[LOGO OF VANTAGE INVESTMENT ADVISORS]
Lincoln National
Growth and Income Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Index
Commentary
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National
Growth and Income Fund, Inc.
Managed by: [LOGO OF VANTAGE INVESTMENT ADVISORS]
The Fund had a return of 10.6% for the first six months of 1999 while its
benchmark, the S&P 500 Index, returned 12.2% for the same period.
During the first quarter of 1999, investors heralded the day when the Dow Jones
Industrial Average broke through the 10,000 mark. That Index consists of only 30
large companies and the S&P 500's return is driven by the largest 20 companies.
The equity market as a whole did not experience the same success. The market
broadened in the second quarter, with attractively priced companies rallying
across the board.
Not surprisingly, the Fund, which provides broad-based equity market exposure to
attractively priced companies struggled in the first quarter, but rebounded as
the market broadened in the second quarter. The economic environment is ripe for
continued strong equity market returns and the Growth & Income Fund is well
positioned to capture opportunities as they arise.
Enrique Chang Christopher Harvey
Growth and Income Fund 1
<PAGE>
Lincoln National
Growth and Income Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ---------------------------------------------------------------------------
Aerospace & Defense: 2.2%
General Dynamics 233,500 $ 15,994,750
Gulfstream Aerospace* 470,100 31,761,131
United Technologies 757,000 54,267,438
- ---------------------------------------------------------------------------
102,023,319
Automobiles & Auto Parts: 2.1%
- ---------------------------------------------------------------------------
Autonation* 727,800 12,963,937
Ford Motor 831,800 46,944,712
Hertz Class A 95,100 5,896,200
Navistar International* 592,900 29,645,000
- ---------------------------------------------------------------------------
95,449,849
Banking, Finance & Insurance: 14.9%
- ---------------------------------------------------------------------------
Allstate 814,298 29,212,941
American International Group 390,500 45,712,906
Associates First Capital Class A 442,202 19,595,076
Astoria Financial 67,700 2,972,453
BankAmerica 476,200 34,911,412
BankBoston 839,100 42,898,987
Bank One 997,827 59,433,071
Chase Manhattan 823,100 71,301,037
Citigroup 1,958,098 93,009,655
Comerica 425,050 25,263,909
Conseco 1,259,200 38,326,900
Dime Bancorp 681,800 13,721,225
Federal Home Loan Bank 145,400 8,433,200
Federal National Mortgage Association 60,000 4,102,500
Firstar 188,000 5,264,000
Marsh & McLennan 641,900 48,463,450
MBIA 236,400 15,306,900
Metris 142,238 5,796,199
Morgan (J.P.) 232,900 32,722,450
Paine Webber Group 735,850 34,400,988
SLM Holding 757,650 34,709,841
Washington Mutual 742,560 26,268,060
- ---------------------------------------------------------------------------
691,827,160
Building & Materials: 0.5%
- ---------------------------------------------------------------------------
Centex 176,400 6,626,025
USG Corp 249,300 13,960,800
Vulcan Materials 94,900 4,578,925
- ---------------------------------------------------------------------------
25,165,750
Cable, Media & Publishing: 3.5%
- ---------------------------------------------------------------------------
CBS* 194,300 8,439,906
Donnelley & Sons 417,400 15,469,887
Gannett 499,500 35,651,813
Knight-Ridder 305,200 16,766,925
McGraw-Hill 518,300 27,955,806
New York Times 643,600 23,692,525
Omnicom Group 185,700 14,856,000
Reynolds & Reynolds Class A 433,200 10,098,975
R.H. Donnelley 106,080 2,075,190
Valassis Communications* 126,150 4,620,244
- ---------------------------------------------------------------------------
159,627,271
Chemicals: 1.5%
- ---------------------------------------------------------------------------
Arch Chemicals 82,350 2,002,134
Cytec Industries* 169,100 5,390,062
Dow Chemical 416,300 52,818,062
FMC* 90,000 6,148,125
Lubrizol 135,100 3,791,244
- ---------------------------------------------------------------------------
70,149,627
Computers & Technology: 15.5%
- ---------------------------------------------------------------------------
American Power Conversion* 532,400 10,697,912
Apple Computer* 1,004,600 46,588,325
BMC Software* 252,800 13,643,300
Number Market
Computers & Technology (Cont.) of Shares Value
- ---------------------------------------------------------------------------
Cisco Systems* 1,090,800 $ 70,254,337
Computer Associates International 635,400 34,947,000
Compuware* 404,900 12,868,228
Dell Computer* 1,153,600 42,647,150
Deluxe 145,900 5,680,981
Electronics Arts* 106,800 5,780,550
International Business Machines 656,800 84,891,400
Keane* 219,900 4,975,238
Lexmark International Group Class A* 727,200 48,040,650
Mercury Interactive* 110,900 3,930,019
Microsoft* 2,117,100 190,803,638
Oracle* 910,950 33,819,019
Sun Microsystems* 1,058,400 72,930,375
Symantec* 415,200 10,600,575
Unisys* 19,500 759,281
Xerox 446,000 26,341,875
- ---------------------------------------------------------------------------
720,199,853
Consumer Products: 2.5%
- ---------------------------------------------------------------------------
Avon Products 169,600 9,412,800
Clorox 434,000 46,356,625
Procter & Gamble 651,000 58,101,750
- ---------------------------------------------------------------------------
113,871,175
Electronics & Electrical Equipment: 5.6%
- ---------------------------------------------------------------------------
General Electric 1,315,300 148,628,900
Honeywell 300,100 34,774,088
Intel 1,309,000 77,844,594
- ---------------------------------------------------------------------------
261,247,582
Energy: 6.9%
- ---------------------------------------------------------------------------
Ashland 283,800 11,387,475
Atlantic Richfield 238,500 19,929,656
Coastal 344,600 13,784,000
Enron 164,000 13,407,000
Exxon 1,283,500 98,989,937
Kerr-McGee 104,316 5,235,359
Occidental Petroleum 1,327,400 28,041,325
Phillips Petroleum 239,400 12,044,813
Royal Dutch Petroleum 680,400 40,994,100
Texaco 778,000 48,625,000
USX-Marathon Group 904,900 29,465,806
- ---------------------------------------------------------------------------
321,904,471
Food, Beverage & Tobacco: 5.9%
- ---------------------------------------------------------------------------
CKE Restaurants 888,580 14,439,425
Coca Cola 741,000 46,312,500
ConAgra 309,600 8,243,100
General Mills 456,800 36,715,300
Heinz (H.J.) 966,150 48,428,269
Philip Morris 1,718,400 69,058,200
Quaker Oats 654,400 43,435,800
Universal Foods 285,200 6,024,850
- ---------------------------------------------------------------------------
272,657,444
Healthcare & Pharmaceuticals: 11.7%
- ---------------------------------------------------------------------------
Amgen* 843,400 51,315,619
Boston Scientific* 208,900 9,178,544
Bristol-Myers Squibb 846,800 59,646,475
Johnson & Johnson 383,200 37,553,600
Lilly (Eli) 353,500 25,319,438
Lincare Holdings* 681,600 17,061,300
McKesson 426,234 13,692,767
Medtronic 863,167 67,219,130
Merck & Company 1,016,600 75,228,400
Oxford Health Plans* 83,900 1,303,072
Pfizer 418,700 45,952,325
Schering-Plough 1,389,800 73,659,400
Tyco International 683,400 64,752,150
- ---------------------------------------------------------------------------
541,882,220
Industrial Machinery: 1.1%
- ---------------------------------------------------------------------------
Ingersoll-Rand 756,100 48,862,963
- ---------------------------------------------------------------------------
Leisure, Lodging & Entertainment: 0.6%
- ---------------------------------------------------------------------------
Carnival Cruise Lines 440,200 21,349,700
Eastman Kodak 104,200 7,059,550
- ---------------------------------------------------------------------------
28,409,250
Growth and Income Fund 2
<PAGE>
Number Market
of Shares Value
- ---------------------------------------------------------------------------
Metals & Mining: 0.3%
- ---------------------------------------------------------------------------
USX-U.S. Steel Group 533,800 $ 14,412,600
- ---------------------------------------------------------------------------
Paper & Forest Products: 0.5%
- ---------------------------------------------------------------------------
Avery Dennison 65,500 3,954,562
Fort James 208,400 7,893,150
Weyerhaeuser 134,000 9,212,500
- ---------------------------------------------------------------------------
21,060,212
Retail: 6.6%
- ---------------------------------------------------------------------------
Best Buy* 295,100 19,919,250
Gap 970,312 48,879,467
Home Depot 20,000 1,288,750
Jostens 57,100 1,202,669
Kroger* 72,800 2,033,850
Lowe's Companies 243,000 13,775,063
Ross Stores 667,800 33,577,819
Safeway* 916,200 45,351,900
Sherwin-Williams 140,400 3,896,100
Staples* 1,089,225 33,663,860
TJX 1,357,100 45,208,394
Wal-Mart Stores 1,180,000 56,935,000
- ---------------------------------------------------------------------------
305,732,122
Telecommunications: 12.5%
- ---------------------------------------------------------------------------
Ameritech 1,058,200 77,777,700
AT & T 1,372,950 76,627,772
Bell Atlantic 999,312 65,330,022
BellSouth 1,147,200 53,775,000
General Instrument* 1,175,800 49,971,500
GTE 788,700 59,694,731
Lucent Technologies 1,037,000 69,932,688
MCI Worldcom* 120,100 10,332,353
SBC Communications 246,132 14,275,656
Tellabs* 834,500 56,406,983
U.S.West 781,300 45,901,375
- ---------------------------------------------------------------------------
580,025,780
Textiles, Apparel & Furniture: 0.9%
- ---------------------------------------------------------------------------
Miller (Herman) 375,250 7,868,523
Tommy Hilfiger 481,400 35,352,813
- ---------------------------------------------------------------------------
43,221,336
Transportation & Shipping: 0.9%
- ---------------------------------------------------------------------------
Alaska Air Group* 272,000 11,356,000
Canadian National Railway 350,000 23,450,000
Continental Airlines-Class B* 220,700 8,331,425
- ---------------------------------------------------------------------------
43,137,425
Utilities: 2.2%
- ---------------------------------------------------------------------------
Energy East 1,050,800 27,320,800
General Public Utilities 657,150 27,723,516
Public Service Enterprise Group 227,000 9,278,625
Texas Utilities 569,700 23,500,125
Unicom 412,800 15,918,600
- ---------------------------------------------------------------------------
103,741,666
Total Common Stock: 98.4%
(Cost $2,620,653,199) 4,564,609,075
- ---------------------------------------------------------------------------
Par
Money Market Instruments: Amount
- ---------------------------------------------------------------------------
Caterpillar
5.85% 7/01/99 $ 4,600,000 4,600,000
Corporate Asset Funding
5.22% 7/21/99 3,900,000 3,888,733
5.23% 8/03/99 4,100,000 4,080,344
Fluor
5.02% 7/08/99 3,800,000 3,800,000
General Electric Capital
4.93% 7/26/99 5,500,000 5,481,285
Georgia Power
4.95% 7/14/99 5,000,000 5,000,000
4.93% 7/23/99 8,000,000 8,000,000
Par Market
Money Market Instruments (Cont.) Amount Value
- ---------------------------------------------------------------------------
Halliburton Company
5.04% 7/19/99 $ 6,000,000 $ 5,984,940
Marsh USA
5.14% 7/23/99 4,000,000 4,000,000
Metlife Funding
4.88% 7/12/99 10,000,000 9,985,150
Moat Funding
4.98% 7/06/99 9,200,000 9,193,662
5.18% 7/28/99 2,000,000 1,992,275
Salomon Smith Barney Holdings
4.86% 7/06/99 2,000,000 1,998,661
- ---------------------------------------------------------------------------
Total Money Market Instruments: 1.5%
(Cost $68,005,050) 68,005,050
- ---------------------------------------------------------------------------
Total Investments: 99.9%
(Cost $2,688,658,249) 4,632,614,125
- ---------------------------------------------------------------------------
Other Assets Over Liabilities: 0.1% 4,056,213
- ---------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $49.051 per share
based on 94,527,558 shares
issued and outstanding) 4,636,670,338
- ---------------------------------------------------------------------------
Components of Net Assets at June 30, 1999:
- ---------------------------------------------------------------------------
Common Stock, $.01 par value 150,000,000
authorized shares 945,276
Paid in capital in excess of par value
of shares issued 2,538,403,118
Undistributed net investment income 22,110,776
Accumulated net realized gain on investments 131,255,292
Net unrealized appreciation of investments 1,943,955,876
- ---------------------------------------------------------------------------
Total Net Assets $4,636,670,338
- ---------------------------------------------------------------------------
* Non-income producing security.
See accompanying notes to financial statements.
Growth and Income Fund 3
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 1999
Investment income:
Dividends $ 29,079,916
- --------------------------------------------------------------------------
Interest 1,723,491
- --------------------------------------------------------------------------
Total investment income 30,803,407
- --------------------------------------------------------------------------
Expenses:
Management fees 6,776,255
- --------------------------------------------------------------------------
Accounting fees 615,000
- --------------------------------------------------------------------------
Printing and postage 164,000
- --------------------------------------------------------------------------
Custody fees 13,801
- --------------------------------------------------------------------------
Directors fees 2,100
- --------------------------------------------------------------------------
Other 17,329
- --------------------------------------------------------------------------
7,588,485
- --------------------------------------------------------------------------
Less expenses paid indirectly (2,289)
- --------------------------------------------------------------------------
Total expenses 7,586,196
- --------------------------------------------------------------------------
Net investment income 23,217,211
- --------------------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain on investment transactions 84,754,098
- --------------------------------------------------------------------------
Net change in unrealized
appreciation of investments 339,285,065
- --------------------------------------------------------------------------
Net realized and unrealized gain on investments 424,039,163
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $447,256,374
- --------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Year ended
(Unaudited) 12/31/98
-------------------------------
<S> <C> <C>
Changes from operations:
Net investment income $ 23,217,211 $ 55,631,441
- ---------------------------------------------------------------------------------
Net realized gain on investment transactions 84,754,098 223,707,077
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation
of investments 339,285,065 434,405,732
- ---------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 447,256,374 713,744,250
- ---------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (9,524,990) (101,986,260)
- ---------------------------------------------------------------------------------
Net realized gain on investments (177,205,883) (209,728,724)
- ---------------------------------------------------------------------------------
Total distributions to shareholders (186,730,873) (311,714,984)
- ---------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 112,587,636 320,665,790
- ---------------------------------------------------------------------------------
Total increase in net assets 373,113,137 722,695,056
- ---------------------------------------------------------------------------------
Net Assets, beginning of period 4,263,557,201 3,540,862,145
- ---------------------------------------------------------------------------------
Net Assets, end of period $4,636,670,338 $4,263,557,201
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Growth and Income Fund 4
<PAGE>
Lincoln National Growth and Income 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
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $46.288 $41.949 $33.110 $29.756 $23.297 $24.693
Income from investment operations:
Net investment income 0.247 0.607 0.649 0.683 0.701 0.668
Net realized and unrealized gain (loss)
on investment transactions 4.567 7.371 9.331 4.943 7.680 (0.428)
-----------------------------------------------------------------------------
Total from investment operations 4.814 7.978 9.980 5.626 8.381 0.240
-----------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.105) (1.164) - (0.683) (0.701) (0.668)
Distributions from net realized gain on
investment transactions (1.946) (2.475) (1.141) (1.589) (1.221) (0.968)
-----------------------------------------------------------------------------
Total dividends and distributions (2.051) (3.639) (1.141) (2.272) (1.922) (1.636)
-----------------------------------------------------------------------------
Net asset value, end of period $49.051 $46.288 $41.949 $33.110 $29.756 $23.297
-----------------------------------------------------------------------------
Total Return(1) 10.60% 20.33% 30.93% 18.76% 38.81% 1.32%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.35%(2) 0.35% 0.35% 0.36% 0.35% 0.37%
Ratio of net investment income
to average net assets 1.07%(2) 1.44% 1.79% 2.23% 2.64% 2.85%
Portfolio Turnover 9.66% 33.55% 32.09% 46.70% 51.76% 76.34%
Net assets, end of period (000 omitted) $4,636,670 $4,263,557 $3,540,862 $2,465,224 $1,833,450 $1,161,324
</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
See accompanying notes to financial statements.
Growth and Income Fund 5
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National Growth and Income 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 buys stocks of established companies.
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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Expenses: The custodian bank of the Fund has agreed to waive its custodial fees
when the Fund maintains a prescribed amount of cash on deposit in certain
non-interest bearing accounts. For the six months ended June 30, 1999, the
custodial fees offset arrangements amounted to $2,289.
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 portfolio and maintain its accounts and records. For these
services, the Advisor receives a management fee at an annual rate of .48% of the
first $200,000,000 of the average daily net assets of the Fund, .40% of the next
$200,000,000, and .30% of the average daily net assets of the Fund in excess of
$400,000,000. The sub-advisor, Vantage Investment Advisors, an affiliate of the
Advisor, is paid directly by the Advisor.
Delaware Service Company ("Delaware"), an affiliate of the Advisor, provides
accounting services and other administration support to the Fund. For these
services, the Fund pays Delaware a monthly fee based on average net assets,
subject to certain minimums.
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 of the Fund is borne by the Fund.
Growth and Income Fund 6
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
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>
$415,958,520 $466,630,632 $2,014,866,351 $(70,910,475) $1,943,955,876
</TABLE>
4. 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): 826,125 $ 38,937,897 3,973,161 $186,730,873 (2,380,544) $(113,081,134) 2,418,742 $112,587,636
Year ended
December 31, 1998: 4,341,760 183,305,236 7,672,147 311,714,984 (4,314,813) (174,354,430) 7,699,094 320,665,790
</TABLE>
5. Distributions to Shareholders
The Fund declares and distributes dividends, if any, on net investment income
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
Growth and Income Fund 7
