[LOGO OF JANUS]
Lincoln National
Capital Appreciation Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National Capital Appreciation 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
Capital Appreciation Fund, Inc.
Managed by: [LOGO OF JANUS]
The Fund returned 16.1% for the six months ended June 30, 1999 versus its
benchmark, the S&P 500 Index, of 12.2%. Continued strength in capital and
consumer spending drove the U.S. economy forward and pushed long-term interest
rates higher throughout the first half of 1999. While higher rates translated
into a modest roll into economic cyclical shares that worked against the
Portfolio, strong individual performances more than compensated, allowing us to
outpace the S&P 500 Index.
A number of our growth-oriented companies performed well despite higher interest
rates and the roll into cyclicals. Our semiconductor positions, including Texas
Instruments, Linear Technology and Maxim Integrated Products, advanced as the
outlook for the sector improved substantially. Technology companies
SunMicrosystems and Cisco Systems translated their enormously strong franchises
into share price gains while Tyco, an industrial conglomerate with a knack for
acquiring and revitalizing marginally performing businesses, also aided
performance. On the downside, losses were recorded by pharmaceutical positions
Pfizer and Schering-Plough as drug stocks came under pressure amid the poor
market environment and reports of pending Medicare reform.
Jim Craig
Capital Appreciation Fund 1
<PAGE>
Lincoln National
Capital Appreciation Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ------------------------------------------------------------------------
Automobiles & Auto Parts: 0.6%
Danaher 11,580 $ 673,087
Federal-Mogul 137,220 7,135,440
- ------------------------------------------------------------------------
7,808,527
Banking, Finance & Insurance: 14.7%
- ------------------------------------------------------------------------
American Express 251,230 32,691,304
American International Group 345,765 40,476,115
Bank of New York 822,830 30,187,575
Citigroup 290,000 13,775,000
Federal Home Loan 118,865 6,894,170
Firstar 193,110 5,407,080
M & T Bank 13,450 7,397,500
Northern Trust 54,005 5,240,173
Progressive 116,260 16,857,700
Prudential 112,132 1,662,244
Schwab (Charles) 267,445 29,385,519
- ------------------------------------------------------------------------
189,974,380
Cable, Media & Publishing: 13.6%
- ------------------------------------------------------------------------
Adelphia Communications Class A * 201,915 12,941,489
AT&T Liberty Media Class A * 562,195 20,660,666
Cox Communications Class A * 530,260 19,520,196
Infinity Broadcasting Class A * 268,820 7,997,395
TCA Cable TV 134,540 7,458,561
Time Warner 894,602 64,411,344
Univision Communications Class A * 203,415 13,425,390
Viacom Class B 466,395 20,521,380
Wolters Kluwer (Netherlands) 216,968 8,668,089
- ------------------------------------------------------------------------
175,604,510
Computers & Technology: 14.6%
- ------------------------------------------------------------------------
Apple Computer * 227,685 10,558,892
Automatic Data Processing 270,285 11,892,540
Cisco Systems * 760,296 48,967,814
Linear Technology 481,400 32,404,238
Microsoft * 201,650 18,173,706
Sun Microsystems * 885,615 61,024,409
Veritas Software 12,965 1,231,270
Wind River Systems 245,645 3,937,996
- ------------------------------------------------------------------------
188,190,865
Electronics & Electrical Equipment: 7.2%
- ------------------------------------------------------------------------
General Electric 276,220 31,212,860
Maxim Integrated Products * 366,700 24,385,550
Pittway 99,374 3,397,349
Texas Instruments 235,135 34,094,575
- ------------------------------------------------------------------------
93,090,334
Energy: 2.6%
- ------------------------------------------------------------------------
Enron 414,755 33,906,221
- ------------------------------------------------------------------------
Food, Beverage & Tobacco: 1.8%
Anheuser Busch 157,045 11,140,380
Heineken 102,930 5,289,341
McDonald's 53,935 2,228,190
U.S. Foodservice * 88,725 3,781,903
- ------------------------------------------------------------------------
22,439,814
Healthcare & Pharmaceuticals: 11.6%
- ------------------------------------------------------------------------
Allergan 92,970 10,319,670
American Home Products 250,000 14,375,000
Guidant 100,000 5,143,750
Lilly (Eli) 175,455 12,566,964
Medtronic 215,000 16,743,125
Pfizer 63,885 7,011,379
Pharmacia & Upjohn 172,115 9,778,283
Number Market
Healthcare & Pharmaceuticals (Cont.) of Shares Value
- ------------------------------------------------------------------------
Schering-Plough 261,685 $ 13,869,305
Tyco International 625,244 59,241,869
- ------------------------------------------------------------------------
149,049,345
Industrial Machinery: 0.8%
- ------------------------------------------------------------------------
Dionex * 247,500 10,000,547
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Miscellaneous: 1.0%
- ------------------------------------------------------------------------
Paychex 412,138 13,111,124
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Retail: 4.5%
- ------------------------------------------------------------------------
Costco Companies * 190,540 15,249,154
Home Depot 202,990 13,080,168
Staples * 370,000 11,435,312
Walgreen 7,940 233,238
Wal-Mart Stores 376,290 18,155,993
- ------------------------------------------------------------------------
58,153,865
Telecommunications: 12.5%
- ------------------------------------------------------------------------
Clear Channel Communications * 295,130 20,345,524
Comcast - Special Class A 1,630,310 62,665,041
Hyperion Telecommunications * 105,000 1,981,875
MCI Worldcom * 212,860 18,312,612
Nokia 212,585 19,464,814
Nokia Oyj 6,808 598,934
Ntlorporated * 123,245 10,626,030
Sprint PCS * 191,300 10,928,013
Vodafone Group ADR 82,128 16,179,118
- ------------------------------------------------------------------------
161,101,961
Transportation & Shipping: 1.4%
- ------------------------------------------------------------------------
FDX * 340,000 18,445,000
- ------------------------------------------------------------------------
Total Common Stock: 86.9%
(Cost $786,898,945) 1,120,876,493
- ------------------------------------------------------------------------
Par
Money Market Instruments: Amount
- ------------------------------------------------------------------------
Associates Corp
5.25%, 7/1/99 $18,600,000 18,600,000
Federal National Mortgage Association
4.69%, 10/21/99 15,000,000 14,904,246
5.3416%, 5/15/00 15,000,000 14,324,783
FMC
4.73%, 7/9/99 20,000,000 19,978,978
4.8385%, 8/19/99 50,000,000 49,674,694
4.8579%, 9/2/99 25,000,000 24,790,438
5.0366%, 10/21/99 25,000,000 24,615,000
- ------------------------------------------------------------------------
166,888,139
Total Money Market Instruments: 12.9%
(Cost $166,888,139) 166,888,139
- ------------------------------------------------------------------------
Total Investments: 99.8%
(Cost $953,787,084) 1,287,764,632
- ------------------------------------------------------------------------
Other Assets Over Liabilities: 0.2% 1,941,257
- ------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to 25.106 per share
based on 51,371,275 shares
issued and outstanding) $1,289,705,889
- ------------------------------------------------------------------------
Components of Net Assets at June 30, 1999:
- ------------------------------------------------------------------------
Common Stock, $.01 par value 50,000,000
authorized shares 513,713
Paid in capital in excess of par value
of shares issued 893,375,957
Undistributed net investment income 616,198
Accumulated net realized gain on investments 61,222,601
Net unrealized appreciation of investments and
foreign currency 333,977,420
- ------------------------------------------------------------------------
Total Net Assets $1,289,705,889
- ------------------------------------------------------------------------
* Non-income producing security.
ADR - American Depository Receipt See accompanying notes to financial
statements.
Capital Appreciation Fund 2
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Lincoln National Capital Appreciation Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 1999
Investment income:
Dividends $ 1,666,305
- ----------------------------------------------------------------------
Interest 2,851,142
- ----------------------------------------------------------------------
Less: Foreign withholding tax (15,566)
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Total investment income 4,501,881
- ----------------------------------------------------------------------
Expenses:
Management fees 3,662,836
- ----------------------------------------------------------------------
Accounting fees 125,000
- ----------------------------------------------------------------------
Printing and postage 44,800
- ----------------------------------------------------------------------
Custodian fees 25,900
- ----------------------------------------------------------------------
Legal 19,000
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Directors fees 2,100
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Other 460
- ----------------------------------------------------------------------
Total expenses 3,880,096
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Net investment income 621,785
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions:
Net realized gain (loss) on:
Investment transactions 61,039,696
- ----------------------------------------------------------------------
Foreign currency transactions (5,587)
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Net realized gain on investments
and foreign currency related transactions 61,034,109
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Net change in unrealized appreciation of:
Investments 82,404,467
- ----------------------------------------------------------------------
Foreign currency (4,720)
- ----------------------------------------------------------------------
Net change in unrealized appreciation on investments
and foreign currency 82,399,747
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 143,433,856
- ----------------------------------------------------------------------
Net increase in net assets
resulting from operations $144,055,641
- ----------------------------------------------------------------------
Statements of Changes in Net Assets
Six months
ended
6/30/99 Year ended
(Unaudited) 12/31/98
-------------------------------
Changes from operations:
Net investment income (loss) $ 621,785 $ (95,825)
- ------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency 61,034,109 7,137,985
- ------------------------------------------------------------------------------
Net change in unrealized appreciation
of investments and foreign currency 82,399,747 187,316,139
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 144,055,641 194,358,299
- ------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income - (1,290,717)
- ------------------------------------------------------------------------------
Net realized gain on investments (7,376,586) (47,582,501)
- ------------------------------------------------------------------------------
Total distributions to shareholders (7,376,586) (48,873,218)
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 382,290,482 174,215,604
- ------------------------------------------------------------------------------
Total increase in net assets 518,969,537 319,700,685
- ------------------------------------------------------------------------------
Net Assets, beginning of period 770,736,352 451,035,667
- ------------------------------------------------------------------------------
Net Assets, end of period $1,289,705,889 $770,736,352
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
Capital Appreciation Fund 3
<PAGE>
Lincoln National Capital Appreciation 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(3)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.772 $ 17.530 $ 14.504 $ 12.916 $ 10.152 $ 10.000
Income (loss) from investment operations:
Net investment income (loss)(2) 0.013 (0.003) 0.050 0.135 0.116 0.134
Net realized and unrealized gain
on investments and foreign currency 3.473 6.127 3.510 2.051 2.764 0.152
---------------------------------------------------------------------
Total from investment operations 3.486 6.124 3.560 2.186 2.880 0.286
---------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income - (0.050) - (0.135) (0.116) (0.134)
Distributions from net realized gain on
investment transactions (0.152) (1.832) (0.534) (0.463) - -
---------------------------------------------------------------------
Total dividends and distributions (0.152) (1.882) (0.534) (0.598) (0.116) (0.134)
---------------------------------------------------------------------
Net asset value, end of period $25.106 $21.772 $17.530 $14.504 $12.916 10.152
---------------------------------------------------------------------
Total Return(1) 16.06% 37.96% 25.29% 18.02% 28.69% 2.71%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.77%(2) 0.83% 0.89% 0.93% 1.07% 1.18%
Ratio of net investment income (loss)
to average net assets 0.11%(2) (0.01%) 0.35% 0.99% 1.00% 1.33%
Portfolio Turnover 35.10% 77.99% 137.07% 92.73% 195.63% 185.28%
Net assets, end of period (000 omitted) $1,289,706 $770,736 $451,036 $267,242 $127,936 $ 52,904
</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) Annualized
(3) The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on
January 3, 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.
Capital Appreciation Fund 4
<PAGE>
Lincoln National Capital Appreciation Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National Capital Appreciation 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 growth of capital in a
manner consistent with preservation of capital. The Fund primarily buys stocks
in a large number of companies of all sizes if the companies are competing well
and if their products or services are in high demand. It may also buy money
market securities and bonds, including high-risk bonds.
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. 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.
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 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 have been provided for in accordance with
the applicable country's tax rates.
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 .75% of
average daily net assets of the Fund on the first $500 million and .70% in
excess of $500 million. The sub-advisor, Janus Capital Management, 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.
Capital Appreciation Fund 5
<PAGE>
Notes to Financial Statements - Unaudited - (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 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>
$626,568,235 $409,888,092 $341,561,488 $(7,584,068) $333,977,420
</TABLE>
4. 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. At
June 30, 1999 the Fund did not have investments in excess of 5% of net assets in
any individual foreign country.
5. 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): 15,758,522 $377,260,812 313,390 $ 7,376,586 (100,658) $ (2,346,916) 15,971,254 $382,290,482
Year ended
December 31, 1998: 6,645,666 106,951,391 836,415 12,215,979 (178,409) (2,895,588) 7,303,672 116,271,782
</TABLE>
6. Distributions to Shareholders
The Fund declares and distributes a dividend on net investment income, if any,
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
Capital Appreciation Fund 6
