[LOGO OF JANUS]
Lincoln National
Capital Appreciation Fund, Inc.
Semi-Annual Report
June 30, 2000
<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 2.0% (net of fees) for the six months ended June 30, 2000
versus its benchmark, the Russell 1000(R) Growth Index, return of 4.2%. Extreme
volatility buffeted financial markets the first half of the year, fueled by
uncertainty over the direction interest rates were headed. Powering performance
was semiconductor maker Linear Technology, which recently reported record
profits for its high-performance chips. Enron, the world's largest energy
trader, also boosted results as investors recognized the potential for its
global broadband network.
Additionally, computer-storage system maker EMC Corporation rewarded us as its
growth continued to parallel that of the Internet, which every day produces more
data that must be properly stored. On the downside, cable operator Comcast
Corporation fell as a result of increased expenditures related to the
introduction of Internet and other new services. Top holding Time Warner fell in
the wake of uncertainty surrounding its merger with America Online. Furthermore,
fast-food restaurant chain McDonald's was a drag on performance due to
slower-than-anticipated new product introductions.
Blaine Rollins
Capital Appreciation Fund 1
<PAGE>
Lincoln National
Capital Appreciation Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 2000
Investments:
Number Market
Common Stock: of Shares Value
------------------------------------------------------------------------
Aerospace & Defense: 0.4%
------------------------------------------------------------------------
Lockheed Martin 349,995 $ 8,684,251
------------------------------------------------------------------------
Banking, Finance & Insurance: 12.7%
------------------------------------------------------------------------
American Express 824,895 42,997,652
Bank of New York 1,226,965 57,053,873
Chase Manhattan 123,727 5,699,175
Household International 101,695 4,226,698
John Hancock Financial Services 340,775 8,072,108
M & T Bank 12,010 5,404,500
Merrill Lynch & Company 413,250 47,523,750
Northern Trust 145,555 9,470,172
Prudential PLC (United Kingdom) 1,609,455 23,570,262
Schwab (Charles) 1,784,721 60,011,244
Washington Mutual 266,755 7,702,551
------------------------------------------------------------------------
271,731,985
Business Services: 0.6%
------------------------------------------------------------------------
Paychex 312,020 13,104,840
------------------------------------------------------------------------
Cable, Media & Publishing: 19.2%
------------------------------------------------------------------------
AT&T - Liberty Media Class A 1,555,390 37,718,208
Adelphia Communications Class A * 140,090 6,566,719
Charter Communications Class A 207,530 3,411,274
Clear Channel Communications * 421,335 31,600,125
Cox Communications Class A * 800,163 36,457,427
Hispanic Broadcasting 44,560 1,476,050
Infinity Broadcasting Class A 716,695 26,114,574
New York Times 149,585 5,908,608
Telewest Communications (United Kingdom) 3,052,320 10,517,163
Time Warner 2,121,822 161,258,472
Univision Communications Class A * 239,095 24,746,333
Viacom Class B * 962,415 65,624,673
------------------------------------------------------------------------
411,399,626
Computers & Technology: 19.1%
------------------------------------------------------------------------
12 Technologies * 135,891 14,168,760
3Com * 51,535 2,969,704
Aether Systems 42,925 8,799,625
America Online 278,530 14,692,458
Apple Computer * 193,065 10,111,779
Automatic Data Processing 240,155 12,863,302
Bea Systems * 382,345 18,902,181
Cisco Systems 1,131,212 71,902,663
EMC * 591,610 45,516,994
Inktomi * 83,355 9,856,729
Linear Technology 1,207,985 77,235,541
SDL * 20,335 5,799,288
Softbank 38,100 5,169,511
Sun Microsystems * 482,185 43,848,698
Tibco Software 137,140 14,706,122
VeriSign 261,115 46,086,798
Veritas Software * 58,070 6,562,817
------------------------------------------------------------------------
409,192,970
Electronics & Electrical: 12.1%
------------------------------------------------------------------------
Advanced Micro Devices * 44,800 3,460,800
Conexant Systems * 170,385 8,284,971
E-Tek Dynamics * 32,115 8,472,338
General Electric 1,135,900 60,202,700
Integrated Device Tech * 53,610 3,209,899
Maxim Integrated Products * 922,175 62,650,264
Murata Manufacturing 53,000 7,600,681
NEC 362,000 11,358,338
PMC - Sierra 28,445 5,054,321
Symbol Technologies 420,400 22,701,600
Texas Instruments 980,210 67,328,174
------------------------------------------------------------------------
260,324,086
Number Market
Energy: 3.6% of Shares Value
------------------------------------------------------------------------
Coastal 53,945 $ 3,283,902
El Paso Energy 159,485 8,123,767
Enron 1,002,930 64,688,985
------------------------------------------------------------------------
76,096,654
Environmental Services: 0.3%
------------------------------------------------------------------------
Pe Corp- Pe Biosystems Group 82,465 5,432,382
------------------------------------------------------------------------
Food, Beverage & Tobacco: 0.3%
------------------------------------------------------------------------
Coca-Cola Enterprises 352,580 5,751,461
------------------------------------------------------------------------
Healthcare & Pharmaceuticals: 1.5%
------------------------------------------------------------------------
Allergan 146,015 10,878,118
Genentech * 100,100 17,217,200
Medtronic 98,040 4,883,618
------------------------------------------------------------------------
32,978,936
Industrial Machinery: 0.8%
------------------------------------------------------------------------
Dionex * 647,455 17,319,421
------------------------------------------------------------------------
Leisure, Lodging & Entertainment: 4.4%
------------------------------------------------------------------------
Carnival Cruise Lines 247,135 4,819,133
EMI Group 1,645,517 15,260,651
McDonald's 1,751,170 57,679,162
Park Place Entertainment * 730,550 8,903,578
Royal Caribbean Cruises 395,105 7,309,443
------------------------------------------------------------------------
93,971,967
Retail: 3.8%
------------------------------------------------------------------------
Colgate-Palmolive 334,110 20,004,836
Costco Wholesale 544,000 17,952,000
eBay * 102,720 5,578,980
Gap 164,925 5,153,906
Home Depot 373,975 18,675,377
Staples * 923,090 14,192,509
------------------------------------------------------------------------
81,557,608
Telecommunications: 13.1%
------------------------------------------------------------------------
Comcast - Special Class A * 2,334,030 94,528,215
Exodus Communications * 343,365 15,816,250
Level 3 Communications 174,890 15,390,317
Nextel Communications 433,160 26,503,978
Nokia 1,045,315 52,200,418
Nokia Oyj (Finland) 33,542 1,711,426
Nortel Networks 99,480 6,789,510
NTL * 199,655 11,954,343
NTT DoCoMo 691 18,686,241
Sprint * 120,830 7,189,385
Telefonos De Mexico SA 337,600 19,285,400
Voicestream Wireless * 66,452 7,728,160
Winstar Communications 57,804 1,958,111
------------------------------------------------------------------------
279,741,754
Utilities: 1.1%
------------------------------------------------------------------------
Telefonica 1,144,549 24,583,196
------------------------------------------------------------------------
Total Common Stock: 93.0%
(Cost $1,400,406,217) 1,991,871,137
------------------------------------------------------------------------
Preferred Stocks:
------------------------------------------------------------------------
Winstar Communications 7.00% 13,950 788,175
Winstar Communications 7.25% 12,550 1,236,175
------------------------------------------------------------------------
Total Preferred Stocks: 0.1%
(Cost $2,886,720) 2,024,350
------------------------------------------------------------------------
Convertible Bonds:
------------------------------------------------------------------------
Cox Communications
3.0000% 3/14/30 8,103,000 8,498,021
Liberty Media
4.0000% 11/15/29 875,000 1,264,375
NTL
5.7500% 12/15/09 7,000,000 5,530,000
------------------------------------------------------------------------
Capital Appreciation Fund 2
<PAGE>
Market
Value
------------------------------------------------------------------------
Total Convertible Bonds: 0.7%
(Cost $16,347,994) $ 15,292,396
------------------------------------------------------------------------
Par
Money Market Instruments: Amount
------------------------------------------------------------------------
Associates Corp
6.8539% 7/03/00 $79,200,000 79,169,860
Federal Home Loan Bank
6.4878% 8/23/00 25,000,000 24,763,892
Federal National Mortgage
6.4735% 7/28/00 25,000,000 24,879,250
------------------------------------------------------------------------
Total Money Market Instruments: 6.0%
(Cost $128,813,002) 128,813,002
------------------------------------------------------------------------
Total Investments: 99.8%
(Cost $1,548,453,933) 2,138,000,885
------------------------------------------------------------------------
Other Assets Over Liabilities: 0.2% 4,275,915
------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $30.727 per share based on
on 69,719,227 shares issued and outstanding $2,142,276,800
------------------------------------------------------------------------
Components of Net Assets at June 30, 2000:
Common Stock, par value $.01 per share,
100,000,000 authorized shares 697,192
Paid in capital in excess of par value
of shares issued 1,430,942,477
Undistributed net investment loss** (208,410)
Accumulated net realized gain on investments 120,736,549
Net unrealized appreciation of investments and
foreign currencies 590,108,992
------------------------------------------------------------------------
Total Net Assets $2,142,276,800
------------------------------------------------------------------------
* Non-income producing security.
** Undistributed net investment loss 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.
ADR - American Depository Receipt
See accompanying notes to financial statements.
Capital Appreciation Fund 3
<PAGE>
Lincoln National Capital Appreciation Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends $ 3,265,468
---------------------------------------------------------------------------------------------------------
Interest 2,940,105
---------------------------------------------------------------------------------------------------------
Less: Foreign withholding tax (71,403)
---------------------------------------------------------------------------------------------------------
Total investment income 6,134,170
---------------------------------------------------------------------------------------------------------
Expenses:
Management fees 7,431,289
---------------------------------------------------------------------------------------------------------
Accounting fees 293,078
---------------------------------------------------------------------------------------------------------
Custody fees 60,882
---------------------------------------------------------------------------------------------------------
Printing and postage 42,811
---------------------------------------------------------------------------------------------------------
Directors fees 2,100
---------------------------------------------------------------------------------------------------------
Other 34,353
---------------------------------------------------------------------------------------------------------
Total expenses 7,864,513
---------------------------------------------------------------------------------------------------------
Net investment loss (1,730,343)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions:
Net realized gain on:
Investment transactions 117,052,836
---------------------------------------------------------------------------------------------------------
Foreign currency transactions 1,191,616
---------------------------------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency transactions 118,244,452
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of:
---------------------------------------------------------------------------------------------------------
Investments (79,714,088)
---------------------------------------------------------------------------------------------------------
Foreign currency 414,391
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation on investments and foreign currency (79,299,697)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 38,944,755
---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 37,214,412
---------------------------------------------------------------------------------------------------------
</TABLE>
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 (loss) $ (1,730,343) $ 322,938
----------------------------------------------------------------------------------------------------
Net realized gain on investment and foreign currency transactions 118,244,452 101,620,530
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments and foreign currency (79,299,697) 417,831,016
----------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 37,214,412 519,774,484
----------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net realized gain on investment transactions (91,977,656) (7,376,586)
----------------------------------------------------------------------------------------------------
Total distributions to shareholders (91,977,656) (7,376,586)
----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions 283,963,845 629,941,949
----------------------------------------------------------------------------------------------------
Total increase in net assets 229,200,601 1,142,339,847
----------------------------------------------------------------------------------------------------
Net Assets, beginning of period 1,913,076,199 770,736,352
----------------------------------------------------------------------------------------------------
Net Assets, end of period $2,142,276,800 $1,913,076,199
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Capital Appreciation Fund 4
<PAGE>
Lincoln National Capital Appreciation Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/00 Year ended December 31,
(Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 31.466 $ 21.772 $ 17.530 $ 14.504 $ 12.916 $ 10.152
Income from investment operations:
Net investment income (loss)(2) (0.026) 0.007 (0.003) 0.050 0.135 0.116
Net realized and unrealized gain
on investments and foreign currency 0.667 9.839 6.127 3.510 2.051 2.764
----------------------------------------------------------------------------
Total from investment operations 0.641 9.846 6.124 3.560 2.186 2.880
----------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income - - (0.050) - (0.135) (0.116)
Distributions from net realized gain on
investment transactions (1.380) (0.152) (1.832) (0.534) (0.463) -
----------------------------------------------------------------------------
Total dividends and distributions (1.380) (0.152) (1.882) (0.534) (0.598) (0.116)
----------------------------------------------------------------------------
Net asset value, end of period $ 30.727 $ 31.466 $ 21.772 $ 17.530 $ 14.504 $ 12.916
----------------------------------------------------------------------------
Total Return(1) 2.02% 45.46% 37.96% 25.29% 18.02% 28.69%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.76%(3) 0.78% 0.83% 0.89% 0.93% 1.07%
Ratio of net investment income (loss)
to average net assets 0.17%(3) 0.03% (0.01%) 0.35% 0.99% 1.00%
Portfolio Turnover 33.49% 59.68% 77.99% 137.07% 92.73% 195.63%
Net assets, end of period (000 omitted) $2,142,277 $1,913,076 $770,736 $451,036 $267,242 $127,936
</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.
Capital Appreciation Fund 5
<PAGE>
Lincoln National Capital Appreciation Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 2000
The Fund: Lincoln National Capital Appreciation Fund, Inc. (the "Fund") is
registered as 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 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: All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. Securities listed on a foreign
exchange are valued at the last quoted sales price before each Fund is valued.
Long-term debt securities are valued by an independent pricing service and such
prices are believed to reflect the fair value of such securities. 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 and includes
amortization of any premium and discount. 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 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
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.
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 .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.
Capital Appreciation Fund 6
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
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, 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>
$787,024,208 $669,880,569 $671,168,627 $(81,621,675) $589,546,952
</TABLE>
4. Supplemental Financial Instruments Information
Forward Foreign Currency Contacts: The fund may enter into 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 foreign currency at a future date at a specified price. The realized
and unrealized gain 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 the 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 forgein currency
relative to the U.S. dollar. Forward foreign currency contracts that were open
at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Contracts to Foreign U.S. Cost Unrealized
Receive (Deliver) Currency (Proceeds) Settlement Dates Gain (Loss)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(4,600,000) Great Britain Pound $ (7,040,300) January 2001 $ 49,987
(5,500,000) Great Britain Pound (8,470,385) September 2000 138,444
(20,000,000) European Monetary Unit (19,373,900) January 2001 41,733
(1,305,000,000) Japanese Yen (12,369,194) September 2000 (99,660)
(200,000,000) Japanese Yen (1,888,915) September 2000 17,579
(2,260,000,000) Japanese Yen (21,993,830) September 2000 423,421
(250,000,000) Japanese Yen (2,427,609) October 2000 29,759
---------
$601,263
========
</TABLE>
5. 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, 2000 the Fund did not have investments in excess of 5% of assets in any
individual foreign country.
Capital Appreciation Fund 7
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
6. 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, 2000 (unaudited): 7,405,932 $238,440,671 2,976,238 $91,977,656 (1,461,981) $(46,454,482) 8,920,189 $283,963,845
Year ended
December 31, 1999: 25,575,402 635,678,317 313,390 7,376,586 (489,775) (13,112,954) 25,399,017 629,941,949
</TABLE>
7. Distribution to Shareholder
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 8
