain or loss on
the contracts is reflected in the accompanying financial statements. The Fund is
subject to the credit risks that the counter parties to these contracts will
fail to perform; although this risk is minimized by purchasing such agreements
from financial institutions with long standing, superior performance records. In
addition, the Fund is subject to the market risks associated with unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Forward foreign currency contracts that were open at June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Contract to Foreign Foreign U.S. Cost Unrealized
Receive (Deliver) Currency Proceeds Settlement Date Gain (Loss)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(24,729,062) Great Britain Pound $ 40,000,000 July 1999 $953,553
24,729,062 Great Britain Pound 39,094,916 July 1999 (48,469)
</TABLE>
Repurchase Agreements: The Fund, through its custodian, receives delivery of the
underlying securities, whose market value is required to be at least 102% of the
repurchase price. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization of the collateral may be subject to
legal proceedings.
International Fund 6
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
5. Credit and Market Risks
The Fund invests in foreign securities. As a result, there may be additional
risks, such as the investments being subject to restrictions as to repatriation
of cash back to the United States and to political or economic uncertainties.
Distribution of investments for the Fund, by industry, as a percentage of total
investments, consisted of the following at June 30, 1999:
Energy 22.1%
----------------------------------------
Consumer Products and Services 18.4
----------------------------------------
Banking, Finance and Insurance 12.3
----------------------------------------
Building and Materials 9.2
----------------------------------------
Electrical and Electronics 8.8
----------------------------------------
Industrial 7.6
----------------------------------------
Telecommunications 7.5
----------------------------------------
Transportation 4.5
----------------------------------------
Healthcare and Pharmaceuticals 4.2
----------------------------------------
Others (individually less than 4%) 5.4
----------------------------------------
100.0%
=====
6. Summary of Changes From Capital Share Transactions
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase (Decrease)
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): 2,868,496 $43,277,516 8,716,222 $119,522,666 (3,515,159) $(53,904,730) 8,069,559 $108,895,452)
Year ended
December 31, 1998: 3,664,156 57,112,244 1,595,567 23,868,919 (5,646,496) (86,155,606) (386,773) (5,174,443)
</TABLE>
7. 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.
International Fund 7
