[LOGO OF DELAWARE INVESTMENTS]
Lincoln National
International Fund, Inc.
Semi-Annual Report
June 30, 2000
<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]
For the six-month period ended June 30, 2000, the Fund rose 0.8%, (net of fees)
while the Morgan Stanley Capital International EAFE Stock Index returned -4.0%.
The strong relative performance of the portfolio was mainly accrued in the 2nd
quarter, during which markets broadened and investors refocused on underlying
fundamental valuations. Many of the technology, media and telecommunication
stocks that drove returns in the very polarized market of 1999 fell sharply.
In Europe, returns were mixed. Over the period under review, France and Italy
rose 6.0% and 3.9% respectively in US dollar terms, while other markets,
particularly the UK, Germany and Spain were weak. The portfolio continued to
benefit from exposure to high quality technology companies such as Siemens and
Alcatel, but with the broadening of the market, our holdings in Powergen, AB
Foods and Blue Circle also added greatly to returns.
In the Pacific, Australia was the only market to produce a positive return over
the period under review. In contrast, Singapore fell 22.7%, New Zealand fell
16.7%, Hong Kong fell 13.1% and Japan fell 5.4% in US dollar terms. Stock
selection was an important component of return, with National Australia Bank,
CSR, Eisai and Canon performing particularly well.
With the sustainability of the latest Japanese recovery from recession very
unclear and with many of the structural problems afflicting the economy still
untackled, we continue to maintain an underweight position in the Japanese
market compared to our benchmark index. We also maintain our overweight exposure
in the attractively valued United Kingdom and Australian markets.
Elizabeth A. Desmond
Clive Gillmore
International Fund 1
<PAGE>
Lincoln National
International Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 2000
Investments:
Number Market
Common Stock: of Shares Value
--------------------------------------------------------------------------
Australia: 11.8%
--------------------------------------------------------------------------
Amcor 2,351,000 $ 8,204,984
CSR 3,762,900 10,432,264
Foster's Brewing Group 4,455,100 12,511,035
National Australia Bank 1,022,200 17,039,108
Orica 1,037,100 4,695,838
Paperlinx 783,667 1,484,323
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54,367,552
Belgium: 1.3%
--------------------------------------------------------------------------
Electrabel 24,654 6,093,136
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France: 10.8%
--------------------------------------------------------------------------
Alcatel 270,500 17,739,666
Compagnie De Saint-Gobain 57,050 7,711,526
Societe Generale 214,200 12,881,945
Total Fina 74,631 11,441,586
--------------------------------------------------------------------------
49,774,723
Germany: 8.9%
--------------------------------------------------------------------------
Bayer 240,300 9,198,554
Bayerische Hypo-und Vereinsbank AG 201,400 13,169,566
Continental 178,600 3,000,651
Rheinisch Westfaelisches Elektric 206,900 7,021,365
Siemens 58,100 8,696,482
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41,086,618
Hong Kong: 3.7%
--------------------------------------------------------------------------
Hong Kong Electric * 1,980,000 6,375,217
Jardine Matheson Holdings 1,159,200 5,077,296
Peregrine Investment Holdings 2,484,500 3,187
Wharf Holdings 3,151,000 5,638,696
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17,094,396
Japan: 14.5%
--------------------------------------------------------------------------
Canon * 339,000 16,865,360
Eisai * 287,000 9,194,388
Hitachi * 850,000 12,253,844
Matsushita Elecric Industrial * 391,000 10,131,446
Nichido Fire & Marine * 1,061,000 5,798,363
West Japan Railway * 3,023 12,248,097
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66,491,498
Malaysia: .8%
--------------------------------------------------------------------------
Sime Darby Berhad 2,818,200 3,619,162
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Netherlands: 7.3%
--------------------------------------------------------------------------
Elsevier-CVA 757,900 9,181,105
ING Groep 157,977 10,676,983
Royal Dutch Petroleum 220,700 13,715,282
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33,573,370
New Zealand: 2.5%
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Carter Holt Harvey 4,063,700 3,528,501
Telecom Corporation of New Zealand 2,296,800 8,031,123
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11,559,624
Singapore: 1.0%
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Overseas Chinese Banking 672,000 4,630,457
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South Africa: 1.6%
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Sanlam 2,846,500 3,360,422
Sasol 596,600 4,000,781
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7,361,203
Number Market
of Shares Value
--------------------------------------------------------------------------
Spain: 5.5%
--------------------------------------------------------------------------
Banco Santander Central Hispanoamericano 620,537 $ 6,545,629
Iberdrola 682,000 8,789,002
Telefonica De Espana * 463,698 9,959,535
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25,294,166
United Kingdom: 27.6%
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Associated British Foods 736,208 5,092,892
Bass 948,100 10,600,072
BG Group 1,962,044 12,645,286
Blue Circle Industry 1,465,400 9,488,776
Boots 1,316,399 10,037,563
British Airways 1,688,300 9,712,456
Cable & Wireless 713,500 12,111,476
GKN 877,000 11,165,134
Glaxo Wellcome 338,900 9,869,895
Great Universal Stores 1,295,900 8,092,241
Halifax Group 458,562 4,374,147
PowerGen 1,253,100 10,768,229
Rio Tinto 568,400 9,304,468
Taylor Woodrow 1,433,400 3,285,415
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126,548,050
Total Common Stock: 97.5%
(Cost $424,710,277) 447,493,955
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Par
Repurchase Agreement: Amount
--------------------------------------------------------------------------
State Street Bank & Trust Co.
Repurchase Agreement, dated 6/30/00,
maturing 7/3/00, collateralized by
$4,275,000 U.S. Treasury Bond, 11.250%
market value $6,487,313 $6,358,000 6,358,000
--------------------------------------------------------------------------
Total Repurchase Agreement: 1.4%
(Cost $6,358,000) 6,358,000
--------------------------------------------------------------------------
Total Investments: 98.9%
(Cost $431,068,277) 453,851,955
--------------------------------------------------------------------------
Other Assets Over Liabilities: 1.1% 5,239,868
--------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $14.018 per share
based on 32,750,353 shares issued and outstanding) $459,091,823
--------------------------------------------------------------------------
Components of Net Assets at June 30, 2000:
--------------------------------------------------------------------------
Common Stock, par value $.01 per share,
100,000,000 authorized shares $ 327,504
Paid in capital in excess of par value of
shares issued 405,359,179
Undistributed net investment income** 12,519,049
Accumulated net realized gain on investments 18,010,525
Net unrealized appreciation of investments
and foreign currencies 22,875,566
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Total Net Assets $459,091,823
--------------------------------------------------------------------------
* Non-income producing security.
** Undistributed net investment income includes net realized gain on foreign
currencies. Net realized gains on foreign currencies are treated as net
investment income in accordance with provisions of the Internal Revenue Code.
See accompanying notes to financial statements
International Fund 2
<PAGE>
Lincoln National International Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 2000
Investment income:
Dividends $8,056,505
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Interest 355,680
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Less: Foreign withholding tax (754,428)
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Total investment income 7,657,757
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Expenses:
Management fees 1,806,074
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Accounting fees 157,717
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Custodial fees 109,368
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Printing and postage 43,244
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Professional fees 15,234
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Directors fees 2,100
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Other 43,621
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Total expenses 2,177,448
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Net investment income 5,480,309
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Net realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain (loss) on:
Investment transactions 25,324,916
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Foreign currency transactions (275,651)
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Net realized gain on investment and
foreign currency transactions 25,049,265
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Net change in unrealized appreciation/depreciation of:
Investments (31,057,803)
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Foreign currency 100,414
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Net change in unrealized appreciation/depreciation of
investments and foreign currency (30,957,389)
------------------------------------------------------------------------------
Net realized and unrealized loss on investments
and foreign currency (5,908,124)
------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(427,815)
------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended
6/30/00 Year ended
(Unaudited) 12/31/99
--------------------------------
<S> <C> <C>
Changes from operations:
Net investment income $ 5,480,309 $ 10,593,376
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Net realized gain on investment and foreign currency transactions 25,049,265 14,452,779
---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments and foreign currency (30,957,389) 56,867,519
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (427,815) 81,913,674
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Distributions to shareholders from:
Net investment income (3,929,129) (17,725,584)
---------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (10,724,739) (109,585,193)
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Total distributions to shareholders (14,653,868) (127,310,777)
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (52,143,671) 70,059,978
---------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (67,225,354) 24,662,875
---------------------------------------------------------------------------------------------------
Net Assets, beginning of period 526,317,177 501,654,302
---------------------------------------------------------------------------------------------------
Net Assets, end of period $459,091,823 $526,317,177
---------------------------------------------------------------------------------------------------
</TABLE>
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
6/30/00 Year ended December 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.374 $ 15.982 $ 14.673 $ 14.556 $ 13.398 $ 13.027
Income from investment operations:
Net investment income gain2 0.163 0.294 0.253 0.066 0.071 0.069
Net realized and unrealized (loss)
on investments and foreign currency (0.060) 2.182 1.838 0.771 1.244 0.892
------------------------------------------------------------------
Total from investment operations 0.103 2.476 2.091 0.837 1.315 0.961
------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.123) (0.529) (0.189) - (0.071) (0.069)
Distributions from net realized gain on
investment transactions (0.336) (3.555) (0.593) (0.720) (0.086) (0.521)
------------------------------------------------------------------
Total dividends and distributions (0.459) (4.084) (0.782) (0.720) (0.157) (0.590)
------------------------------------------------------------------
Net asset value, end of period $ 14.018 $ 14.374 $ 15.982 $ 14.673 $ 14.556 $ 13.398
------------------------------------------------------------------
Total Return(1) 0.79% 17.75% 14.65% 6.00% 9.52% 8.89%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.96%(3) 0.92% 0.93% 0.93% 1.19% 1.27%
Ratio of net investment income
to average net assets 2.41%(3) 2.05% 1.63% 0.44% 0.51% 0.59%
Portfolio Turnover 3.40% 11.51% 123.11% 77.58% 68.67% 63.15%
Net assets, end of period (000 omitted) $459,092 $526,317 $501,654 $466,229 $440,375 $358,391
</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 periods ended June 30, 2000, December 31, 1999
and 1998 were based on the average shares outstanding method.
(3) Annualized.
See accompanying notes to financial statements.
International Fund 4
<PAGE>
Lincoln National International Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 2000
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 the 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
Security Valuation: Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Fund is valued. Money market
instruments having less than 60 days to maturity are valued at amortized cost,
which approximates market value. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
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. Foreign dividends are
also recorded on the ex-dividend date or as soon after the ex-dividend date that
the Fund is aware of such dividends, net of all non-rebatable tax withholdings.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the applicable country's tax rules and rates. 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 period. 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 form 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
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
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.
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 portfolios 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 asset 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, 2000.
Certain officers and directors of the Fund are also officers or directors of the
Company 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, 2000 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at June 30, 2000 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> <C>
$15,297,087 $84,516,344 $87,360,439 $(64,576,760) $22,783,679
</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. At
June 30, 2000 the fund had no open forward currency contracts.
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, 2000:
Banking, Finance & Insurance 17.5%
------------------------------------------------------
Energy 10.9
------------------------------------------------------
Utilities 9.4
------------------------------------------------------
Electrical & Electronics 8.8
------------------------------------------------------
Telecommunications 8.5
------------------------------------------------------
Buildings & Materials 8.2
------------------------------------------------------
Food, Beverage & Tobacco 6.3
------------------------------------------------------
Retail 5.2
------------------------------------------------------
Transportation 4.9
------------------------------------------------------
Healthcare & Pharmaceuticals 4.3
------------------------------------------------------
Others (individually less than 4%) 16.0
------------------------------------------------------
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>
Year ended
June 30, 2000
(Unaudited): 2,656,444 $36,011,089 1,062,182 $14,653,868 (7,581,977) $(102,808,628) (3,863,351) $(52,143,671)
Year ended
December 31, 1999: 5,327,475 76,666,823 9,311,698 127,310,777 (9,413,845) (133,917,622) 5,225,328 70,059,978
</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
