[LOGO OF PUTNAM INVESTMENTS]
Lincoln National
Aggressive Growth Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National Aggressive Growth 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
Aggressive Growth Fund, Inc.
Managed by: [LOGO OF PUTNAM INVESTMENTS]
The Fund returned 4.8% for the six months ended June 30, 1999 while its
benchmark, the S&P Mid-Cap 400 Index, returned 6.9% for the same period. Putnam
Investments assumed sub-advisory responsibility May 1, 1999.
After underperforming their large cap counterparts earlier, mid-cap stocks
posted a strong two-month return. As investors became increasingly convinced
that both U.S. and global economies were accelerating, they rotated out of the
high-priced, large-cap growth stocks into more attractively priced mid-cap
growth companies. As a result, the Russell Mid-Cap Growth Index gained 4.5% as
compared to the large-cap S&P 500 Index, which returned 1.3% for the period of
May 3 through June 30, 1999.
The Lincoln National Aggressive Growth Fund lagged its style benchmark, the
Russell MidCap Growth Index, for the period due to higher-priced technology,
consumer staples, and financial stocks, which underperformed. In technology,
strong performance by Qualcomm (cellular equipment manufacturer) and Solectron
(electronic contract manufacturer) did not offset the results of not owning more
robust software and equipment stocks. In consumer staples, weakness occurred in
cable television (Cablevision Systems) and programming (USA Networks) holdings.
In the financial sector, concerns over aggressive collection tactics hurt the
performance of Providian, a consumer finance company.
The portfolio's top-performing sectors were communication services (Allegiance
Telecom, a competitive local exchange carrier) and basic materials (Sealed Air,
a specialty packing company).
Putnam's MidCap Growth Team continues to adhere to its growth equity discipline.
The Aggressive Growth Fund portfolio is composed of stocks with strong earnings
prospects that, given their superior growth prospects, we expect to outperform
- -- especially in the consumer cyclical and consumer staples sectors.
Eric M. Wetlaufer
PLEASE NOTE:
We are pleased to announce that at the August 2, 1999, Shareholders Meeting all
three issues for the Fund were approved.
o Approval of Board of Directors of the Fund
o Approval of the sub-advisory agreement between Lincoln Investment Management,
Inc. and Putnam Investment Management, Inc. as subadvisor to the Fund
o Approval of Ernst & Young, as independent auditors of the Fund
Aggressive Growth Fund 1
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Lincoln National
Aggressive Growth Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Number Market
Common Stock: of Shares Value
- -----------------------------------------------------------------------------
Automobiles & Auto Parts: 1.5%
- -----------------------------------------------------------------------------
Danaher 78,500 $4,562,813
- -----------------------------------------------------------------------------
Banking, Finance & Insurance: 11.4%
- -----------------------------------------------------------------------------
Capital One Financial 25,500 1,420,031
Finova Group 91,700 4,825,713
GreenPoint Financial 93,900 3,081,094
Investment Technology 50,500 1,634,938
M & T Bank 4,830 2,656,500
North Fork Bancorporation 74,400 1,585,650
Northern Trust 41,100 3,987,986
Paine Webber Group 62,700 2,931,225
Schwab (Charles) 52,000 5,713,500
State Street Bank 31,100 2,655,163
TD Waterhouse Group * 64,300 1,611,519
Zions 63,700 4,052,913
- -----------------------------------------------------------------------------
36,156,232
Cable, Media & Publishing: 3.3%
- -----------------------------------------------------------------------------
Adelphia Communications Class A * 14,100 903,722
Cablevision Systems Class A * 46,600 3,262,000
Century Communications Class A * 16,800 773,325
Clear Channel Communications 1 42
Omnicom Group 66,100 5,288,000
- -----------------------------------------------------------------------------
10,227,089
Computers & Technology: 15.6%
- -----------------------------------------------------------------------------
Apple Computer * 41,600 1,929,200
Comverse Technology * 71,100 5,363,606
Fiserv * 112,800 3,535,575
Intuit * 41,100 3,706,706
Jabil Circuit * 103,500 4,670,438
Juniper Networks * 507 75,622
Lexmark International Group A * 86,800 5,734,225
Linear Technology 49,700 3,345,431
Macromedia * 73,300 2,604,441
Siebel Systems * 26,800 1,776,338
Teradyne * 42,800 3,070,900
VeriSign * 70,700 6,097,875
Veritas Software * 79,400 7,540,519
- -----------------------------------------------------------------------------
49,450,876
Consumer Products: 4.4%
- -----------------------------------------------------------------------------
Dial 98,900 3,677,844
Estee Lauder Class A 136,200 6,827,025
Maytag 46,500 3,240,469
- -----------------------------------------------------------------------------
13,745,338
Electronics & Electrical Equipment: 6.7%
- -----------------------------------------------------------------------------
Altera * 95,900 3,527,322
Florida Progress 41,900 1,730,994
LSI Logic * 62,100 2,864,363
Maxim Integrated Products * 42,600 2,832,900
Solectron * 88,100 5,875,169
Symbol Technologies 120,250 4,434,219
- -----------------------------------------------------------------------------
21,264,967
Energy: 1.8%
- -----------------------------------------------------------------------------
Coastal 52,900 2,116,000
Cooper Cameron * 46,400 1,719,700
Smith International * 44,200 1,919,938
- -----------------------------------------------------------------------------
5,755,638
Environmental Services: 2.7%
- -----------------------------------------------------------------------------
Burlington Resources 52,000 2,249,000
PE Corp- PE Biosystems Group 25,300 2,903,175
Number Market
Environmental Services (Cont.) of Shares Value
- -----------------------------------------------------------------------------
Republic Services Class A * 136,100 $ 3,368,475
Waste Management 1 20
- -----------------------------------------------------------------------------
8,520,670
Food, Beverage & Tobacco: 2.9%
- -----------------------------------------------------------------------------
Darden Restaurants 120,100 2,619,681
Flowers Industries 145,900 3,164,206
U.S. Foodservice * 81,000 3,452,625
- -----------------------------------------------------------------------------
9,236,512
Healthcare & Pharmaceuticals: 11.2%
- -----------------------------------------------------------------------------
Alza * 77,900 3,963,163
AmeriSource Health Class A * 157,700 4,021,350
Bergen Brunswig Class A 3,000 51,750
Biogen * 60,200 3,873,494
Biomet 73,100 2,901,156
Elan PLC - ADR * 101,800 2,824,950
Healthsouth * 207,100 3,093,556
Idexx Laboratories * 74,500 1,729,797
Immunex * 36,900 4,701,291
Visx * 58,900 4,669,666
Watson Pharmaceutical * 102,500 3,593,906
- -----------------------------------------------------------------------------
35,424,079
Industrial Machinery: 0.6%
- -----------------------------------------------------------------------------
Baker Hughes 54,400 1,822,400
- -----------------------------------------------------------------------------
Leisure, Lodging & Entertainment: 2.0%
- -----------------------------------------------------------------------------
Harrah's Entertainment 153,000 3,366,000
Royal Caribbean Cruises 71,600 3,132,500
- -----------------------------------------------------------------------------
6,498,500
Miscellaneous: 3.6%
- -----------------------------------------------------------------------------
Cintas 48,500 3,257,078
Waters * 66,800 3,548,750
Young & Rubicam 104,000 4,725,500
- -----------------------------------------------------------------------------
11,531,328
Packaging & Containers: 0.9%
- -----------------------------------------------------------------------------
Sealed Air * 42,900 2,783,138
- -----------------------------------------------------------------------------
Real Estate: 1.1%
- -----------------------------------------------------------------------------
Starwood Hotels & Resorts 119,100 3,639,994
- -----------------------------------------------------------------------------
Retail: 10.6%
- -----------------------------------------------------------------------------
Abercrombie & Fitch Class A * 76,200 3,657,600
Amazon.com * 22,400 2,802,100
Ann Taylor Holdings * 67,800 3,051,000
Best Buy * 60,000 4,050,000
Circuit City Stores 33,600 3,124,800
Family Dollar Stores 173,550 4,165,200
Linens N Things * 100,200 4,383,750
TJX 142,700 4,753,684
Tricon Global Restaurants * 67,000 3,626,375
- -----------------------------------------------------------------------------
33,614,509
Telecommunications: 9.6%
- -----------------------------------------------------------------------------
ADC Telecommunications * 68,300 3,109,784
Allegiance Telecom * 53,200 2,924,338
Convergys * 149,000 2,868,250
Exodus Communications * 30,200 3,623,056
Frontier 45,900 2,708,100
Global Telesystems Group * 24,200 1,959,444
McLeod Class A * 62,900 3,455,569
Network Appliance * 52,400 2,929,488
Qualcomm * 49,000 7,033,031
- -----------------------------------------------------------------------------
30,611,060
Textiles, Apparel & Furniture: 5.2%
- -----------------------------------------------------------------------------
Furniture Brands International * 146,200 4,075,325
Lear * 50,500 2,512,375
Mohawk Industries * 92,200 2,800,575
Shaw Indusries 160,200 2,643,300
Westpoint Stevens 148,300 4,421,194
- -----------------------------------------------------------------------------
16,452,769
Aggressive Growth Fund 2
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Transportation & Shipping: 2.1%
- -----------------------------------------------------------------------------
Continental Airlines Class B * 90,100 $ 3,401,275
Galileo International 62,000 3,313,125
- -----------------------------------------------------------------------------
6,714,400
Utilities: 1.3%
- -----------------------------------------------------------------------------
Calpine * 43,800 2,365,200
Ipalco Enterprises 77,800 1,648,388
- -----------------------------------------------------------------------------
4,013,588
Common Stock: 97.9%
(Cost $290,983,449) 312,025,900
- -----------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
- -----------------------------------------------------------------------------
Warburg, Dillion & Read Repurchase
Agreement, dated 6/30/99, 4.80%,
maturing 7/1/99, collateralized by
$7,783,828 U.S. Treasury Bonds, 9.13%,
5/15/18, market value $7,852,828 $7,683,000 7,683,000
- -----------------------------------------------------------------------------
Total Repurchase Agreement: 2.5%
(Cost $7,683,000) 7,683,000
- -----------------------------------------------------------------------------
Total Investments: 100.4%
(Cost $298,666,449) 319,708,900
- -----------------------------------------------------------------------------
Other Liabilities Over Assets: (0.4)% (1,357,424)
- -----------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $14.010 per share
based on 22,723,529 shares
issued and outstanding) $318,351,476
- -----------------------------------------------------------------------------
Components of Net Assets at June 30, 1999:
- -----------------------------------------------------------------------------
Common Stock, $.01 par value 50,000,000
authorized shares 227,235
Paid in capital in excess of par value of
shares issued 272,440,403
Undistributed net investment loss (596,041)
Accumulated net realized gain on investments 25,237,428
Net unrealized appreciation of investments 21,042,451
- -----------------------------------------------------------------------------
Total Net Assets $318,351,476
- -----------------------------------------------------------------------------
* Non-income producing security.
ADR - American Depository Receipt
See accompanying notes to financial statements.
Aggressive Growth Fund 3
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Lincoln National Aggressive Growth Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 1999
Investment income:
Dividends $410,255
- -----------------------------------------------------------------------------
Interest 280,467
- -----------------------------------------------------------------------------
Total investment income 690,722
- -----------------------------------------------------------------------------
Expenses:
Management fees 1,142,907
- -----------------------------------------------------------------------------
Accounting fees 76,000
- -----------------------------------------------------------------------------
Printing and postage 41,800
- -----------------------------------------------------------------------------
Custody fees 7,000
- -----------------------------------------------------------------------------
Directors fees 2,100
- -----------------------------------------------------------------------------
Other 16,956
- -----------------------------------------------------------------------------
Total expenses 1,286,763
- -----------------------------------------------------------------------------
Net investment loss (596,041)
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
- -----------------------------------------------------------------------------
Net realized gain on transactions 45,925,105
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments (31,183,478)
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 14,741,627
- -----------------------------------------------------------------------------
Net increase in net assets
resulting from operations $14,145,586
- -----------------------------------------------------------------------------
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) $ (596,041) $ 29,870
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments 45,925,105 (20,687,677)
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 31,183,478 (2,668,620)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 14,145,586 (23,326,427)
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (29,870) (473,358)
- -------------------------------------------------------------------------------
Net realized gain on investments - (45,635,441)
- -------------------------------------------------------------------------------
Total distributions to shareholders (29,870) (46,108,799)
- -------------------------------------------------------------------------------
Net increase/(decrease) in net assets
resulting from capital share transactions (31,130,678) 62,038,964
- -------------------------------------------------------------------------------
Total decrease in net assets (17,014,962) (7,396,262)
- -------------------------------------------------------------------------------
Net Assets, beginning of period 335,366,438 342,762,700
- -------------------------------------------------------------------------------
Net Assets, end of period $318,351,476 $335,366,438
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Aggressive Growth Fund 4
<PAGE>
Lincoln National Aggressive Growth Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Period ended December 31,
(Unaudited) 1998 1997 1996 1995 1994(3)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.367 $ 16.385 $ 13.980 $ 12.183 $ 9.048 $10.000
Income from investment operations:
Net investment income (loss) (0.005) 0.001 0.023 0.004 0.007 0.019
Net realized and unrealized gain (loss)
on investments 0.649 (0.810) 3.055 1.989 3.135 (0.952)
------------------------------------------------------------------------
Total from investment operations 0.644 (0.809) 3.078 1.993 3.142 (0.933)
------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.001) (0.023) - (0.004) (0.007) (0.019)
Distributions from net realized gain on
investment transactions - (2.186) (0.673) (0.192) - -
------------------------------------------------------------------------
Total dividends and distributions (0.001) (2.209) (0.673) (0.196) (0.007) (0.019)
------------------------------------------------------------------------
Net asset value, end of period $ 14.010 $ 13.367 $ 16.385 $ 13.980 $ 12.183 $ 9.048
------------------------------------------------------------------------
Total Return(1) 4.80% (6.20%) 23.09% 17.02% 34.15% (9.37%)
Ratios and supplemental data:
Ratio of expenses to average net assets 0.82%(2) 0.81% 0.81% 0.82% 0.94% 1.11%
Ratio of net investment income
to average net assets (0.38%)(2) 0.01% 0.16% 0.03% 0.06% 0.21%
Portfolio Turnover 150.00% 102.33% 105.07% 77.51% 85.82% 100.31%
Net assets, end of period (000 omitted) $318,351 $335,366 $342,763 $242,609 $138,471 $60,697
</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.
Aggressive Growth Fund 5
<PAGE>
Lincoln National Aggressive Growth Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National Aggressive Growth 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 capital appreciation. The Fund
invests in stocks of smaller, lesser-known companies, which have a chance to
grow significantly in a short time.
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.
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 .75% of the
first $200,000,000 of the average daily net assets of the Fund, .70% of the next
$200,000,000, and .65% of the average daily net assets of the Fund in excess of
$400,000,000. The sub-advisor, Putnam Investments, is paid directly by the
Advisor. Effective May 1, 1999, Putnam Investments became sub-advisor of the
Fund. Additionally, on May 1, 1999, the Fund terminated its sub-advisor
agreement with Lynch & Mayer.
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 is borne by the Fund.
Aggressive Growth 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>
$456,699,031 $473,808,160 $30,907,149 $(9,864,698) $21,042,451
</TABLE>
4. Supplemental Financial Instrument Information
Repurchase Agreements: The Fund, through its custodian, receives delivery of the
underlying securities, whose market value is required to be at least 102% of the
repurchase price. The Advisor is responsible for determining that the value of
the collateral is at least equal to the repurchase price. However, in the event
of default or bankruptcy by the counterparty to the agreement, realization of
the collateral may be subject to legal proceedings.
5. Summary of Changes From Capital Share Transactions
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase/(Decrease)
Capital Reinvestment of Capital Shares Resulting From Capital
Shares Sold Dividends Redeemed Share Transactions
-----------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six months ended
June 30, 1999 (unaudited): 380,727 $5,046,808 2,205 $29,870 (2,747,723) $(36,207,356) (2,364,791) $(31,130,678)
Year ended
December 31, 1998: 2,713,832 38,444,307 3,125,236 46,108,799 (1,669,529) (22,514,142) 4,169,539 62,038,964
</TABLE>
6. 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.
7. Capital Loss Carryforward
As of December 31, 1998, the Fund had $19,675,836 of unused capital loss
carryforward for federal tax purposes. The loss carryforward expires in the year
2005.
Aggressive Growth Fund 7
