[VANTAGE INVESTMENT ADVISORS]
Lincoln National
Growth and Income Fund, Inc.
Annual Report
December 31, 1998
<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: [VANTAGE INVESTMENT ADVISORS]
For the year ended December 31, 1998, the Fund returned 20.33% versus its
benchmark, the S&P 500 Index, which returned 28.76%. Often the best stocks are
those everyone else seems to overlook. In a time when many economists consider
earnings estimates for stocks to be inflated, it is a challenge to identify
companies that are selling at low prices but have the potential to increase in
value over time. In an effort to uncover hidden gems, we use a quantitative
selection strategy that we have developed and fine-tuned through years of
investment management. During erratic markets, quantitative analysis helps us
to select stocks based on pre-set parameters without being swayed by current
market conditions.
In 1998, the largest 20 stocks in the S&P 500 Index were responsible for much of
the past year's stock market growth. Companies like Wal-Mart and Pfizer
dramatically outperformed other stocks in the index, making it difficult for
diversified portfolios, such as the Growth and Income Fund, to keep pace with
the index. The companies in the narrow group driving the market tend to have
high price-to-earnings (P/E) ratios, prompting many investors to expect higher
earnings growth. However, these stocks also tend to be more expensive and, in
our minds, have a lower expected return. The Growth and Income Fund seeks
companies with low P/E ratios - companies that appear undervalued and whose
price we expect to appreciate over time.
Although the recent market has favored companies with high P/E ratios, our
disciplined, computer-driven process has prevented us from veering from our
investment focus. With Growth and Income Fund, we tend to keep our sector
allocation roughly equivalent to that of the S&P 500 Index, so we didn't
completely avoid these "super-cap" companies, because a few such as General
Electric and Merck & Co. met our selection criteria. We strive to create a
portfolio that has the ability to flourish during prosperous markets and hold
its own in market declines.
As news of financial upheaval in emerging markets reached the U.S. economy, it
caused negative perceptions among American investors. As a result, some
financial stocks suffered sharp declines during this past summer's market
decline. These stocks, however, appeared to be making a comeback as of fiscal
year-end. Bank One Corporation, for instance, has bounced back, suggesting its
decline was due more to skewed perceptions among investors than actual company
performance. Although some banks did suffer short-term problems because of the
Russian debt default and the ongoing difficulties in emerging markets, we
believe financial stocks will continue to be a sound investment in the long run.
Our technology stocks performed well for Growth and Income Fund this past year.
Technology companies tend to be more sensitive to the "upgrade cycle," the rate
at which companies update their software for consumers, than they are to the
business cycle. Technology companies are under intense pressure to improve
their products within relatively short periods of time. Some heavy hitters this
past year included Apple Computer and Intel Corporation. Apple Computer
continues to meet our selection criteria including our growth and value
parameters. With the introduction of new Apple products, including the
competitively priced iMAC, we believe that this company could continue to grow,
adding value to the Fund.
Intel Corporation, manufacturer of a widely used semi-conductor - the Pentium
chip - continues to sell at a reasonable valuation and we foresee even further
earnings growth potential as demand for technology increases. We expect an
upswing in the "upgrade cycle" and we anticipate a rebound in the chip industry.
<PAGE>
Not all stocks performed as favorably as we had anticipated. Caterpillar
Tractor, an industrial machinery manufacturer, for instance, did not meet
earnings expectations. In a market that was especially sensitive to earnings,
the stock suffered at the signs of weakness.
We still see choppy waters ahead; however, this past summer's stock market
decline gave us many opportunities to purchase relatively low-priced investments
for the Growth & Income Fund's portfolio. We are optimistic that they will offer
long-term capital appreciation potential.
Our long-range outlook for the U.S. economy during the next five to ten years
is very favorable. Based on many standards, the U.S. economy is more efficient,
productive and innovative than most other world economies. In coming years, we
should be able to reap the benefits of our ability to create superior products.
As technology becomes even more prevalent in our society, the emergence of
Internet shopping and a consumer's ability to find the lowest prices at the
click of a mouse should help keep prices in check. Our economy's potential to
create non-inflationary growth is the best we have seen in the past ten years.
We believe that Growth and Income Fund's quantitative strategy will enable us to
weather any waves of short-term market volatility and leave us prepared to
capture potential market growth.
T. Scott Wittman
Growth of $10,000 invested 1/1/89 through 12/31/98
1/1/89 12/31/98
Growth and Income Fund $10,000 $57,904
S&P 500 Index $10,000 $48,264
This chart illustrates, hypothetically, that $10,000 was invested in the Growth
and Income Fund on 1/1/89. As the chart shows, by December 31, 1998, the value
of the investment at net asset value, with any dividends and capital gains
reinvested, would have grown to $48,264. For comparison, look at how the S&P 500
Index did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $57,904. Past
performance is not indicative of future performance. Remember, an investor
cannot invest directly in an index.
Average annual return Ended
on investments 12/31/98
- --------------------------------------------------
One Year +20.33%
- --------------------------------------------------
Five Years +21.35%
- --------------------------------------------------
Ten Years +17.05%
- --------------------------------------------------
<PAGE>
Lincoln National
Growth and Income Fund, Inc.
Statement of Net Assets
December 31, 1998
Investments:
Number Market
Common Stock: of Shares Value
- ---------------------------------------------------------------------------
Aerospace & Defense: 2.3%
- ---------------------------------------------------------------------------
General Dynamics 233,500 $ 13,688,937
Gulfstream Aerospace* 470,100 25,032,825
United Technologies 536,400 58,333,500
- ---------------------------------------------------------------------------
97,055,262
Automobiles & Auto Parts: 1.9%
- ---------------------------------------------------------------------------
Ford Motor 831,800 48,816,262
Hertz Class A 95,100 4,338,938
Navistar International* 592,900 16,897,650
Republic Industries* 727,800 10,735,050
- ---------------------------------------------------------------------------
80,787,900
Banking, Finance & Insurance: 14.8%
- ---------------------------------------------------------------------------
Allstate 814,298 31,452,260
American International Group 390,500 37,732,063
Associates First Capital Class A 442,202 18,738,310
BankAmerica 476,200 28,631,525
BankBoston 839,100 32,672,456
Bank One 997,827 50,951,541
Bankers Trust New York 420,200 35,900,838
Chase Manhattan 1,099,400 74,827,913
Citigroup 1,305,399 64,617,251
Comerica 564,450 38,488,434
Conseco 1,259,200 38,484,300
Dime Bancorp 681,800 18,025,087
Marsh & McLennan 641,900 37,511,031
MBIA 236,400 15,498,975
Metris 71,119 3,569,285
Paine Webber Group 735,850 28,422,206
SLM Holding 1,069,950 51,357,600
Washington Mutual 742,560 28,356,510
- ---------------------------------------------------------------------------
635,237,585
Building & Materials: 0.6%
- ---------------------------------------------------------------------------
Centex 273,400 12,320,088
USG Corp 249,300 12,698,719
- ---------------------------------------------------------------------------
25,018,807
Cable, Media & Publishing: 3.3%
- ---------------------------------------------------------------------------
Donnelley & Sons 417,400 18,287,338
Gannett 499,500 33,060,656
Knight-Ridder 150,000 7,668,750
McGraw-Hill 333,400 33,965,125
New York Times 643,600 22,324,875
Omnicom Group 254,300 14,749,400
Reynolds & Reynolds Class A 433,200 9,936,524
R.H.Donnelley 106,080 1,544,790
- ---------------------------------------------------------------------------
141,537,458
Chemicals: 1.4%
- ---------------------------------------------------------------------------
Dow Chemical 521,400 47,414,813
Lyondell Petrochemicals 517,100 9,307,800
Olin 164,700 4,663,069
- ---------------------------------------------------------------------------
61,385,682
Computers & Technology: 13.3%
- ---------------------------------------------------------------------------
American Power Conversion* 266,200 12,885,744
Apple Computer* 1,004,600 41,157,206
Cisco Systems* 545,400 50,636,981
Dell Computer* 576,800 42,232,575
Deluxe 145,900 5,334,469
Electronics Arts* 106,800 5,987,475
HBO & Company 1,038,200 29,815,806
International Business Machines 282,100 52,117,975
Keane* 219,900 8,782,255
Lexmark International Group Class A* 436,600 43,878,300
Microsoft* 991,900 137,409,147
Network Associates* 413,250 27,416,554
Number Market
of Shares Value
- ---------------------------------------------------------------------------
Storage Technology* 619,800 $ 22,041,638
Sun Microsystems* 617,200 52,809,175
Symantec* 415,200 9,004,650
Xerox 223,000 26,314,000
- ---------------------------------------------------------------------------
567,823,950
Consumer Products: 5.9%
- ---------------------------------------------------------------------------
Clorox 515,300 60,193,480
General Electric 1,211,400 123,638,513
Procter & Gamble 741,000 67,662,563
- ---------------------------------------------------------------------------
251,494,556
Electronics & Electrical Equipment: 2.4%
- ---------------------------------------------------------------------------
Honeywell 562,500 42,363,280
Intel 498,900 59,135,240
- ---------------------------------------------------------------------------
101,498,520
Energy: 6.9%
- ---------------------------------------------------------------------------
Ashland 191,400 9,258,974
Atlantic Richfield 238,500 15,562,125
Coastal 344,600 12,039,463
ENSCO International 935,400 9,997,088
Exxon 1,337,900 97,833,938
Helmerich & Payne 352,800 6,835,500
Occidental Petroleum 1,327,400 22,399,875
Oryx Energy* 282,700 3,798,781
Phillips Petroleum 239,400 10,204,425
Royal Dutch Petroleum 680,400 32,574,150
Texaco 778,000 41,136,750
USX-Marathon Group 1,016,900 30,634,113
- ---------------------------------------------------------------------------
292,275,182
Food, Beverage & Tobacco: 7.4%
- ---------------------------------------------------------------------------
CKE Restaurants 888,580 26,157,574
Coca Cola 659,400 44,097,375
ConAgra 309,600 9,752,400
General Mills 456,800 35,516,200
Heinz (H.J.) 1,071,750 60,687,844
Philip Morris 1,718,400 91,934,400
Quaker Oats 654,400 38,936,800
Universal Foods 285,200 7,825,175
- ---------------------------------------------------------------------------
314,907,768
Healthcare & Pharmaceuticals: 12.7%
- ---------------------------------------------------------------------------
Amgen* 589,400 61,592,300
Arterial Vascular Engineering* 1,125,000 58,957,031
Bristol-Myers Squibb 423,400 56,656,213
Health Management Associates Class A* 113,150 2,446,869
Johnson & Johnson 154,000 12,916,750
Lilly (Eli) 353,500 31,417,313
Lincare Holdings* 681,600 27,626,100
McKesson 179,000 14,152,188
Merck & Company 508,300 75,069,556
Pfizer 418,700 52,520,681
Rexall Sundown* 134,000 1,867,625
Schering-Plough 1,578,800 87,228,700
Tyco International 781,300 58,939,319
- ---------------------------------------------------------------------------
541,390,645
Industrial Machinery: 1.2%
- ---------------------------------------------------------------------------
Caterpillar 130,900 6,021,400
Deere & Company 235,600 7,804,250
Ingersoll-Rand 756,100 35,489,444
- ---------------------------------------------------------------------------
49,315,094
Leisure, Lodging & Entertainment: 0.5%
- ---------------------------------------------------------------------------
Carnival Cruise Lines 293,700 14,097,600
Eastman Kodak 104,200 7,502,400
- ---------------------------------------------------------------------------
21,600,000
Metals & Mining: 0.6%
- ---------------------------------------------------------------------------
Bethlehem Steel* 533,300 4,466,388
USX-U.S. Steel Group 864,500 19,883,500
- ---------------------------------------------------------------------------
24,349,888
Paper & Forest Products: 0.2%
- ---------------------------------------------------------------------------
Fort James 208,400 8,336,000
- ---------------------------------------------------------------------------
<PAGE>
Number Market
of Shares Value
- ---------------------------------------------------------------------------
Retail: 6.3%
- ---------------------------------------------------------------------------
Best Buy* 148,100 $ 9,089,638
Gap 646,875 36,386,719
Jostens 57,100 1,495,306
Kroger* 36,400 2,202,200
Lowe's Companies 241,900 12,382,256
Ross Stores 667,800 26,273,756
Safeway* 916,200 55,830,938
Staples* 726,150 31,746,370
TJX 1,727,000 50,083,000
Wal-Mart Stores 530,200 43,178,163
- ---------------------------------------------------------------------------
268,668,346
Telecommunications: 12.0%
- ---------------------------------------------------------------------------
ADC Telecommunications* 773,300 26,775,512
Ameritech 1,058,200 67,063,425
AT&T 969,900 72,984,975
Bell Atlantic 999,312 56,773,413
BellSouth 1,147,200 57,216,600
General Instrument* 1,175,800 39,903,713
GTE 788,700 53,187,956
Lucent Technologies 185,700 20,427,000
SBC Communications 246,132 13,198,829
Tellabs* 765,500 52,484,594
U S West 781,300 50,491,513
- ---------------------------------------------------------------------------
510,507,530
Textiles, Apparel & Furniture: 1.0%
- ---------------------------------------------------------------------------
Miller (Herman) 465,000 12,467,812
Tommy Hilfiger 481,400 28,884,000
- ---------------------------------------------------------------------------
41,351,812
Transportation & Shipping: 0.8%
- ---------------------------------------------------------------------------
Alaska Air Group* 272,000 12,036,000
AMR* 403,000 23,928,124
- ---------------------------------------------------------------------------
35,964,124
Utilities: 2.8%
- ---------------------------------------------------------------------------
Baltimore Gas & Electric 150,900 4,659,038
Energy East 602,500 34,041,249
General Public Utilities 657,150 29,037,816
Texas Utilities 794,200 37,079,212
Unicom 412,800 15,918,600
- ---------------------------------------------------------------------------
120,735,915
Total Common Stock: 98.3%
(Cost $2,586,571,213) 4,191,242,024
- ---------------------------------------------------------------------------
Par
Money Market Instruments: Amount
- ---------------------------------------------------------------------------
American Honda Finance
5.37%, 1/11/99 $2,200,000 2,196,717
Amoco Chemicals (Belgium)
5.92%, 1/29/99 6,700,000 6,700,000
Commercial Credit
5.33%, 2/2/99 3,700,000 3,682,569
Corporate Asset Funding
5.35%, 1/15/99 9,300,000 9,280,832
5.27%, 1/19/99 7,500,000 7,480,238
5.35%, 1/27/99 8,300,000 8,267,930
Marsh & McLennan
5.40%, 1/12/99 7,500,000 7,487,625
Merrill Lynch
5.25%, 1/25/99 2,100,000 2,092,720
Prudential Funding
5.11%, 1/25/99 2,000,000 1,993,280
Salomon Smith Barney Holdings
5.14%, 2/01/99 4,200,000 4,181,410
Times Mirror
5.13%, 2/08/99 3,900,000 3,878,882
Wells Fargo
5.21%, 2/10/99 1,300,000 1,292,474
Wells Fargo Discount
5.22%, 3/10/99 5,000,000 4,951,267
- ---------------------------------------------------------------------------
Market
Value
- ---------------------------------------------------------------------------
Total Money Market Instruments: 1.5%
(Cost $63,485,944) $ 63,485,944
- ---------------------------------------------------------------------------
Total Investments: 99.8%
(Cost $2,650,057,157) 4,254,727,968
- ---------------------------------------------------------------------------
Other Assets Over Liabilities: 0.2% 8,829,233
- ---------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $46.288 per share
based on 92,108,816 shares
issued and outstanding) $4,263,557,201
- ---------------------------------------------------------------------------
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Statement of Operations
Year ended December 31, 1998
Investment income:
Dividends $ 63,610,827
- ---------------------------------------------------------------------------
Interest 5,516,439
- ---------------------------------------------------------------------------
Total investment income 69,127,266
- ---------------------------------------------------------------------------
Expenses:
Management fees 12,112,568
- ---------------------------------------------------------------------------
Accounting fees 945,510
- ---------------------------------------------------------------------------
Printing and postage 392,873
- ---------------------------------------------------------------------------
Directors fees 4,200
- ---------------------------------------------------------------------------
Other 40,674
- ---------------------------------------------------------------------------
Total expenses 13,495,825
- ---------------------------------------------------------------------------
Net investment income 55,631,441
- ---------------------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain on investment transactions 223,707,077
- ---------------------------------------------------------------------------
Net change in unrealized
appreciation of investments 434,405,732
- ---------------------------------------------------------------------------
Net realized and unrealized gain on investments 658,112,809
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $713,744,250
===========================================================================
Statements of Changes in Net Assets
Years ended December 31, 1998 and 1997
Year ended Year ended
12/31/98 12/31/97
---------------------------
Changes from operations:
- ----------------------------------------------------------------------------
Net investment income $ 55,631,441 $ 54,773,374
- ----------------------------------------------------------------------------
Net realized gain on investment transactions 223,707,077 209,728,724
- ----------------------------------------------------------------------------
Net change in unrealized appreciation
of investments 434,405,732 535,067,917
- ----------------------------------------------------------------------------
Net increase in net assets
resulting from operations 713,744,250 799,570,015
- ----------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (101,986,260) -
- ----------------------------------------------------------------------------
Net realized gain on investments (209,728,724) (85,813,991)
- ----------------------------------------------------------------------------
Total distributions to shareholders (311,714,984) (85,813,991)
- ----------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 320,665,790 361,882,619
- ----------------------------------------------------------------------------
Total increase in net assets 722,695,056 1,075,638,643
- ----------------------------------------------------------------------------
Net Assets, beginning of year 3,540,862,145 2,465,223,502
- ----------------------------------------------------------------------------
Net Assets, end of year $4,263,557,201 $3,540,862,145
============================================================================
See accompanying notes to financial statements.
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Period ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $41.949 $33.110 $29.756 $23.297 $24.693
Income from investment operations:
Net investment income 0.607 0.649 0.683 0.701 0.668
Net realized and unrealized gain (loss)
on investment transactions 7.371 9.331 4.943 7.680 (0.428)
-------------------------------------------------------
Total from investment operations 7.978 9.980 5.626 8.381 0.240
-------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (1.164) - (0.683) (0.701) (0.668)
Distributions from net realized gain on
investment transactions (2.475) (1.141) (1.589) (1.221) (0.968)
-------------------------------------------------------
Total dividends and distributions (3.639) (1.141) (2.272) (1.922) (1.636)
-------------------------------------------------------
Net asset value, end of year $46.288 $41.949 $33.110 $29.756 $23.297
=======================================================
Total Return(1) 20.33% 30.93% 18.76% 38.81% 1.32%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.35% 0.35% 0.36% 0.35% 0.37%
Ratio of net investment income
to average net assets 1.44% 1.79% 2.23% 2.64% 2.85%
Portfolio Turnover 33.55% 32.09% 46.70% 51.76% 76.34%
Net assets, end of year (000 omitted) $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).
See accompanying notes to financial statements.
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Notes to Financial Statements
December 31, 1998
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. 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 year ended December 31, 1998, the
custodial fees offset arrangements amounted to $18,733.
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. Other Assets Over Liabilities
The statement of net assets account "Other Assets Over Liabilities" at December
31, 1998 consisted of the following assets (liabilities):
Cash $84,109
- ------------------------------------------------------
Receivable for dividends earned 6,560,976
- ------------------------------------------------------
Receivable for interest earned 1,102
- ------------------------------------------------------
Receivable for securities sold 40,880,698
- ------------------------------------------------------
Receivable for capital shares sold 1,353,502
- ------------------------------------------------------
Payable for securities purchased (38,746,019)
- ------------------------------------------------------
Payable for capital shares redeemed (24,308)
- ------------------------------------------------------
Management fees payable (1,089,707)
- ------------------------------------------------------
Other, net (191,120)
- ------------------------------------------------------
$8,829,233
============
3. 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.
<PAGE>
Notes to Financial Statements - (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 year
ended December 31, 1998.
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.
4. Analysis of Net Assets
Net Assets at December 31, 1998 consisted of the following:
Common Stock, par value $.01 per share** $ 921,088
- -------------------------------------------------------------------------
Paid in capital in excess of par value of shares issued 2,425,839,670
- -------------------------------------------------------------------------
Undistributed net investment income 8,418,555
- -------------------------------------------------------------------------
Accumulated net realized gain on investments 223,707,077
- -------------------------------------------------------------------------
Net unrealized appreciation of investments 1,604,670,811
- -------------------------------------------------------------------------
$4,263,557,201
==============
** The Fund has 150,000,000 authorized shares.
5. 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 year ended December 31, 1998 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at December 31, 1998 are as
follows:
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
------------------------------------------------------------------------
$1,386,408,510 $1,252,497,505 $1,705,322,127 $(100,651,316) $1,604,670,811
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>
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
Year ended
December 31, 1997: 6,674,962 251,498,635 3,927,100 134,051,775 (647,180) $ (23,667,791) 9,954,882 361,882,619
</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.
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Growth and Income Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Growth and Income Fund, Inc. (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lincoln National Growth and Income Fund, Inc. at December 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and its financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 5, 1999
