[PUTNAM INVESTMENTS LOGO]
Lincoln National
Aggressive Growth Fund, Inc.
Annual Report
December 31, 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
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National
Aggressive Growth Fund, Inc.
Managed by: [PUTNAM INVESTMENTS LOGO]
The Fund returned 42.4% for the year ended December 31, 1999 outperforming its
benchmark, the S&P MidCap 400 Index,* which returned 14.7%. Mid- and
large-capitalization growth stocks continued to lead the markets during this
period. Putnam Investments assumed subadvisory responsibilities May 1, 1999.
1999 was marked by rapid, widespread market rotation. In the first three months,
large-cap growth stocks set records; mid- and small-cap stocks did not
participate in these gains. Large-capitalization stocks continued to lead the
markets during this period and growth outperformed value. After second-quarter
broadening and significant sector rotation, third-quarter markets again narrowed
with large-cap growth stocks in the lead. In the final quarter, equity markets
hit new heights but continued to narrow, with a select number of large-cap
growth stocks continuing their reign. Technology stocks clearly led the market's
surge.
For the year overall, strong stock selection was responsible for portfolio's
robust return. The best-performing stocks were in the technology, consumer
staples, and communications services sectors. Technology, the clear market
leader for 1999, was the prime contributor to the portfolio's outperformance.
Our process is designed to identify growth companies whose earnings are
consistently rising faster than average. The continued strength of such
companies, particularly in technology, continued to power the Fund.
Looking ahead, we believe that, though U.S. economic growth may slow in 2000, it
will remain relatively robust. Markets already are watching nervously for signs
of inflation, which will be a major influence on stock prices. We also expect to
see further Fed rate hikes if strong economic growth translates into inflation.
We believe that high-quality growth companies will continue to benefit from
persistent demand and visible earnings growth, particularly within the consumer
cyclicals sector.
Eric M. Wetlaufer
Growth of $10,000 invested 1/3/94 through 12/31/99
1/3/94 12/31/98
Aggressive Growth Fund $10,000 $23,396
S&P 400 $10,000 $27,183
This chart illustrates, hypothetically, that $10,000 was invested in the
Aggressive Growth Fund on 1/3/94. As the chart shows, by December 31, 1999, the
value of the investment at net asset value, with any dividends and capital gains
reinvested, would have grown to $23,396. For comparison, look at how the S&P
Mid-Cap 400 Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to $27,183 Past
performance is not indicative of future performance. Remember, an investor
cannot invest directly in an index.
Average annual return Ended
on investments 12/31/99
- ----------------------------------------
One Year +42.43%
- ----------------------------------------
Five Year +20.89%
- ----------------------------------------
Lifetime
(since 1/3/94) +15.22%
- ----------------------------------------
* Standard & Poor's Midcap 400 Index - Measures performance of 400 medium-sized
companies. An investor cannot invest directly in the above index/indexes,
which is/are unmanaged.
Aggressive Growth Fund 1
<PAGE>
Lincoln National
Aggressive Growth Fund, Inc.
Statement of Net Assets
December 31, 1999
Investments:
Number Market
Common Stock: of Shares Value
- -----------------------------------------------------------------------------
Automobiles & Auto Parts: 0.8%
Danaher 70,200 $3,387,150
- -----------------------------------------------------------------------------
Banking, Finance & Insurance: 2.2%
- -----------------------------------------------------------------------------
Finova Group 66,800 2,371,400
GreenPoint Financial 85,300 2,031,206
M & T Bank 4,800 1,988,400
Zions 57,300 3,391,444
- -----------------------------------------------------------------------------
9,782,450
Business Services: 2.6%
- -----------------------------------------------------------------------------
Convergys * 138,000 4,243,500
Young & Rubicam 106,200 7,513,650
- -----------------------------------------------------------------------------
11,757,150
Cable, Media & Publishing: 6.8%
- -----------------------------------------------------------------------------
InterPublic Group * 87,200 5,030,350
Omnicom Group 55,700 5,570,000
Radio One * 29,100 2,683,566
Spanish Broadcasting Systems Class A * 125,500 5,027,844
TMP Worldwide * 31,700 4,491,493
Univision Communications * 39,000 3,985,313
Valassis Communications * 63,600 2,687,100
World Wrestling Foundation Entertainment * 45,400 781,731
- -----------------------------------------------------------------------------
30,257,397
Chemicals: 0.8%
- -----------------------------------------------------------------------------
Praxair 68,000 3,421,250
- -----------------------------------------------------------------------------
Computers & Technology: 32.3%
- -----------------------------------------------------------------------------
I2 Technologies * 25,800 5,026,162
Apple Computer * 41,100 4,224,309
BEA Systems * 76,400 5,350,388
Checkfree Holdings * 14,500 1,526,125
CMGI * 36,500 10,104,797
Computer Sciences * 51,900 4,911,038
Comverse Technology * 78,200 11,317,010
Doubleclick * 27,100 6,863,922
Fiserv * 121,600 4,651,200
Gateway * 76,100 5,483,956
Intuit * 86,200 5,163,919
Jabil Circuit * 118,700 8,665,100
Juniper Networks * 6,315 2,144,929
Legato Systems * 34,000 2,338,562
Lexmark International Group A * 66,700 6,036,350
Linear Technology 20,649 1,477,694
Macromedia * 48,900 3,575,813
Peregrine Systems * 36,300 3,052,603
Phone.com * 18,500 2,149,469
Rational Software * 136,600 6,723,281
Siebel Systems * 94,300 7,932,988
Teradyne * 81,000 5,346,000
VeriSign * 66,500 12,705,656
Veritas Software * 124,300 17,786,553
- -----------------------------------------------------------------------------
144,557,824
Consumer Products: 1.2%
- -----------------------------------------------------------------------------
Estee Lauder Class A 104,900 5,290,894
- -----------------------------------------------------------------------------
Electronics & Electrical Equipment: 18.8%
- -----------------------------------------------------------------------------
Altera * 77,800 3,855,963
Analog Devices * 106,500 9,904,500
Conexant Systems * 53,000 3,509,594
DII Group * 50,400 3,576,825
E-Tek Dynamics * 35,100 4,716,562
Florida Progress 43,300 1,832,131
Number Market
Electronics & Electrical Equipment (Cont.) of Shares Value
- -----------------------------------------------------------------------------
JDS Uniphase * 62,600 $ 10,098,163
Lam Research * 25,200 2,812,950
LSI Logic * 71,300 4,812,750
Maxim Integrated Products * 177,300 8,360,803
PMC - Sierra * 29,900 4,792,409
Sanmina * 27,700 2,759,613
Sawtek * 13,800 918,994
SCI Systems * 38,100 3,131,344
Symbol Technologies 150,600 9,572,512
Vitesse Semiconductor * 69,200 3,626,513
Waters * 30,800 1,632,400
Xilinx * 98,000 4,455,938
- -----------------------------------------------------------------------------
84,369,964
Energy: 1.9%
- -----------------------------------------------------------------------------
Burlington Resources 52,300 1,729,169
Cooper Cameron * 47,700 2,334,319
Murphy Oil 41,900 2,404,012
Smith International * 45,700 2,270,719
- -----------------------------------------------------------------------------
8,738,219
Environmental Services: 2.7%
- -----------------------------------------------------------------------------
Ecolab 93,600 3,662,100
PE Corp - PE Biosystems Group 71,600 8,614,375
- -----------------------------------------------------------------------------
12,276,475
Food, Beverage & Tobacco: 1.4%
- -----------------------------------------------------------------------------
Darden Restaurants 149,000 2,700,625
U.S. Foodservice * 217,000 3,634,750
- -----------------------------------------------------------------------------
6,335,375
Healthcare & Pharmaceuticals: 5.3%
- -----------------------------------------------------------------------------
Allergan 71,000 3,532,250
Idexx Laboratories * 72,900 1,180,069
Immunex * 73,700 8,067,850
IMS Health 60,800 1,653,000
Medimmune * 46,900 7,776,606
Visx * 29,800 1,543,081
- -----------------------------------------------------------------------------
23,752,856
Leisure, Lodging & Entertainment: 2.6%
- -----------------------------------------------------------------------------
Harley-Davidson 38,100 2,440,781
Harrah's Entertainment * 192,800 5,097,150
Royal Caribbean Cruises 82,700 4,078,144
- -----------------------------------------------------------------------------
11,616,075
Packaging & Containers: 0.5%
- -----------------------------------------------------------------------------
Sealed Air * 44,700 2,316,019
- -----------------------------------------------------------------------------
Retail: 8.2%
- -----------------------------------------------------------------------------
Abercrombie & Fitch Class A * 104,500 2,788,843
AnnTaylor Stores * 76,000 2,617,250
BJ's Wholesale Club * 142,300 5,193,950
Circuit City Stores 135,200 6,092,450
Family Dollar Stores 183,200 2,988,450
Kohl's * 49,600 3,580,500
Linens N Things * 137,300 4,067,512
Tandy 103,300 5,081,069
Tiffany 48,800 4,355,400
- -----------------------------------------------------------------------------
36,765,424
Telecommunications: 7.8%
- -----------------------------------------------------------------------------
ADC Telecommunications * 72,900 5,287,528
Allegiance Telecom * 53,800 4,942,875
Ciena * 17,900 1,029,810
McLeod Class A * 79,800 4,693,237
Network Appliance * 98,400 8,170,275
NTL * 36,000 4,486,500
Omnipoint * 33,200 3,998,525
Telephone & Data Systems 19,800 2,494,800
- -----------------------------------------------------------------------------
35,103,550
Textiles, Apparel & Furniture: 0.8%
- -----------------------------------------------------------------------------
Furniture Brands International * 149,800 3,295,600
Westpoint Stevens 16,000 280,000
- -----------------------------------------------------------------------------
3,575,600
Aggressive Growth Fund 2
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Utilities: 1.5%
- -----------------------------------------------------------------------------
Calpine * 103,400 $ 6,617,600
- -----------------------------------------------------------------------------
Common Stock: 98.2%
(Cost $300,110,327) 439,921,272
- -----------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
- -----------------------------------------------------------------------------
Warburg, Dillon & Read Repurchase
Agreement, dated 12/31/99, 2.75%,
maturing 1/3/00, collateralized by $11,619,650
U.S. Treasury Notes, 7.125%, 2/15/23,
market value $11,917,893 $11,665,000 11,665,000
- -----------------------------------------------------------------------------
Total Repurchase Agreement: 2.6%
(Cost $11,665,000) 11,665,000
- -----------------------------------------------------------------------------
Total Investments: 100.8%
(Cost $311,775,328) 451,586,272
- -----------------------------------------------------------------------------
Other Assets Under Liabilities: (0.8)% (3,393,401)
- -----------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $19.038 per share
based on 23,541,495 shares
issued and outstanding) $448,192,871
- -----------------------------------------------------------------------------
Components of Net Assets at December 31, 1999:
- -----------------------------------------------------------------------------
Common Stock, par value $.01 per share,
50,000,000 authorized shares $ 235,415
Paid in capital in excess of par value of shares issued 280,269,335
Accumulated net realized gain on investments 27,877,175
Net unrealized appreciation of investments 139,810,946
- -----------------------------------------------------------------------------
Total Net Assets $448,192,871
- -----------------------------------------------------------------------------
* Non-income producing security.
See accompanying notes to financial statements.
Aggressive Growth Fund 3
<PAGE>
Lincoln National Aggressive Growth Fund, Inc.
Statement of Operations
Year ended December 31, 1999
Investment income:
Dividends $875,177
- ------------------------------------------------------------------------------
Interest 438,839
- ------------------------------------------------------------------------------
Total investment income 1,314,016
- ------------------------------------------------------------------------------
Expenses:
Management fees 2,417,737
- ------------------------------------------------------------------------------
Accounting fees 154,100
- ------------------------------------------------------------------------------
Printing and postage 143,780
- ------------------------------------------------------------------------------
Professional fees 87,049
- ------------------------------------------------------------------------------
Custody fees 34,068
- ------------------------------------------------------------------------------
Directors fees 4,200
- ------------------------------------------------------------------------------
Other 53,329
- ------------------------------------------------------------------------------
Total expenses 2,894,263
- ------------------------------------------------------------------------------
Net investment loss (1,580,247)
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments:
- ------------------------------------------------------------------------------
Net realized gain on investment transactions 48,798,680
- ------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 87,585,017
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments 136,383,697
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $134,803,450
- ------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year ended Year ended
12/31/99 12/31/98
---------------------------
Changes from operations:
Net investment income (loss) $ (1,580,247) $ 29,870
- --------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 48,798,680 (20,687,677)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 87,585,017 (2,668,620)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 134,803,450 (23,326,427)
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (29,870) (473,358)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions - (45,635,441)
- --------------------------------------------------------------------------------
Total distributions to shareholders (29,870) (46,108,799)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (21,947,147) 62,038,964
- --------------------------------------------------------------------------------
Total increase (decrease) in net assets 112,826,433 (7,396,262)
- --------------------------------------------------------------------------------
Net Assets, beginning of year 335,366,438 342,762,700
- --------------------------------------------------------------------------------
Net Assets, end of year $448,192,871 $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 year)
<TABLE>
<CAPTION>
Year ended December 31,
1999(2) 1998 1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.367 $ 16.385 $ 13.980 $ 12.183 $ 9.048
Income (loss) from investment operations:
Net investment income (loss) (0.060) 0.001 0.023 0.004 0.007
Net realized and unrealized gain (loss)
on investments 5.732 (0.810) 3.055 1.989 3.135
-----------------------------------------------------
Total from investment operations 5.672 (0.809) 3.078 1.993 3.142
-----------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.001) (0.023) - (0.004) (0.007)
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)
-----------------------------------------------------
Net asset value, end of year $ 19.038 $ 13.367 $ 16.385 $ 13.980 $ 12.183
-----------------------------------------------------
Total Return(1) 42.43% (6.20%) 23.09% 17.02% 34.15%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.87% 0.81% 0.81% 0.82% 0.94%
Ratio of net investment income (loss)
to average net assets (0.48%) 0.01% 0.16% 0.03% 0.06%
Portfolio Turnover 208.50% 102.33% 105.07% 77.51% 85.82%
Net assets, end of year (000 omitted) $448,193 $335,366 $342,763 $242,609 $138,471
</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) Commencing May 1, 1999 Putnam Investments replaced Lynch & Mayer as the
Fund's sub-adviser.
See accompanying notes to financial statements.
Aggressive Growth Fund 5
<PAGE>
Lincoln National Aggressive Growth Fund, Inc.
Notes to Financial Statements
December 31, 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
Security 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. 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. Effective May 1, 1999, Putnam Investments replaced Lynch & Mayer
as the Fund's sub-adviser. The sub-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 year
ended December 31, 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 - (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 year ended December 31, 1999 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at December 31, 1999 are as
follows:
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
- ------------------------------------------------------------------------------
$679,811,034 $690,666,860 $152,329,332 $(13,317,369) $139,011,963
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>
Year ended
December 31, 1999: 3,059,555 $41,142,340 2,205 $29,870 (4,608,585) $(63,119,357) (1,546,825) $(21,947,147)
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 from net investment income, if any,
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
Aggressive Growth Fund 7
<PAGE>
Lincoln National Aggressive Growth Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Aggressive Growth Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Aggressive Growth Fund, Inc. (the "Fund") as of December 31, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999, 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 Aggressive Growth Fund, Inc. at December 31, 1999, 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
the each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 4, 2000
Aggressive Growth Fund 8
