<PAGE>
[LOGO OF LINCOLN LIFE]
January 1997
Dear Multi Fund(R) contractowner:
This report covers the 12 months ended December 31, 1996 for the Multi Fund(R)
Variable Annuity's 14 underlying variable investment options. We are pleased to
report most of the options produced favorable returns again in 1996.
As they did one year ago, many investors are wondering if this level of
performance will continue into the new year. We recommend that you focus on
long-term investment strategy rather than worry about where the overall market
will go next. Market volatility is a certainty. The important factor in making
investment decisions is to be in the market over the long haul and maintain a
diversified portfolio that continues to meet your risk tolerance and investment
objectives.
The following table summarizes the performance results of the Multi Fund(R)
Variable Annuity contract for 1996. The Delaware Group Series performance shown
below is for the time period from inception, May 1, through December 31, 1996.
All of these figures are slightly different from those appearing later in this
report. The performance results shown below are net of all charges, while those
shown later in the report are before deduction of the contractual fees.
<TABLE>
<CAPTION>
- ---------------------------------- ------------------------------------ -----------------------------------
Equity Balanced Fixed Income
- ---------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C>
Aggressive Growth Fund 15.79% Global Asset Allocation Fund 14.37% Bond Fund 1.29%
Capital Appreciation Fund 17.47 Managed Fund 11.32 Delaware Global Bond Series 11.06*
Delaware Emerging Money Market Fund 3.99
Growth Series -0.87*
Delaware Equity/
Income Series 12.63*
Equity-Income Fund 19.57
Growth and Income Fund 18.46
International Fund 8.81
Social Awareness Fund 27.96
Special Opportunities Fund 15.79
</TABLE>
On page two of this report, you will find an additional table that, in
accordance with the Securities and Exchange Commission regulations, show results
as of the most recent completed calendar quarter after the deduction of all
charges. The charges include surrender charges that apply to certain withdrawals
made prematurely from a contract. Most contractowners regard Multi Fund(R) as a
long-term investment product, so they rarely contend with these surrender
charges.
We remain optimistic about the long-term prospects in the various financial
markets, but there are always uncertainties. We believe our portfolio managers'
disciplined approach will continue to prevail for those of you willing to
maintain a long-term investment strategy for your retirement or other future
needs.
Beginning on page three, we have included commentary from each of the portfolio
managers about the fund(s) they manage. These commentaries will provide some
insight as to how the funds were managed during 1996 and how our portfolio
managers will position the funds going forward in 1997.
In closing, we would like to thank each of you for choosing Lincoln Life as your
annuity provider. We value the confidence you have placed in Lincoln Life, and
we will work hard to earn your continued trust.
Sincerely,
/s/ Kelly D. Clevenger
Kelly D. Clevenger
Vice President
* Performance from May 1, 1996, since the Series was not available until then
for Multi Fund(R) contractowners.
<PAGE>
MULTI FUND(R) 1996 ANNUAL REPORT
Index
LINCOLN NATIONAL FUND SERIES:
STATEMENT OF NET ASSETS:
Lincoln National Aggressive Growth Fund, Inc. 11
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Lincoln National Bond Fund, Inc. 12
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Lincoln National Capital Appreciation Fund, Inc. 14
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Lincoln National Equity-Income Fund, Inc. 16
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Lincoln National Global Asset Allocation Fund, Inc. 20
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Lincoln National Growth and Income Fund, Inc. 30
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Lincoln National International Fund, Inc. 31
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Lincoln National Managed Fund, Inc. 33
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Lincoln National Money Market Fund, Inc. 38
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Lincoln National Social Awareness Fund, Inc. 38
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Lincoln National Special Opportunities Fund, Inc. 40
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STATEMENT OF OPERATIONS: 42
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STATEMENT OF CHANGES IN NET ASSETS: 44
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NOTES TO FINANCIAL STATEMENTS: 46
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FINANCIAL HIGHLIGHTS: 53
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS: 55
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DELAWARE GROUP PREMIUM FUND SERIES:
STATEMENT OF NET ASSETS:
Delaware Group Premium Fund Inc., Equity/Income Series 56
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Delaware Group Premium Fund Inc., Emerging Growth Series 57
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Delaware Group Premium Fund Inc., Global Bond Series 59
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STATEMENT OF ASSETS AND LIABILITIES: 60
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STATEMENT OF OPERATIONS: 61
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STATEMENT OF CHANGES IN NET ASSETS: 62
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NOTES TO FINANCIAL STATEMENTS: 63
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FINANCIAL HIGHLIGHTS: 68
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS: 69
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<PAGE>
Multi Fund(R)
SEC-required quarterly performance/1/
December 31, 1996
- --------------------------------------------------------------------------------
Ten years
One year Five years or inception
12/31/95 to 12/31/91 to 12/31/86 to
Multi Fund(R) 12/31/96 12/31/96 12/31/96
- --------------------------------------------------------------------------------
Aggressive Growth Fund 6.46% N/A 8.34/2/%
Bond Fund -6.87 5.20% 7.01
Capital Appreciation Fund 8.01 N/A 11.76/2/
Delaware Emerging Growth Fund N/A N/A 8.86/2/
Delaware Equity-Income Fund N/A N/A 3.56/2/
Delaware Global Bond Fund N/A N/A 2.11/2/
Equity-Income Fund 9.95 N/A 15.16/2/
Global Asset Allocation Fund 5.16 9.83 8.68/2/
Growth and Income Fund 8.92 11.98 13.24/
International Fund 0.05 7.55 6.41/2/
Managed Fund 2.36 8.48 10.00
Money Market Fund -4.39 2.18 4.57
Social Awareness Fund 17.66 14.74 15.42/2/
Special Opportunities Fund 6.47 12.08 13.19
1 In compliance with SEC guidelines, these results show the percent change for
periodic contracts (on an annualized basis) for each of the required periods
with dividends reinvested and include reduction of all recurring expenses (e.g.,
administrative fees) and non-recurring expenses (e.g., surrender charges -
periodic/years 1-5 = 8%, 6-10 = 4% and 11+years 0%. Flexible premium/7-6-5-4-
3-2-1% declining 1% annually.)
2 Indicates performance since inception.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than the
original cost.
An investment in the Money Market Fund is neither insured nor guaranteed by
U.S. Government and there is no assurance that the subaccount will maintain a
stable $1.00 share price.
The risks associated with investing on a worldwide basis include differences in
regulation of financial data and reporting, currency exchange differences, as
well as economic and political systems which may be different from those in the
United States.
The performance data quoted represents past performance. Past performance is not
indicative of future results.
This contract has limitations, expenses and surrender charges. For costs and
complete details of the coverage, call or write your agent or Lincoln Life.
This material must be preceded or accompanied by a prospectus for the Lincoln
National Life Variable Annuity Account C. Read the prospectus carefully before
you invest or send money.
SMR97-0364ALL
Jan 97
2
<PAGE>
Aggressive Growth Fund
Managed by: [LOGO OF LYNCH & MAYER]
Growth of $10,000 invested 1/3/94 through 12/31/96
<TABLE>
<CAPTION>
Aggressive Growth Fund
Ending
Account
Date Value Russell 2000
<S> <C> <C>
1994 $9,048 $9,817
1995 $12,194 $12,610
1996 $14,263 $14,697
</TABLE>
The Aggressive Growth Fund produced exciting returns again in 1996, as did
almost all financial assets. This fund's return for the year was 17.0%, bringing
the total return for the past two years to almost 60%. These exceptional returns
are partially due to an ideal environment for financial assets. Benign inflation
and interest rates, coupled with stable monetary policy and economic growth,
have created one of the strongest periods in stock market history.
The most compelling returns in the market came in the slower-growing larger
companies that dominate the Standard & Poor's 500 Index. The S&P 500 was up
nearly 23% in 1996, while the typical mid-cap growth stock was up only 17.5%.
This is the third consecutive year during which larger cap stocks tended to do
notably better than the smaller, more aggressive stocks typically held in the
Aggressive Growth Fund. As a result of this three-year period, aggressive growth
stocks are typically more attractively priced relative to the overall market
than they have been in many years.
Companies that service and support oil exploration efforts did notably well,
including Ensco, Reading and Bates, and BJ Service. They benefited from major
changes in the technology and in the structure of their industry. Over time,
this philosophical focus on positive change has produced outstanding returns.
In 1997, the Aggressive Growth Fund will continue to focus on identifying
companies with positive fundamental changes that are likely to trigger earnings
above consensus expectations.
Ed Petner
Bond Fund
Managed by: [LOGO OF LINCOLN INVESTMENT MANAGEMENT]
Growth of $10,000 invested 1/1/87 through 12/31/96
<TABLE>
<CAPTION>
BOND FUND
Ending
Account Lehman Brothers
Date Value Government/Corporate Bond Index
<S> <C> <C>
1987 $9,953 $10,229
1988 $10,872 $11,005
1989 $12,310 $12,572
1990 $12,981 $13,612
1991 $15,312 $15,804
1992 $16,489 $17,001
1993 $18,697 $18,881
1994 $17,761 $18,220
1995 $21,240 $21,726
1996 $21,647 $22,357
</TABLE>
1996 was a volatile year for interest rates. The initial outlook of slow growth
and the expectation for the Federal Reserve to lower rates quickly changed as
the market perceived signs of increasing economic growth and the potential for
increased inflationary pressures. This perception caused interest rates to rise
more than 1%. The outlook and direction of interest rates changed in the last
quarter as employment, growth and inflation indicators showed signs of a slowing
economy and moderate inflation.
The significant rise in interest rates was the dominant factor in the less than
stellar performance of the bond market. The Bond Fund (up 1.9% in 1996) slightly
trailed the Lehman Brothers Government/Corporate Bond Index (up 2.9% in 1996).
The average duration of the
3
<PAGE>
bonds held in the fund was slightly longer than the index which caused the
slight underperformance when interest rates rose. The positive area of
performance was corporate bonds, which had positive results due to continued
strong corporate profits and moderate economic growth.
The Bond Fund's strategy continues to be an overweighting of investment grade
corporate bonds relative to the index, with modest duration adjustments
reflecting our interest rate outlook.
The outlook for 1997 is for continued steady growth with moderate inflation.
This is a favorable market for corporate bonds. The Bond Fund is positioned to
take advantage of this environment.
Tim Policinski
Capital Appreciation Fund
Managed by: [LOGO OF JANUS]
Growth of $10,000 invested 1/3/94 through 12/31/96
<TABLE>
<CAPTION>
Capital Appreciation Fund
Ending
Account
Date Value S & P Index
<S> <C> <C>
1994 $10,152 $10,131
1995 $12,989 $13,932
1996 $15,378 $17,125
</TABLE>
The markets closed out another impressive year during 1996. Investors' search
for highly liquid stocks bolstered the larger capitalization indices in the
fourth quarter. The S&P 500 Index gained an impressive 8.34% for the quarter,
and concluded the year with a gain of 22.96%. The Capital Appreciation Fund
gained 2.36% for the quarter, and 18.4% for the year.
Our substantial cash position and minimal exposure to two hot sectors,
technology and energy, caused this fund to lag the Index during the fourth
quarter. Additionally, EDS (Electronic Data Systems) missed an earnings
estimate, which proved to be a major disappointment. The company's earnings
shortfall, which was compounded by an uncertain outlook, took everyone by
surprise. Therefore, the position was liquidated.
Positions in a number of banking stocks, including Citicorp and Wells Fargo,
performed well this year. In addition, our insurance holdings had good gains. A
special standout was UICI, which was up more than 28% during the fourth quarter.
Allstate and longtime holding UNUM contributed to returns as well.
When stocks reach their recent valuations, we are content to hold cash and focus
even more on companies with solid earnings prospects. As we enter 1997, we will
be looking carefully for quality growth companies with predictable, long-term
earnings streams. We will also be watching for meaningful price breaks that
present opportunities to buy good companies at cheaper levels.
James P. Craig
Delaware Emerging Growth Series
Managed by: [LOGO OF DELAWARE GROUP]
Growth of $10,000 invested 1/1/94 through 12/31/96
Delaware Emerging Growth Series
invested 1/1/94 through 12/31/96
<TABLE>
<CAPTION>
Fund
Ending
NASDAQ Industrial Index Account Value
------------------------ -------------
<S> <C> <C>
Jan 1, 94 $10,000 $10,000
Dec 94 $ 9,356 $ 9,961
Dec 95 $11,974 $13,866
Dec 96 $13,773 $15,392
</TABLE>
4
<PAGE>
Fiscal 1996 was a mixed year for small-cap stocks and the Delaware Emerging
Growth Series. This series kept pace with the unmanaged NASDAQ Industrial Index
during the first half of the year, but the second half was disappointing. The
index returned 15.4% for the year. Generally, small-cap stocks did not fully
participate in the fall rally enjoyed by stocks of large companies. For the 12
months ended Dec. 31, 1996, the series provided a total return of 11.0%.
In the first half of 1996, the performance of the Delaware Emerging Growth
Series' small-cap stock selections was led by companies in the gaming, solid
waste and health care industries. Generally, these companies have reported
strong increases in earnings relative to both competitors and large
corporations.
During the second half, particularly the final three months of the year, this
series did not fare as well as earlier in the year relative to the NASDAQ
benchmark and the overall stock market. This short-term underperformance
reflected the fact that the Delaware Emerging Growth Series' management "stuck
to its guns" and selected emerging growth securities based on fundamental
measures of growth, such as corporate earnings potential, rather than short-term
stock price momentum.
In the year ahead, this series' management anticipates that more investors may
be attracted to stocks of smaller companies that appeared poised to benefit from
long-term economic and demographic change. In some industries, management
believes small-cap market securities may offer superior capital appreciation
potential relative to stocks of "big name" corporations.
Edward N. Antoian
Gerald S. Frey
Delaware Equity/Income Series
Managed by: [LOGO OF DELAWARE GROUP]
Growth of $10,000 invested 7/28/88 through 12/31/96
<TABLE>
<CAPTION>
Delaware Equity/Income Fund
invested 7/28/88 through 12/31/96 Ending
S&P 500 Index Account Value
------------- -------------
<S> <C> <C>
July 28, 88 $10,000 $10,000
1988 $10,365 $10,160
1989 $13,639 $11,484
1990 $13,212 $ 9,955
1991 $17,231 $12,178
1992 $18,540 $13,252
1993 $20,406 $15,299
1994 $20,663 $15,269
1995 $28,402 $20,784
1996 $34,890 $25,090
This time a year ago, it seemed unlikely that 1996 could even come close to the
U.S. stock market gains of 1995. But despite a minor setback in July, stocks
again provided robust double digit returns. The Delaware Equity/Income Series,
which focuses on stocks that pay above-average dividends and offer capital
appreciation potential, provided a 20.7% total return for the 12 months ended
Dec. 31, 1996. Comparatively, the unmanaged S&P 500 Index provided a total
return for the year of almost 23%.
The series benefited from strong performance of financial, drug, chemical,
capital goods and railroad stocks. A positive economic environment helped, too.
Inflation was subdued thanks to the Federal Reserve Board's effective monetary
policy. Consumer spending grew at a moderate, sustainable pace. For some
companies, federal regulatory concerns dissipated.
Since the fall of 1994, stock prices -- as measured by the S&P 500 Index -- have
advanced at a pace that substantially exceeds the market's average annual
historical returns, with remarkably lower-than-average short-term price
declines.
Any prudent, long-term investment strategy is mindful of the historical fact
that stock markets move in cycles. Periods of expansion and prosperity can be
followed by uncertain times when
</TABLE>
5
<PAGE>
an effective stock selection strategy is especially valuable.
As 1997 unfolds, slower economic growth could translate into slower corporate
earnings growth and consequently less price appreciation. In such an
environment, dividends take on a much greater role in the total return of stock
investments. In our opinion, the Delaware Equity/Income Series' strict adherence
to a time-tested strategy that emphasizes the compounding power of dividends
should serve policyholders well.
John B. Fields
Delaware Global Bond Series
Managed by: [Logo of Delaware Group]
Growth of $10,000 invested 5/1/96 through 12/31/96
<TABLE>
<CAPTION>
Delaware Global
Bond Series
Fund
Salomon Bros World Ending
Gov't Bond Index Account Value
- ------------------------------------ ----------------------------
<S> <C> <C>
May 1, 96 $10,000 $10,000
December 96 $10,601 $11,271
</TABLE>
Since the Delaware Global Bond Series was offered on May 1, 1996, it provided a
total return of 11.0% compared to the unmanaged Salomon Brothers World
Government Bond Index's return of 4.2%. Performance for this short time,
however, should not be viewed as indicative of future results. For the seven
months ended Dec. 31, 1996, the potential returns available from selected
overseas government bond markets have been more attractive than returns from the
U.S. government bond markets. While income was the dominant component of total
return from domestic bonds, selected European government bonds offered
substantial capital appreciation potential as Continental interest rates
declined.
During the year, the U.S. dollar rose in value against many currencies, notably
the Japanese yen. This had a negative effect on investment opportunities in some
countries. The Delaware Global Bond Series' performance benefited from not
having any Japanese bonds during the year, and management expects to again avoid
this market in 1997. In recent months, this series has put more emphasis on
bonds denominated in non-U.S. dollar currencies -- that is, countries such as
Canada and New Zealand, whose basic unit of exchange is a "dollar."
Investing in international bonds involves special risks. Currency exchange rates
fluctuate, affecting the value of bond income and principal. Governments in some
parts of the world are less stable, which has the potential to affect the
payment of interest and return of principal. Generally, these risks can be
quantified and managed, but they cannot be eliminated.
In 1997, we believe better bond values will generally be found abroad even after
factoring in overseas currency fluctuations. More specifically, we expect to
remain overweighted in selected European bonds.
Ian Sims
Equity-Income Fund
Managed by: [Logo of Fidelity Investments]
Growth of $10,000 invested 1/3/94 through 12/31/96
<TABLE>
<CAPTION>
Equity Income Fund
Ending
Account
Date Value S&P 500
- ---- ------------------ -------
<S> <C> <C>
1994 $10,335.00 $10,131
1995 $13,728.80 $13,932
1996 $16,502.07 $17,125
</TABLE>
In 1996, the portfolio's performance of 20.2% was slightly less than the S&P
500's surprisingly strong total return of almost 23%, and sur-
6
<PAGE>
passed the Lipper Equity-Income Index's total return of 17.9%.
Given a backdrop of slowing overall corporate earnings gains, investors shifted
toward large cap stocks with expected steady earnings. Although this generally
favored growth-oriented styles of management, the value-oriented portfolio
benefited from the positive impact of its strong-performing positions, including
financial, energy, diversified industrial and certain consumer nondurable
stocks. Its out-of-favor economically sensitive and utility positions, however,
lagged the market.
Currently, my 1997 investment outlook is much the same as last year. Given
recent tremendous performance as well as concern about corporate earnings, it is
difficult to expect continued strong gains for the stock market. The potential
for lower interest rates, economic expansion and subdued inflation, however, are
positives in the outlook. While recent portfolio turnover has been relatively
low and we have continued to focus on many of the same positions, we seek to
capitalize on any changes within the market constructing the portfolio from the
bottom up based on the valuations and improvement potential of individual
securities.
Stephen R. Petersen
Global Asset Allocation Fund
Managed by: [Logo of Putnam Investments]
Growth of $10,000 invested 9/1/87 through 12/31/96
<TABLE>
<CAPTION>
Global Asset
Allocation Fund
Ending
Account Lehman Brothers Government/
Date Value Corporate Bond Index S&P 500 Index EAFE
<S> <C> <C> <C> <C>
1987 $ 9,027 $10,356 $ 7,582 $ 8,802
1988 $ 9,709 $11,141 $ 8,841 $11,293
1989 $11,334 $12,728 $11,642 $12,482
1990 $11,321 $13,780 $11,279 $ 9,562
1991 $13,604 $15,999 $14,717 $10,720
1992 $14,474 $17,211 $15,839 $ 9,415
1993 $17,063 $19,115 $17,434 $12,482
1994 $16,648 $18,446 $17,662 $13,451
1995 $20,574 $21,994 $24,289 $14,960
1996 $23,858 $22,634 $29,856 $15,865
</TABLE>
The Global Asset Allocation Fund provided a total return of 16.0% for 1996. The
U.S. stock market in 1996, fueled by robust corporate earnings and benign
inflation, continued the torrid pace begun in 1995. Over the two years ending
Dec. 31, 1996, the S&P 500 has returned approximately 60%, among the best two-
year performance records in history. Also performing well during 1996 were
European stock markets, which were supported by accelerating economic growth and
stimulative monetary policies. The Japanese stock market, however, after testing
five-year highs early in the year, finished down for the year.
The U.S. bond market suffered through a turbulent year as rates rose
dramatically through the first six months of the year on surprisingly strong
economic reports. It then recovered somewhat in the latter six months in a
strong autumn rally. Overseas bond markets came uncoupled from U.S. interest
rate movements and performed well as continental European governments and
Japanese policymakers sought to spur economic growth with accommodative monetary
policies. For U.S. investors, gains in overseas stock and bond markets were
moderated by the strength of the dollar vs. the yen and most European
currencies.
We took advantage of the global capital market environment of 1996 by biasing
the portfolio in favor of global stock markets, primarily in the United States
and Europe, throughout the year while underweighting U.S. bonds in the first
half of the year, then a combination of U.S. and foreign bonds in the latter
half of the year. These shifts boosted portfolio performance as U.S. and
European stocks outperformed bonds throughout the year.
Going into 1997, we believe European stock markets offer a combination of
attractive relative value with supportive economic fundamentals, while the U.S.
stock market, after two very strong years, is fairly valued. U.S. bonds,
7
<PAGE>
after the rise in rates seen in 1996, are now fairly valued as well, while
overseas bond markets are in a position to experience the same kind of rate
increases seen in the U.S. bond market in 1996. In this environment, we continue
to overweight foreign stocks, primarily European, with modest underweights in
the U.S. stock and bond markets and a more substantial bias away from foreign
bonds. We will continue to closely monitor economic and market developments,
both at home and abroad, and manage your portfolio in a prudent and broadly
diversified fashion.
William Landes, Ph.D
Growth and Income Fund
Managed by: [LOGO OF VANTAGE GLOBAL ADVISORS]
Growth of $10,000 invested 1/1/87 through 12/31/96
invested 1/1/87 through 12/31/96
Growth & Income Fund S&P 500 Index
1987 $11,475 $10,532
1988 $12,400 $12,281
1989 $14,862 $16,172
1990 $15,112 $15,668
1991 $19,771 $20,444
1992 $20,015 $22,002
1993 $22,680 $24,218
1994 $22,892 $24,534
1995 $31,834 $33,740
1996 $13,169 $41,474
The stock market continued its remarkable bull run in 1996 with the S&P 500
Index returning almost 23% for the year. Smaller stocks as represented by the
Russell 2000 Index lagged the S&P 500, returning 16.5% for the year.
The Growth and Income Fund participated in the market's significant rise, ending
1996 up 19.9%, but it trailed the S&P 500 for the year. The S&P 500's return was
driven by the largest 15 stocks. For the year, those stocks returned 35.8%,
while the rest of the S&P 500 provided only an 18.3% return. While this fund has
exposure to some of the top 15 stocks, the portfolio is diversified and invests
in many other stocks to control risk. The Growth and Income Fund produced
returns consistent with the objective and provided risk-controlled exposure to a
rising equity market for policyholders.
The current environment of slow, steady growth and low inflation provides
support for a continued bull market in 1997. While it is unrealistic to expect
the returns of 1995 and 1996, 1997 has the makings of another positive year.
T. Scott Wittman
International Fund
Managed by: [LOGO OF CLAY FINLAY INC.]
Growth of $10,000 invested 5/1/91 through 12/31/96
INTERNATIONAL FUND
Ending
Account
Date Value EAFE
---- ---------- ----
1991 $ 9,958 $10,334
1992 $ 9,120 $ 9,076
1993 $12,719 $12,032
1994 $13,111 $12,967
1995 $14,205 $14,421
1996 $15,621 $15,294
1996 proved to be a relatively good year for the International Fund, with the
vast majority of international markets posting positive returns. This fund
returned 10.0% relative to the MSCI EAFE Index's return of 7.2%.
Investments in quality growth companies selling at attractive prices in Europe
and the Pacific Basin accounted for much of this fund's outperformance. European
luxury goods and securities benefiting from corporate restructuring proved to be
exceptionally strong during the year. The impact from securities selected in
Malaysia is also particularly noteworthy. The much-anticipated recovery in Japan
has not
8
<PAGE>
been sustainable. The International Fund's underweight coupled with positive
stock selection helped to cushion the impact of Japan's continued disappointing
performance.
In 1997 we expect to actively watch developments in Japan, looking for signs of
a sustained economic recovery. We are optimistic that our investments in Europe
will continue to perform well and expect to maintain a modest overweight to the
Pacific Basin region.
Francis Finlay
Managed Fund
Managed by: [LOGO OF LINCOLN INVESTMENT MANAGEMENT]
Growth of $10,000 invested 1/1/87 through 12/31/96
<TABLE>
<CAPTION>
Managed Lehman
Fund Brothers
Ending Government/
Account Corporate Bond S&P 500
Date Value Index Index
<S> <C> <C> <C>
1987 $10,735 $10,229 $10,532
1988 $11,612 $11,005 $12,281
1989 $13,470 $12,572 $16,172
1990 $13,930 $13,612 $15,668
1991 $17,077 $15,804 $20,444
1992 $17,707 $17,001 $22,002
1993 $19,816 $18,881 $24,218
1994 $19,336 $18,220 $24,534
1995 $25,158 $21,726 $33,740
1996 $28,345 $22,357 $41,474
</TABLE>
It was another double-digit year for returns in the Managed Fund (up 12.7% in
1996). As we had anticipated, equities once again showed better performance than
bonds and cash. Equities were almost 52% of fund assets at the start of the year
and finished the year at 57%. Relative to our peer group of balanced fund
managers, the downside to performance was our somewhat higher fixed-income
allocation. Although inflation remained within the parameters that we had
forecast, market concerns of continued bond pricing pressure from stronger
employment reports resulted in subpar bond returns.
A number of factors make it highly unlikely that 1997 equity returns will be
anywhere near those of the past two years. Three strong years in a row are the
exception, not the rule. Historically, the Dow Jones Industrial Average has had
mediocre performance in the year following a presidential election. Despite
these technical factors, fundamentals do suggest that equity returns closer to
the long-term trend of 10% are still possible. The low inflation moderate growth
scenario should remain in place and should be positive for both equity and bond
performance.
Jay Yentis
Social Awareness Fund
Managed by: [LOGO OF VANTAGE GLOBAL ADVISORS]
Growth of $10,000 invested 5/3/88 through 12/31/96
<TABLE>
<CAPTION>
Social Awareness Fund
Ending
Account S&P 500
Date Value Index
<S> <C> <C>
1988 $10,454 $10,911
1989 $13,434 $14,369
1990 $12,690 $13,921
1991 $17,383 $18,164
1992 $17,882 $19,549
1993 $20,345 $21,517
1994 $20,265 $21,799
1995 $29,081 $29,978
1996 $37,669 $36,849
</TABLE>
The Social Awareness Fund had an exceptional 1996, returning 29.5% for the year.
It outperformed the S&P 500 Index (which was up almost 23% for the year) by
approximately 7% for the year. There are two main reasons that the Fund provided
such impressive returns:
. Strong stock selection: The stocks identified as attractive appreciated more
than the market.
. Favorable industry positions: Some of those industries eliminated from the
portfolio for social reasons underperformed, and some industries with a
resulting increased weighting outperformed.
9
<PAGE>
For example, utility stocks which are reduced in the portfolio due to nuclear
power production, underperformed in 1996. Conversely, bank and financial stocks,
which are overweighted, had a particularly strong year. Such "industry effects"
will have varying influence on the fund over time.
Over the short term, social and nonsocial portfolio returns will differ but, in
the long run, there should be no financial cost to social investing.
Although it is unrealistic to expect to match the returns of the last two years,
there is reason to expect that 1997 may be another positive year. The ride may
be bumpy as day-to-day market volatility has increased in recent years. However,
the economic environment is ripe for continued equity market success.
T. Scott Wittman
Special Opportunities Fund
Managed by: [LOGO OF VANTAGE GLOBAL ADVISORS]
Growth of $10,000 invested 1/1/87 through 12/31/96
[GRAPH APPEARS HERE]
Special Opportunities Fund
Ending
Account
Value S&P Mid-Cap Index
---------- -----------------
12/31/1987 $10,877 $ 9,801
12/31/1988 $11,282 $11,845
12/31/1989 $14,883 $16,054
12/31/1990 $13,800 $15,225
12/31/1991 $19,754 $22,849
12/31/1992 $20,986 $25,569
12/31/1993 $24,829 $29,133
12/31/1994 $24,443 $28,082
12/31/1995 $32,278 $36,762
12/31/1996 $37,852 $43,821
1996 was another strong year for stock investors. For the year, large stocks as
represented by the S&P 500 Index outperformed the S&P Mid-Cap Index, which
consists of stocks of medium sized companies. The fund had a solid year,
returning 17.3%. The S&P 500 returned almost 23% for the year, while the S&P
Mid-Cap produced a 19.2% return.
The Special Opportunities Fund invests in undervalued mid-size companies that
are poised for future earnings growth. This fund's exposure to stocks of mid-
size and smaller companies hurt performance relative to the S&P 500. This fund's
emphasis on companies that are undervalued also dragged on returns. In the
technology industry, companies with high prices relative to earnings provided
above average returns in 1996. The fund was underweighted in these types of
companies and invested in reasonably priced hardware companies which did not
perform as well as other mid-cap stocks. Historically, smaller stocks have
provided higher returns over the long term. However, there are short-term
periods that prove different, and 1996 was one of those times.
While some analysts believe the market is now overvalued, we believe there is
still strength in this bull market. Yields on bonds are at low levels, providing
long term investors with few alternatives but equities. Furthermore, low
interest rates and inflation provide more support for a cautiously positive
outlook in 1997.
T. Scott Wittman
10
<PAGE>
Lincoln National Aggressive Growth
Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
-----------------------------
Banking and Insurance: 5.2%
- -------------------------------------------------------------------------------
Conseco Inc. 112,800 $7,191,000
Unum Corp. 39,800 2,875,550
Washington Mutual Insurance 61,500 2,663,719
- -------------------------------------------------------------------------------
12,730,269
Broadcasting: 1.1%
- -------------------------------------------------------------------------------
Evergreen Media Corp. * 106,400 2,646,700
- -------------------------------------------------------------------------------
Chemicals: 2.3%
- -------------------------------------------------------------------------------
Crompton & Knowles Corp. 140,400 2,702,700
IMC Global Inc. 71,800 2,809,175
- -------------------------------------------------------------------------------
5,511,875
Coal and Gas: 3.8%
- -------------------------------------------------------------------------------
Benton Oil & Gas Co. * 84,800 1,897,400
BJ Services Co. * 143,500 7,318,500
- -------------------------------------------------------------------------------
9,215,900
Consumer Products and Services: 2.3%
- -------------------------------------------------------------------------------
Omnicom Group Inc. 55,600 2,543,700
Tommy Hilfiger Corp. * 61,300 2,942,400
- -------------------------------------------------------------------------------
5,486,100
Drug and Hospital Supplies: 5.3%
- -------------------------------------------------------------------------------
Biochem Pharmaceuticals Inc. * 132,300 6,623,269
Biogen Inc. * 74,800 2,889,150
Liposome Inc. * 181,400 3,480,612
- -------------------------------------------------------------------------------
12,993,031
Electrical and Electronics: 6.2%
- -------------------------------------------------------------------------------
Dynatech Corp. * 52,000 2,294,500
Etec Systems Inc. * 116,800 4,409,200
Octel Communications Corp. * 232,200 4,034,475
Xilinx Inc. 115,100 4,237,119
- -------------------------------------------------------------------------------
14,975,294
Entertainment: 0.6%
- -------------------------------------------------------------------------------
Trump Hotels & Casino Resorts * 121,900 1,462,800
- -------------------------------------------------------------------------------
Farm Supplies: 0.9%
- -------------------------------------------------------------------------------
Pioneer Hi-Bred International Inc. 31,500 2,205,000
- -------------------------------------------------------------------------------
Finance: 3.2%
- -------------------------------------------------------------------------------
Transocean Offshore Inc. 84,900 5,316,863
United Meridian Corp. * 45,800 2,370,150
- -------------------------------------------------------------------------------
7,687,013
Financial Services: 3.1%
- -------------------------------------------------------------------------------
Charter One Financial Inc. 84,330 3,552,401
First USA Inc. 113,600 3,933,400
- -------------------------------------------------------------------------------
7,485,801
Food and Beverage: 3.1%
- -------------------------------------------------------------------------------
Coca Cola Enterprises Inc. 94,200 4,568,700
Dole Food Inc. 88,900 3,011,488
- -------------------------------------------------------------------------------
7,580,188
Health and Personal Care: 2.4%
- -------------------------------------------------------------------------------
Medpartners Inc. * 187,792 3,943,632
Visx Inc. Del * 82,000 1,829,625
- -------------------------------------------------------------------------------
5,773,257
Hospital and Health Care: 3.9%
- -------------------------------------------------------------------------------
Centocor Inc. * 106,300 3,806,869
HealthSouth Rehabilitation Corp. * 145,600 5,623,800
- -------------------------------------------------------------------------------
9,430,669
Hotels: 1.0%
- -------------------------------------------------------------------------------
Sun International Hotels Ltd. * 68,000 2,482,000
- -------------------------------------------------------------------------------
Industrial: 1.2%
- -------------------------------------------------------------------------------
Lear Corp. * 84,800 2,893,800
- -------------------------------------------------------------------------------
Machinery and Engineering: 2.8%
- -------------------------------------------------------------------------------
Harnischfeger Industries Inc. 58,100 2,796,063
New Holland NV * 110,200 2,300,425
Xircom Inc. * 78,500 1,717,187
- -------------------------------------------------------------------------------
6,813,675
Metals and Mining: 3.6%
- -------------------------------------------------------------------------------
Diamond Offshore Drilling Inc. * 74,208 4,229,856
Potash Corp. of Saskatchewan 53,000 4,505,000
- -------------------------------------------------------------------------------
8,734,856
Motor Vehicles and Equipment: 1.7%
- -------------------------------------------------------------------------------
Delta & Pine Ltd. Co. 54,000 1,728,000
Tower Automotive Inc. * 78,900 2,450,831
- -------------------------------------------------------------------------------
4,178,831
Office and Business Equipment and Services: 11.4%
- -------------------------------------------------------------------------------
Adaptec Inc. * 147,600 5,913,225
BMC Software Inc. * 106,800 4,438,875
Cadence Design Systems Inc. * 127,050 5,050,238
Informix Corp. * 99,800 2,039,663
Paging Network Inc. * 68,100 1,042,781
Parametric Technology Corp. * 67,200 3,456,600
Storage Technologies Corp. * 119,500 5,691,187
- -------------------------------------------------------------------------------
27,632,569
Petroleum and Petroleum Related: 7.4%
- -------------------------------------------------------------------------------
Ensco International Inc. * 129,500 6,280,750
Oryx Energy Co. * 176,000 4,356,000
Reading & Bates Corp. * 124,400 3,296,600
Triton Energy Ltd. * 85,700 4,156,450
- -------------------------------------------------------------------------------
18,089,800
Real Estate: 0.7%
- -------------------------------------------------------------------------------
Brooks Fiber Properties Inc. * 64,700 1,666,025
- -------------------------------------------------------------------------------
Retail: 7.1%
- -------------------------------------------------------------------------------
Claire's Stores Inc. 222,575 2,893,475
Dollar General 82,900 2,652,800
Kohls Corp. * 100 3,925
Proffitts Inc. * 65,200 2,392,025
Stage Stores Inc. * 55,000 990,000
Staples Inc. * 124,425 2,247,427
Zale Corp. * 319,200 6,104,700
- -------------------------------------------------------------------------------
17,284,352
Telecommunications: 1.7%
- -------------------------------------------------------------------------------
Colt Telecom Group plc * 94,300 1,827,063
McLeod Inc. * 91,500 2,344,687
- -------------------------------------------------------------------------------
4,171,750
Transportation: 1.6%
- -------------------------------------------------------------------------------
Wisconsin Central Transportation Corp. * 95,900 3,800,036
- -------------------------------------------------------------------------------
Trucking Companies: 1.8%
- -------------------------------------------------------------------------------
Tidewater Inc. 96,400 4,362,100
- -------------------------------------------------------------------------------
Total Common Stocks: 85.4%
(Cost $166,399,836) 207,293,691
- -------------------------------------------------------------------------------
11
<PAGE>
Maturity Market
Amount Value
--------------------------------
Repurchase Agreement:
State Street Bank and Trust Co. repurchase
agreement, dated 12/31/96, 4.75%, maturing
1/2/97, collateralized by U.S. Treasury Notes
6.375%, 3/31/01 $35,842,000 $35,842,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement: 14.8%
(Cost $35,842,000) 35,842,000
- -------------------------------------------------------------------------------
Total Investments: 100.2%
(Cost $202,241,836) 243,135,691
- -------------------------------------------------------------------------------
Other Assets Under Liablities: (0.2%) (526,928)
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $13.980 per share
based on 17,353,976 shares
issued and outstanding) $242,608,763
===============================================================================
Lincoln National Bond Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
Par Market
Long-Term Debt Investments: Amount Value
--------------------------------
U.S. Government and Agency Obligations: 36.4%
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
6.3%, 4/8/99 $5,250,000 $5,228,580
6.427%, 10/15/06 2,000,000 1,968,125
7.3%, 12/1/12 2,973,720 3,001,598
3.5%, 12/15/21 2,000,000 1,602,217
FNMA
7.6%, 7/25/05 990,496 999,494
6.8%, 8/1/05 942,681 941,798
7.175%, 10/1/05 2,574,336 2,638,694
6.655%, 11/1/05 990,423 985,780
6.66%, 12/1/05 1,981,599 1,972,311
7.043%, 7/1/06 2,490,109 2,503,338
7.15%, 10/1/15 2,922,052 2,882,787
8.0%, 4/1/17 387,307 397,716
7.0%, 10/1/25 2,831,652 2,775,019
FNMA - Strips *
0.0%, 4/12/06 6,000,000 5,119,500
0.0%, 7/24/06 9,500,000 5,083,449
GNMA
9.0%, 5/15/17 193,257 206,422
9.0%, 9/15/19 806,546 861,492
6.5%, 11/15/23 918,236 881,793
U.S. Treasury Bonds
12.0%, 8/15/13 500,000 715,600
13.25%, 5/15/14 20,000,000 31,053,400
6.0%, 2/15/26 1,050,000 956,298
U.S. Treasury Notes
6.5%, 8/31/01 10,425,000 10,544,574
6.125%, 12/31/01 7,375,000 7,348,376
U.S. Treasury Strips *
0.0%, 5/15/03 500,000 337,015
0.0%, 5/15/18 4,700,000 1,096,040
- -------------------------------------------------------------------------------
92,101,416
Collateralized Mortgage Obligations: 0.7%
- -------------------------------------------------------------------------------
Green Tree Home Improvement Loan Trust
7.35%, 7/15/21 1,500,000 1,529,408
Mid State Trust III
7.625%, 4/1/22 263,029 267,732
- -------------------------------------------------------------------------------
1,797,140
Air Transportation: 2.2%
- -------------------------------------------------------------------------------
American Airlines Equipment Trust
10.18%, 1/2/13 1,500,000 1,811,770
Federal Express Corp.
7.96%, 3/28/17 2,000,000 2,022,500
United Airline Inc. Equipment Trust
9.35%, 4/7/16 1,500,000 1,678,042
- -------------------------------------------------------------------------------
5,512,312
Aluminum: 0.2%
- -------------------------------------------------------------------------------
Alcan Aluminum Ltd. - Debentures
8.875%, 1/15/22 500,000 540,625
- -------------------------------------------------------------------------------
Banking and Insurance: 11.8%
- -------------------------------------------------------------------------------
Ahmanson H F & Co.
8.25%, 10/1/02 2,000,000 2,150,000
Banc One Corp.
9.875%, 3/1/09 500,000 610,625
Barnett Banks Inc.
6.9%, 9/1/05 1,500,000 1,483,125
Barnett Capital Trust Inc. 144A
8.06%, 12/1/26 1,900,000 1,916,625
Citicorp
6.33%, 1/5/06 1,600,000 1,524,000
First America Bank Corp.
7.75% Subordinated Note, 7/15/04 2,000,000 2,090,000
First Bank System Inc.
6.875% Subordinated Note, 9/15/07 1,000,000 983,750
First Union Corp.
8.0%, 8/15/09 2,000,000 2,130,000
First USA Bank
5.75%, 1/15/99 2,000,000 1,972,500
Fleet Financial Group Inc.
7.25%, 9/1/99 1,000,000 1,020,000
Fleet/Norstar Financial Group Inc.
7.65%, 3/1/97 500,000 501,585
Harris Bankcorp Inc.
9.375% Subordinated Note, 6/1/01 250,000 276,250
Mellon Capital Corp.
7.72%, 12/1/26 1,500,000 1,471,875
National Westminster Bank plc
9.45% Debentures, 5/1/01 500,000 550,000
Royal Bank Scotland Group
6.0%, 12/29/49 1,500,000 1,311,600
Societe Generale (France)
7.4%, 6/1/06 1,500,000 1,530,000
Southtrust Bank Birmingham Alabama
7.69%, 5/15/25 2,750,000 2,890,937
Standard Chartered Bank
5.9%, 12/29/49 1,500,000 1,250,190
Union Bank Switzerland
7.25%, 7/15/06 2,250,000 2,300,625
Wachovia Capital Trust
7.64%, 1/15/27 1,900,000 1,878,625
- -------------------------------------------------------------------------------
29,842,312
Broadcasting: 0.2%
- -------------------------------------------------------------------------------
Viacom Inc.
8.75%, 5/15/01 500,000 502,500
- -------------------------------------------------------------------------------
Building Materials: 0.4%
- -------------------------------------------------------------------------------
Georgia Pacific Corp.
9.95%, 6/15/02 1,000,000 1,138,750
- -------------------------------------------------------------------------------
Consumer Products and Services: 0.4%
- -------------------------------------------------------------------------------
Service Corp. International
7.0% Senior Note, 6/1/15 1,000,000 1,007,500
- -------------------------------------------------------------------------------
Electrical and Electronics: 0.4%
- -------------------------------------------------------------------------------
Litton Industries Inc.
6.98% Senior Debenture, 3/15/36 1,000,000 997,500
- -------------------------------------------------------------------------------
12
<PAGE>
Par Market
Amount Value
---------------------------
Entertainment: 0.9%
- --------------------------------------------------------------------------------
Time Warner Inc.
8.875%, 10/1/12 $ 500,000 $ 543,125
9.125%, 1/15/13 1,500,000 1,618,125
- --------------------------------------------------------------------------------
2,161,250
Finance: 8.1%
- --------------------------------------------------------------------------------
Aristar Finance
7.5% Senior Subordinated Note, 7/1/99 1,500,000 1,535,625
Avco Financial Services Inc.
7.25%, 7/15/99 1,000,000 1,023,750
Chrysler Financial Corp.
9.5%, 12/15/99 1,500,000 1,625,625
CIT Group Holdings Inc.
5.875%, 10/15/08 1,500,000 1,374,375
Dow Capital B V
9.0%, 5/15/10 3,000,000 3,416,250
General Motors Acceptance Corp.
8.17%, 1/2/00 843,823 870,979
8.875%, 6/1/10 1,500,000 1,738,125
Household Affinity Credit Card
6.05%, 5/15/01 1,000,000 995,728
Household Finance Corp.
9.63% Senior Subordinated Note, 7/15/00 875,000 960,312
International Lease Finance Co.
8.25%, 1/15/00 2,000,000 2,097,500
Salomon Inc.
7.25%, 1/15/00 1,000,000 1,013,750
Student Loan Marketing Association - Global
6.161%, 12/2/99 4,000,000 3,976,720
- --------------------------------------------------------------------------------
20,628,739
Financial Services: 2.3%
- --------------------------------------------------------------------------------
AT&T Capital Corp.
7.47%, 5/11/05 2,750,000 2,805,000
Finova Capital Corp.
6.12% Med. Term Note, 5/28/02 1,000,000 980,000
General Motors Acceptance Corp.
7.875% Med. Term Note, 3/7/01 1,500,000 1,567,500
Speigel Charge Account Trust 2
6.95%, 2/15/01 500,000 502,156
- --------------------------------------------------------------------------------
5,854,656
Food and Beverage: 0.8%
- --------------------------------------------------------------------------------
ConAgra Inc.
9.875%, 11/15/05 1,000,000 1,186,250
Nabisco Inc.
7.55%, 6/15/15 750,000 739,688
- --------------------------------------------------------------------------------
1,925,938
Foreign Government: 2.3%
- --------------------------------------------------------------------------------
Hydro-Quebec
7.2% Med. Term Note, 10/5/09 3,000,000 3,354,390
Manitoba (Province of)
7.75%, 7/17/16 1,500,000 1,603,125
United Mexican States
7.5625%, 8/6/01 1,000,000 1,002,500
- --------------------------------------------------------------------------------
5,960,015
Hospital and Health Care: 0.3%
- --------------------------------------------------------------------------------
Allegiance Corp.
7.3%, 10/15/06 750,000 756,563
- --------------------------------------------------------------------------------
Industrial: 1.3%
- --------------------------------------------------------------------------------
Philips Electronics NV
7.0%, 6/7/01 3,300,000 3,337,125
- --------------------------------------------------------------------------------
Machinery and Engineering: 0.9%
- --------------------------------------------------------------------------------
John Deere Capital
8.625%, 8/1/19 2,000,000 2,192,500
- --------------------------------------------------------------------------------
Metals and Mining: 3.2%
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co.
7.375%, 5/15/07 2,500,000 2,528,125
Inco Ltd.
9.6% Debenture, 6/15/22 1,300,000 1,434,875
Newmont Gold Co.
8.91%, 1/5/09 724,132 781,157
Noranda Inc.
8.125%, 6/15/04 2,000,000 2,115,000
Placer Dome Inc.
7.37% Med. Term Note, 6/3/26 1,000,000 1,025,000
Reynolds Metals Co.
9.0%, 8/15/03 250,000 275,625
- --------------------------------------------------------------------------------
8,159,782
Miscellaneous: 1.0%
- --------------------------------------------------------------------------------
Duquesne II Funding Corp.
8.7%, 6/1/16 2,474,000 2,572,960
- --------------------------------------------------------------------------------
Motor Vehicles and Equipment: 0.5%
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber Co.
6.625%, 12/1/06 1,250,000 1,212,500
- --------------------------------------------------------------------------------
Paper: 1.4%
- --------------------------------------------------------------------------------
Champion International Corp.
7.7%, 12/15/99 1,500,000 1,552,500
James River Corp.
6.7%, 11/15/03 2,000,000 1,970,000
- --------------------------------------------------------------------------------
3,522,500
Petroleum and Petroleum Related: 2.1%
- --------------------------------------------------------------------------------
Arkla Inc.
10.0%, 11/15/19 1,000,000 1,108,750
Atlantic Richfield Co.
10.25% Eurobond, 7/2/00 1,000,000 1,033,750
Enron Corp.
9.5%, 6/15/01 1,000,000 1,108,750
Noble Affiliates Inc.
7.25%, 10/15/23 600,000 566,250
Petro Canada -Debentures
8.6%, 10/15/01 1,500,000 1,606,875
- --------------------------------------------------------------------------------
5,424,375
Public Utilities: 13.7%
- --------------------------------------------------------------------------------
Central Maine Power Co.
6.5%, 7/22/97 1,500,000 1,505,625
Cleveland Electric Illumination Co.
8.26%, 10/30/98 2,500,000 2,546,875
Commonwealth Edison Co.
9.375%, 2/15/00 500,000 537,500
Consumers Power Co.
8.75% 1st Mortgage, 2/15/98 1,000,000 1,026,250
8.875% 1st Mortgage, 11/15/99 1,000,000 1,061,250
Detroit Edison Co.
6.56%, 5/1/01 2,000,000 1,982,500
Great Lakes Power Inc.
9.0%, 8/1/04 1,500,000 1,618,125
MidAmerican Energy
6.5%, 12/15/01 1,250,000 1,240,625
National Power plc
7.125%, 7/11/01 2,000,000 2,045,000
National Rural Utilities Cooperative Finance Corp.
7.2%, 10/1/15 1,000,000 995,000
Nevada Power Co.
7.06%, 5/1/00 1,500,000 1,518,750
New Jersey Bell Telephone
7.85%, 11/15/29 1,950,000 2,135,250
Old Dominion Electric Co-op SE
8.76%, 12/1/22 1,600,000 1,774,000
Pacificorp
9.15% Med. Term Note, 8/9/11 2,000,000 2,355,000
Pennsylvania Power & Light
7.7%, 10/1/09 3,000,000 3,153,750
PSI Energy Inc.
8.56% Med. Term Note, 12/27/11 2,000,000 2,257,500
13
<PAGE>
<TABLE>
<CAPTION>
Par Market
Amount Value
---------------------------
<S> <C> <C>
Public Service Co. of Colorado
6.375%, 11/1/05 $1,500,000 $ 1,441,875
Texas Gas Transmission Corp.
8.625%, 4/4/04 1,000,000 1,092,500
Utilicorp United Inc.
10.5%, 12/1/20 2,000,000 2,282,500
Washington Water & Power Co.
8.01%, 12/17/01 2,000,000 2,105,000
- -------------------------------------------------------------------------------
34,674,875
Railroads: 2.1%
- -------------------------------------------------------------------------------
Burlington Northern Railroad
6.94%, 1/2/14 500,000 496,781
Chicago & Northwestern Holdings
6.25%, 7/30/12 1,419,193 1,348,233
Norfolk Southern Corp.
7.4%, 9/15/06 3,500,000 3,565,625
- -------------------------------------------------------------------------------
5,410,639
Restaurant: 0.6%
- -------------------------------------------------------------------------------
Darden Restaurants Inc.
6.375%, 2/1/06 1,500,000 1,406,250
- -------------------------------------------------------------------------------
Retail: 1.2%
- -------------------------------------------------------------------------------
Dayton Hudson Corp.
10.0%, 1/1/11 500,000 610,625
Sears Roebuck & Co.
9.05%, 2/6/12 2,000,000 2,307,500
- -------------------------------------------------------------------------------
2,918,125
Savings and Loan: 0.4%
- -------------------------------------------------------------------------------
First Security Corp.
7.0%, 7/15/05 1,000,000 992,500
- -------------------------------------------------------------------------------
Securities Dealers: 2.2%
- -------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.
8.875% Senior Note, 3/1/02 1,000,000 1,082,500
Paine Webber Group Inc.
6.75%, 2/1/06 1,500,000 1,441,875
Smith Barney Holdings
7.875%, 10/1/99 3,000,000 3,112,500
- -------------------------------------------------------------------------------
5,636,875
Telecommunications: 3.6%
- -------------------------------------------------------------------------------
GTE Hawaiian Telephone Co. Inc.
7.0% Senior Debenture, 2/1/06 2,000,000 1,997,500
Nynex Capital Funding
7.63%, 10/15/09 3,000,000 3,256,290
Nynex Corp.
9.55% Debentures, 5/1/10 1,549,360 1,752,714
Rochester Telephone Corp.
9.0% Med. Term Note, 7/19/00 2,000,000 2,150,000
- -------------------------------------------------------------------------------
9,156,504
Total Long-Term Debt Investments: 101.6%
(Cost $251,665,266) 257,344,726
- -------------------------------------------------------------------------------
Par
Money Market Instrument: Amount
--------
Associates Corp. North America
7.00%, 1/02/97 $8,800,000 8,800,000
- -------------------------------------------------------------------------------
Total Money Market Instrument: 3.5%
(Cost $8,800,000) 8,800,000
- -------------------------------------------------------------------------------
Total Investments: 105.1%
(Cost $260,465,266) 266,144,726
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (5.1%) (12,816,821)
- -------------------------------------------------------------------------------
Market
Value
--------
Net Assets: 100.0%
(Equivalent to $11.766 per share
based on 21,531,063 shares
issued and outstanding) $253,327,905
===============================================================================
Lincoln National Capital Appreciation
Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
----------------------
<C> <C>
Aerospace: 5.0%
- -------------------------------------------------------------------------------
Allied Signal Inc. 33,075 $ 2,216,025
Boeing Co. 45,525 4,842,722
Textron Inc 15,000 1,413,750
United Technologies Corp. 73,250 4,834,500
- -------------------------------------------------------------------------------
13,306,997
Air Transportation: 0.1%
- -------------------------------------------------------------------------------
Gulfstream Aerospace Corp. New * 15,000 363,750
- -------------------------------------------------------------------------------
Banking and Insurance: 14.7%
- -------------------------------------------------------------------------------
AFLAC Inc. 15,950 681,863
Allstate Corp. 20,000 1,157,500
BCO Popular Esp (Spain) 3,083 605,557
Bank of New York Inc. 133,525 4,506,469
BankAmerica Corp. 25,175 2,511,206
Barclays plc (UK) 305,467 5,235,904
Citicorp 61,775 6,362,825
Equifax Inc. 30,000 918,750
Long Island Bancorp Inc. 18,375 643,125
Mercury General Corp. 2,900 152,250
Protective Life Corp. 30,000 1,196,250
UICI * 21,825 705,220
Unum Corp. 95,050 6,867,363
Wells Fargo & Co. 28,516 7,692,191
- -------------------------------------------------------------------------------
39,236,473
Broadcasting: 0.6%
- -------------------------------------------------------------------------------
Grupo Television S.A. DE CV 17,625 451,641
Heritage Media Corp. * 29,075 327,093
Young Broadcasting Inc. * 30,000 881,250
- -------------------------------------------------------------------------------
1,659,984
Chemicals: 3.9%
- -------------------------------------------------------------------------------
Basf AG 66,198 2,550,180
Clariant 132 56,508
Cytec Industries Inc. * 48,825 1,983,516
Monsanto Corp. 48,600 1,889,325
Praxair Inc. 27,650 1,275,356
Rentokil Group (UK) 358,288 2,700,818
- -------------------------------------------------------------------------------
10,455,703
Construction: 0.7%
- -------------------------------------------------------------------------------
Fluor Corp. 30,000 1,882,500
- -------------------------------------------------------------------------------
Consumer Products and Services: 2.6%
- -------------------------------------------------------------------------------
Gibson Greetings Inc. * 131,075 2,555,963
Johnson & Johnson 47,850 2,380,537
Magna International Inc. 21,900 1,220,925
Wrigley (Wm.) Jr. Co. 13,625 766,406
- -------------------------------------------------------------------------------
6,923,831
Drug and Hospital Supplies: 8.4%
- -------------------------------------------------------------------------------
Baxter International Inc. 25,000 1,025,000
Boston Scientific Corp. * 18,800 1,128,000
Bristol Myers Squibb Co. 46,850 5,094,938
Cardinal Health Inc. 52,838 3,077,784
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-------------------------
<S> <C> <C>
Lilly (Eli) & Co. 39,775 $2,903,575
Luxottica Group S P A 5,350 278,200
Medtronic Inc. 22,700 1,543,600
Omnicare Inc. 32,750 1,052,094
Pfizer Inc. 33,175 2,749,378
Smithkline Beecham plc 23,500 1,598,000
St. Judes Medical Inc. * 14,075 599,947
Warner Lambert Co. 20,000 1,500,000
- -------------------------------------------------------------------------------
22,550,516
Electrical and Electronics: 3.0%
- -------------------------------------------------------------------------------
ECI Telecom Ltd. 41,250 873,984
Intel Corp. 26,325 3,446,930
National Service Industries Inc. 11,350 424,206
Pittway Corp. 19,687 1,053,255
Raychem Corp. 27,400 2,195,425
- -------------------------------------------------------------------------------
7,993,800
Entertainment: 1.4%
- -------------------------------------------------------------------------------
Carnival Cruise Lines Inc. 30,000 990,000
Circus Circus Enterprises Inc. * 44,200 1,519,374
Disney (Walt) Co. 10,000 696,250
Mattel Inc. 10,837 300,727
Mirage Resorts Inc. * 15,425 333,566
- -------------------------------------------------------------------------------
3,839,917
Finance: 0.6%
- -------------------------------------------------------------------------------
Downey Financial Corp. 8,113 159,208
Meredith Corp. 2,450 129,238
Provident Financial 164,719 1,413,812
- -------------------------------------------------------------------------------
1,702,258
Financial Services: 2.4%
- -------------------------------------------------------------------------------
Associates First Capital Corp. 115,125 5,079,891
First USA Paymentech Inc. * 20,000 677,500
Ing Groep NV (Netherlands) 15,141 545,479
- -------------------------------------------------------------------------------
6,302,870
Food and Beverage: 5.2%
- -------------------------------------------------------------------------------
Campbell Soup Co. 36,050 2,893,012
Coca Cola Co. 16,450 474,994
JP Foodservices Inc. * 58,725 1,636,959
Pan American Beverage 15,175 711,328
Pepsico Inc. 44,250 1,294,313
Safeway Inc. * 35,000 1,496,250
Unilever NV (Netherlands) 30,000 5,257,500
- -------------------------------------------------------------------------------
13,764,356
Health and Personal Care: 3.3%
- -------------------------------------------------------------------------------
Glaxo Wellcome plc 2,325 73,819
Glaxo Wellcome (UK) 53,762 875,003
Mckesson Corp. New 18,450 1,033,200
Roche Holdings AG - Warrants (Switzerland) 242 1,883,026
Fresenius Medical Care Aktiengesel * 63,650 1,790,155
United Healthcare Corp. 69,925 3,146,625
- -------------------------------------------------------------------------------
8,801,828
Hotels: 0.6%
- -------------------------------------------------------------------------------
Extended Stay America Inc. * 38,150 767,769
La Quinta Inns Inc. 40,875 781,734
- -------------------------------------------------------------------------------
1,549,503
Machinery and Engineering: 0.6%
- -------------------------------------------------------------------------------
Agco Corp. 55,250 1,581,531
- --------------------------------------------------------------------------------
Metals and Mining: 0.8%
- -------------------------------------------------------------------------------
Minerals Technologies Inc. 40,475 1,659,475
Reynolds Metals Co. 10,000 563,750
- -------------------------------------------------------------------------------
2,223,225
Miscellaneous: 6.8%
- -------------------------------------------------------------------------------
Computer Sciences Corp. * 69,900 $5,740,538
Dionex Corp. * 98,750 3,505,625
First Data Corp. 178,700 6,522,550
SGS Holdings (Switzerland) 307 754,598
Sealed Air Corp. * 41,625 1,732,641
- -------------------------------------------------------------------------------
18,255,952
Motor Vehicles and Equipment: 1.2%
- -------------------------------------------------------------------------------
Federal Mogul Corp. 79,425 1,747,350
General Motors Corp. 25,675 1,431,381
- -------------------------------------------------------------------------------
3,178,731
Office and Business Equipment and Services: 9.3%
- -------------------------------------------------------------------------------
Cadence Design Systems Inc. * 20,000 795,000
Cisco Systems Inc. * 34,300 2,184,481
Cognizant Corp. 60,000 1,980,000
Danka Business Systems 44,875 1,593,063
Gtech Holdings Corp. * 48,475 1,551,200
Hays (UK) 10,247 98,661
IBM 30,000 4,530,000
Microsoft Corp. * 7,775 642,895
Oce V/D Grinten NV (Netherlands) 21,531 2,339,540
Parametric Technology Corp. * 33,050 1,700,009
Robert Half International Inc. * 72,625 2,496,484
Sun Guard Data Systems * 7,575 302,053
Sun Microsystems Inc. * 23,575 605,583
Xerox Corp. 63,350 3,333,794
Xylan Corp. * 28,050 788,906
- -------------------------------------------------------------------------------
24,941,669
Paper: 1.9%
- -------------------------------------------------------------------------------
Alco Standard Corp. 100,150 5,170,244
- -------------------------------------------------------------------------------
Petroleum and Petroleum Related: 1.9%
- -------------------------------------------------------------------------------
Boc Group 88,831 1,330,106
Triton Energy Ltd. * 32,875 1,594,438
Unocal Corp. 12,525 508,828
Witco Corp. 50,000 1,525,000
- -------------------------------------------------------------------------------
4,958,372
Printing and Publishing: 1.4%
- -------------------------------------------------------------------------------
Harland John H Co. 10,000 330,000
Wolters Kluwer NV (Netherlands) 25,490 3,388,332
- -------------------------------------------------------------------------------
3,718,332
Railroads: 0.6%
- -------------------------------------------------------------------------------
Burlington Northern Santa Fe 19,457 1,680,598
- -------------------------------------------------------------------------------
Retail: 0.2%
- -------------------------------------------------------------------------------
Credit Saison Co. (Japan) 26,000 581,470
- -------------------------------------------------------------------------------
Soaps, Cleaner and Cosmetics: 2.1%
- -------------------------------------------------------------------------------
Avon Products Inc. 13,925 795,466
Colgate-Palmolive Co. 51,300 4,732,425
- -------------------------------------------------------------------------------
5,527,891
Telecommunications: 7.2%
- -------------------------------------------------------------------------------
AirTouch Communications Inc. * 30,000 757,500
Cincinnati Bell Inc. 32,200 1,984,325
Ericsson (LM) Tel (Sweden) 48,300 1,458,056
Lucent Technologies Inc. 15,925 736,531
McLeod Inc. * 49,900 1,278,688
MFS Communications Inc. * 139,175 7,567,640
Telecomunicacoes Brasileras 40,750 3,117,375
Univision Communications Inc. * 30,000 1,110,000
Worldcom Inc. Ga * 50,000 1,303,125
- -------------------------------------------------------------------------------
19,313,240
Textiles-Apparel Manufacturing: 0.4%
- -------------------------------------------------------------------------------
Cintas Corp. 15,625 921,875
- -------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
----------------------------
<S> <C> <C>
Trucking Companies: 0.7%
- -------------------------------------------------------------------------------
Consolidated Freightways Corp.* 190,900 $ 1,718,100
- -------------------------------------------------------------------------------
Waste Management: 0.4%
- -------------------------------------------------------------------------------
WMX Technologies Inc. 32,725 1,067,653
- -------------------------------------------------------------------------------
Total Common Stocks: 88.0%
(Cost $199,876,384) 235,173,169
- -------------------------------------------------------------------------------
Par
Money Market Instruments Amount
---------------
American Express Credit Corp.
6.55%, 1/2/97 $10,600,000 10,598,071
Coca Cola Bottling Co Cons
5.5%, 1/24/97 10,000,000 9,964,861
Federal Home Ln Bk Cons Discnt
5.2%, 1/28/97 10,000,000 9,961,001
- -------------------------------------------------------------------------------
Total Money Market Instruments: 11.4%
(Cost $30,523,933) 30,523,933
- -------------------------------------------------------------------------------
Total Investments: 99.4%
(Cost $230,400,317) 265,697,102
- -------------------------------------------------------------------------------
Other Assets Over Liabilities: 0.6% 1,544,755
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $14.504 per share
based on 18,424,975 shares
issued and outstanding) $267,241,857
===============================================================================
Lincoln National Equity Income
Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
Par Market
Long-Term Debt Investments: Amount ** Value
--------------------------
Air Transportation: 0.1%
- -------------------------------------------------------------------------------
Continental Airlines Inc.
6.75%, 4/15/06 $ 320,000 $ 350,400
- -------------------------------------------------------------------------------
Banking and Insurance: 0.4%
- -------------------------------------------------------------------------------
Fremont General Corp. - Liquid Yield Option
0.01%, 10/12/13 2,710,000 1,615,837
- -------------------------------------------------------------------------------
Broadcasting: 0.1%
- -------------------------------------------------------------------------------
Jacor Communications Inc.
0.0%, 06/12/11 610,000 271,450
- -------------------------------------------------------------------------------
Consumer Products and Services: 0.1%
- -------------------------------------------------------------------------------
Softkey International Inc.
5.5%, 11/1/00 770,000 636,213
- -------------------------------------------------------------------------------
Electrical and Electronics: 0.3%
- -------------------------------------------------------------------------------
Cirrus Logic Inc.*
6.0%, 12/15/03 460,000 419,750
National Semiconductor Corp.
6.5%, 10/1/02 640,000 626,400
Silicon Graphics Inc.*
0.01%, 11/2/13 1,030,000 536,888
- -------------------------------------------------------------------------------
1,583,038
Par Market
Amount ** Value
--------------------------
Finance: 0.4%
- -------------------------------------------------------------------------------
Daimler Benz Capital (Germany)
4.0%, 07/5/03 $ 930,000 $ 728,261
MBL International Financial Bermuda Trust
3.0%, 11/30/02 1,200,000 1,243,500
- -------------------------------------------------------------------------------
1,971,761
Hotels: 0.0%
- -------------------------------------------------------------------------------
Hilton Hotels Corp.
5.0%, 5/15/06 190,000 195,700
- -------------------------------------------------------------------------------
Machinery and Engineering: 0.1%
- -------------------------------------------------------------------------------
Hexcel Corp.*
7.0%, 8/1/03 210,000 260,925
- -------------------------------------------------------------------------------
Miscellaneous: 0.1%
- -------------------------------------------------------------------------------
ADT Operations Inc.
0.0%, 7/6/10 380,000 246,525
News America Holdings Inc.*
0.0%, 3/11/13 360,000 167,850
- -------------------------------------------------------------------------------
414,375
Office and Business Equipment and Services: 0.4%
- -------------------------------------------------------------------------------
Apple Computer Inc.
6.0%, 6/1/01 600,000 588,750
Automatic Data Processing Inc.
0.0%, 2/20/12 480,000 271,200
National Data Corp.*
5.0%, 11/1/03 60,000 61,950
Unisys Corp.*
8.25%, 3/15/06 920,000 1,099,400
- -------------------------------------------------------------------------------
2,021,300
Petroleum and Petroleum Related: 0.8%
- -------------------------------------------------------------------------------
Baker Hughes Inc.
0.0%, 5/5/08 750,000 566,250
Pennzoil Co.
6.5%, 1/15/03 1,370,000 2,113,225
4.75%, 10/1/03* 700,000 819,000
- -------------------------------------------------------------------------------
3,498,475
Real Estate: 0.0%
- -------------------------------------------------------------------------------
Liberty Property Ltd. Partnership*
8.0%, 7/1/01 10,000 12,788
- -------------------------------------------------------------------------------
Retail: 0.5%
- -------------------------------------------------------------------------------
Baker J. Inc.
7.0%, 6/1/02 260,000 210,600
Charming Shoppes Inc.
7.5%, 7/15/06 200,000 192,250
Federated Department Stores Inc.
5.0%, 10/1/03 720,000 834,300
Home Depot Inc.*
3.25%, 10/1/01 910,000 896,350
- -------------------------------------------------------------------------------
2,133,500
Telecommunications: 0.2%
- -------------------------------------------------------------------------------
Comcast
1.125%, 4/15/07 660,000 330,825
Home Shopping Network Inc.
5.875%, 3/1/06 120,000 123,600
Midcom Communications Inc.*
8.25%, 8/15/03 420,000 384,300
- -------------------------------------------------------------------------------
838,725
Waste Management: 0.1%
- -------------------------------------------------------------------------------
WMX Technologies Inc.
2.0%, 1/24/05 708,000 661,980
- -------------------------------------------------------------------------------
Total Long-Term Debt Investments: 3.6%
(Cost $15,576,729) 16,466,467
- -------------------------------------------------------------------------------
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Market
Common Stocks: of Shares Value
------------------------
<S> <C> <C>
U.S. Government and Agency Obligations: 1.9%
- -------------------------------------------------------------------------------
FNMA 232,000 $ 8,642,000
- -------------------------------------------------------------------------------
Aerospace: 3.5%
- -------------------------------------------------------------------------------
Acnielson Corp. * 40,900 618,612
Allied Signal Inc. 42,000 2,814,000
Boeing Co. 7,743 823,662
Lockheed Martin Corp. 35,800 3,275,700
Northrop Grumman Corp. 19,100 1,580,525
Rockwell International Corp. * 35,700 2,173,237
Textron Inc. 15,700 1,479,725
Thiokol Corp. Del 13,800 617,550
United Technologies Corp. 41,800 2,758,800
- -------------------------------------------------------------------------------
16,141,811
Air Transportation: 0.1%
- -------------------------------------------------------------------------------
Gulfstream Aerospace Corp. * 13,400 324,950
- -------------------------------------------------------------------------------
Aluminum: 1.4%
- -------------------------------------------------------------------------------
Alcan Aluminum Ltd. 8,400 283,721
Alcan Aluminum Ltd. (Canada) 18,900 635,513
Alumax Inc. * 45,674 1,524,370
Aluminum Co. of America 52,600 3,353,250
Kaiser Aluminum Corp. * 38,200 444,075
- -------------------------------------------------------------------------------
6,240,929
Banking and Insurance: 14.7%
- -------------------------------------------------------------------------------
Aetna Inc. 37,600 3,008,000
Allstate Corp. 116,305 6,731,152
American Bankers Insurance Group Inc. 13,800 703,800
Bank of Boston Corp. 32,100 2,062,425
Bank of New York Inc. 150,200 5,069,250
BankAmerica Corp. 39,900 3,980,025
Brascan Ltd. 12,300 272,138
Brascan Ltd. (Canada) 56,700 1,262,945
Canadian Imperial Bank Toronto (Canada) 34,200 1,509,815
Chase Manhattan Corp. 25,900 2,311,575
Cigna Corp. 9,200 1,256,950
Citicorp 17,500 1,802,500
Comerica Inc. 35,900 1,880,263
Den Danske Bank (Denmark) 11,030 889,395
Den Norske Bank (Norway) 290,300 1,099,365
First Bank System Inc. 35,500 2,422,875
First Chicago NBD Corp. 79,523 4,274,361
First Tennessee National Corp. 16,600 621,463
Fleet Financial Group Inc. 34,800 1,735,650
General Re Corp. 11,900 1,877,225
HSBC Holdings plc (Hong Kong) 26,340 563,614
Highlands Insurance Group Inc. * 30,970 627,143
ITT Hartford Group Inc. 52,800 3,564,000
MBIA Inc. 3,600 364,500
Reliaster Financial Corp. 37,900 2,188,725
National Bank Canada Montreal Quebec 102,300 1,034,729
NationsBank Corp. 48,700 4,760,425
Norwest Corp. 38,483 1,674,011
Provident Cos. Inc. 16,500 798,187
Providian Corp. 12,200 626,775
Royal Bank Canada Montreal Quebec 44,600 1,566,683
Sakura Financial Bermuda Trust * 10 560,518
Sparbanken Sverige (Sweden) 32,200 552,413
Sparebanken Norway (Norway) 15,700 487,342
Transamerica Corp. 7,000 553,000
Washington Mutual Insurance 53,235 2,305,760
- -------------------------------------------------------------------------------
66,998,997
Broadcasting: 0.4%
- -------------------------------------------------------------------------------
Viacom Inc. - Class A * 700 24,150
Viacom Inc. - Class B * 45,600 1,590,300
- -------------------------------------------------------------------------------
1,614,450
Building Materials: 0.3%
- -------------------------------------------------------------------------------
Harsco Corp. 17,200 1,178,200
- -------------------------------------------------------------------------------
Number Market
of Shares Value
------------------------
Building and Construction: 0.1%
- -------------------------------------------------------------------------------
Armstrong World Industries Inc. 3,700 $ 257,150
Kaufman & Broad Home Corp. 4,600 59,225
- -------------------------------------------------------------------------------
316,375
Chemicals: 2.9%
- -------------------------------------------------------------------------------
Air Products & Chemicals Inc. 8,600 594,475
Akzo Nobel NV (Netherlands) 5,900 806,487
Dow Chemical Co. 11,000 862,125
DSM NV (Netherlands) 2,000 197,394
Du Pont E I De Nemours & Co. 43,400 4,095,875
Great Lakes Chemical Corp. 26,200 1,224,850
IMC Global Inc. 12,700 496,887
Imperial Chemical Industries plc 6,800 353,600
Millennium Chemicals Inc. * 35,042 621,996
Nalco Chemical Co. 33,300 1,202,962
Takeda Chemical Industries (Japan) 44,000 923,236
Union Carbide Corp. 47,600 1,945,650
- -------------------------------------------------------------------------------
13,325,537
Coal and Gas: 0.6%
- -------------------------------------------------------------------------------
Burlington Research Inc. 17,600 886,600
Pacific Enterprises 56,700 1,722,263
- -------------------------------------------------------------------------------
2,608,863
Construction: 0.0%
- -------------------------------------------------------------------------------
Salomon Inc. 4,000 241,000
- -------------------------------------------------------------------------------
Consumer Products and Services: 5.4%
- -------------------------------------------------------------------------------
B.A.T. Industries plc 5,100 84,150
B.A.T. Industries (UK) 91,500 758,712
Dimon Inc. 13,700 316,813
Eastman Kodak Co. 19,700 1,580,925
Fuji Photo Film Co. (Japan) 29,000 956,567
H&R Block Inc. 28,600 829,400
Johnson & Johnson 26,400 1,313,400
Philip Morris Co. Inc. 105,900 11,926,987
Polaroid Corp. 18,000 783,000
Premark International Inc. 29,600 658,600
Rubbermaid Inc. 59,100 1,344,525
Seagram Ltd. 4,500 174,375
Seagram Ltd. (Canada) 6,300 249,598
Tupperware Corp. 17,000 911,625
Tyco Toys Inc. 18,600 188,325
Unilever 33,000 799,982
Universal Corp. 22,900 735,662
Whirlpool Corp. 24,300 1,132,988
- -------------------------------------------------------------------------------
24,745,634
Drug and Hospital Supplies: 2.5%
- -------------------------------------------------------------------------------
American Home Products Corp. 16,300 955,587
Bausch & Lomb Inc. 17,100 598,500
Baxter International Inc. 18,800 770,800
Bristol Myers Squibb Co. 24,700 2,686,125
Dexter Corp. 19,400 618,375
Pfizer Inc. 16,400 1,359,150
Pharmacia & Upjohn Inc. 64,600 2,559,775
Schering-Plough Corp. 29,800 1,929,550
- -------------------------------------------------------------------------------
11,477,862
Electrical and Electronics: 5.7%
- -------------------------------------------------------------------------------
AMP Inc. 34,600 1,327,775
Cooper Industries Inc. 27,398 1,154,141
EG & G Inc. 16,000 322,000
Emerson Electric Co. 9,500 919,125
Entergy Corp. 55,100 1,529,025
General Electric Co. 129,800 12,833,975
National Grid Group (UK) 166,000 554,565
National Service Industries Inc. 9,900 370,013
Nitto Denko Corp.(Japan) 18,000 264,226
TRW Inc. 20,000 990,000
Tandy Co. 27,100 1,192,400
Thomas & Betts Corp. 12,000 532,500
Tyco International Ltd. 48,900 2,585,587
Westinghouse Electric Corp. 68,500 1,361,438
- -------------------------------------------------------------------------------
25,936,770
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Entertainment: 0.2%
- -------------------------------------------------------------------------------
Brunswick Corp. 2,700 $64,800
Hasbro Inc. 21,800 847,475
- -------------------------------------------------------------------------------
912,275
Finance: 2.7%
- -------------------------------------------------------------------------------
Allmerica Financial Corp. 600 20,100
American Express Co. 169,600 9,582,400
Beneficial Corp. 15,800 1,001,325
Host Marriott Financial Trust * 5,000 268,125
Household International Inc. 15,400 1,420,650
- -------------------------------------------------------------------------------
12,292,600
Financial Services: 1.0%
- -------------------------------------------------------------------------------
American Financial Group Inc. 55,400 2,091,350
Dexia (Cred Com B) * 4,600 419,730
Dun & Bradstreet Corp. 32,400 769,500
Hees International Bancorp Inc. (Canada) 61,600 926,722
Trilon Financial Corp. 39,900 201,059
- -------------------------------------------------------------------------------
4,408,361
Food and Beverage: 2.1%
- -------------------------------------------------------------------------------
Dole Food Automatic Co. 10,100 362,338
General Mills Inc. 30,100 1,907,587
Goodman Fielderlt (Australia) 618,270 766,633
Kellogg Co. 16,800 1,102,500
Pepsico Inc. 25,000 731,250
RJR Nabisco Holdings Corp. 80,080 2,722,720
Ralston Purina Co. 16,000 1,174,000
SuperValu Inc. 20,600 584,525
Swedish Match (Sweden) * 20,800 73,198
Swedish Match Co. * 1,090 37,877
- -------------------------------------------------------------------------------
9,462,628
Forest Products: 0.6%
- -------------------------------------------------------------------------------
Weyerhaeuser Co. 59,500 2,818,813
- -------------------------------------------------------------------------------
Furniture Manufacturing: 0.3%
- -------------------------------------------------------------------------------
Masco Corp. 33,600 1,209,600
- -------------------------------------------------------------------------------
Health and Personal Care: 0.2%
- -------------------------------------------------------------------------------
Dial Corp. 8,500 125,375
Foundation Health Corp. * 10,900 346,075
Health Systems Interlink Inc. * 22,100 546,975
Tambrands Inc. 2,000 81,781
- -------------------------------------------------------------------------------
1,100,206
Hospital and Health Care: 0.2%
- -------------------------------------------------------------------------------
Allegiance Corp. 36,480 1,007,760
- -------------------------------------------------------------------------------
Hotels: 0.1%
- -------------------------------------------------------------------------------
Brinker International Inc. * 20,900 334,400
Patriot Amern Hospitality Inc. 7,700 332,063
- -------------------------------------------------------------------------------
666,463
Household Appliances: 0.3%
- -------------------------------------------------------------------------------
Maytag Corp. 58,900 1,163,275
- -------------------------------------------------------------------------------
Industrial: 1.4%
- -------------------------------------------------------------------------------
Armco Inc. * 13,500 55,688
Cummins Engine Co. Inc. 6,400 294,400
Gencorp Inc. 27,600 500,250
Goulds Pumps Inc. 5,000 115,000
ITT Corp. * 37,000 1,604,875
Johnson Controls Inc. 14,700 1,218,262
McDermott International Inc. 16,700 277,638
Raytheon Co. 31,000 1,491,875
Trinova Corp. 7,700 280,087
Zurn Industries Inc. 27,300 713,213
- -------------------------------------------------------------------------------
6,551,288
Machinery and Engineering: 1.9%
- -------------------------------------------------------------------------------
American Standard Cos. Inc. Del * 36,300 1,388,475
Caterpillar Inc. 18,000 1,354,500
Crane Co. 13,950 404,550
Dresser Industries Inc. 50,100 1,553,100
Harnischfeger Industries Inc. 5,700 274,313
Ingersoll Rand Co. 29,400 1,308,300
Outboard Marine Corp. 40,400 666,600
Scania Ab (Sweden) 14,500 362,505
Snap On Inc. 36,450 1,298,531
Stewart & Stevenson Services Inc. 4,600 133,975
- -------------------------------------------------------------------------------
8,744,849
Metals and Mining: 0.9%
- -------------------------------------------------------------------------------
Inco Ltd. 13,000 414,375
Inco Ltd. (Canada) * 31,700 1,015,150
Lukens Inc. 18,200 366,275
Newmont Mining Corp. 9,000 402,750
Noranda Inc. 20,100 448,444
Parker Hannifin Corp. 30,700 1,189,625
Pechiney (France) 12,197 511,059
- -------------------------------------------------------------------------------
4,347,678
Miscellaneous: 1.1%
- -------------------------------------------------------------------------------
Grand Metropolitan 33,333 261,547
Illinova Corp. 40,500 1,113,750
Keystone International Inc. 57,500 1,157,188
Nordbanken AB (Sweden) 12,000 363,348
Omron Corp. (Japan) 20,000 376,479
Public Storage Inc. 6,100 189,100
Ralcorp Holdings Inc. * 23,400 494,325
Safety Kleen Corp. 15,700 257,087
U.S. Industries Inc. * 29,100 1,000,313
- -------------------------------------------------------------------------------
5,213,137
Motor Vehicles and Equipment: 4.9%
- -------------------------------------------------------------------------------
Bayer Motoren Werk (Germany) 1,700 1,185,403
Chrysler Corp. 137,600 4,540,800
Continental AG (Germany) 2,500 45,003
Daimler Benz AG (Germany) 700 47,950
Daimler Benz AG (Germany) - ADR 6,000 413,309
Dana Corp. 20,200 659,025
Eaton Corp. 24,800 1,729,800
Ford Motor Co. 11,700 372,938
General Motors Corp. 130,900 7,297,675
Genuine Parts Co. 14,700 654,150
Goodyear Tire & Rubber Co. 15,500 796,312
Honda Motor Co. (Japan) 27,000 771,695
Modine Manufacturing Co. 31,900 841,363
Regal Beloit Corp. 8,200 160,925
Scandia Aktiebolag 1,900 45,838
Standard Products Co. 7,500 191,250
Volkswagen AG (Germany) 2,000 831,817
Volvo AB (Sweden) 80,100 1,767,628
Volvo Aktiebolaget 10,900 237,756
- -------------------------------------------------------------------------------
22,590,637
Office and Business Equipment and Services: 1.6%
- -------------------------------------------------------------------------------
Cognizant Corp. 14,700 485,100
Digital Equipment Corp. * 18,400 669,300
IBM 16,000 2,416,000
Learning Co. Inc. * 14,300 205,563
McGraw-Hill Cos. Inc. 1,500 69,188
Moore Corp. Ltd. 18,900 385,087
Moore Corp. Ltd. (Canada) 3,600 74,665
New England Business Services Inc. 15,500 333,250
Sabre Group Holdings Inc. * 3,400 94,775
Unisys Corp. * 25,600 172,800
Viad Corp. 83,800 1,382,700
Xerox Corp. 20,200 1,063,025
- -------------------------------------------------------------------------------
7,351,453
Paper: 0.7%
- -------------------------------------------------------------------------------
Champion International Corp. 40,900 1,768,925
Fort Howard Corp. * 13,600 376,550
International Paper Co. 20,858 842,142
- -------------------------------------------------------------------------------
2,987,617
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Petroleum and Petroleum Related: 12.2%
- -------------------------------------------------------------------------------
Amerada Hess Corp. 22,300 $1,290,613
Amoco Corp. 32,400 2,608,200
Atlantic Richfield Co. 31,900 4,226,750
Baker Hughes Inc. 18,900 652,050
British Petroleum plc 82,364 11,644,210
Eni Spa (Italy) 132,300 678,942
Enron Corp. 12,900 556,313
Ethyl Corp. 36,100 347,463
Exxon Corp. 8,300 813,400
GATX 28,500 1,382,250
Halliburton Co. 24,700 1,488,175
Kerr McGee Corp. 14,300 1,029,600
Lyondell Petrochemical Co. 14,100 310,200
Mobil Corp. 16,500 2,017,125
Occidental Petroleum Corp. 44,700 1,044,863
Panenergy Corp. 31,000 1,395,000
Phillips Petroleum Co. 22,000 973,500
Questar Corp. 32,800 1,205,400
Royal Dutch Petroleum Co. 27,800 4,746,850
Santa Fe Energy Resources Inc. * 25,600 355,200
Schlumberger Ltd. 44,800 4,474,400
Tenneco Inc. * 18,700 843,837
Total (France) 32,800 2,667,746
Total S.A. 63,533 2,557,203
USX Marathon Group Inc. 98,400 2,349,300
Union Pacific Resource Group Inc. 7,600 222,300
Unocal Corp. 68,800 2,795,000
Witco Corp. 35,700 1,088,850
- -------------------------------------------------------------------------------
55,764,740
Printing and Publishing: 0.7%
- -------------------------------------------------------------------------------
Deluxe Corp. 27,700 907,175
Donelley R R & Sons Co. 41,700 1,308,337
Dow Jones & Co. Inc. 12,700 430,213
Ennis Business Forms Inc. 10,100 113,625
Hollinger International Inc. 18,700 215,050
Houghton Mifflin Co. 4,500 254,813
- -------------------------------------------------------------------------------
3,229,213
Public Utilities: 2.5%
- -------------------------------------------------------------------------------
Allegheny Power Systems Inc. 20,800 631,800
American Electric Power Inc. 60,300 2,479,837
Central Maine Power Co. 14,500 168,563
Cilcorp Inc. 6,000 219,750
Cinergy Corp. 43,000 1,435,125
DPL Inc. 17,300 423,850
DQE Inc. 5,000 145,000
El Paso Natural Gas Co. 1,739 87,825
MCN Corp. 24,400 704,550
Northeast Utilities 42,900 568,425
Nova Corp. Alta 5,000 44,365
Nova Corp. Alta (Canada) 63,500 555,625
Pacific Gas & Electric Co. 48,700 1,022,700
Pacificorp 10,000 205,000
Peco Energy Co. 14,000 353,500
Portland General 10,000 420,000
Unicom Corp. 9,300 252,263
Veba AG (Germany) 31,400 1,816,090
- -------------------------------------------------------------------------------
11,534,268
Railroads: 0.3%
- -------------------------------------------------------------------------------
Burlington Northern Santa Fe 16,300 1,407,913
- -------------------------------------------------------------------------------
Real Estate: 0.8%
- -------------------------------------------------------------------------------
Arden Realty Inc. 6,000 166,500
Equity Residential PPTYS TR 23,300 961,125
First Industrial Realty Inc. 8,800 267,300
Lennar Corp. 14,500 395,125
Liberty Property 3,300 84,975
Pinnacle West Capital Corp. 28,000 889,000
Ryland Group Inc. 14,800 203,500
Tornet Fastighet (Sweden) * 19,520 297,670
Weeks Corp. 6,700 222,775
- -------------------------------------------------------------------------------
3,487,970
Restaurant: 0.1%
- -------------------------------------------------------------------------------
Darden Restaurants Inc. 54,300 475,125
- -------------------------------------------------------------------------------
Retail: 4.6%
- -------------------------------------------------------------------------------
CVS Corp. 29,100 1,204,012
Charming Shoppes Inc. * 27,900 140,372
Coles Myer Ltd. (Australia) 58,347 240,232
Dayton Hudson Corp. 32,600 1,279,550
Dillard Department Stores Inc. 10,300 318,013
Federated Department Stores Inc. * 60,200 2,054,325
Fingerhut Cos. Inc. 19,000 232,750
Footstar Inc. * 8,577 213,353
Jostens Inc. 18,700 395,037
Limited Inc. 73,422 1,349,129
May Department Stores Co. 20,800 972,400
Michelin CGDE (France) 12,200 658,614
Payless Shoesource Inc. * 27,424 1,028,400
Sears, Roebuck & Co. 43,700 2,015,663
TJX Cos. Inc. 54,820 2,597,098
Toys "R" Us * 58,100 1,743,000
Wal-Mart Stores 196,700 4,499,513
Woolworth Corp. * 10,100 220,937
- -------------------------------------------------------------------------------
21,162,398
Securities Dealers: 0.8%
- -------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. 18,548 517,026
First Marathon Inc. 92,100 1,267,863
Lehman Brothers Holdings Inc. 25,380 796,298
Merrill Lynch & Co. Inc. 11,900 477,487
Nomura Securities (Japan) 30,000 450,738
- -------------------------------------------------------------------------------
3,509,412
Ship Building: 0.1%
- -------------------------------------------------------------------------------
Newport News Shipbuilding Inc. * 31,440 471,600
- -------------------------------------------------------------------------------
Steel: 0.2%
- -------------------------------------------------------------------------------
Allegheny Teldyne Inc. 10,300 236,900
Inland Steel Industries Inc. 4,600 92,000
Macerich Co. 14,700 384,038
- -------------------------------------------------------------------------------
712,938
Telecommunications: 4.5%
- -------------------------------------------------------------------------------
Alcatel Alsthon (France) 2,540 204,042
American Telephone & Telegraph Co. 22,700 987,450
Ameritech Corp. 58,700 3,558,687
BCE Inc. 1,800 85,950
BCE Inc. (Canada) 22,400 1,068,225
Bell Atlantic Corp. 33,200 2,149,700
Bellsouth Corp. 65,600 2,648,600
Frontier Corp. 32,600 737,575
Lucent Technologies Inc. 11,699 541,079
MCI Communications Corp. 19,600 640,675
MFS Communications Inc. * 189 10,277
Manitoba Tel System * 22,700 215,512
Nynex Corp. 91,000 4,379,375
SBC Communications Inc. 37,200 1,925,100
Telus Corp. (Canada) 48,500 704,849
U.S. West Inc. * 21,000 685,125
- -------------------------------------------------------------------------------
20,542,221
Textiles-Apparel Manufacturing: 0.3%
- -------------------------------------------------------------------------------
Burlington Industries Inc. * 27,100 298,100
Kellwood Co. 42,400 848,000
Stride Rite Corp. 24,100 241,000
- -------------------------------------------------------------------------------
1,387,100
Textile Products: 0.2%
- -------------------------------------------------------------------------------
Unifi Inc. 35,700 1,146,863
- -------------------------------------------------------------------------------
Transportation: 0.3%
- -------------------------------------------------------------------------------
CSX Corp. 32,600 1,377,350
- -------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
--------------------------
<S> <C> <C>
Waste Management: 1.1%
- -------------------------------------------------------------------------------
Browning Ferris Industries Inc. 80,300 $2,107,875
WMX Technologies Inc. 93,700 3,056,962
- -------------------------------------------------------------------------------
5,164,837
Total Common Stocks: 88.4%
(Cost $312,573,764) 403,995,966
- -------------------------------------------------------------------------------
Preferred Stocks:
Aetna Inc. 12,400 984,250
AirTouch Communications Inc. 55,100 1,501,474
American Bankers Insurance Group Inc. 1,400 83,563
Armco Inc. 1,500 64,875
Atlantic Richfield Co. 15,400 331,100
Boatmens Bancshares Inc. 11,000 611,875
Chiquita Brands International Inc. 15,500 666,500
Chiquita Brands International Inc. 7,300 388,725
Conseco Inc. 6,100 693,875
Crown Cork & Seal Inc. 7,400 384,800
Federal Mogul Corp. 9,000 546,750
Hilton Hotels Corp. * 17,300 426,013
Hollinger International Inc. 47,000 540,500
International Paper Capital Trust 6,100 280,600
K Mart Financing I 24,700 1,204,125
Kaiser Aluminum Corp. 26,500 298,125
Loral Space & Communications * 9,500 539,125
MFS Communications Inc. 12,900 1,185,187
Occidental Petroleum Corp. 19,500 1,150,500
Reynolds Metals Co. 33,800 1,580,150
RJR Nabisco Holdings Corp. 467,600 3,156,300
Salomon Inc. 16,700 515,613
Santa Fe Energy Resources Inc. 9,900 121,275
St Paul Capital LLC 3,000 166,125
Time Warner Financing Trust 25,400 984,250
Trans World Airlines Inc. 5,700 138,225
TJX Cos. Inc. 1,700 445,188
Tosco Fing Trust * 3,200 165,200
Wang Labs Inc. 8,100 413,100
Westinghouse Electric Corp. 61,000 1,090,374
Williams Companies Inc. 3,600 313,200
- -------------------------------------------------------------------------------
Total Preferred Stocks: 4.6%
(Cost $19,094,847) 20,970,962
- -------------------------------------------------------------------------------
Maturity
Repurchase Agreement: Amount
----------
State Street Bank and Trust Co. repurchase
agreement, dated 12/31/96, 4.75%, maturing
1/2/97, collateralized by U.S. Treasury
Notes 6.375%, 3/31/01 $22,346,000 22,346,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement: 4.9%
(Cost $22,346,000) 22,346,000
- -------------------------------------------------------------------------------
Total Investments: 101.5%
(Cost $379,238,114) 463,779,395
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (1.5%) (6,626,058)
- --------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $15.780 per share
based on 28,971,111 shares
issued and outstanding) $457,153,337
===============================================================================
</TABLE>
Lincoln National Global Asset
Allocation Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
<TABLE>
<CAPTION>
Par Market
Long-Term Debt Investments: Amount ** Value
-------------------------
<S> <C> <C>
U.S. Government and Agency Obligations: 8.3%
- -------------------------------------------------------------------------------
FDIC REMIC Trust
9.9%, 7/25/26 $800,000 $796,250
FNMA
7.5%, 12/1/99 2,400,000 2,398,488
6.5%, 12/1/99 1,285,000 1,273,755
7.0%, 12/1/99 860,000 840,917
6.5%, 12/1/99 530,000 505,488
9.5%, 5/1/07 1,034,953 1,087,663
7.5%, 7/1/7 373,220 381,920
6.5%, 1/1/11 918,724 901,783
6.5%, 2/1/11 929,838 912,692
6.5%, 6/1/11 366,514 359,756
7.5%, 2/1/14 709,184 708,962
7.0%, 10/25/23 961,131 884,837
7.0%, 8/1/25 359,469 351,715
7.0%, 8/1/25 331,503 324,352
7.0%, 9/1/25 551,149 539,260
6.5%, 9/1/25 26,229 25,048
6.5%, 12/1/25 462,107 441,312
6.5%, 3/1/26 489,807 467,766
6.5%, 3/1/26 140,397 133,904
6.5%, 4/1/26 511,003 488,008
7.4%, 5/1/26 672,061 665,808
7.0%, 5/1/26 520,516 508,966
7.0%, 5/1/26 474,841 464,304
7.5%, 5/1/26 368,632 368,400
7.5%, 7/1/26 809 808
GNMA Pool
9.5%, 1/15/06 676,479 709,241
11.0%, 12/15/15 66,054 73,773
11.0%, 12/15/15 62,671 69,995
11.0%, 12/15/15 4,972 5,553
9.0%, 4/15/25 14,978 15,821
7.5%, 11/15/25 705,867 706,524
7.5%, 12/15/25 275,025 275,280
7.5%, 1/15/26 194,578 194,759
7.5%, 1/15/26 26,466 26,490
7.0%, 2/15/26 293,085 286,673
7.0%, 4/15/26 289,414 283,082
7.0%, 4/15/26 139,955 136,893
7.0%, 6/15/26 686,469 671,449
7.0%, 6/15/26 64,322 62,915
7.0%, 6/15/26 28,780 28,151
U.S. Treasury Bonds
8.13%, 8/15/19 + 1,860,000 2,151,499
6.5%, 11/15/26 + 50,000 49,071
United States Treasury Notes
5.875%, 10/31/98 + 640,000 639,898
5.63%, 11/30/98 + 3,495,000 3,479,168
6.63%, 7/31/01 235,000 239,113
6.5%, 8/15/05 165,000 166,418
- -------------------------------------------------------------------------------
26,103,928
Collateralized Mortgage Obligations: 1.4%
- -------------------------------------------------------------------------------
Capital Equipment Receivables Trust
6.28%, 6/15/00 180,000 180,250
Citicorp Mortgage Securities Inc.
5.75%, 12/01/08 885,000 859,247
Collateralized Mortgage Obligation Trust
9.0%, 11/20/20 1,284,415 1,393,179
CS First Boston Mortgage Securities Corp.
7.0%, 3/15/27 280,000 284,288
GE Capital Mortgage Services Inc.
7.25%, 7/25/11 438,102 437,387
Premier Auto Trust
6.4%, 10/6/01 340,000 341,700
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Par Market
Amount ** Value
----------------------
<S> <C> <C>
Standard Credit Card Master Trust I
8.875%, 9/7/99 $400,000 $416,000
6.75%, 6/7/00 420,000 424,200
- -------------------------------------------------------------------------------
4,336,251
Advertising 0.4%
- -------------------------------------------------------------------------------
Adams Outdoor Advertising Ltd.
10.75%, 3/15/06 350,000 371,000
Lamar Advertising Co.
9.675%, 12/1/06 160,000 165,600
Outdoor Systems Inc.
9.375%, 10/15/06 5,000 5,138
Universal Outdoor Inc.
9.75%, 10/15/06 500,000 516,250
9.75%, 10/15/06 200,000 206,500
- -------------------------------------------------------------------------------
1,264,488
Aerospace 0.3%
- -------------------------------------------------------------------------------
BE Aerospace Inc.
9.875%, 2/1/06 200,000 210,000
Howmet Corp. Del
10.0%, 12/1/03 100,000 109,250
Lockheed Martin Corp.
7.25%, 5/15/06 410,000 417,121
Northrop Grumman Corp.
7.0%, 3/1/06 110,000 108,587
- -------------------------------------------------------------------------------
844,958
Banking and Insurance 0.7%
- -------------------------------------------------------------------------------
ABN Amro Bank NV Chicago Brh
7.55%, 6/28/06 230,000 238,135
Banco Nacional De Comm Ext Snc
11.25%, 5/28/06 75,000 81,337
Bankamerica Corp.
8.375%, 3/15/02 245,000 262,153
Capital One Bank
7.35%, 6/20/00 260,000 263,999
Chevy Chase Savings Bank
9.25%, 12/1/05 150,000 153,000
Merita Bank Ltd.
6.5%, 1/15/06 275,000 261,852
Nations Bank Corp.
6.5%, 3/15/06 270,000 259,478
Ocwen Federal Bank
12.0%, 6/15/05 25,000 27,500
Royal Bank Scotland Group
6.375%, 2/1/11 290,000 267,525
Travelers Aetna Property Casualty Corp.
7.75%, 4/15/26 255,000 262,375
- -------------------------------------------------------------------------------
2,077,354
Broadcasting: 1.6%
- -------------------------------------------------------------------------------
Allbritton Communications Co. *
11.5%, 8/15/04 15,000 15,900
9.75%, 11/30/07 85,000 82,450
American Radio Systems Corp.
9.0%, 2/1/06 300,000 294,000
Benedek Communications
1.0%, 5/15/06 150,000 85,875
Chancellor Broadcasting Co.
9.375%, 10/1/04 150,000 151,500
Frontiervision Oper Partners Lp
11.0%, 10/15/06 15,000 14,981
Granite Broadcasting Corp.
12.75%, 9/1/02 200,000 218,000
9.375%, 12/1/05 235,000 225,600
Heartland Wireless Communications Inc.
14.0%, 11/15/04 165,000 171,187
Jacor Communications Co.
9.75%, 12/15/06 35,000 35,744
Jcac Inc.
10.125%, 6/15/06 150,000 154,500
Jones Intercable Inc.
9.625%, 3/15/02 100,000 105,000
10.5%, 3/1/08 650,000 702,000
Lenfest Communications Inc.
10.5%, 6/15/06 300,000 316,500
Par Market
Amount ** Value
----------------------
Marcus Cable Co. Lp / Marcus
11.875%, 10/1/05 $125,000 $132,344
1.0%, 12/15/05 140,000 98,875
SFX Broadcasting Inc.
10.75%, 5/15/06 500,000 527,500
Sinclair Broadcasting Group Inc.
10.0%, 9/30/05 75,000 76,125
Sullivan Broadcasting
10.25%, 12/15/05 450,000 451,125
Viacom Inc.
8.0%, 7/7/06 1,050,000 1,015,875
Wireless One Inc.
13.0%, 10/15/03 150,000 145,500
Young Broadcasting Inc.
11.75%, 11/15/04 75,000 81,750
- -------------------------------------------------------------------------------
5,102,331
Building Materials: 0.1%
- -------------------------------------------------------------------------------
Southdown Inc.
10.0%, 3/1/06 125,000 131,875
Waxman Industries Inc. *
1.0%, 6/1/04 75,000 54,938
- -------------------------------------------------------------------------------
186,813
Chemicals: 0.2%
- -------------------------------------------------------------------------------
Astor Corp.
10.5%, 10/15/06 15,000 15,337
Freedom Chemical Co.
10.625%, 10/15/06 10,000 10,500
Harris Chemical North America Inc.
1.0%, 7/15/01 125,000 129,844
10.75%, 10/15/03 300,000 310,500
ISP Holdings Inc.
9.75%, 2/15/02 150,000 153,750
Sterling Chemicals Holdings Inc. *
13.5%, 8/15/08 300,000 174,000
- -------------------------------------------------------------------------------
793,931
Coal and Gas: 0.3%
- -------------------------------------------------------------------------------
Columbia Gas System Inc.
7.32%, 11/28/10 500,000 491,280
Ras Laffan Liquefied Natural Gas
7.625%, 9/15/06 175,000 175,656
8.294%, 9/15/14 90,000 90,788
Transtexas Gas Corp. *
11.5%, 6/15/02 150,000 162,000
13.25%, 12/15/03 257,000 141,350
- -------------------------------------------------------------------------------
1,061,074
Consumer Products and Services: 0.7%
- -------------------------------------------------------------------------------
Affinity Group Inc.
11.5%, 10/15/03 250,000 260,000
Coinmach Corp.
11.75%, 11/15/05 225,000 243,563
Herff Jones Inc.
11.0%, 8/15/05 100,000 107,000
Imed Corp. Del
9.75%, 12/1/06 100,000 101,750
Inter City Products Corp.
9.75%, 3/1/00 235,000 238,525
Pierce Leahy Corp.
11.125%, 7/15/06 325,000 355,063
11.125%, 7/15/06 225,000 245,812
Radnor Holdings Corp.
10.0%, 12/1/03 55,000 56,100
Remington Product Co. Llc
11.0%, 5/15/06 75,000 63,750
Sampoerna International Finance Co. B V
8.375%, 6/15/06 475,000 482,775
- -------------------------------------------------------------------------------
2,154,338
Container: 0.2%
- -------------------------------------------------------------------------------
Ivex Holdings Corp. *
1.0%, 3/15/05 90,000 69,975
Ivex Packaging
12.5%, 12/15/02 100,000 108,250
</TABLE>
21
<PAGE>
Par Market
Amount ** Value
-----------------------------------
Owens Illinois Inc.
10.5%, 6/15/02 $150,000 $158,250
Stone Container Corp.
11.5%, 10/1/04 300,000 315,000
U S Can Corp.
10.125%, 10/15/06 15,000 15,769
- -------------------------------------------------------------------------------
667,244
Drug and Hospital Supplies: 0.1%
- -------------------------------------------------------------------------------
Graphic Controls Corp.
12.0%, 9/15/05 75,000 83,063
Wright Medical Technology Inc.
10.75%, 7/1/00 325,000 328,250
- -------------------------------------------------------------------------------
411,313
Electrical and Electronics: 0.2%
- -------------------------------------------------------------------------------
Amphenol Corp.
12.75%, 12/15/02 550,000 594,000
Celestica International Inc.
10.5%, 12/31/06 25,000 26,250
Integrated Device Technology
5.5%, 6/1/02 20,000 17,650
National Semiconductor Corp.
6.5%, 10/1/02 10,000 9,788
Rayovac Corp.
10.25%, 11/1/06 10,000 10,250
Ucar Global Enterprises Inc.
12.0%, 1/15/05 100,000 115,250
VLSI Technology Inc.
8.25%, 10/1/05 20,000 19,800
- -------------------------------------------------------------------------------
792,988
Entertainment: 1.2%
- -------------------------------------------------------------------------------
Act III Theaters
11.875%, 2/1/03 325,000 358,312
Alliance Gaming Group
12.875%, 6/30/03 75,000 78,938
Argosy Gaming Co.
12.0%, 6/1/01 100,000 81,000
13.25%, 6/1/04 100,000 93,250
Aztar Corp.
13.75%, 10/1/04 50,000 53,250
Casino America Inc.
12.5%, 8/1/03 150,000 142,125
Casino Magic La Corp.
13.0%, 8/15/03 200,000 197,500
Cinemark USA Inc.
9.625%, 8/1/08 100,000 100,000
9.625%, 8/1/08 75,000 75,000
Coast Hotels & Casinos Inc.
13.0%, 12/15/02 400,000 441,500
Colorado Gaming & Enertainment Co. *
12.0%, 6/1/03 75,000 72,000
Grand Casinos Inc.
10.13%, 12/1/03 75,000 75,375
Hollywood Casino Inc.
12.75%, 11/1/03 75,000 72,000
Mohegan Tribal Gaming Authority Con
13.5%, 11/15/02 175,000 231,000
Players International Inc.
10.875%, 4/15/05 475,000 470,250
Six Flags Theme Parks Inc. *
1.0%, 6/15/05 400,000 376,000
Time Warner Entertainment Co. L P
7.25%, 9/1/08 370,000 359,995
Time Warner Inc.
8.875%, 10/1/12 160,000 174,896
Trump Atlantic City Associates
11.25%, 5/1/06 200,000 198,000
- -------------------------------------------------------------------------------
3,650,391
Finance: 1.4%
- -------------------------------------------------------------------------------
Aegon NV (Netherlands)
8.0%, 8/15/06 320,000 340,874
Aim Management Group
9.0%, 11/15/03 250,000 271,250
Par Market
Amount ** Value
-----------------------------------
American Life Holding Co.
11.25%, 9/15/04 $150,000 $171,750
CBM Funding Corp.
7.55%, 7/1/04 282,511 286,131
Commercial Credit Group Inc.
7.875%, 2/1/25 240,000 259,046
Cons Gru Dina Mcii Holding USA Inc.
1.0%, 11/15/02 300,000 247,500
E & S Holdings Corp.
10.375%, 10/1/06 10,000 10,475
First Nationwide Parent Holdings
12.5%, 4/15/03 450,000 504,000
Ford Motor Credit Co.
7.0%, 9/25/01 260,000 263,877
GE Capital Mortgage Services Inc.
6.0%, 2/25/24 600,000 596,322
ICG Holdings Inc. *
1.0%, 5/1/06 375,000 242,813
North Fork Capital Trust A
8.7%, 12/15/26 50,000 50,125
Presley Cos. De
12.5%, 7/1/01 75,000 72,375
Provident Capital Trust I
8.6%, 12/1/26 120,000 121,658
PRT Funding Corp.
11.625%, 4/15/04 100,000 74,500
Reliance Group Holdings Inc.
9.75%, 11/15/03 575,000 598,000
Riggs Capital Trust
8.625%, 12/31/26 35,000 34,447
Rose Hills Acquisition Corp.
9.5%, 11/15/04 20,000 20,500
Southern Investments UK plc
6.8%, 12/1/06 195,000 190,427
Stater Brothers Holdings Inc.
11.0%, 3/1/01 150,000 162,750
- -------------------------------------------------------------------------------
4,518,820
Financial Services: 1.5%
- -------------------------------------------------------------------------------
Aames Financial Corp.
9.125%, 11/1/03 120,000 122,100
Banponce Financial Corp.
6.75%, 8/9/01 285,000 284,969
Brylane Capital Corp.
10.0%, 9/01/03 75,000 77,250
Cobb Theatres LLC /Cobb Financial
10.625%, 3/1/03 100,000 105,750
Continental Financial Corp.
8.375%, 8/15/03 125,000 128,750
Dollar Financial Group Inc.
10.875%, 11/15/06 20,000 20,600
Empresa Distribuidora Norte
9.75%, 12/4/01 75,000 77,531
Empress River Casino Finance Corp.
10.75%, 4/1/02 40,000 43,400
Fifth Third Bank Auto Trust
6.45%, 3/15/02 249,898 250,912
Financing Corp. CPN Fico *
0.0%, 4/6/06 1,200,000 645,996
0.0%, 5/11/06 1,200,000 642,288
First Financial Caribbean Corp.
7.84%, 10/10/06 140,000 141,092
First Nationwide Escrow Corp. *
10.625%, 10/1/03 225,000 243,000
Ford Acquisition Co.
12.5%, 7/15/04 50,000 50,875
Intertek Financial Corp.
10.25%, 11/1/06 35,000 36,400
Lady Luck Gaming Finance Corp.
11.875%, 3/1/01 90,000 87,300
Midland Funding Corp. II
11.75%, 7/23/05 225,000 249,111
Ocwen Financial Corp.
11.875%, 10/1/03 15,000 16,350
Olympic Financial Ltd.
13.0%, 5/1/00 15,000 16,350
Polysindo International Finance Co. B V
11.375%, 6/15/06 110,000 120,175
22
<PAGE>
Par Market
Amount ** Value
-----------------------------------
Residential Funding Mortgage Securities
5.07%, 10/25/08 $600,000 $591,281
Sears Credit Account Master Trust II
6.45%, 10/15/06 230,000 230,064
Sears Roebuck Acceptance Corp.
6.15%, 11/15/02 250,000 241,383
Stone Container Finance Co. Canada
11.5%, 8/15/06 200,000 210,000
- -------------------------------------------------------------------------------
4,632,929
Food and Beverage: 0.3%
- -------------------------------------------------------------------------------
Canandaigua Wine Inc.
8.75%, 12/15/03 55,000 53,625
Chiquita Brands International Inc.
9.625%, 1/15/04 350,000 361,375
Mafco Inc.
11.875%, 11/15/02 100,000 105,500
Parker Distilling Co.
9.75%, 11/15/06 35,000 36,838
Premium Standard Farms Inc. *
11.0%, 9/17/03 150,000 158,625
RJR Nabisco Inc.
8.75%, 8/15/05 115,000 115,517
Safeway Inc.
8.57%, 4/1/03 250,000 263,973
- -------------------------------------------------------------------------------
1,095,453
Foreign Government: 8.8%
- -------------------------------------------------------------------------------
Argentina (Republic of)
1.0%, 3/31/05 360,640 313,757
Australia (Commonwealth)
10.0%, 10/15/02 1,085,000 979,268
10.0%, 2/15/06 950,000 884,404
Canada (Government of)
8.75%, 12/1/05 570,000 483,919
9.0%, 6/1/25 1,105,000 993,637
Denmark (Kingdom of) *
8.0%, 3/15/06 2,895,000 540,589
France (Government of)
4.50%, 10/12/98 4,235,000 830,349
7.0%, 10/12/00 19,290,000 4,072,147
6.0%, 10/25/25 1,274,000 220,375
Germany (Federal Republic of)
5.25%, 2/21/01 3,470,000 2,322,426
7.375%, 1/3/05 1,430,000 1,031,332
6.875%, 5/12/05 810,000 566,758
6.25%, 4/26/06 4,700,000 3,156,953
Italy (Republic of)
9.5%, 2/1/01 1,825,000,000 1,321,050
Mexican Cetes (Mexico)
0.01%, 4/30/97 15,759,000 184,224
0.01%, 11/6/97 12,899,000 133,884
Quebec (Province of)
7.125%, 2/9/24 300,000 288,102
Russia Nonperform Loan *
0.01%, 9/9/99 404,000 320,675
Spain (Government of)
10.1%, 2/28/01 137,500,000 1,219,574
Sweden (Kingdom of)
10.25%, 5/5/00 8,100,000 1,371,877
Treasury (UK)
9.0% conversion, 3/3/00 250,000 450,520
7.75%, 9/8/06 2,215,000 3,857,606
8.5%, 7/16/07 375,000 687,827
Treuhandanstalt (Germany)
5.625%, 9/24/98 1,830,000 1,232,408
Venezuela (Republic of)
1.0%, 12/18/07 250,000 220,314
- -------------------------------------------------------------------------------
27,683,975
Health and Personal Care: 0.2%
- -------------------------------------------------------------------------------
Abbey Healthcare Group Inc.
9.5%, 11/1/02 75,000 78,375
Columbia/HCA Healthcare Corp. *
6.41%, 6/15/00 150,000 149,703
Health O Meter
13.0%, 8/15/02 400,000 437,000
Icon Fitness Corp. *
1.0%, 11/15/06 60,000 31,500
- -------------------------------------------------------------------------------
696,578
Hospital and Health Care: 0.2%
- -------------------------------------------------------------------------------
Genesis Health Ventures Inc.
9.25%, 10/1/06 115,000 118,450
Integrated Health Services Inc.
9.625%, 5/31/02 150,000 154,875
Manor Care Inc.
7.5%, 6/15/06 285,000 291,237
Paracelsus Healthcare Corp.
10.0%, 8/15/06 150,000 141,000
- -------------------------------------------------------------------------------
705,562
Hotels: 0.1%
- -------------------------------------------------------------------------------
Hammon John Q Hotels
8.875%, 2/15/04 100,000 98,750
Host Marriott Travel Plazas Inc.
9.5%, 5/15/05 125,000 130,469
Prime Hospitality Corp.
9.25%, 1/15/06 50,000 50,750
- -------------------------------------------------------------------------------
279,969
Industrial: 0.6%
- -------------------------------------------------------------------------------
Abraxas Pete Corp. Canada
11.5%, 11/1/01 30,000 32,174
Amtrol Inc.
10.625%, 12/31/06 15,000 15,450
Arcadian Partners Lp
10.75%, 5/1/05 300,000 329,250
Atrium Inc.
10.5%, 11/15/06 65,000 66,137
Flores And Rucks Inc.
9.75%, 10/1/06 465,000 492,900
Forcenergy Inc.
9.5%, 11/1/06 30,000 31,313
Lear Corp.
9.5%, 7/15/06 100,000 108,000
Materials Corp. America
8.625%, 12/15/06 25,000 24,937
Maxus Energy Corp. Mtn Bk Ent
10.83%, 9/1/04 200,000 204,066
Safelite Glass Corp.
9.875%, 12/15/06 15,000 15,488
Service Corp. International *
6.375%, 10/1/00 440,000 436,531
- -------------------------------------------------------------------------------
1,756,246
Machinery and Engineering: 0.1%
- -------------------------------------------------------------------------------
Hawk Corp.
10.25%, 12/1/03 25,000 25,625
Sequa Corp.
9.375%, 12/15/03 75,000 76,500
Terex Corp.
13.75%, 5/15/02 150,000 162,750
UNC Inc. *
9.125%, 7/15/03 100,000 101,500
- -------------------------------------------------------------------------------
366,375
Metals and Mining: 0.2%
- -------------------------------------------------------------------------------
Maxxam Group Holdings Inc.
12.0%, 8/1/03 45,000 45,900
Noranda Inc.
7.0%, 7/15/05 265,000 262,367
Renco Metals Inc.
11.5%, 7/1/03 125,000 130,625
Sociedad Quimira Y Minera
7.7%, 9/15/06 120,000 122,689
- -------------------------------------------------------------------------------
561,581
Miscellaneous: 0.0%
- -------------------------------------------------------------------------------
Mettler Toledo Inc.
9.75%, 10/1/06 20,000 21,000
- -------------------------------------------------------------------------------
23
<PAGE>
Par Market
Amount ** Value
-------------------------
Motor Vehicles and Equipment: 0.2%
- --------------------------------------------------------------------------------
Aftermarket Technology Corp.
12.0%, 8/1/04 $150,000 $166,500
A P S Inc.
11.875%, 1/15/06 125,000 136,250
Blue Bird Body Co.
10.75%, 11/15/06 25,000 26,125
Clark Material Handling Corp.
10.75%, 11/15/06 35,000 36,400
Daimler Benz North American Corp.
7.375%, 9/15/06 15,000 15,410
Exide Corp.
2.9%, 12/15/06 150,000 88,875
Harvard Industries Inc.
11.125%, 8/1/05 100,000 83,000
Motors & Gears Inc.
10.75%, 11/15/06 40,000 41,400
- --------------------------------------------------------------------------------
593,960
Office and Business Equipment and Services: 0.4%
- --------------------------------------------------------------------------------
Commodore Media Inc.
1.0%, 5/1/03 150,000 156,000
Computervision Corp.
11.375%, 8/15/99 250,000 261,250
Outsourcing Solutions Inc.
11.0%, 11/1/06 20,000 20,950
Paging Network Inc. *
10.0%, 10/15/08 350,000 355,688
Real Time Data Inc. *
1.0%, 8/15/06 4,000 22,000
Scotsman Group Inc.
9.5%, 12/15/00 150,000 153,750
Unisys Corp.
11.75%, 10/15/04 140,000 149,450
United Stationers Supply Co.
12.75%, 5/1/05 200,000 221,000
- --------------------------------------------------------------------------------
1,340,088
Paper: 0.4%
- --------------------------------------------------------------------------------
Florida Coast Paper Co. LLC
12.75%, 6/1/03 550,000 594,000
Gaylord Container Corp.
11.5%, 5/15/01 100,000 108,000
Repap New Brunswick Inc.
10.625%, 4/15/05 150,000 156,750
Riverwood International Corp.
10.875%, 4/1/08 350,000 320,250
- --------------------------------------------------------------------------------
1,179,000
Petroleum and Petroleum Related: 0.3%
- --------------------------------------------------------------------------------
HS Resource Inc.
9.25%, 11/15/06 75,000 76,688
Husky Oil Ltd.
7.55%, 11/15/16 250,000 247,683
Kelley Oil & Gas Corp.
10.375%, 10/15/06 30,000 31,200
Lasmo USA Inc.
7.5%, 6/30/06 200,000 205,282
Norcen Energy Research Ltd.
7.375%, 5/15/06 150,000 151,745
Transamerican Refining Corp. *
1.0%, 2/15/02 125,000 102,500
- --------------------------------------------------------------------------------
815,098
Plastics: 0.0%
- --------------------------------------------------------------------------------
Clark-Schwebel Inc.
10.5%, 4/15/06 75,000 79,875
Key Plastics Inc.
14.0%, 11/15/99 50,000 51,625
- --------------------------------------------------------------------------------
131,500
Printing and Publishing: 0.1%
- --------------------------------------------------------------------------------
American Media Operations Inc.
11.625%, 11/15/04 150,000 159,000
Gray Communications System Inc.
10.625%, 10/1/06 5,000 5,300
- --------------------------------------------------------------------------------
164,300
Public Utilities: 0.8%
- --------------------------------------------------------------------------------
Aes Corp.
9.75%, 6/15/00 75,000 77,625
American Communications Services *
1.0%, 11/1/05 200,000 120,000
1.0%, 4/1/06 150,000 82,875
Chesapeake Energy Corp.
9.125%, 4/15/06 150,000 156,375
Cleveland Electric Illumination Co.
9.5%, 5/15/05 500,000 527,190
9.0%, 7/1/23 200,000 200,536
Connecticut Light & Power Co
7.875%, 6/1/01 190,000 194,066
Costilla Energy Inc.
10.25%, 10/1/06 10,000 10,450
Edison Mission Energy Funding Corp.
7.33%, 9/15/08 100,000 100,420
El Paso Electric Co.
9.4%, 5/1/11 150,000 159,000
El Paso Natural Gas Co.
7.5%, 11/15/26 155,000 153,073
Hidroelec Piedra Del Aguila
10.625%, 10/9/01 10,000 10,513
Jersey Central Power & Light
6.85%, 11/27/06 115,000 114,695
Long Island Lighting Co.
9.0%, 11/1/22 150,000 157,875
Niagara Mohawk Power Corp.
9.95%, 6/1/00 150,000 138,750
5.875%, 9/1/02 275,000 243,317
Northeast Utilities Series A
8.575%, 12/1/06 14,277 14,322
- --------------------------------------------------------------------------------
2,461,082
Real Estate: 0.1%
- --------------------------------------------------------------------------------
Brooks Fiber Properties Inc. *
1.0%, 3/1/06 450,000 288,000
- --------------------------------------------------------------------------------
Restaurant: 0.0%
- --------------------------------------------------------------------------------
Ameriking Inc.
10.75%, 12/1/06 40,000 41,400
- --------------------------------------------------------------------------------
Retail: 0.7%
- --------------------------------------------------------------------------------
CSK Auto Inc.
11.0%, 11/1/06 340,000 357,000
Finlay Enterprises *
1.0%, 5/1/05 300,000 256,500
Finlay Fine Jewerly Corp.
10.625%, 5/1/03 125,000 125,625
Guess Inc.
9.5%, 8/15/03 350,000 358,750
K Mart Corp.
8.19%, 11/24/03 100,000 89,858
8.375%, 7/1/22 500,000 420,000
Loehmanns Inc.
11.875%, 5/15/03 75,000 80,813
Mothers Work Inc.
12.625%, 8/1/05 50,000 53,000
Parisian Inc.
9.875%, 7/15/03 75,000 75,750
Phar Mor Inc.
11.72%, 9/11/02 125,000 129,375
Rite Aid Corp.
6.7%, 12/15/01 115,000 114,780
Shopko Stores Inc.
8.5%, 3/15/02 100,000 98,084
Southland Corp.
5.0%, 12/15/03 200,000 164,000
- --------------------------------------------------------------------------------
2,323,535
Securities Dealers: 0.1%
- --------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.
6.4%, 12/27/99 320,000 318,144
- --------------------------------------------------------------------------------
24
<PAGE>
Par Market
Amount ** Value
-------------------------
Ship Building: 0.0%
- --------------------------------------------------------------------------------
Newport News Shipbuilding Inc.
8.625%, 12/1/06 $60,000 $61,500
9.25%, 12/1/06 55,000 56,375
- --------------------------------------------------------------------------------
117,875
Shoes: 0.0%
- --------------------------------------------------------------------------------
Genesco Inc.
10.375%, 2/1/03 20,000 20,500
- --------------------------------------------------------------------------------
Steel: 0.1%
- --------------------------------------------------------------------------------
AK Steel Corp.
9.125%, 12/15/06 65,000 66,787
WCI Steel Inc.
10.0%, 12/1/04 100,000 102,000
- --------------------------------------------------------------------------------
168,787
Telecommunications: 2.5%
- --------------------------------------------------------------------------------
Adelphia Communications Corp.
12.5%, 5/15/02 750,000 768,750
AirTouch Communications Inc.
7.125%, 7/15/01 380,000 386,156
American Telecasting Inc. *
1.0%, 8/15/05 100,000 36,000
Arch Communications Group Inc. *
1.0%, 3/15/08 250,000 142,500
Argyle Television Inc.
9.75%, 11/1/05 100,000 101,500
Cablevision System Corp. *
9.25%, 11/1/05 150,000 148,500
Cencall Communications Corp. *
1.0%, 1/15/04 375,000 256,406
Centennial Cellular Corp.
8.875%, 11/1/01 250,000 241,250
Century Communications Corp.
9.5%, 3/1/05 50,000 51,250
11.875%, 10/15/03 50,000 53,000
Comcast Corp.
9.5%, 1/15/08 50,000 51,750
Compania De Telocomunicaciones
7.625%, 7/15/06 410,000 420,373
Echostar Communications Corp. *
1.0%, 6/1/04 300,000 248,250
Echostar Satellite Broadcasting Corp. *
1.0%, 3/15/04 100,000 75,500
Gst USA Inc.
1.0%, 12/15/05 500,000 305,000
Hyperion Telecommunications Inc. *
13.0%, 4/15/03 200,000 113,500
Intercel Inc. *
1.0%, 2/1/06 4,000 264,000
Intermedia Communications of Florida Inc. *
1.0%, 5/15/06 250,000 170,000
MFS Communications Inc. *
1.0%, 1/15/04 800,000 694,000
Metrocall Inc.
10.375%, 10/1/07 250,000 215,000
Mobile Telecommunication Technologies
13.5%, 12/15/02 125,000 125,000
Nextel Communications Inc. *
1.0%, 9/1/03 1,000,000 780,000
1.0%, 8/15/04 400,000 273,000
Nextlink Communications LLC
12.5%, 4/15/06 75,000 79,875
Omnipoint Corp.
11.625%, 8/15/06 250,000 260,000
11.625%, 8/15/06 150,000 156,000
Pagemart Nationwide Inc. *
1.0%, 2/1/05 225,000 155,250
Paxson Communications Corp. *
11.625%, 10/1/02 450,000 469,125
Pricecellular Wireless Corp. *
14.0%, 11/15/01 150,000 147,000
ProNet Inc.
11.875%, 6/15/05 25,000 23,500
Sygnet Wireless Inc.
11.5%, 10/1/06 15,000 15,375
Teleport Communications Group *
1.0%, 7/1/07 725,000 496,625
Winstar Communications Inc. *
1.0%, 10/15/05 250,000 191,250
- --------------------------------------------------------------------------------
7,914,685
Transportation: 0.0%
- --------------------------------------------------------------------------------
Iron Mountain Inc. Del *
10.125%, 10/1/06 10,000 10,600
Viking Star Shipping Inc.
9.625%, 7/15/03 75,000 78,469
- --------------------------------------------------------------------------------
89,069
Trucking Companies: 0.0%
- --------------------------------------------------------------------------------
Ryder Trucks Inc.
10.0%, 12/1/06 40,000 41,500
- --------------------------------------------------------------------------------
Waste Management: 0.1%
- --------------------------------------------------------------------------------
Allied Waste North America Inc.
10.25%, 12/1/06 115,000 120,750
WMX Technologies Inc.
7.1%, 8/1/26 290,000 298,852
- --------------------------------------------------------------------------------
419,602
Total Long-Term Debt Investments: 34.9%
(Cost 108,723,425) 110,194,015
- --------------------------------------------------------------------------------
Number
Common Stocks: of Shares
---------
U.S. Government and Agency Obligations: 0.2%
- --------------------------------------------------------------------------------
FNMA 19,100 711,475
- --------------------------------------------------------------------------------
Advertising: 0.1%
- --------------------------------------------------------------------------------
Lamar Advertising Co. * 2,700 64,125
Outdoor Systems Inc. * 2,400 68,100
Universal Outdoor Holdings Inc. * 2,100 48,825
- --------------------------------------------------------------------------------
181,050
Aerospace: 1.7%
- --------------------------------------------------------------------------------
Boeing Co. 14,100 1,499,888
Northrop Grumman Corp. 9,430 780,333
Rockwell International Corp. * 5,950 362,205
Textron Inc. 9,200 867,100
United Technologies Corp. 27,700 1,828,200
- --------------------------------------------------------------------------------
5,337,726
Air Transportation: 0.3%
- --------------------------------------------------------------------------------
Delta Air Lines Inc. 6,520 462,105
KLM (Netherlands) 6,990 196,764
Singapore Airlines (Singapore) 15,000 136,140
- --------------------------------------------------------------------------------
795,009
Banking and Insurance: 7.9%
- --------------------------------------------------------------------------------
ABN Amro Holdings NV (Netherlands) 7,000 455,720
Ahmanson H F & Co. 22,410 728,325
Allied Irish Banks (Ireland) 54,300 364,392
American General Corp. 22,160 905,790
Aon Corp. 12,430 772,214
BCO Bilbao Vizcaya (Spain) 3,700 199,784
Banc One Corp. 13,320 572,760
Bank of Boston Corp. 16,200 1,040,850
Bank of Ireland (Ireland) 32,471 296,041
Bank of Tokyo Mits (Japan) 650 12,067
BankAmerica Corp. 21,410 2,135,648
Bankers Trust New York Corp. 8,990 775,388
Barclays plc (UK) 20,300 347,955
Barnett Banks Inc. 21,800 896,525
CRA Managed Care Inc. * 2,150 95,944
Chase Manhattan Corp. 8,500 758,625
25
<PAGE>
Number Market
of Shares Value
-------------------------
Cigna Corp. 3,135 $428,319
Citicorp 20,400 2,101,200
Commonwealth Bank (Australia) 18,000 172,260
Compdent Corp. * 2,125 75,438
Corestates Financial Corp. 11,910 617,831
Cost Plus Inc. California * 4,000 76,250
Credit Local De France (France) 4,080 355,432
Dao Heng Bank Group (Hong Kong) 21,000 100,730
Development Bank Singapore (Singapore) 12,000 162,081
First Commonwealth Inc. * 1,500 29,250
Fleet Financial Group Inc. 18,577 926,528
Guoco Group (Hong Kong) 41,000 229,530
HCC Insurance Holdings Inc. 8,575 205,800
HSBC Holdings plc (Hong Kong) 23,372 500,106
J.P. Morgan & Co. Inc. 14,870 1,451,684
MBNA Corp. 27,650 1,147,475
Mellon Bank Corp. 5,090 361,390
Nations Bank Corp. 5,630 550,333
PNC Banking Corp. 39,770 1,496,346
Reinsurance Group America Inc. 2,300 108,388
Royal Sun Alliance (UK) 688 5,251
SCHW Ruckversicher (Switzerland) 362 386,476
Skandia Foersaekrings (Sweden) 12,000 339,594
Tokio Marine & Fire Insurance (Japan) 16,000 150,591
Travelers Group Inc. 28,865 1,309,749
USF&G Corp. 42,490 886,979
United Dental Care Inc. * 1,200 36,675
United Overseas Bank (Singapore) 15,000 167,226
Westpac Bank Corp. (Australia) 66,000 375,614
- --------------------------------------------------------------------------------
25,112,554
Broadcasting: 0.6%
- --------------------------------------------------------------------------------
Chancellor Broadcasting Co. * 1,100 25,988
Evergreen Media Corp. * 4,800 119,400
Gannett Inc. 10,200 763,725
Granite Broadcasting Corp. * 5,300 56,312
HBO & Co. 13,500 801,562
Saga Communications - Class A * 3,075 59,963
SFX Broadcasting Inc. * 1,850 54,806
Sinclair Broadcasting Group Inc. * 1,400 36,750
Young Broadcasting Inc. * 2,525 74,172
- --------------------------------------------------------------------------------
1,992,678
Building and Construction : 0.4%
- --------------------------------------------------------------------------------
Armstrong World Industries Inc. 12,920 897,940
CRH (Ireland) 43,917 455,469
- --------------------------------------------------------------------------------
1,353,409
Building Materials: 0.3%
- --------------------------------------------------------------------------------
Barnett Inc. * 3,400 91,375
Daikin Industries (Japan) 16,000 142,302
Sherwin-Williams Co. 10,300 576,800
- --------------------------------------------------------------------------------
810,477
Chemicals: 2.4%
- --------------------------------------------------------------------------------
Akzo Nobel NV (Netherlands) 2,600 355,401
Bayer AG (Germany) 15,600 636,652
Corning Inc. 17,230 796,888
DSM NV (Netherlands) 1,800 177,654
Du Pont E I De Nemours & Co. 22,480 2,121,550
Eastman Chemical Co. 13,080 722,670
Monsanto Corp. 38,200 1,485,025
Praxair Inc. 23,800 1,097,775
Sekisui Chemical (Japan) 21,000 212,158
- --------------------------------------------------------------------------------
7,605,773
Coal and Gas: 0.2%
- --------------------------------------------------------------------------------
Coastal Corp. 15,120 738,990
- --------------------------------------------------------------------------------
Construction: 0.1%
- --------------------------------------------------------------------------------
IHC Caland NV (Netherlands) 6,600 377,307
- --------------------------------------------------------------------------------
Consumer Products and Services: 2.7%
- --------------------------------------------------------------------------------
American Brands Inc. 16,000 794,000
B.A.T. Industries (UK) 55,560 460,700
Carriage Services Inc. * 1,600 35,500
Eastman Kodak Co. 34,640 2,779,860
Home Depot Inc. 1 50
Johnson & Johnson 18,200 905,450
KAO Corp. (Japan) 27,000 314,740
Magna International Inc. Class A (Canada) 4,100 228,310
NCO Group Inc. * 3,400 56,313
Philip Morris Co. Inc. 7,720 869,465
Polaroid Corp. 16,540 719,490
Precision Response Corp. * 4,300 152,111
Sola International Inc. * 4,375 166,250
Stewart Enterprises Inc. 4,550 154,700
Strayer Ed Inc. 3,400 77,350
Tabacalera S.A. (Spain) 2,100 90,422
Whirlpool Corp. 13,570 632,701
Whittman Hart Inc. * 1,100 27,913
- --------------------------------------------------------------------------------
8,465,325
Container: 0.2%
- --------------------------------------------------------------------------------
Crown Cork & Seal Inc. 10,995 597,853
- --------------------------------------------------------------------------------
Drug and Hospital Supplies: 5.2%
- --------------------------------------------------------------------------------
Abbott Laboratories 26,000 1,319,500
American Home Products Corp. 10,990 644,289
Amrion Inc. * 3,300 75,075
Astra AB (Sweden) 9,400 464,494
Baxter International Inc. 19,630 804,830
Bristol Myers Squibb Co. 5,570 605,738
Cardinal Health Inc. 13,500 786,374
Cuno Inc. * 3,700 55,500
Cytyc Corp. * 4,200 113,663
Dura Pharmaceuticals Inc. * 6,300 300,825
Enterprise System Inc. * 3,700 87,413
I STAT Corp. * 1,525 36,028
IDEXX Labs Inc. * 2,100 75,863
Impath Inc. * 2,600 49,075
Iridex Corp. * 4,400 32,450
Lilly (Eli) & Co. 10,300 751,900
Lunar Corp. * 2,000 69,250
Medicis Pharmaceutical Corp. * 3,700 161,875
Medtronic Inc. 11,200 761,600
Merck & Co. Inc. 20,700 1,640,474
Minimed Inc. * 2,400 76,500
Orthologic Corp. * 2,300 12,866
Pfizer Inc. 19,000 1,574,624
Pharmaceutical Product Development Inc. * 1,300 32,663
Pharmacia & Upjohn Inc. 42,697 1,691,868
Pharmacia & Upjohn (Sweden) 8,100 331,962
Santen Pharmaceutical Co. (Japan) 8,600 178,223
Target Therapeutics Inc. * 1,400 58,713
United States Surgical Corp. 17,300 681,188
Warner Lambert Co. 35,207 2,640,524
Xomed Surgical Products Inc. * 1,850 36,538
Yamanouchi Pharmacy (Japan) 8,000 164,407
- --------------------------------------------------------------------------------
16,316,292
Electrical and Electronics: 4.6%
- --------------------------------------------------------------------------------
ABB AG (Switzerland) 235 292,323
Actel Corp. * 4,600 109,538
Advanced Lighting Technologies Inc. * 7,300 180,675
Anadigics Inc. * 2,400 94,800
Benchmarq Microelectronics Inc. * 1,500 31,781
CP Clare Corp. * 5,675 56,041
Canon Inc. (Japan) 20,000 442,103
Cascade Communications Corp. * 9,100 502,774
Coherent Communications System Corp. * 3,400 65,663
Del Global Technologies Corp. * 7,011 58,719
Elexsys International * 5,400 108,000
Flextronics International * 3,400 95,200
General Electric Co. 19,500 1,928,062
General Signal Corp. 12,320 526,680
Getronics NV (Netherlands) 14,120 383,566
26
<PAGE>
Number Market
of Shares Value
-------------------------
Harman International 1,588 $88,333
Hirose Electric (Japan) 4,200 243,347
Intel Corp. 14,300 1,872,405
Jabil Circuit Inc. * 1,800 72,113
JPM Co. * 1,500 26,063
Keane Inc. * 6,400 203,200
Micrel Inc. * 1,900 59,613
Motorola Inc. 13,720 842,064
Murata Manufacturing Co. (Japan) 4,000 132,976
Philips Electronic 9,450 383,145
Photronic Inc. * 100 2,738
SDL Inc. * 4,400 114,400
SGS Thomson Microelectronics * 9,000 630,000
Sanmina Corp. * 3,300 186,450
Sharp Corp. (Japan) 16,000 227,960
Sierra Semi Conductor Corp. * 2,600 38,838
TDK Corp. (Japan) 6,000 391,158
TRW Inc. 23,740 1,175,130
Tellabs Inc. * 14,200 535,163
Texas Instruments Inc. 33,696 2,148,120
Transwitch Corp. * 2,500 12,813
Ultrak Inc. * 3,400 104,125
- --------------------------------------------------------------------------------
14,366,079
Entertainment: 0.3%
- --------------------------------------------------------------------------------
Acres Gaming Inc. * 3,000 33,375
Family Golf Centers Inc. * 5,300 160,325
ITT Industries Inc. 24,450 599,025
Penn National Gaming Inc. * 5,600 81,900
Penske Motorsports Inc. * 3,000 76,500
Regal Cinemas Inc. * 2,075 63,546
Vacation Break USA Inc. * 3,000 59,813
- --------------------------------------------------------------------------------
1,074,484
Finance: 0.9%
- --------------------------------------------------------------------------------
Aegon NV (Netherlands) 6,300 401,755
American Express Co. 10,000 565,000
Beneficial Corp. 7,580 480,382
Bet Holdings Inc. * 1,700 48,875
Household International Inc. 6,100 562,725
Keycorp 16,300 823,150
Lason Holdings Inc. * 3,400 69,275
- --------------------------------------------------------------------------------
2,951,162
Financial Services: 0.3%
- --------------------------------------------------------------------------------
Cetelem (France) 1,040 120,266
Concord EFS Inc. * 6,314 176,792
Delta Financial Corp. * 2,050 36,900
Ing Groep NV (Netherlands) 10,080 363,148
Metris Cos. Inc. * 2,400 57,000
PMT Services Inc. * 4,900 85,444
- --------------------------------------------------------------------------------
839,550
Food and Beverage: 1.6%
- --------------------------------------------------------------------------------
Anheuser Busch Cos. Inc. 5,700 228,000
Campbell Soup Co. 9,300 746,325
Danisco (Denmark) 2,900 176,241
General Mills Inc. 12,020 761,768
Goodman Fielderlt (Australia) 150,500 186,615
Greencore Group (Ireland) 68,400 438,149
Guinness (UK) 8,300 65,268
Nestle S.A. (Switzerland) 410 440,172
PJ America Inc. * 1,900 34,556
Pan American Beverage 3,000 140,625
RJR Nabisco Holdings Corp. 24,400 829,600
Safeway Inc. * 14,700 628,425
Unilever NV (Netherlands) 1,700 300,909
- --------------------------------------------------------------------------------
4,976,653
Foreign Government: 0.0%
- --------------------------------------------------------------------------------
Commonwealth Instal Receipt (Australia) * 10,200 63,481
Mexico (Utd Mexico St) * 1,000 0
- --------------------------------------------------------------------------------
63,481
Forest Products: 0.5%
- --------------------------------------------------------------------------------
Rayonier Inc. 11,743 450,638
Weyerhaeuser Co. 20,650 978,293
- --------------------------------------------------------------------------------
1,428,931
Health and Personal Care: 0.2%
- --------------------------------------------------------------------------------
Novartis AG (Switzerland) * 405 463,851
Sabratek Corp. * 2,500 39,688
Superior Consultant Inc. * 1,200 29,250
- --------------------------------------------------------------------------------
532,789
Hospital and Health Care: 0.5%
- --------------------------------------------------------------------------------
Access Health Inc. * 2,650 119,250
American Homepatient Inc. * 6,000 162,000
Genesis Health Ventures Inc. * 3,950 122,943
HealthSouth Rehabilitation Corp. * 16,000 618,000
National Surgery Centers Inc. * 2,850 107,588
NCS Healthcare Inc. * 2,400 69,600
Oxford Health Plans Inc. * 5,900 345,518
Pediatrix Medical Group * 1,100 40,563
Physician Support Systems Inc. * 2,000 38,000
Renal Care Group Inc. * 1,700 54,294
Sterling House Corp. * 700 6,125
- --------------------------------------------------------------------------------
1,683,881
Hotels: 0.5%
- --------------------------------------------------------------------------------
HFS Inc. * 8,400 501,900
Marriott International Inc. 14,000 773,500
Prime Hospitality Corp. * 9,100 146,738
- --------------------------------------------------------------------------------
1,422,138
Household Appliances: 0.1%
- --------------------------------------------------------------------------------
Electrolux AB (Sweden) 4,750 275,811
- --------------------------------------------------------------------------------
Industrial: 0.1%
- --------------------------------------------------------------------------------
Blyth Industries Inc. * 3,600 164,250
- --------------------------------------------------------------------------------
Machinery and Engineering: 0.7%
- --------------------------------------------------------------------------------
Case Equipment Inc. 11,500 626,750
Credence Systems Corp. * 5,625 112,148
Molins (UK) 7,800 119,599
New Holland NV * 43,700 912,238
Rieter Holding (Switzerland) 465 128,539
Rieter Holding (Switzerland) 465 591
Sandvik Ab (Sweden) 12,390 336,097
- --------------------------------------------------------------------------------
2,235,962
Metals and Mining: 0.4%
- --------------------------------------------------------------------------------
Freeport McMoran Copper & Gold 23,370 657,281
Preussag AG (Germany) 1,400 317,065
RTZ Corp. (UK) 20,400 327,826
- --------------------------------------------------------------------------------
1,302,172
Miscellaneous: 2.8%
- --------------------------------------------------------------------------------
3M Co. 14,320 1,186,770
Baer Holdings AG (Switzerland) 160 167,710
Computer Sciences Corp. * 9,100 747,337
Cycle & Carriage (Singapore) 13,000 158,865
Danieli & Co. - Warrants (Italy) * 1,500 1,406
Denso Corp. (Japan) 17,000 409,550
First Data Corp. 19,900 726,350
Franklin Resources Inc. 8,800 601,700
Futaba Corp. (Japan) 3,000 124,342
Hutchison Whampoa Ltd. (Hong Kong) 31,000 243,487
IGEN Inc. * 3,100 15,888
Jardine Matheson * 18,000 118,800
Kon Ptt Nederland (Netherlands) 6,500 248,103
Lafarge Coppee S.A. (France) 5,500 329,989
Marui Co. (Japan) 18,000 324,842
Mayr Melnhof * 7,600 91,200
Memtec Ltd. 2,200 71,638
Mitsui & Co. (Japan) 30,000 243,502
Omron Corp. (Japan) 10,000 188,239
SGS Holdings (Switzerland) 100 245,798
27
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Service Corp. International 22,000 $616,000
Soc Elf Aquitaine (France) 4,850 441,487
Solvay (Belgian) 105 64,286
Swire Pacific (Hong Kong) 25,000 238,380
Toda Corp. (Japan) 13,000 98,782
Ultratech Stepper Inc. * 4,000 94,500
VA Technologie AG (Austria) 2,850 447,299
Whitman Corp. 26,510 606,416
- -------------------------------------------------------------------------------
8,852,666
Motor Vehicles and Equipment: 2.1%
- -------------------------------------------------------------------------------
Bayer Motoren Werk (Germany) 700 488,108
Bridgestone Corp. (Japan) 22,000 417,926
Chrysler Corp. 14,300 471,900
Eaton Corp. 13,010 907,448
Echlin Inc. 22,250 703,656
Ford Motor Co. 26,840 855,525
General Motors Corp. 23,150 1,290,612
General Motors Corp. - Series H 13,720 771,750
Goodyear Tire & Rubber Co. 7,100 364,762
Miller Industries Inc. * 9,300 186,000
Peugeot S.A. (France) 2,000 225,113
- -------------------------------------------------------------------------------
6,682,800
Office and Business Equipment and Services: 5.4%
- -------------------------------------------------------------------------------
Alternative Resourse Corp. * 1,700 29,219
Analyst International Corp. 3,600 99,900
Apogee Enterprises Inc. 2,800 110,950
Arbor Software Corp. * 1,200 28,950
Bisys Group Inc. * 1,800 66,713
Black Box Corp. * 4,700 192,113
BTG Inc. * 2,300 60,663
CCC Information Services Group Inc. * 1,600 25,000
Cisco Systems Inc. * 26,400 1,681,350
Claremont Technology Group Inc. * 2,500 67,188
Compaq Computer Corp. * 11,500 853,874
Computer Associates International Inc. 25,650 1,276,087
Computer Horizons Corp. * 5,505 209,190
Computer Learning Centers Inc. * 5,400 149,850
Computer Products Inc. * 8,500 166,281
Computer Task Group Inc. 2,700 116,438
Corestaff Inc. * 2,625 62,180
Cort Business Services Corp. * 5,000 103,125
Cotelligent Group Inc. * 5,600 136,150
Data Processing Corp. * 3,800 68,875
EMC Corp. * 20,700 685,687
Equity Corp. International * 3,750 73,594
F Y I Inc. * 2,800 59,325
Hewlett-Packard Co. 8,600 432,150
Honeywell Inc. 31,340 2,060,604
IBM 8,530 1,288,030
Inso Corp * 1,050 41,344
Learning Tree International Inc. * 1,200 35,550
McAfee Associates Inc. * 4,030 176,564
Metzler Group Inc. * 2,000 62,500
Microsoft Corp. * 20,800 1,719,900
NCR Corp. New * 11,640 388,485
National Techteam Inc. * 3,200 64,600
Oak Technology * 4,400 49,775
On Assignment Inc. * 2,250 65,531
Onewave Inc. * 4,000 31,500
Parametric Technology Corp. * 13,500 694,406
People Soft Inc. * 17,600 843,700
Project Software & Development Inc. * 1,048 43,951
Raptor Systems Inc. * 3,700 74,231
Red Brick System Inc. * 1,700 38,675
Registry Inc. * 1,300 59,475
Renaissance Solutions Inc. * 2,500 113,438
Rental Service Corp. * 4,100 114,031
Robert Half International Inc. * 5,150 177,030
SPSS Inc. * 3,600 98,325
Scopus Technology * 1,200 55,725
Splash Technology Holdings Inc. * 4,800 104,400
Staffmark Inc. * 2,600 31,850
Sykes Enterprises Inc. * 3,100 114,313
Technology Solutions Co. * 6,450 266,063
Vantive Corp. * 2,900 90,263
Xerox Corp. 24,380 1,282,997
- -------------------------------------------------------------------------------
16,942,108
Paper: 0.7%
- -------------------------------------------------------------------------------
Kimberly Clark Corp. 15,050 1,433,512
Svenska Cellulosa (Sweden) 17,500 355,394
Temple-Inland Inc. 6,840 370,215
- -------------------------------------------------------------------------------
2,159,121
Petroleum and Petroleum Related: 4.3%
- -------------------------------------------------------------------------------
Amoco Corp. 13,840 1,114,120
Baker Hughes Inc. 16,900 583,050
British Petroleum plc 12,920 1,826,564
British Petroleum (UK) 14,900 178,688
Burmah Castrol plc (UK) 21,533 407,271
Cosmo Oil Co. (Japan) 23,000 110,621
Eni Spa (Italy) 65,900 338,188
Enron Corp. 18,700 806,438
Halliburton Co. 12,200 735,050
Mobil Corp. 5,880 718,830
Occidental Petroleum Corp. 31,051 725,817
Panenergy Corp. 13,720 617,400
Phillips Petroleum Co. 16,780 742,515
Schlumberger Ltd. 10,200 1,018,725
Shell Transport & Trading (UK) 20,400 353,689
Sonat Inc. 18,500 952,750
Total (France) 5,300 431,069
Total S.A. 19,532 786,163
Witco Corp. 33,480 1,021,140
- -------------------------------------------------------------------------------
13,468,088
Printing and Publishing: 0.7%
- -------------------------------------------------------------------------------
Dai Nippon Printing (Japan) 19,000 333,046
Harcourt General Inc. 14,400 664,200
Times Mirror Co. 13,120 652,720
Tribune Co. 9,000 709,875
- -------------------------------------------------------------------------------
2,359,841
Public Utilities: 0.9%
- -------------------------------------------------------------------------------
Chubu Electric Power (Japan) 7,000 139,021
Gaz Et Eaux (France) 1 408
General Electric (UK) 67,814 444,968
Hong Kong Electric 21,000 69,778
Kurita Water Industries (Japan) 14,000 282,877
Kyushu Electric Power (Japan) 6,000 116,570
Northeast Utilities 16,050 212,663
Scottish Power (UK) 57,304 344,590
Union Electric Co. 17,880 688,380
United Utilities (UK) 15,560 165,010
Veba AG (Germany) 8,650 500,292
- -------------------------------------------------------------------------------
2,964,557
Railroads: 0.6%
- -------------------------------------------------------------------------------
Canadian National Railway Co. (Canada) 9,760 370,880
East Japan Railway (Japan) 55 247,431
Norfolk Southern Corp. 8,030 702,625
Union Pacific Corp. 9,130 548,941
- -------------------------------------------------------------------------------
1,869,877
Real Estate: 0.4%
- -------------------------------------------------------------------------------
Amoy Properties (Hong Kong) 152,000 219,122
Cheung Kong Holdings (Hong Kong) 58,000 515,547
Hong Kong Land Holdings (Hong Kong) * 69,000 191,820
Sun Hung Kai Properties (Hong Kong) 27,000 330,758
- -------------------------------------------------------------------------------
1,257,247
Resort: 0.1%
- -------------------------------------------------------------------------------
Genting Berhad (Malaysia) 500 3,445
Signature Resorts Inc. * 8,500 302,812
- -------------------------------------------------------------------------------
306,257
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
--------------------------
<S> <C> <C>
Restaurant: 0.1%
- -------------------------------------------------------------------------------
Ameriking Inc. 75 $82,500
Morton Restaurant Group Inc. * 2,500 42,188
Studio Plus America Inc. * 4,775 75,803
- -------------------------------------------------------------------------------
200,491
Retail: 3.8%
- -------------------------------------------------------------------------------
99 Cents Only Stores * 1,300 21,288
CompUSA Inc. * 17,400 358,875
CVS Corp. 19,200 794,400
Dayton Hudson Corp. 39,790 1,561,758
Federated Department Stores Inc. * 18,300 624,487
Finish Line Inc. 7,200 151,650
Gadzooks Inc. * 1,800 33,300
ITO Yokado Co. (Japan) 6,000 261,117
K Mart Corp. 74,900 777,087
Loehmanns Inc. * 3,900 89,700
Lowe's Companies 8,500 301,750
Mark Brothers Jewelers Inc. * 5,500 65,313
May Department Stores Co. 13,500 631,125
Mazel Stores Inc. * 1,800 39,825
Mens Wearhouse Inc. * 6,200 150,738
Michelin CGDE (France) 6,740 363,857
Penney (J.C.) Co. Inc. 13,960 680,550
Petco Animal Supplies Inc. * 1,400 28,525
Rexall Sundown Inc. * 7,398 201,133
Rite Aid Corp. 20,040 796,590
Sears, Roebuck & Co. 41,750 1,925,718
Sommer Allibert (France) 6,520 194,777
TJX Cos. Inc. 15,900 753,263
United Auto Group Inc. * 1,800 46,350
Vendex International (Netherlands) 4,700 201,176
Walgreen Co. 18,500 740,000
West Marine Inc. * 3,200 88,800
- -------------------------------------------------------------------------------
11,883,152
Savings and Loan: 0.1%
- -------------------------------------------------------------------------------
Great Western Financial Corp. 12,100 350,900
- -------------------------------------------------------------------------------
Securities Dealers: 0.1%
- -------------------------------------------------------------------------------
Dean Witter Discover & Co. 1 66
Securicor (UK) 60,766 292,014
- -------------------------------------------------------------------------------
292,080
Ship Building: 0.0%
- -------------------------------------------------------------------------------
Far East Levingst (Singapore) 27,000 140,856
- -------------------------------------------------------------------------------
Shoes: 0.5%
- -------------------------------------------------------------------------------
Nike Inc. 20,200 1,206,950
Wolverine World Wide Inc. 7,590 220,110
- -------------------------------------------------------------------------------
1,427,060
Soaps, Cleaner and Cosmetics: 1.5%
- -------------------------------------------------------------------------------
Avon Products Inc. 25,930 1,481,251
Clorox Co. 7,700 772,888
Colgate-Palmolive Co. 5,270 486,158
French Fragrances Inc. * 6,300 49,613
Gillette Co. 26,500 2,060,374
- -------------------------------------------------------------------------------
4,850,284
Steel: 0.0%
- -------------------------------------------------------------------------------
Bekaert S.A. (Belgium) 198 125,749
- -------------------------------------------------------------------------------
Telecommunications: 2.8%
- -------------------------------------------------------------------------------
3Com Corp. * 9,900 725,794
Ameritech Corp. 7,400 448,625
Bellsouth Corp. 21,870 883,001
Cablevision System Corp. 2,000 180,000
Cellular Communications International * 1 29
Cincinnati Bell Inc. 5,000 308,125
Deutsche Telekom (Germany) * 24,700 503,263
Deutsche Telekom (Germany) * 11,200 236,184
GTE Corp. 27,230 1,238,964
Heftel Broadcasting Corp. * 2,900 90,263
Hyperion Telecommunications Inc. * 200 4,000
Intermedia Communications of Florida Inc. 2,200 56,513
Level One Communications Inc. * 1,200 42,600
Midcom Communications Inc. * 7,000 60,375
Nippon Telephone & Telegraph CP (Japan) 44 333,581
Pacific Telesis Group 22,350 821,363
Portugal Telecom S.A. (Portugal) 12,600 359,187
Sprint Corp. 47,250 1,884,093
Telecomunicacoes Brasileiras 5,200 397,800
Vodafone Group (UK) 91,260 386,178
- -------------------------------------------------------------------------------
8,959,938
Textiles-Apparel Manufacturing: 0.4%
- -------------------------------------------------------------------------------
Liz Claiborne Inc. 13,500 521,438
Nautica Enterprises Inc. * 4,210 105,776
North Face Inc. * 6,600 126,225
Onward Kashiyama (Japan) 14,000 197,047
St. John Knits Inc. 6,400 278,400
- -------------------------------------------------------------------------------
1,228,886
Transportation: 0.1%
- -------------------------------------------------------------------------------
Expeditores International of Washington Inc. 6,050 138,394
Yamato Transport (Japan) 11,000 113,980
- -------------------------------------------------------------------------------
252,374
Trucking Companies: 0.2%
- -------------------------------------------------------------------------------
Ryder System Inc. 23,060 648,563
- -------------------------------------------------------------------------------
Waste Management: 0.2%
- -------------------------------------------------------------------------------
WMX Technologies Inc. 21,670 706,984
- -------------------------------------------------------------------------------
Total Common Stock: 60.6%
(Cost $158,736,299) 191,643,142
- -------------------------------------------------------------------------------
Preferred Stocks:
- -------------------------------------------------------------------------------
Cablevision System Corp. * 2,500 233,750
Case Equipment Inc. 3,855 515,606
Chevy Chase Preferred Capital Corp. 2,390 124,579
Fresenius Medical Care Capital Trust * 100 101,750
K III Communications Corp. * 3,500 343,875
K III Communications Corp. * 2,000 202,500
Paxson Communications Corp. * 90 84,600
Time Warner Inc. * 500 542,500
- -------------------------------------------------------------------------------
Total Preferred Stocks: 0.7%
(Cost $2,069,291) 2,149,160
- -------------------------------------------------------------------------------
Par
Options Purchased: Amount
------
JGB Future call/ European
Put Expiring 1/20/97, strike price 128.25 * $12,000 1,200
- -------------------------------------------------------------------------------
Total Options Purchased: 0.0% 1,200
- -------------------------------------------------------------------------------
Maturity
Repurchase Agreement: Amount
--------
Shearson Lehman repurchase agreement,
dated 12/31/96, 6.75%, maturing 1/2/97
collateralized by U.S. Treasury Notes
8.875%, 2/15/19 $20,056,000 20,056,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement: 6.3%
(Cost $20,056,000) 20,056,000
- -------------------------------------------------------------------------------
Total Investments: 102.5%
(Cost $289,611,904) 324,043,517
- -------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Par Market
Amount Value
-------------------------
<S> <C> <C>
Securities Sold Short: (0.7)%
- --------------------------------------------------------------------------------
FNMA
6.5%, 1/1/99 $2,215,000 ($2,174,155)
- --------------------------------------------------------------------------------
Total Securities Sold Short: (0.7)%
(Proceeds $2,182,503) (2,174,155)
- --------------------------------------------------------------------------------
Other Assets Under Liabilities: (1.8%) (5,817,887)
- --------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to 14.226 per share
based on 22,217,145 shares
issued and outstatnding $316,051,475
================================================================================
Lincoln National Growth and Income
Fund Inc.
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
-------------------------
Aerospace: 2.3%
- --------------------------------------------------------------------------------
McDonnell Douglas Corp. 576,100 $36,870,400
United Technologies Corp. 314,600 20,763,600
- --------------------------------------------------------------------------------
Air Transportation: 1.5% 57,634,000
- --------------------------------------------------------------------------------
AMR Corp.* 215,100 18,955,687
Northwest Airlines Corp. 454,600 17,786,225
- --------------------------------------------------------------------------------
36,741,912
Banking and Insurance: 12.4%
- --------------------------------------------------------------------------------
Allstate Corp. 87,849 5,084,261
Bank of Boston Corp. 497,700 31,977,225
Bank of New York Inc. 1,005,000 33,918,750
Chase Manhattan Corp. 528,200 47,141,850
Cigna Corp. 273,700 37,394,262
Comerica Inc. 107,000 5,604,125
Equitable Cos. Inc. 215,800 5,314,075
First Chicago NBD Corp. 615,943 33,106,936
Marsh & McLennan Cos. Inc. 208,600 21,694,400
J.P. Morgan & Co. Inc. 70,600 6,892,325
NationsBank Corp. 238,100 23,274,275
Transamerica Corp. 114,800 9,069,200
Travelers Group Inc. 987,266 44,797,195
- --------------------------------------------------------------------------------
305,268,879
Broadcasting: 0.5%
- --------------------------------------------------------------------------------
King World Productions Inc.* 328,900 12,128,188
- --------------------------------------------------------------------------------
Building and Construction: 0.1%
- --------------------------------------------------------------------------------
Kaufman & Broad Home Corp. 138,500 1,783,188
- --------------------------------------------------------------------------------
Building Materials: 1.0%
- --------------------------------------------------------------------------------
Dover Corp. 465,400 23,386,350
- --------------------------------------------------------------------------------
Chemicals: 1.8%
- --------------------------------------------------------------------------------
Dow Chemical Co. 407,100 31,906,462
Olin Corp. 358,800 13,499,850
- --------------------------------------------------------------------------------
45,406,312
Consumer Products and Services: 6.7%
- --------------------------------------------------------------------------------
American Brands Inc. 153,500 7,617,437
Johnson & Johnson 533,800 26,556,550
Omnicom Group Inc. 232,800 10,650,600
Philip Morris Co. Inc. 652,000 73,431,500
Procter & Gamble Co. 320,700 34,475,250
Tommy Hilfiger Corp.* 234,800 11,270,400
- --------------------------------------------------------------------------------
164,001,737
Container: 0.3%
- --------------------------------------------------------------------------------
Stone Container Corp. 465,500 6,924,313
- --------------------------------------------------------------------------------
Drug and Hospital Supplies: 7.9%
- --------------------------------------------------------------------------------
Abbott Laboratories 242,900 12,327,175
Advanced Technology Laboratories Inc.* 271,000 8,299,375
Amgen Inc.* 619,600 33,729,475
Bristol-Myers Squibb Co. 510,000 55,462,500
Lincare Holdings Inc.* 340,800 14,058,000
Merck & Company Inc. 392,700 31,121,475
Schering-Plough Corp. 614,100 39,762,975
- --------------------------------------------------------------------------------
194,760,975
Electrical and Electronics: 7.4%
- --------------------------------------------------------------------------------
Ascend Communications Inc.* 423,400 26,303,725
Cooper Industries Inc. 369,100 15,548,337
General Electric Co. 605,700 59,888,587
Harris Corp. 306,300 21,019,837
Litton Industries Inc.* 70,500 3,357,563
Raychem Corp. 143,600 11,505,950
Tektronix Inc. 259,100 13,278,875
Tellabs Inc.* 806,800 30,406,275
- --------------------------------------------------------------------------------
181,309,149
Entertainment: 2.0%
- --------------------------------------------------------------------------------
Brunswick Corp. 299,700 7,192,800
Callaway Golf Co. 750,400 21,574,000
Mirage Resorts Inc.* 947,700 20,494,013
- --------------------------------------------------------------------------------
49,260,813
Financial Services: 1.2%
- --------------------------------------------------------------------------------
Student Loan Marketing Association 327,700 30,517,063
- --------------------------------------------------------------------------------
Food and Beverage: 6.8%
- --------------------------------------------------------------------------------
Boston Chicken Inc. 91,500 3,282,562
Campbell Soup Co. 70,300 5,641,575
Coca Cola Co. 659,400 34,700,925
ConAgra Inc. 331,900 16,512,025
CPC International Inc. 146,100 11,322,750
Heinz H.J. Co. 407,150 14,555,612
Hershey Foods Corp. 378,300 16,550,625
RJR Nabisco Holdings Corp. 893,020 30,362,680
Safeway Inc.* 719,500 30,758,625
Universal Foods Corp. 142,600 5,026,650
- --------------------------------------------------------------------------------
168,714,029
Hospital and Health Care: 0.9%
- --------------------------------------------------------------------------------
Allegiance Corp. 42,900 1,185,113
Oxford Health Plans Inc.* 300,000 17,568,750
Quorum Health Group Inc.* 132,600 3,928,275
- --------------------------------------------------------------------------------
22,682,138
Household Appliances: 0.0%
- --------------------------------------------------------------------------------
Maytag Corp. 34,700 685,325
- --------------------------------------------------------------------------------
Industrial: 0.3%
- --------------------------------------------------------------------------------
Johnson Controls Inc. 80,000 6,630,000
- --------------------------------------------------------------------------------
Machinery and Engineering: 1.8%
- --------------------------------------------------------------------------------
Caterpillar Inc. 472,900 35,585,725
Ingersoll-Rand Co. 209,700 9,331,650
- --------------------------------------------------------------------------------
44,917,375
Metals and Mining: 1.4%
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co. 413,200 9,658,550
Phelps Dodge Corp. 378,600 25,555,500
- --------------------------------------------------------------------------------
35,214,050
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Motor Vehicles and Equipment: 3.3%
- -------------------------------------------------------------------------------
BF Goodrich Co. 308,600 $12,498,300
Chrysler Corp. 1,205,600 39,784,800
Diebold Inc. 179,700 11,298,637
Ford Motor Co. 289,800 9,237,375
General Motors Corp. 168,900 9,416,175
- -------------------------------------------------------------------------------
82,235,287
Office and Business Equipment and Services: 7.9%
- -------------------------------------------------------------------------------
APAC Teleservices Inc.* 129,300 4,961,887
Cadence Design Systems Inc.* 769,375 30,582,656
Cisco Systems Inc.* 434,700 27,684,956
Compaq Computer Corp.* 130,600 9,697,050
Computer Associates International Inc. 142,950 7,111,762
Honeywell Inc. 519,900 34,183,425
Pairgain Technologies Inc.* 590,600 17,976,388
Parametric Technology Corp.* 40,800 2,098,650
Pitney Bowes Inc. 353,100 19,243,950
Reynolds & Reynolds Co. 418,400 10,878,400
Sun Microsystems Inc.* 1,177,400 30,244,463
- -------------------------------------------------------------------------------
194,663,587
Paper: 1.7%
- -------------------------------------------------------------------------------
Avery-Dennison Corp. 408,200 14,440,075
Bowater Inc. 546,800 20,573,350
Union Camp Corp. 151,600 7,238,900
- -------------------------------------------------------------------------------
42,252,325
Petroleum and Petroleum Related: 10.4%
- -------------------------------------------------------------------------------
Atlantic Richfield Co. 92,900 12,309,250
Exxon Corp. 522,900 51,244,200
Halliburton Co. 277,800 16,737,450
Occidental Petroleum Corp. 1,287,400 30,092,975
Oryx Energy Co.* 354,000 8,761,500
Royal Dutch Petroleum Co. 147,600 25,202,700
Seagull Energy Corp.* 234,300 5,154,600
Texaco Inc. 389,000 38,170,625
Unocal Corp. 870,700 35,372,188
USX Marathon Group Inc. 601,000 14,348,875
Williams Companies. Inc. 422,250 15,834,375
- -------------------------------------------------------------------------------
253,228,738
Printing and Publishing: 0.9%
- -------------------------------------------------------------------------------
Deluxe Corp. 145,900 4,778,225
Harcourt General Inc. 128,000 5,904,000
New York Times Co. 321,800 12,228,400
- -------------------------------------------------------------------------------
22,910,625
Public Utilities: 3.4%
- -------------------------------------------------------------------------------
Baltimore Gas & Electric Co. 150,900 4,036,575
Edison International 203,700 4,048,537
General Public Utilities Corp. 272,450 9,161,131
Long Island Lighting Co. 307,200 6,796,800
New York State Electric & Gas Corp. 331,300 7,164,363
Texas Utilities Co. 794,200 32,363,650
Unicom Corp. 740,300 20,080,638
- -------------------------------------------------------------------------------
83,651,694
Retail: 3.4%
- -------------------------------------------------------------------------------
Eckerd Corp.* 90,563 2,898,016
The Gap Inc. 854,200 25,732,775
Jostens Inc. 56,100 1,185,112
Ross Stores Inc. 333,900 16,653,263
Sears Roebuck & Co. 228,200 10,525,725
Staples Inc.* 581,800 10,508,762
TJX Cos. Inc. 336,700 15,951,163
- -------------------------------------------------------------------------------
83,454,816
Securities Dealers: 1.7%
- -------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. 847,455 23,622,808
Morgan Stanley Group Inc. 134,900 7,706,163
Paine Webber Group Inc. 367,900 10,347,188
- -------------------------------------------------------------------------------
41,676,159
Shoes: 0.9%
- -------------------------------------------------------------------------------
Nike Inc. 375,000 22,406,250
- -------------------------------------------------------------------------------
Soaps, Cleaner and Cosmetics: 1.2%
- -------------------------------------------------------------------------------
Clorox Co. 303,400 $30,453,775
- -------------------------------------------------------------------------------
Telecommunications: 6.9%
- -------------------------------------------------------------------------------
American Telephone & Telegraph Co. 345,200 15,016,200
Ameritech Corp. 626,900 38,005,812
Bell Atlantic Corp. 112,500 7,284,375
BellSouth Corp. 573,600 23,159,100
GTE Corp. 788,700 35,885,850
Nynex Corp. 279,700 13,460,563
Pacific Telesis Group 850,000 31,237,500
SBC Communications Inc. 135,800 7,027,650
- -------------------------------------------------------------------------------
171,077,050
Transportation: 0.3%
- -------------------------------------------------------------------------------
PHH Corp. 185,400 7,972,200
- -------------------------------------------------------------------------------
Total Common Stocks: 98.3%
(Cost $1,788,751,140) 2,423,948,302
- -------------------------------------------------------------------------------
Par
Amount
-----------
Money Market Instruments:
Corporate Asset Funding Co Inc.
5.48%, 1/3/97 $10,800,000 10,796,712
Daimler-Benz NA Corp.
5.33%, 2/10/97 8,800,000 8,747,884
Ford Motor Credit Co.
5.59%, 1/2/97 1,600,000 1,599,752
GE Capital Corp.
6.05%, 1/7/97 19,100,000 19,080,741
Merrill Lynch
5.95%, 1/9/97 14,500,000 14,480,828
5.43%, 1/13/97 6,400,000 6,388,416
5.43%, 1/15/97 7,000,000 6,985,218
5.39%, 2/3/97 5,500,000 5,473,027
Smith Barney
5.63%, 1/6/97 9,700,000 9,692,415
- -------------------------------------------------------------------------------
Total Money Market Instruments: 3.4%
(Cost $83,244,993) 83,244,993
- -------------------------------------------------------------------------------
Total Investments: 101.7%
(Cost $1,871,996,133) 2,507,193,295
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (1.7%) (41,969,793)
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $33.110 per share
based on 74,454,840 shares
issued and outstanding) $2,465,223,502
=============================================================================
Lincoln National International
Fund Inc.
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
--------------------------
Argentina: 0.6%
- -------------------------------------------------------------------------------
Argentinian Investment Co. 121,400 $2,661,088
- -------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Australia: 2.0%
- -------------------------------------------------------------------------------
Qbe Insurance Group 505,000 $2,661,275
Southcorp Holdings Ltd. 681,000 2,165,170
Woodside Petroleum Ltd. 565,000 4,127,136
- -------------------------------------------------------------------------------
8,953,581
Brazil: 2.7%
- -------------------------------------------------------------------------------
F&C Emerging Markets 110,900 4,686,634
Pan American Beverage 98,700 4,626,563
Telecomunicacoes Brasileras 33,400 2,555,100
- ----------------------------------------------------- ------------------------
11,868,297
Canada: 0.7%
- -------------------------------------------------------------------------------
Laidlaw Inc. 250,000 2,875,000
- -------------------------------------------------------------------------------
Chile: 0.7%
- -------------------------------------------------------------------------------
Genesis Chile Fund 83,500 3,058,188
- -------------------------------------------------------------------------------
China: 0.1%
- -------------------------------------------------------------------------------
China North Industries 562,000 221,990
- -------------------------------------------------------------------------------
Finland: 0.8%
- -------------------------------------------------------------------------------
Nokia A 60,800 3,526,400
- -------------------------------------------------------------------------------
France: 7.8%
- -------------------------------------------------------------------------------
Ass Gen De France 123,400 3,983,714
Bqe National Paris 101,100 3,912,668
Carrefour 3,300 2,147,210
Cie De St Gobain 28,100 3,975,214
Salomon S.A. 46,500 3,988,147
Sodexho 4,000 2,228,004
Strafor Facom 56,400 4,174,154
Technip 43,300 4,064,200
Total 50,000 4,066,686
Union Assur Federa 13,800 1,702,226
- -------------------------------------------------------------------------------
34,242,223
Germany: 8.7%
- -------------------------------------------------------------------------------
Adidas AG 40,000 3,457,239
Altana AG 5,560 4,328,620
Douglas Holding AG 92,300 3,628,899
Gehe AG 42,800 2,739,667
Hoechst AG 122,200 5,773,291
Mannesmann AG 11,800 5,114,765
SAP AG 26,500 3,702,560
SGL Carbon 38,300 4,828,568
Veba AG 82,300 4,760,008
- -------------------------------------------------------------------------------
38,333,617
Hong Kong: 8.2%
- -------------------------------------------------------------------------------
Amoy Properties 3,478,000 5,013,859
Cheung Kong Holdings 603,000 5,359,913
Dao Heng Bank Group 870,000 4,173,120
Goldlion Holdings Ltd. 2,011,000 1,651,025
Great Eagle Holdings 1,208,000 4,982,248
Peregrine Investment Holdings * 222,500 71,199
Peregrine Investment Holdings - warrants 2,225,000 3,811,656
Regal Hotels International 10,000,000 3,490,853
Swire Pacific 415,000 3,957,108
Wheelock & Co. 1,281,000 3,651,956
- -------------------------------------------------------------------------------
36,162,937
India: 0.6%
- -------------------------------------------------------------------------------
India Magnum Fund * 69,385 2,775,400
- -------------------------------------------------------------------------------
Ireland: 1.8%
- -------------------------------------------------------------------------------
Elan Corp. plc * 136,000 4,522,000
Waterford Wedgewood 2,580,000 3,322,827
- -------------------------------------------------------------------------------
7,844,827
Italy: 3.5%
- -------------------------------------------------------------------------------
Banca Fideuram Spa 1,500,000 $3,297,627
Eni Spa (Italy) 874,800 4,489,333
Fila Holdings Spa Adr 50,600 2,941,125
Telecom Italia Mobile 1,853,000 4,684,413
- -------------------------------------------------------------------------------
15,412,498
Japan: 23.1%
- -------------------------------------------------------------------------------
Amway Japan Ltd. 91,200 2,929,488
Asahi Bank 321,000 2,854,935
Bank of Tokyo Mits 129,150 2,397,656
Bridgestone Corp. 216,000 4,103,272
Canon Inc. 202,000 4,465,245
Daiwa Securities 350,000 3,112,857
DDI Corp. 401 2,652,327
Eisai Co. 180,000 3,543,735
Honda Motor Co. 191,000 5,459,028
Ishikawajima Har 759,000 3,375,227
Keyence Corp. 23,800 2,938,779
Kinden Corp. 900 11,424
Meitec Corp. 88,900 1,696,477
Mitsubishi Estate 251,000 2,579,138
Mitsubishi Trust & Banking 231,000 3,091,702
Mycal Corp. 166,000 2,408,082
Nichiei Co. 50,900 3,757,836
Nintendo Co. 77,900 5,576,297
Nippon Telephone & Telegraph CP 451 3,419,204
Nippon TV Network 8,100 2,447,975
Rohm Co. 60,000 3,937,484
Sekisui Chemical 333,000 3,364,217
Seven Eleven Japan 28,700 1,680,218
Sharp Corp. 234,000 3,333,909
Shin Etsu Chemical Co. 350 6,377
Shiseido Co. 287,000 3,320,784
Sho-Bond Corp. 86,900 2,341,145
SMC Corp. 27,400 1,843,071
Sony Corp. 56,400 3,696,365
Taiyo Yuden Co. 291,000 4,070,633
TDK Corp. 56,000 3,650,807
Toda Corp. 406,000 3,085,053
Yamatake Honeywell 289,000 4,666,523
- -------------------------------------------------------------------------------
101,817,270
Malaysia: 3.8%
- -------------------------------------------------------------------------------
HICOM Holdings Bhd 1,000,000 2,870,718
Hong Leong Credit 515,000 3,242,328
Ioi Corp. 1,277,000 1,961,893
Malaysian Resources Corp. 833,000 3,281,865
Multi Purpose Holding 1,375,000 2,667,789
Ytl Corp. 496,000 2,670,996
- -------------------------------------------------------------------------------
16,695,589
Netherlands: 4.6%
- -------------------------------------------------------------------------------
Gist Brocades NV 121,200 3,783,771
Gucci Group N V 49,600 3,168,200
Ing Groep NV 94,600 3,408,121
Kon Ahrend NV 40,400 2,253,414
Oce V/D Grinten NV 30,000 3,259,774
Polygram NV 25,900 1,320,127
Wolters Kluwer NV 23,400 3,110,513
- -------------------------------------------------------------------------------
20,303,920
New Zealand: 1.5%
- -------------------------------------------------------------------------------
Fletcher Challenge 971,000 2,986,108
Telecom Corp. of New Zealand 691,000 3,527,056
- -------------------------------------------------------------------------------
6,513,164
Norway: 1.1%
- -------------------------------------------------------------------------------
Orkla Asa 70,000 4,834,629
- -------------------------------------------------------------------------------
Portugal: 1.0%
- -------------------------------------------------------------------------------
Portugal Telecom S.A. 160,000 4,520,000
- -------------------------------------------------------------------------------
Singapore: 0.8%
- -------------------------------------------------------------------------------
Overseas Chinese Banking Corp. 268,500 3,338,741
- -------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
South Africa: 0.8%
- -------------------------------------------------------------------------------
De Beers - Centenary 120,000 $3,436,999
- -------------------------------------------------------------------------------
South Korea: 0.8%
- -------------------------------------------------------------------------------
Korea International Investment Fund III * 14,901 1,324,997
Korea International Investment Fund IV * 31,550 2,211,971
- -------------------------------------------------------------------------------
3,536,968
Spain: 2.4%
- -------------------------------------------------------------------------------
Aguas De Barcelona 88,002 3,660,395
Aguas De Barcelona, New * 1,257 52,284
Repsol S.A. 70,000 2,685,153
Telefonica De Espana S.A. 171,000 3,971,231
- -------------------------------------------------------------------------------
10,369,063
Sweden: 2.9%
- -------------------------------------------------------------------------------
Ericsson (LM) Tel 156,400 4,838,839
Pharmacia & Upjohn 86,800 3,557,325
Skandia Foersaekrings 149,800 4,239,270
- -------------------------------------------------------------------------------
12,635,434
Switzerland: 6.0%
- -------------------------------------------------------------------------------
ABB AG 3,290 4,092,528
Ares Serono S.A. 3,780 3,606,321
CS Holding 37,100 3,811,169
Elektrowatt AG 10,500 4,181,173
Novartis AG * 3,000 3,435,936
Roche Holdings AG 490 3,812,738
SCHW Ruckversicher 3,440 3,672,589
- -------------------------------------------------------------------------------
26,612,454
Taiwan: 0.4%
- -------------------------------------------------------------------------------
R O C Taiwan Fund * 189,800 1,945,450
- -------------------------------------------------------------------------------
UK: 10.0%
- -------------------------------------------------------------------------------
Barclays plc 253,000 4,336,586
British Petroleum 443,800 5,322,255
Cable & Wireless 516,400 4,317,341
Corporate Services Group 530,000 1,566,301
Electra Investment Trust 410,000 2,992,291
Electrocomponents 720,600 5,691,221
Misys plc - (England) 216,200 4,115,097
Rentokil Group 577,200 4,351,002
Reuters Holdings 245,800 3,160,406
Sema Group 150,000 2,801,096
Siam Fund * 32,000 1,343,040
Standard Chartered Bank 344,000 4,225,595
- -------------------------------------------------------------------------------
44,222,231
Total Common Stocks: 97.4%
(Cost $376,659,287) 428,717,958
- -------------------------------------------------------------------------------
Maturity
Repurchase Agreement: Amount
-----------
Shearson Lehman repurchase agreement,
dated 12/31/96, 4.75%, maturing 01/02/97
collateralized by U.S. Treasury Notes
5.625%, 02/15/06 $10,185,000 10,185,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement: 2.3%
(Cost $10,185,000) 10,185,000
- -------------------------------------------------------------------------------
Total Investments: 99.7%
(Cost $386,844,287) 438,902,958
- -------------------------------------------------------------------------------
Other Assets Over Liabilities: 0.3% 1,471,704
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $14.556 per share based
on 30,254,331 shares issued and
outstanding) $440,374,662
===============================================================================
Lincoln National Managed Fund, Inc.
Statement of Net Assets
December 31, 1996
Investments:
Par Market
Long-Term Debt Investments: Amount Value
-----------------------
U.S. Government and Agency Obligations: 20.8%
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
6.3%, 4/8/99 $9,320,000 $9,281,974
6.4269%, 10/15/06 2,000,000 1,968,125
7.3%, 12/1/12 2,973,720 3,001,598
8.5%, 1/1/17 972,078 1,014,302
FNMA
7.6%, 7/25/05 990,496 999,494
6.73%, 8/1/05 2,124,183 2,118,209
7.175%, 10/1/05 3,962,650 4,061,716
6.655%, 11/1/05 990,423 985,780
6.66%, 12/1/05 1,981,599 1,972,311
7.043%, 7/1/06 2,490,109 2,503,338
7.15%, 10/1/15 2,922,052 2,882,787
7.5%, 5/25/20 4,000,000 4,008,862
7.0%, 10/1/25 2,831,652 2,775,019
FNMA Strips
0.0%, 8/7/01 7,000,000 5,253,849
0.0%, 4/12/06 6,000,000 5,119,500
0.0%, 7/24/06 11,500,000 6,153,649
0.0%, 7/5/14 2,500,000 738,175
GNMA
6.5%, 12/15/23 1,271,857 1,221,380
U.S. Treasury Bonds
13.25%, 5/15/14 20,800,000 32,295,536
6.0%, 2/15/26 3,925,000 3,574,733
U.S. Treasury Notes
5.375%, 5/31/98 2,000,000 1,989,840
6.5%, 8/31/01 15,250,000 15,424,916
6.125%, 12/31/01 30,000,000 29,891,697
U.S. Treasury Strip
0.0%, 5/15/18 4,700,000 1,096,039
- -------------------------------------------------------------------------------
140,332,829
Collateralized Mortgage Obligations: 0.0%
- -------------------------------------------------------------------------------
Mid State Trust III
7.625%, 4/1/22 263,029 267,732
- -------------------------------------------------------------------------------
Air Transportation: 0.8%
- -------------------------------------------------------------------------------
American Airlines Equipment Trust
10.18%, 1/2/13 1,500,000 1,811,770
Federal Express Corp.
7.96%, 3/28/17 2,000,000 2,022,500
United Airline Inc. Equipment Trust
9.35%, 4/7/16 1,500,000 1,678,042
- -------------------------------------------------------------------------------
5,512,312
Banking and Insurance: 4.8%
- -------------------------------------------------------------------------------
Ahmanson H F & Co.
8.25%, 10/1/02 2,000,000 2,150,000
Banc One Corp.
9.875%, 3/1/09 500,000 610,625
Barnett Banks Inc.
6.9%, 9/1/05 1,500,000 1,483,125
Barnett Capital Trust Inc.
8.06%, 12/1/26 1,900,000 1,916,625
Citicorp
6.33%, 1/5/06 1,600,000 1,524,000
First America Bank Corp.
7.75% Subordinated Note, 7/15/04 2,000,000 2,090,000
First Union Corp.
8.0%, 8/15/09 2,000,000 2,130,000
First USA Bank
5.75%, 1/15/99 2,000,000 1,972,500
Fleet Financial Group Inc.
7.25%, 9/1/99 1,000,000 1,020,000
Mellon Capital Corp.
7.72%, 12/1/26 1,500,000 1,471,875
</TABLE>
33
<PAGE>
Par Market
Amount Value
-----------------------------
National Westminster Bank plc
9.45% Debentures, 5/1/01 $500,000 $550,000
NationsBank Corp.
8.125% Subordinated Debenture, 6/15/02 1,000,000 1,070,000
Royal Bank Scotland Group
6.0%, 12/29/49 1,500,000 1,311,600
Societe Generale (France)
7.4%, 6/1/06 1,500,000 1,530,000
Southtrust Bank Birmingham Alabama
7.69%, 5/15/25 2,750,000 2,890,937
Standard Chartered Bank
5.9%, 12/29/49 1,500,000 1,250,190
Travelers Group Inc.
8.625%, 2/1/07 3,000,000 3,330,000
Union Bank Switzerland
7.25%, 7/15/06 2,250,000 2,300,625
Wachovia Capital Trust
7.64%, 1/15/27 1,900,000 1,878,625
- --------------------------------------------------------------------------------
32,480,727
Broadcasting: 0.1%
- --------------------------------------------------------------------------------
Viacom Inc.
8.75%, 5/15/01 500,000 502,500
- --------------------------------------------------------------------------------
Consumer Products and Services: 0.2%
- --------------------------------------------------------------------------------
Service Corp. International
7.0%, 6/1/15 1,000,000 1,007,500
- --------------------------------------------------------------------------------
Electrical and Electronics: 0.1%
- --------------------------------------------------------------------------------
Litton Industries Inc.
6.98% Senior Debenture, 3/15/36 1,000,000 997,500
- --------------------------------------------------------------------------------
Entertainment: 0.3%
- --------------------------------------------------------------------------------
Time Warner Inc.
8.875%, 10/1/12 500,000 543,125
9.125%, 1/15/13 1,500,000 1,618,125
- --------------------------------------------------------------------------------
2,161,250
Finance: 3.7%
- --------------------------------------------------------------------------------
Aristar Finance
7.5% Senior Subordinated Note, 7/1/99 1,500,000 1,535,625
Avco Financial Services Inc.
7.25%, 7/15/99 1,000,000 1,023,750
Chrysler Financial Corp.
9.5%, 12/15/99 1,500,000 1,625,625
CIT Group Holdings Inc.
5.875%, 10/15/08 1,500,000 1,374,375
Dow Capital B V
9.0%, 5/15/10 3,000,000 3,416,250
Ford Motor Credit Co.
7.95% Med. Term Note, 5/17/99 2,000,000 2,070,000
GE Capital Corp.
8.3%, 9/20/09 3,000,000 3,371,250
General Motors Acceptance Corp.
7.875% Med. Term Note, 3/7/01 1,500,000 1,567,500
8.875% Debenture, 6/1/10 1,500,000 1,738,125
Household Finance Corp.
9.625% Senior Subordinated Note, 7/15/00 875,000 960,312
International Lease Finance Co.
8.25%, 1/15/00 2,000,000 2,097,500
Salomon Inc.
7.25%, 1/15/00 1,000,000 1,013,750
Student Loan Marketing Association - Global
6.161%, 12/2/99 3,500,000 3,479,630
- --------------------------------------------------------------------------------
25,273,692
Financial Services: 0.2%
- --------------------------------------------------------------------------------
Finova Capital Corp.
6.12% Med. Term Note, 5/28/02 1,000,000 980,000
Speigel Charge Account Trust 2
6.95%, 2/15/01 500,000 502,156
- --------------------------------------------------------------------------------
1,482,156
Food and Beverage: 0.1%
- --------------------------------------------------------------------------------
Nabisco Inc.
7.55%, 6/15/15 750,000 739,687
- --------------------------------------------------------------------------------
Foreign Government: 1.0%
- --------------------------------------------------------------------------------
Hydro-Quebec
7.2% Med. Term Note, 10/5/09 3,000,000 3,354,390
Manitoba (Province of)
7.75%, 7/17/16 1,500,000 1,603,125
United Mexican States
7.5625%, 8/6/01 1,250,000 1,253,125
- --------------------------------------------------------------------------------
6,210,640
Hospital and Health Care: 0.2%
- --------------------------------------------------------------------------------
Allegiance Corp.
7.3%, 10/15/06 1,000,000 1,008,750
- --------------------------------------------------------------------------------
Industrial: 0.7%
- --------------------------------------------------------------------------------
General American Transportation
7.5%, 2/28/15 1,500,000 1,516,875
Philips Electronics NV
7.0%, 6/7/01 3,300,000 3,337,125
- --------------------------------------------------------------------------------
4,854,000
Machinery and Engineering: 0.3%
- --------------------------------------------------------------------------------
John Deere Capital
8.625%, 8/1/19 2,000,000 2,192,500
- --------------------------------------------------------------------------------
Metals and Mining: 1.2%
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co.
7.375%, 5/15/07 2,500,000 2,528,125
Inco Ltd.
9.6% Debenture, 6/15/22 1,300,000 1,434,875
Newmont Gold Co.
8.91%, 1/5/09 724,132 781,157
Noranda Inc.
8.125%, 6/15/04 2,000,000 2,115,000
Placer Dome Inc.
7.37% Med. Term Note, 6/3/26 1,000,000 1,025,000
- --------------------------------------------------------------------------------
7,884,157
Motor Vehicles and Equipment: 0.2%
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber
6.625%, 12/1/06 1,250,000 1,212,500
- --------------------------------------------------------------------------------
Miscellaneous: 0.4%
- --------------------------------------------------------------------------------
Duquesne II Funding Corp.
8.7%, 6/1/16 2,475,000 2,574,000
- --------------------------------------------------------------------------------
Paper: 0.6%
- --------------------------------------------------------------------------------
Champion International Corp.
7.7%, 12/15/99 1,500,000 1,552,500
Westvaco Corp.
8.3%, 8/1/22 2,500,000 2,618,750
- --------------------------------------------------------------------------------
4,171,250
Petroleum and Petroleum Related: 0.5%
- --------------------------------------------------------------------------------
Enron Corp.
9.5%, 6/15/01 1,000,000 1,108,750
Noble Affiliates Inc.
7.25%, 10/15/23 600,000 566,250
Petro Canada - Debentures
8.6%, 10/15/01 1,500,000 1,606,875
- --------------------------------------------------------------------------------
3,281,875
Public Utilities: 4.6%
- --------------------------------------------------------------------------------
Baltimore Gas & Electric Co.
8.92% Med. Term Note, 7/16/98 1,000,000 1,041,250
Central Maine Power Co.
6.5%, 7/22/97 1,500,000 1,505,625
34
<PAGE>
Par Market
Amount Value
-----------------------------
Commonwealth Edison Co.
9.375%, 2/15/00 $500,000 $537,500
Detroit Edison Co.
6.56%, 5/1/01 2,000,000 1,982,500
Great Lakes Power Inc.
9.0%, 8/1/04 1,500,000 1,618,125
MidAmerican Energy
6.5%, 12/15/01 1,250,000 1,240,625
National Power plc
7.125%, 7/11/01 1,750,000 1,789,375
National Rural Utilities Cooperative Finance Corp.
8.5%, 2/15/98 1,000,000 1,026,250
Nevada Power Co.
7.06%, 5/1/00 1,500,000 1,518,750
Old Dominion Electric Co-op SE
7.48%, 12/1/13 1,500,000 1,528,125
Pacific Gas & Electric Co.
6.25%, 8/1/03 2,000,000 1,950,000
Pacificorp
9.15% Med. Term Note, 8/9/11 1,500,000 1,766,250
Pennsylvania Power & Light
7.7%, 10/1/09 3,000,000 3,153,750
PSI Energy Inc.
8.57%, 12/27/11 500,000 564,375
Public Service Co. of Colorado
6.38%, 11/1/05 1,500,000 1,441,875
South Carolina Electric
9.0%, 7/15/06 2,500,000 2,828,125
Texas Gas Transmission Corp.
8.625%, 4/1/04 2,000,000 2,185,000
Texas Utilities Co.
7.375%, 8/1/01 1,500,000 1,535,625
Utilicorp United Inc.
10.5%, 12/1/20 1,000,000 1,141,250
Washington Water & Power Co.
8.01%, 12/17/01 1,000,000 1,052,500
- --------------------------------------------------------------------------------
31,406,875
Railroads: 0.3%
- --------------------------------------------------------------------------------
Burlington Northern Railroad
6.94%, 1/2/14 500,000 496,781
Chicago & Northwestern Holdings
6.25%, 7/30/12 1,419,193 1,348,233
- --------------------------------------------------------------------------------
1,845,014
Restaurant: 0.2%
- --------------------------------------------------------------------------------
Darden Restaurants
6.375%, 2/1/06 1,500,000 1,406,250
- --------------------------------------------------------------------------------
Retail: 0.5%
- --------------------------------------------------------------------------------
Dayton Hudson Corp.
10.0%, 1/1/11 500,000 610,625
Sears Roebuck & Co.
9.05%, 2/6/12 2,500,000 2,884,375
- --------------------------------------------------------------------------------
3,495,000
Securities Dealers: 0.8%
- --------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.
8.875% Senior Note, 3/1/02 1,000,000 1,082,500
Paine Webber Group Inc.
6.75%, 2/1/06 1,500,000 1,441,875
Smith Barney Holdings
7.875%, 10/1/99 3,000,000 3,112,500
- --------------------------------------------------------------------------------
5,636,875
Telecommunications: 1.1%
- --------------------------------------------------------------------------------
GTE Hawaiian Telephone Co. Inc.
7.0% Senior Debenture, 2/1/06 2,000,000 1,997,500
Nynex Capital Funding
7.63%, 10/15/09 3,000,000 3,256,290
Southwestern Bell Capital
7.13%, 6/1/05 2,000,000 2,022,500
- --------------------------------------------------------------------------------
7,276,290
Total Long-Term Debt Investments: 43.7%
(Cost $290,117,350) 295,213,861
- --------------------------------------------------------------------------------
Number Market
Common Stocks: of Shares Value
-----------------------------
Air Transportation: 1.0%
- --------------------------------------------------------------------------------
American West Airlines Corp. B * 31,100 $493,712
AMR Corp. * 22,800 2,009,250
Comair Holdings Inc. 25,000 604,687
Continental Airlines Holdings Inc. * 23,500 663,875
Northwest Airlines Corp. * 81,300 3,180,863
- --------------------------------------------------------------------------------
6,952,387
Aerospace: 1.3%
- --------------------------------------------------------------------------------
McDonnell Douglas Corp. 83,200 5,324,800
United Technologies 50,800 3,352,800
- --------------------------------------------------------------------------------
8,677,600
Banking and Insurance: 6.6%
- --------------------------------------------------------------------------------
Allstate Corp. 11,310 654,566
American Bankers Insurance Group Inc. 12,400 632,400
AmSouth Bancorporation 36,000 1,741,500
Bank of Boston Corp. 72,500 4,658,125
Bank of New York Inc. 18,800 634,500
BankAmerica Corp. 12,500 1,246,875
Cigna Corp. 39,400 5,383,025
Chase Manhattan Corp. 78,100 6,970,425
Deposit Guaranty Corp. 23,400 725,400
Equitable Cos. Inc. 29,300 721,512
First Chicago NBD Corp. 96,835 5,204,881
Fremont General Corp. 17,500 542,500
Marsh & McLennan Cos. Inc. 34,900 3,629,600
J.P. Morgan & Co. Inc. 8,200 800,525
NationsBank Corp. 39,700 3,880,675
Onebancorp Inc. 18,900 704,025
Peoples Heritage Financial Group Inc. 7,000 195,125
Provident Bancorp 14,325 483,469
Travelers Group Inc. 132,733 6,022,760
- --------------------------------------------------------------------------------
44,831,888
Building and Construction: 0.1%
- --------------------------------------------------------------------------------
U.S. Home Corp. * 22,300 579,800
- --------------------------------------------------------------------------------
Building Materials: 0.5%
- --------------------------------------------------------------------------------
Dover Corp. 64,900 3,261,225
- --------------------------------------------------------------------------------
Broadcasting: 0.5%
- --------------------------------------------------------------------------------
HBO & Co. 27,000 1,603,125
King World Productions * 56,700 2,090,813
- --------------------------------------------------------------------------------
3,693,938
Chemicals: 1.2%
- --------------------------------------------------------------------------------
Bio Rad Laboratories Inc. * 21,000 630,000
Dow Chemical Co. 66,000 5,172,750
International Specialty Products * 57,400 703,150
Learonal Inc. 27,100 623,300
Olin Corp. 24,200 910,525
- --------------------------------------------------------------------------------
8,039,725
Coal and Gas: 0.3%
- --------------------------------------------------------------------------------
Northwest Natural Gas Co. 26,400 636,900
Washington Gas Light Co. 35,300 798,663
Zeigler Coal Holding Co. 31,600 675,450
- --------------------------------------------------------------------------------
2,111,013
Construction: 0.1%
- --------------------------------------------------------------------------------
Centex Construction Products 39,000 702,000
- --------------------------------------------------------------------------------
Consumer Products and Services: 3.5%
- --------------------------------------------------------------------------------
American Brands Inc. 17,800 883,325
CDW Computer Centers Inc. * 9,550 566,434
Hughes Supply Inc. 13,900 599,438
Johnson & Johnson 73,400 3,651,650
Magna Group Inc. 22,200 654,900
Nash Finch Co. 35,100 754,650
Philip Morris Co. Inc. 89,000 10,023,625
35
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
---------------------
<S> <C> <C>
Procter & Gamble Co. 57,400 $6,170,500
Russ Berrie & Co. Inc. 31,900 574,200
Tommy Hilfiger Corp. * 1,000 48,000
- -------------------------------------------------------------------------------
23,926,722
Container: 0.2%
- -------------------------------------------------------------------------------
Stone Container Corp. 85,400 1,270,325
- -------------------------------------------------------------------------------
Drug and Hospital Supplies: 4.3%
- -------------------------------------------------------------------------------
Abbott Laboratories 29,600 1,502,200
Adac Laboratories 26,400 631,950
Amgen Inc. * 80,900 4,403,994
Bristol-Myers Squibb Co. 71,800 7,808,250
Dura Pharmaceuticals Inc. * 14,200 678,050
Lincare Holdings Inc. * 47,400 1,955,250
Merck & Co. Inc. 61,600 4,881,800
Schering-Plough Corp. 82,200 5,322,450
Sequus Pharmaceuticals Inc. * 37,900 604,031
Somatgen Inc. * 40,300 440,781
Sybron International Corp. * 19,500 643,500
- -------------------------------------------------------------------------------
28,872,256
Electrical and Electronics: 3.9%
- -------------------------------------------------------------------------------
Alliant Techsystems Inc. * 10,600 583,000
Ascend Communications Inc. * 24,600 1,528,275
CDI Corp. * 19,000 539,125
Chips & Technologies Inc. * 31,000 561,875
Cooper Industries Inc. 35,900 1,512,287
Dynatech Corp. * 14,700 648,637
Eltron International Inc. * 23,400 476,775
General Electric Co. 92,100 9,106,388
Harris Corp. 44,600 3,060,675
Jabil Circuit Inc. * 15,300 612,956
Litton Industries Inc. * 25,800 1,228,725
Raychem Corp. 14,800 1,185,850
Rexel Inc. * 43,600 692,150
Tektronix Inc. 65,300 3,346,625
Tellabs Inc. * 5,300 199,744
Ucar International Inc. 22,000 827,750
- -------------------------------------------------------------------------------
26,110,837
Entertainment: 1.1%
- -------------------------------------------------------------------------------
Brunswick Corp. 16,200 388,800
Callaway Golf Co. 112,600 3,237,250
K2 25,200 693,000
Mirage Resorts * 128,300 2,774,488
- -------------------------------------------------------------------------------
7,093,538
Farm Supplies: 0.1%
- -------------------------------------------------------------------------------
Dekalb Genetics Corp. - Class B 12,000 610,500
- -------------------------------------------------------------------------------
Finance: 0.1%
- -------------------------------------------------------------------------------
One Valley Bancorp West Virginia Inc. 18,250 683,234
- -------------------------------------------------------------------------------
Financial Services: 0.7%
- -------------------------------------------------------------------------------
Olympic Financial Ltd. * 44,600 641,125
Student Loan Marketing Association 41,300 3,846,063
- -------------------------------------------------------------------------------
4,487,188
Food and Beverage: 3.7%
- -------------------------------------------------------------------------------
Boston Chicken 11,900 426,912
Campbell Soup Co. 23,800 1,909,950
Chiquita Brands International Inc. 44,400 566,100
Coca-Cola Co. 81,200 4,273,150
ConAgra Inc. 66,900 3,328,275
CPC International Inc. 8,000 620,000
Heinz H.J. Co. 72,050 2,575,788
Hershey Foods Corp. 55,700 2,436,875
Hudson Foods Inc. 35,800 680,200
RJR Nabisco Holdings Corp. 102,580 3,487,720
Safeway Inc. * 99,700 4,262,175
Smithfield Foods Inc. * 18,300 693,113
- -------------------------------------------------------------------------------
25,260,258
Health and Personal Care: 0.5%
- -------------------------------------------------------------------------------
Hebalife International 20,000 $651,250
Oxford Health Plans * 38,100 2,231,231
Rotech Medical Corp. * 31,600 659,650
- -------------------------------------------------------------------------------
3,542,131
Hospital and Health Care: 0.4%
- -------------------------------------------------------------------------------
Allegiance 6,540 180,667
HealthSouth Rehabilitation Corp. * 39,700 1,533,413
Quorum Health Group * 18,500 548,063
Universal Health Services Inc. * 22,000 629,750
- -------------------------------------------------------------------------------
2,891,893
Household Appliances: 0.1%
- -------------------------------------------------------------------------------
Maytag Corp. 47,200 932,200
- -------------------------------------------------------------------------------
Industrial: 0.8%
- -------------------------------------------------------------------------------
GenCorp Inc. 39,600 717,750
Johnson Controls Inc. 50,600 4,193,475
Stanley Works 22,400 604,800
- -------------------------------------------------------------------------------
5,516,025
Machinery and Engineering: 1.2%
- -------------------------------------------------------------------------------
Caterpillar Inc. 57,500 4,326,875
Energy Ventures Inc. * 12,500 635,937
Graco Inc. 25,600 627,200
Ingersoll-Rand Co. 20,300 903,350
Lindsay Manufacturing Co. 14,700 678,038
Valmont Industries 17,700 725,700
- -------------------------------------------------------------------------------
7,897,100
Metals And Mining: 1.1%
- -------------------------------------------------------------------------------
Asarco Inc. 66,200 1,646,725
Chaparral Steel Co. 40,100 486,212
Cyprus Amax Minerals Co. 15,600 364,650
Phelps Dodge Corp. 50,000 3,375,000
Texas Industries Inc. 9,300 470,813
Tredegar Industries Inc. 14,800 593,850
WHX Corp. * 62,400 553,800
- -------------------------------------------------------------------------------
7,491,050
Miscellaneous: 0.5%
- -------------------------------------------------------------------------------
Figgie International * 53,800 642,237
Louis Dreyfus Natural Gas Corp. * 34,500 590,813
Plantronics Inc.* 14,000 630,000
Personnel Group of America Inc. * 29,000 699,625
Westpoint Stevens Inc. * 22,100 657,475
- -------------------------------------------------------------------------------
3,220,150
Motor Vehicles and Equipment: 2.3%
- -------------------------------------------------------------------------------
BF Goodrich Co. 53,000 2,146,500
Diebold Inc. 56,900 3,577,587
Champion Enterprises Inc. * 28,400 553,800
Chrysler Corp. 172,600 5,695,800
Ford Motor Co. 18,700 596,062
General Motors Corp. 32,300 1,800,725
Simpson Industries Inc. 55,800 613,800
Wynn's International Inc. 22,650 716,306
- -------------------------------------------------------------------------------
15,700,580
Office and Business Equipment and Services: 3.9%
- -------------------------------------------------------------------------------
Cadence Design Systems Inc. * 69,225 2,751,694
Cisco Systems Inc. * 55,200 3,515,550
Compaq Computer Corp. * 11,900 883,575
Computer Associates International Inc. 27,225 1,354,444
Gateway 2000 Inc. * 10,500 562,406
Honeywell Inc. 59,400 3,905,550
Hunt Manufacturing 36,800 667,000
Medic Computer Systems Inc. * 15,200 612,750
Moore Corp. Ltd. 16,600 338,225
Pairgain Technologies Inc. * 62,400 1,899,300
Pitney Bowes Inc. 55,300 3,013,850
Rational Software Corp. * 16,100 636,956
Robert Half International Inc. * 18,700 642,813
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
---------------------
<S> <C> <C>
Smart Modular Technologies * 24,200 $603,488
Sun Microsystems Inc. * 151,400 3,889,088
Vanstar Corp. * 25,600 627,200
Xircom Inc. * 29,800 651,875
- -------------------------------------------------------------------------------
26,555,764
Paper: 1.0%
- -------------------------------------------------------------------------------
Avery-Dennison Corp. 132,800 4,697,800
Bowater Inc. 35,000 1,316,875
Republic Group 33,900 529,688
- -------------------------------------------------------------------------------
6,544,363
Petroleum and Petroleum Related: 5.3%
- -------------------------------------------------------------------------------
Atlantic Richfield Co. 32,500 4,306,250
Exxon Corp. 64,700 6,340,600
Halliburton Co. 38,800 2,337,700
Mesa Inc. * 134,600 706,650
Mitchell Energy & Development Corp. 28,900 639,413
Nabors Industries Inc. * 33,900 652,575
Occidental Petroleum Corp. 132,500 3,097,188
Oryx Energy Co. * 48,000 1,188,000
Parker & Parsley Petroleum Co. 18,600 683,550
Royal Dutch Petroleum Co. 19,000 3,244,250
Texaco Inc. 59,100 5,799,188
USX Marathon Group Inc. 69,200 1,652,150
Unocal Corp. 123,700 5,025,313
- -------------------------------------------------------------------------------
35,672,827
Photography: 0.2%
- -------------------------------------------------------------------------------
Foamex International Inc. * 35,900 590,106
LCI International Inc. * 20,000 430,000
- -------------------------------------------------------------------------------
1,020,106
Plastics: 0.1%
- -------------------------------------------------------------------------------
Safeskin Corp. * 12,700 622,300
- -------------------------------------------------------------------------------
Printing and Publishing: 0.5%
- -------------------------------------------------------------------------------
American Business Products Inc. 29,000 728,625
Bowne & Co. Inc. 29,100 716,587
New York Times Co. 36,300 1,379,400
Pulitzer Publishing Co. 13,066 605,936
- -------------------------------------------------------------------------------
3,430,548
Public Utilities: 2.2%
- -------------------------------------------------------------------------------
Black Hills Corp. 25,300 711,562
Edison International 142,100 2,824,237
General Public Utilities Corp. 40,200 1,351,725
Green Mountain Power Corp. 25,600 611,200
Laclede Gas Co. 24,200 583,825
Northwestern Public Service Co. 17,500 599,375
Ohio Edison Co. 24,200 550,550
Southern California Water Co. 28,900 628,575
Texas Utilities Co. 101,700 4,144,275
TNP Enterprises Inc. 24,800 678,900
Unicom Corp. 86,400 2,343,600
- -------------------------------------------------------------------------------
15,027,824
Restaurant: 0.2%
- -------------------------------------------------------------------------------
CKE Restaurants 20,500 738,000
Showbiz Pizza Time Inc. * 35,000 645,313
- -------------------------------------------------------------------------------
1,383,313
Retail: 2.7%
- -------------------------------------------------------------------------------
Claire's Stores Inc. 43,450 564,850
CompUSA Inc. * 29,600 610,500
Eckerd Corp. * 17,201 550,432
Fabri-Centers of America * 39,800 641,775
Family Dollar Stores 48,100 980,037
Filene's Basement Corp. * 117,000 482,625
The Gap Inc. 98,600 2,970,325
Jostens Inc. 129,500 2,735,688
Just For Feet Inc. * 23,350 611,478
Microage Inc. * 30,500 $608,094
Sears Roebuck & Co. 52,900 2,440,013
Staples Inc. * 75,200 1,358,300
TJX Cos. Inc. 60,200 2,851,975
Value City Department Stores Inc. * 53,300 559,650
Zale Corp. * 28,800 550,800
- -------------------------------------------------------------------------------
18,516,542
Securities Dealers: 0.9%
- -------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. 125,685 3,503,469
Morgan Stanley Group Inc. 25,400 1,450,975
Paine Webber Group Inc. 49,800 1,400,625
- -------------------------------------------------------------------------------
6,355,069
Shoes: 0.5%
- -------------------------------------------------------------------------------
Nike Inc. 56,600 3,381,850
- -------------------------------------------------------------------------------
Soaps, Cleaner and Cosmetics: 0.5%
- -------------------------------------------------------------------------------
Clorox Co. 31,400 3,151,775
- -------------------------------------------------------------------------------
Telecommunications: 3.8%
- -------------------------------------------------------------------------------
American Telephone & Telegraph Co. 56,100 2,440,350
Ameritech Corp. 89,800 5,444,125
BellSouth Corp. 65,800 2,656,675
Cincinnati Bell Inc. 47,700 2,939,512
Comnet Cellular Inc. * 22,600 627,150
Compression Labs * 85,700 318,697
DSP Communications Inc. * 32,000 618,000
GTE Corp. 58,300 2,652,650
Nynex Corp. 63,300 3,046,313
Pacific Telesis Group 139,300 5,119,275
- -------------------------------------------------------------------------------
25,862,747
Textiles - Apparel Manufacturing: 0.1%
- -------------------------------------------------------------------------------
Nautica Enterprises Inc. * 25,100 630,638
- -------------------------------------------------------------------------------
Transportation: 0.3%
- -------------------------------------------------------------------------------
PHH Corp. 42,600 1,831,800
- -------------------------------------------------------------------------------
Waste Management: 0.2%
- -------------------------------------------------------------------------------
Ionics Inc. * 13,300 638,400
United Waste Systems Inc. * 18,400 631,350
- -------------------------------------------------------------------------------
1,269,750
Total Common Stocks: 58.5%
(Cost $290,277,454) 395,612,779
- -------------------------------------------------------------------------------
Par
Money Market Instrument: Amount
------
Associates Corp. North America
7.0%, 1/2/97 $5,400,000 5,400,000
- -------------------------------------------------------------------------------
Total Money Market Instrument: 0.8%
(Cost $5,400,000) 5,400,000
- -------------------------------------------------------------------------------
Total Investments: 103.0%
(Cost $585,794,804) 696,226,640
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (3.0%) (20,486,223)
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $16.266 per share
based on 41,543,163 shares
issued and outstanding) $675,740,417
===============================================================================
</TABLE>
37
<PAGE>
Lincoln National Money Market
Fund, Inc.
<TABLE>
<CAPTION>
Statement of Net Assets
December 31, 1996
Investments:
Par Market
Money Market Instruments: Amount Value
-------------------------
<S> <C> <C>
U.S. Government and Agency Obligations: 11.0%
- -------------------------------------------------------------------------------
FNMA Agency
5.05%, 3/14/97 $2,000,000 $1,997,975
United States Treasury Bill
4.64%, 2/6/97 5,000,000 4,975,925
United States Treasury Bill
4.98%, 3/6/97 3,000,000 2,972,720
- -------------------------------------------------------------------------------
9,946,620
Banking and Insurance: 32.9%
- -------------------------------------------------------------------------------
Chase Securities Inc.
5.29%, 2/24/97 4,400,000 4,365,119
Comerica Bank
5.59%, 2/14/97 3,500,000 3,500,000
Corporate Asset Funding
5.28%, 2/27/97 2,700,000 2,677,428
First Bank - N.A.
5.395%, 3/7/97 4,000,000 4,000,000
J.P. Morgan & Co. Inc.
5.4%, 3/18/97 3,200,000 3,163,520
MetLife Funding Inc.
5.3%, 2/24/97 4,500,000 4,464,225
PNC Bank
5.56%, 2/20/97 3,600,000 3,599,762
SunTrust Bank Inc.
5.33%, 1/7/97 4,000,000 3,996,447
- -------------------------------------------------------------------------------
29,766,501
Chemicals: 8.6%
- -------------------------------------------------------------------------------
Dupont E I De Nemours & Co.
5.4%, 2/13/97 4,400,000 4,371,620
Monsanto Corp.
5.37%, 2/20/97 3,400,000 3,374,642
- -------------------------------------------------------------------------------
7,746,262
Drug and Hospital Supplies: 1.6%
- -------------------------------------------------------------------------------
Pfizer Inc.
5.3%, 3/12/97 1,500,000 1,484,542
- -------------------------------------------------------------------------------
Finance: 9.7%
- -------------------------------------------------------------------------------
Associates Corp North America
7.0%, 1/2/97 4,300,000 4,300,000
International Lease Finance
5.29%, 3/10/97 4,500,000 4,455,035
- -------------------------------------------------------------------------------
8,755,035
Forest Products: 3.3%
- -------------------------------------------------------------------------------
Weyerhaeuser Co.
5.3%, 1/27/97 3,000,000 2,988,517
- -------------------------------------------------------------------------------
Machinery and Engineering: 5.0%
- -------------------------------------------------------------------------------
Caterpillar Financial
5.44%, 7/28/97 4,500,000 4,500,000
- -------------------------------------------------------------------------------
Motor Vehicles and Equipment: 6.8%
- -------------------------------------------------------------------------------
Daimler-Benz NA Corp.
5.32%, 3/5/97 3,700,000 3,665,553
Toyota Motor Credit
5.32%, 1/3/97 2,477,000 2,476,268
- -------------------------------------------------------------------------------
6,141,821
Securities Dealers: 17.5%
- -------------------------------------------------------------------------------
BT Securities Corp.
5.34%, 1/14/97 $4,500,000 $4,491,322
Dean Witter Discover
5.59%, 5/23/97 4,800,000 4,801,801
Merrill Lynch & Co. Inc.
5.42%, 1/21/97 2,500,000 2,492,472
Smith Barney Inc.
5.29%, 2/4/97 4,000,000 3,980,015
- -------------------------------------------------------------------------------
15,765,610
Telecommunications: 8.1%
- -------------------------------------------------------------------------------
Ameritech Corp.
5.29%, 3/5/97 3,900,000 3,864,288
US West Communications
5.38%, 1/23/97 3,500,000 3,488,493
- -------------------------------------------------------------------------------
7,352,781
Total Money Market Instruments: 104.5%
(Cost $94,447,689) 94,447,689
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (4.5%) (4,090,081)
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $10.000 per share
based on 9,035,761 shares
issued and outstanding) $90,357,608
===============================================================================
</TABLE>
Lincoln National Social Awareness
Fund Inc.
<TABLE>
<CAPTION>
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
---------------------
<S> <C> <C>
Air Transportation: 1.0%
- -------------------------------------------------------------------------------
AMR Corp.* 37,300 $3,287,062
Northwest Airlines Corp.* 75,500 2,953,937
- -------------------------------------------------------------------------------
6,240,999
Banking and Insurance: 21.0%
- -------------------------------------------------------------------------------
Allstate Corp. 120,634 6,981,693
AmSouth Bancorporation 139,800 6,762,825
Bank of Boston Corp. 119,700 7,690,725
Bank of New York Inc. 177,200 5,980,500
BankAmerica Corp. 106,200 10,593,450
Cigna Corp. 69,000 9,427,125
City National Corp. 329,500 7,125,437
Chase Manhattan Corp. 110,700 9,879,975
First Chicago NBD Corp. 107,311 5,767,966
First Union Corp. 62,100 4,595,400
J.P. Morgan & Co. Inc. 25,300 2,469,913
Marsh & McLennan Cos. Inc. 82,900 8,621,600
Mellon Bank Corp. 40,800 2,896,800
Mercury General Corp. 81,300 4,268,250
Mid Ocean Ltd. 122,200 6,415,500
NationsBank Corp. 109,300 10,684,075
Old Republic International Corp. 70,650 1,889,888
SunAmerica Inc. 170,600 7,570,375
Travelers Group Inc. 297,633 13,505,098
- -------------------------------------------------------------------------------
133,126,595
Building and Construction: 1.0%
- -------------------------------------------------------------------------------
Kaufman & Broad Home Corp. 23,800 306,425
Oakwood Homes 274,600 6,281,475
- -------------------------------------------------------------------------------
6,587,900
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Number Market
of Shares Value
-----------------------
<S> <C> <C>
Broadcasting: 1.8%
- -------------------------------------------------------------------------------
HBO & Co. 135,500 $8,045,312
King World Productions Inc.* 95,300 3,514,188
- -------------------------------------------------------------------------------
11,559,500
Coal and Gas: 1.0%
- -------------------------------------------------------------------------------
Union Planters Corp. 157,000 6,123,000
- -------------------------------------------------------------------------------
Consumer Products and Services: 3.6%
- -------------------------------------------------------------------------------
Johnson & Johnson 269,400 13,402,650
Omnicom Group Inc. 101,000 4,620,750
Tommy Hilfiger Corp.* 101,600 4,876,800
- -------------------------------------------------------------------------------
22,900,200
Drug and Hospital Supplies: 3.8%
- -------------------------------------------------------------------------------
Amgen Inc.* 173,200 9,428,575
Lincare Holdings Inc.* 89,400 3,687,750
Schering-Plough Corp. 170,000 11,007,500
- -------------------------------------------------------------------------------
24,123,825
Electrical and Electronics: 3.2%
- -------------------------------------------------------------------------------
Ascend Communications Inc.* 70,400 4,373,600
Ipalco Enterprises Inc. 144,400 3,934,900
Symbol Technologies Inc.* 56,000 2,478,000
Tellabs Inc.* 184,600 6,957,113
Ucar International Inc.* 66,800 2,513,350
- -------------------------------------------------------------------------------
20,256,963
Entertainment: 1.0%
- -------------------------------------------------------------------------------
Callaway Golf Co. 215,200 6,187,000
- -------------------------------------------------------------------------------
Financial Services: 1.2%
- -------------------------------------------------------------------------------
Student Loan Marketing Association 84,900 7,906,313
- -------------------------------------------------------------------------------
Food and Beverage: 11.3%
- -------------------------------------------------------------------------------
Boston Chicken Inc.* 171,400 6,148,975
Campbell Soup Co. 90,100 7,230,525
Coca-Cola Co. 233,000 12,261,625
Coca-Cola Enterprises Inc. 90,600 4,394,100
Flowers Industries Inc. 330,700 7,110,050
Hershey Foods Corp. 195,300 8,544,375
Hormel Foods Corp. 80,400 2,170,800
International Multifoods Corp. 74,000 1,341,250
Interstate Bakeries 61,800 3,035,925
Ralston Purina Co. 72,600 5,327,025
Safeway Inc.* 147,500 6,305,625
Universal Foods Corp. 34,500 1,216,125
Von Companies Inc.* 116,500 6,975,438
- -------------------------------------------------------------------------------
72,061,838
Hospital and Health Care: 2.6%
- -------------------------------------------------------------------------------
Allegiance Corp. 8,640 238,680
HealthSouth Rehabilitation Corp.* 179,500 6,933,187
Oxford Health Plans Inc.* 127,700 7,478,431
Phycor Inc.* 44,500 1,257,125
Quorum Health Group Inc.* 29,300 868,013
- -------------------------------------------------------------------------------
16,775,436
Metals and Mining: 0.4%
- -------------------------------------------------------------------------------
Cleveland-Cliffs Inc. 62,900 2,854,087
- -------------------------------------------------------------------------------
Miscellaneous: 0.6%
- -------------------------------------------------------------------------------
Sealed Air Corp.* 99,000 4,120,875
- -------------------------------------------------------------------------------
Motor Vehicles and Equipment: 1.8%
- -------------------------------------------------------------------------------
Diebold Inc. 110,000 6,916,250
Dover Corp. 56,500 2,839,125
Fleetwood Enterprises Inc. 64,000 1,760,000
- -------------------------------------------------------------------------------
11,515,375
Number Market
of Shares Value
-----------------------
Office and Business Equipment and Services: 7.3%
- -------------------------------------------------------------------------------
Cadence Design Systems Inc.* 184,800 $7,345,800
Cisco Systems Inc.* 162,900 10,374,694
Compaq Computer Corp.* 22,000 1,633,500
Computer Associates International Inc. 144,500 7,188,875
Pairgain Technologies Inc.* 218,400 6,647,550
Parametric Technology Corp.* 138,300 7,113,806
Pitney Bowes Inc. 113,100 6,163,950
- -------------------------------------------------------------------------------
46,468,175
Paper: 0.4%
- -------------------------------------------------------------------------------
Avery-Dennison Corp. 67,000 2,370,125
- -------------------------------------------------------------------------------
Petroleum and Petroleum Related: 2.7%
- -------------------------------------------------------------------------------
Oryx Energy Co.* 279,200 6,910,200
Reading & Bates Corp.* 152,500 4,041,250
Union Texas Petro Holdings Inc. 286,000 6,399,250
- -------------------------------------------------------------------------------
17,350,700
Printing and Publishing: 2.4%
- -------------------------------------------------------------------------------
Deluxe Corp. 53,800 1,761,950
Ennis Business Forms Inc. 176,800 1,989,000
Harland John H Co. 209,900 6,926,700
New York Times Co. 123,100 4,677,800
- -------------------------------------------------------------------------------
15,355,450
Retail: 6.4%
- -------------------------------------------------------------------------------
Eckerd Corp.* 66,842 2,138,944
The Gap Inc. 271,300 8,172,912
Jostens Inc. 83,300 1,759,712
Mercantile Stores Inc. 72,400 3,574,750
Ross Stores Inc. 136,600 6,812,925
Sears Roebuck & Co. 84,800 3,911,400
Staples Inc.* 136,200 2,460,112
Tiffany & Co. 150,600 5,515,725
TJX Cos. Inc. 115,800 5,486,025
Wal-Mart Stores 27,800 635,925
- -------------------------------------------------------------------------------
40,468,430
Securities Dealers: 4.1%
- -------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. 174,090 4,852,759
Edwards (A.G.) Inc. 229,500 7,716,937
Morgan Stanley Group Inc. 132,800 7,586,200
Paine Webber Group Inc. 217,700 6,122,813
- -------------------------------------------------------------------------------
26,278,709
Shoes: 0.6%
- -------------------------------------------------------------------------------
Nike Inc. 61,300 3,662,675
- -------------------------------------------------------------------------------
Soaps, Cleaner and Cosmetics: 2.3%
- -------------------------------------------------------------------------------
Avon Products Inc. 50,200 2,867,675
Clorox Co. 67,600 6,785,350
Gillete Co. 40,000 3,110,000
International Flavors & Fragrances Inc. 44,700 2,011,500
- -------------------------------------------------------------------------------
14,774,525
Telecommunications: 10.3%
- -------------------------------------------------------------------------------
ADC Telecommunications Inc.* 209,800 6,530,025
Ameritech Corp. 213,200 12,925,250
Bell Atlantic Corp. 171,800 11,124,050
Cincinnati Bell Inc. 95,700 5,897,512
Nynex Corp. 169,100 8,137,938
Pacific Telesis Group 149,200 5,483,100
Picturetel Corp.* 256,900 6,647,288
SBC Communications Inc. 140,300 7,260,525
Southern New England Telecom 39,000 1,516,125
- -------------------------------------------------------------------------------
65,521,813
Transportation: 0.3%
- -------------------------------------------------------------------------------
Paccar Inc. 25,600 1,740,800
- -------------------------------------------------------------------------------
Total Common Stocks: 92.1%
(Cost $452,303,256) 586,331,308
- -------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Par Market
Amount Value
Money Market Instruments: --------------------------
Bell Atlantic Financial Services Co.
5.5%, 1/7/97 $8,400,000 $8,392,300
Cargill Inc.
5.42%, 1/23/97 1,500,000 1,495,032
Corporate Asset Funding Co Inc.
5.55%, 1/2/97 5,600,000 5,599,137
Merrill Lynch
5.75%, 1/6/97 4,400,000 4,396,486
5.43%, 1/13/97 4,900,000 4,890,608
5.7%, 1/14/97 1,900,000 1,896,089
5.55%, 1/23/97 2,000,000 1,993,217
Smith Barney
5.32%, 1/2/97 5,200,000 5,199,224
5.63%, 1/6/97 5,500,000 5,495,699
Suntrust Bank Inc.
5.5%, 1/8/97 5,000,000 4,994,653
UBS Finance Inc.
5.4%, 1/10/97 10,300,000 10,286,095
United States Treasury Bill +
5.3%, 5/1/97 2,250,000 2,210,713
- -------------------------------------------------------------------------------
Total Money Market Instruments: 8.9%
(Cost $56,849,253) 56,849,253
- -------------------------------------------------------------------------------
Total Investments: 101.0%
(Cost $509,152,509) 643,180,561
- -------------------------------------------------------------------------------
Other Assets Under Liabilities: (1.0%) (6,586,018)
- -------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $27.316 per share
based on 23,304,999 shares
issued and outstanding) $636,594,543
===============================================================================
Lincoln National Special Opportunities
Fund Inc.
Statement of Net Assets
December 31, 1996
Investments:
Number Market
Common Stocks: of Shares Value
--------------------------
Aerospace: 1.0%
- -------------------------------------------------------------------------------
McDonnell Douglas Corp. 100,700 $6,444,800
- -------------------------------------------------------------------------------
Air Transportation: 2.8%
- -------------------------------------------------------------------------------
AMR Corp.* 68,700 6,054,187
Delta Air Lines Inc. 82,200 5,825,925
Northwest Airlines Corp.* 154,500 6,044,812
- -------------------------------------------------------------------------------
17,924,924
Banking and Insurance: 9.7%
- -------------------------------------------------------------------------------
AmSouth Bancorporation 130,000 6,288,750
Bancorp Hawaii 155,000 6,510,000
Bank of Boston Corp. 99,800 6,412,150
Cigna Corp. 47,900 6,544,337
Marsh & McLennan Cos. Inc. 59,000 6,136,000
Mercury General Corp. 114,800 6,027,000
Mid Ocean Ltd. 125,700 6,599,250
Star Banc Corp. 72,000 6,615,000
Transamerica Corp. 70,400 5,561,600
Travelers Group Inc. 135,000 6,125,640
- -------------------------------------------------------------------------------
62,819,727
Building and Construction: 0.9%
- -------------------------------------------------------------------------------
Harsco Corp. 88,500 6,062,250
- -------------------------------------------------------------------------------
Number Market
of Shares Value
--------------------------
Building Materials: 1.9%
- -------------------------------------------------------------------------------
Dover Corp. 115,500 $5,803,875
USG Corp. 186,800 6,327,850
- -------------------------------------------------------------------------------
12,131,725
Broadcasting: 1.0%
- -------------------------------------------------------------------------------
HBO & Co. 113,000 6,709,375
- -------------------------------------------------------------------------------
Chemicals: 1.1%
- -------------------------------------------------------------------------------
Cytec Industries Inc.* 168,000 6,825,000
- -------------------------------------------------------------------------------
Construction: 1.0%
- -------------------------------------------------------------------------------
Centex Corp. 178,300 6,708,537
- -------------------------------------------------------------------------------
Consumer Products and Services: 2.9%
- -------------------------------------------------------------------------------
American Brands Inc. 127,200 6,312,300
Tommy Hilfiger Corp.* 129,200 6,201,600
Universal Corp. 205,100 6,588,837
- -------------------------------------------------------------------------------
19,102,737
Containers: 0.9%
- -------------------------------------------------------------------------------
Stone Container Corp. 388,500 5,778,937
- -------------------------------------------------------------------------------
Drug and Hospital Supplies: 3.0%
- -------------------------------------------------------------------------------
Becton, Dickinson, & Co. 149,200 6,471,550
Dexter Corp. 194,500 6,199,688
Lincare Holdings Inc.* 159,000 6,558,750
- -------------------------------------------------------------------------------
19,229,988
Electrical and Electronics: 6.0%
- -------------------------------------------------------------------------------
ADC Telecommunications Inc.* 73,100 2,275,237
Ascend Communications Inc.* 102,900 6,392,662
Cooper Industries Inc. 143,500 6,044,937
Hubbell-Class B 151,000 6,530,750
SCI Systems* 142,300 6,367,925
Symbol Technologies* 126,500 5,597,625
Ucar International Inc.* 157,600 5,929,700
- -------------------------------------------------------------------------------
39,138,836
Entertainment: 2.6%
- -------------------------------------------------------------------------------
Callaway Golf Co. 210,900 6,063,375
MGM Grand Inc.* 159,800 5,573,025
Mirage Resorts Inc.* 244,400 5,285,150
- -------------------------------------------------------------------------------
16,921,550
Financial Services: 0.9%
- -------------------------------------------------------------------------------
Student Loan Marketing Association 64,800 6,034,500
- -------------------------------------------------------------------------------
Food and Beverage: 4.4%
- -------------------------------------------------------------------------------
Dean Foods 209,800 6,766,050
Great Atlantic & Pacific Tea Inc. 124,400 3,965,250
International Multifoods Corp. 224,000 4,060,000
Interstate Bakeries 140,000 6,877,500
Vons Companies Inc.* 111,900 6,700,012
- -------------------------------------------------------------------------------
28,368,812
Hospital and Health Care: 0.9%
- -------------------------------------------------------------------------------
U.S. Surgical Corp. 155,800 6,134,625
- -------------------------------------------------------------------------------
Industrial: 2.4%
- -------------------------------------------------------------------------------
Johnson Controls Inc. 77,300 6,406,237
Measurex Corp. 140,000 3,360,000
Stanley Works 218,800 5,907,600
- -------------------------------------------------------------------------------
15,673,837
40
<PAGE>
Number Market
of Shares Value
------------------------
Machinery and Engineering: 3.7%
- --------------------------------------------------------------------------------
Carpenter Technology Corp. 154,900 $5,673,212
Duriron Co. 224,700 6,066,900
Ingersoll-Rand Co. 141,700 6,305,650
Snap-On Inc. 166,700 5,938,688
- --------------------------------------------------------------------------------
23,984,450
Metals And Mining: 4.3%
- --------------------------------------------------------------------------------
ASARCP Inc. 213,600 5,313,300
Ball Corp. 195,500 5,083,000
Cleveland-Cliffs Inc. 139,700 6,338,887
Hecla Mining Co.* 1,038,000 5,838,750
Phelps Dodge Corp. 76,400 5,157,000
- --------------------------------------------------------------------------------
27,730,937
Miscellaneous: 1.0%
- --------------------------------------------------------------------------------
Corrections Corporation of America* 221,100 6,771,187
- --------------------------------------------------------------------------------
Motor Vehicles and Equipment: 2.8%
- --------------------------------------------------------------------------------
BF Goodrich Co. 145,000 5,872,500
Dana Corp. 189,000 6,166,125
Fleetwood Enterprises Inc. 217,200 5,973,000
- --------------------------------------------------------------------------------
18,011,625
Office and Business Equipment and Services: 6.7%
- --------------------------------------------------------------------------------
APAC Teleservices* 158,000 6,063,250
Cadence Design Systems Inc.* 173,475 6,895,631
Honeywell Inc. 93,200 6,127,900
Moore Corp. Ltd. 285,200 5,810,950
New England Business Services Inc. 294,900 6,340,350
Sun Microsystems Inc. 223,000 5,728,313
Western Digital Corp. 108,800 6,188,000
- --------------------------------------------------------------------------------
43,154,394
Paper: 2.5%
- --------------------------------------------------------------------------------
Avery-Dennison Corp. 190,200 6,728,325
Chesapeake Corp. 208,100 6,529,138
Westvaco Corp. 102,850 2,956,938
- --------------------------------------------------------------------------------
16,214,401
Petroleum and Petroleum Related: 5.9%
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 269,000 6,287,875
Oryx Energy Co.* 265,100 6,561,225
Phillips Petroleum Co. 142,400 6,301,200
Smith International Inc.* 142,900 6,412,638
Union Texas Petroleum Holdings Inc. 278,000 6,220,250
USX Marathon Group Inc. 274,500 6,553,688
- --------------------------------------------------------------------------------
38,336,876
Printing and Publishing: 2.9%
- --------------------------------------------------------------------------------
Deluxe Corp. 153,600 5,030,400
Harland John H. Co. 209,100 6,900,300
New York Times Co. 177,600 6,748,800
- --------------------------------------------------------------------------------
18,679,500
Public Utilities: 8.2%
- --------------------------------------------------------------------------------
Baltimore Gas & Electric Co. 201,700 5,395,475
Edison International 304,100 6,043,988
General Public Utilities Corp. 192,500 6,472,813
Portland General 136,800 5,745,600
Rochester Gas & Electric Corp. 283,100 5,414,288
Sierra Pacific Resources 211,300 6,074,875
Southwestern Public Service Co. 178,500 6,314,438
Texas Utilities Co. 154,400 6,291,800
Unicom Corp. 207,900 5,639,288
- --------------------------------------------------------------------------------
53,392,565
Retail: 5.5%
- --------------------------------------------------------------------------------
Eckerd Corp.* 71,830 2,298,560
Mercantile Stores Co. Inc. 113,700 5,613,938
Neiman-Marcus Group* 90,600 2,310,300
Ross Stores Inc. 132,700 6,618,413
Number Market
of Shares Value
------------------------
Staples Inc.* 315,775 $5,703,686
Tiffany & Co. 177,400 6,497,275
TJX Cos. Inc. 140,000 6,632,500
- --------------------------------------------------------------------------------
35,674,672
Securities Dealers: 2.0%
- --------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. 233,095 6,497,523
Edwards (A.G.) Inc. 183,300 6,163,463
- --------------------------------------------------------------------------------
12,660,986
Shoes: 1.0%
- --------------------------------------------------------------------------------
Nike Inc. 106,200 6,345,450
- --------------------------------------------------------------------------------
Soaps, Cleaner and Cosmetics: 1.5%
- --------------------------------------------------------------------------------
Clorox Co. 57,400 5,761,525
International Flavors & Fragrances Inc. 94,000 4,230,000
- --------------------------------------------------------------------------------
9,991,525
Telecommunications: 1.0%
- --------------------------------------------------------------------------------
Cincinnati Bell Inc. 108,600 6,692,475
- --------------------------------------------------------------------------------
Textiles - Apparel Manufacturing: 1.0%
- --------------------------------------------------------------------------------
Liz Claiborne Inc. 160,800 6,210,900
- --------------------------------------------------------------------------------
Total Common Stocks: 93.4%
(Cost $506,457,598) 605,862,103
- --------------------------------------------------------------------------------
Par
Amount
--------
Money Market Instruments:
Barclays U S Funding Corp.
5.63%, 1/2/97 $9,600,000 9,598,499
General Electric Capital Corp.
6.05%, 1/7/97 14,300,000 14,285,581
Merrill Lynch & Co. Inc.
5.95%, 1/9/97 12,700,000 12,683,208
Smith Barney Inc.
5.63%, 1/6/97 10,600,000 10,591,711
Suntrust Bank Inc.
5.5%, 1/9/97 5,000,000 4,993,889
United States Treasury Bill +
5.3%, 5/1/97 500,000 491,016
Total Money Market Instruments: 8.1%
(Cost $52,643,904) 52,643,904
- --------------------------------------------------------------------------------
Total Investments: 101.5%
(Cost $559,101,502) 658,506,007
- --------------------------------------------------------------------------------
Other Assets Under Liabilities: (1.5%) (9,914,271)
- --------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $29.423 per share
based on 22,043,803 shares
issued and outstanding) $648,591,736
================================================================================
+ Fully or Partially pledged as collateral for Financial Futures
* Non-income producing
** Par amounts for foreign debt are expressed in local currency
See accompanying notes to financial statements
41
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National Lincoln National National National National
Aggressive National Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $1,066,840 $18,141,815 $1,738,254 $1,403,089 $7,594,073 $5,376,964
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 558,162 - 1,990,277 9,293,513 3,518,368 50,546,368
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 1,625,002 18,141,815 3,728,531 10,696,602 11,112,441 55,923,332
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fees 1,428,803 1,188,030 1,549,656 3,303,336 2,072,722 7,063,276
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend tax 4,229 - 62,336 175,617 133,049 -
- ------------------------------------------------------------------------------------------------------------------------------------
Custodial fees 80,933 - 134,394 210,722 496,763 -
- ------------------------------------------------------------------------------------------------------------------------------------
Directors fees 3,750 3,750 3,750 3,750 3,750 3,750
- ------------------------------------------------------------------------------------------------------------------------------------
Printing and Postage 21,395 39,101 18,377 22,163 35,325 170,810
- ------------------------------------------------------------------------------------------------------------------------------------
Other 28,816 89,500 40,346 45,578 85,651 447,713
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,567,926 1,320,381 1,808,859 3,761,166 2,827,260 7,685,549
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 57,076 16,821,434 1,919,672 6,935,436 8,285,181 48,237,783
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on:
Investment transactions 11,900,778 (3,454,651) 10,441,973 12,610,301 26,401,497 85,813,991
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency transactions (38) - (145,668) (493,218) 162,884 -
- ------------------------------------------------------------------------------------------------------------------------------------
Options written - - - - 112,705 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 11,900,740 (3,454,651) 10,296,305 12,117,083 26,677,086 85,813,991
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on:
Investments 16,116,061 (7,435,059) 19,512,490 48,766,041 7,374,923 261,545,447
- ------------------------------------------------------------------------------------------------------------------------------------
Translation of assets and
liabilities in foreign currencies - - (5,704) 1,003 (226,802) -
- ------------------------------------------------------------------------------------------------------------------------------------
Options written 724,978 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation
on investments 16,841,039 (7,435,059) 19,506,786 48,767,044 7,148,121 261,545,447
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 28,741,779 (10,889,710) 29,803,091 60,884,127 33,825,207 347,359,438
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $28,798,855 $5,931,724 $31,722,763 $ 67,819,563 $ 42,110,388 $ 395,597,221
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
STATEMENT OF OPERATIONS - (Continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
Lincoln Lincoln National National National
National National Money Social Special
International Managed Market Awareness Opportunities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $271,777 $20,484,267 $4,870,258 $2,285,880 $1,914,945
- ---------------------------------------------------------------------------------------------------------------------
Dividends 6,619,541 8,154,749 - 6,851,056 12,023,148
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 6,891,318 28,639,016 4,870,258 9,136,936 13,938,093
- ---------------------------------------------------------------------------------------------------------------------
Expenses:
Management fees 3,319,701 2,480,524 417,468 1,877,030 2,274,229
- ---------------------------------------------------------------------------------------------------------------------
Dividend tax 842,737 - - - -
- ---------------------------------------------------------------------------------------------------------------------
Custodial fees 604,280 - - - -
- ---------------------------------------------------------------------------------------------------------------------
Directors fees 3,750 3,750 3,750 3,750 3,750
- ---------------------------------------------------------------------------------------------------------------------
Printing and Postage 28,073 72,475 20,411 30,009 50,262
- ---------------------------------------------------------------------------------------------------------------------
Other 26,506 177,414 47,338 162,768 164,869
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 4,825,047 2,734,163 488,967 2,073,557 2,493,110
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2,066,271 25,904,853 4,381,291 7,063,379 11,444,983
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on:
Investment transactions 26,146,167 18,028,760 - 36,341,047 47,162,977
- ---------------------------------------------------------------------------------------------------------------------
Foreign currency transactions (4,460,301) - - - -
- ---------------------------------------------------------------------------------------------------------------------
Options written - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 21,685,866 18,028,760 - 36,341,047 47,162,977
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on:
Investments 14,723,218 33,901,393 - 73,057,957 32,939,003
- ---------------------------------------------------------------------------------------------------------------------
Translation of assets and
liabilities in foreign currencies (58,629) - - - -
- ---------------------------------------------------------------------------------------------------------------------
Options written - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation
on investments 14,664,589 33,901,393 - 73,057,957 32,939,003
- ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 36,350,455 51,930,153 - 109,399,004 80,101,980
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $38,416,726 $77,835,006 $4,381,291 $116,462,383 $91,546,963
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National Lincoln National National National National
Aggressive National Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets at January 1, 1995 $60,697,261 $195,009,766 $52,903,888 $78,861,187 $195,696,899 $1,161,324,307
- -----------------------------------------------------------------------------------------------------------------------------------
Changes from operations:
Net investment income 60,387 15,554,772 906,272 3,476,944 7,489,761 39,631,309
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 6,547,731 5,612,959 6,756,934 4,278,448 15,658,448 112,217,388
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on investments 21,583,506 19,675,624 15,280,833 36,186,275 25,259,662 328,786,475
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 28,191,624 40,843,355 22,944,039 43,941,667 48,407,871 480,635,172
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (60,387) (15,554,772) (906,272) (3,476,944) (7,489,761) (39,631,309)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments - - - (580,266) - (69,061,295)
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholder (60,387) (15,554,772) (906,272) (4,057,210) (7,489,761) (108,692,604)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions 49,642,126 30,517,705 52,994,129 120,025,232 12,157,253 300,183,582
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net
assets 77,773,363 55,806,288 75,031,896 159,909,689 53,075,363 672,126,150
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1995 $138,470,624 $250,816,054 $127,935,784 238,770,876 $248,772,262 $1,833,450,457
Changes from operations:
Net investment income 57,076 16,821,434 1,919,672 6,935,436 8,285,181 48,237,783
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 11,900,740 (3,454,651) 10,296,305 12,117,083 26,677,086 85,813,991
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on investments 16,841,039 (7,435,059) 19,506,786 48,767,044 7,148,121 261,545,447
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 28,798,855 5,931,724 31,722,763 67,819,563 42,110,388 395,597,221
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (57,076) (16,821,434) (1,919,672) (6,935,436) (8,285,181) (48,237,783)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (2,790,157) - (6,563,477) (4,278,448) (14,516,993) (112,217,388)
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholder (2,847,233) (16,821,434) (8,483,149) (11,213,884) (22,802,174) (160,455,171)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 78,186,517 13,401,561 116,066,459 161,776,782 47,970,999 396,630,995
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 104,138,139 2,511,851 139,306,073 218,382,461 67,279,213 631,773,045
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1996 $242,608,763 $253,327,905 $267,241,857 $457,153,337 $316,051,475 $2,465,223,502
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - (Continued)
Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
Lincoln Lincoln National National National
National National Money Social Special
International Managed Market Awareness Opportunities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Assets at January 1, 1995 $316,349,905 $442,139,584 $77,177,437 $163,514,159 $318,417,174
- ------------------------------------------------------------------------------------------------------------------------
Changes from operations:
Net investment income 1,937,680 22,435,470 4,552,349 4,915,677 10,130,290
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,498,696 37,948,391 - 18,559,957 38,158,400
- ------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on investments 24,228,755 74,805,363 - 55,729,211 62,975,247
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 28,665,131 135,189,224 4,552,349 79,204,845 111,263,937
- ------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (1,937,680) (22,435,470) (4,552,349) (4,915,677) (10,130,290)
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (14,698,525) (718,100) - (6,175,723) (15,004,876)
- ------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholder (16,636,205) (23,153,570) (4,552,349) (11,091,400) (25,135,166)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions 30,011,772 34,989,363 (1,858,050) 66,355,298 101,208,735
- ------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 42,040,698 147,025,017 (1,858,050) 134,468,743 187,337,506
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1995 $358,390,603 $589,164,601 $75,319,387 $297,982,902 $505,754,680
Changes from operations:
Net investment income 2,066,271 25,904,853 4,381,291 7,063,379 11,444,983
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 21,685,866 18,028,760 - 36,341,047 47,162,977
- ------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on investments 14,664,589 33,901,393 - 73,057,957 32,939,003
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 38,416,726 77,835,006 4,381,291 116,462,383 91,546,963
- ------------------------------------------------------------------------------------------------------------------------
Dividends to shareholder from:
Net investment income (2,066,271) (25,904,853) (4,381,291) (7,063,379) (11,444,983)
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (2,498,696) (37,948,391) - (18,559,957) (38,158,400)
- ------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholder (4,564,967) (63,853,244) (4,381,291) (25,623,336) (49,603,383)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 48,132,300 72,594,054 15,038,221 247,772,594 100,893,476
- ------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 81,984,059 86,575,816 15,038,221 338,611,641 142,837,056
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1996 $440,374,662 $675,740,417 $90,357,608 $636,594,543 $648,591,736
========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Significant Accounting Policies
The Funds: Lincoln National Aggressive Growth Fund, Inc., Lincoln National Bond
Fund, Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln National
Equity Income Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc.,
Lincoln National Growth and Income Fund, Inc., Lincoln National International
Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market
Fund, Inc., and Lincoln National Social Awareness Fund, Inc. are registered as
open-end, diversified management investment companies and Lincoln National
Special Opportunities Fund, Inc. is registered as an open-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended. The Funds' shares are sold only to The Lincoln National Life Insurance
Company (the Company) for allocation to its Variable Annuity Account C, which
was established for the purpose of funding variable annuity contracts, and to
its Flexible Premium Variable Life Accounts D, G, and K, which were established
for the purpose of funding variable universal life contracts.
The Funds' investment objectives are as follows:
Fund Investment Objective
---- --------------------
Lincoln National Aggressive The investment objective is to maximize capital
Growth Fund, Inc. appreciation. The Fund invests in stocks of
smaller, lesser known companies which have a chance
to grow significantly in a short time.
Lincoln National Bond The investment objective is to maximize current
Fund, Inc. income consistent with prudent investment strategy.
The Fund invests primarily in medium and long-term
corporate and government bonds.
Lincoln National Capital The investment objective is to maximize long-term
Appreciation Fund, Inc. growth of capital in a manner consistent with
preservation of capital. The Fund primarily buys
stocks in a large number of companies of all sizes
if the companies are competing well and if their
products or services are in high demand. It may
also buy some money market securities and bonds,
including junk (high-risk) bonds.
Lincoln National Equity The investment objective is to achieve reasonable
Income Fund, Inc. income by investing primarily in income-producing
equity securities. The Fund invests mostly in high-
income stocks and some high-yielding bonds
(including junk bonds).
Lincoln National Global The investment objective is to maximize long-term
Asset Allocation Fund, Inc. total return consistent with preservation of
capital. The Fund allocates its assets among
several categories of equity and fixed-income
securities, both of U.S. and foreign issuers.
Lincoln National Growth The investment objective is to maximize long-term
and Income Fund, Inc. capital appreciation. The Fund buys stocks of
established companies.
Lincoln National The investment objective is to maximize long-term
International Fund, Inc. capital appreciation. The Fund trades in securities
issued outside the U.S.--mostly stocks, with an
occasional bond or money market security.
Lincoln National Managed The investment objective is to maximize long-term
Fund, Inc. total return (capital gains plus income) consistent
with prudent investment strategy. The Fund invests
in a mix of stocks, bonds, and money market
securities, as determined by an investment
committee.
Lincoln National Money The investment objective is to maximize current
Market Fund, Inc. income consistent with the preservation of capital.
The Fund invests in short-term obligations issued
by U.S. corporations, the U.S. Government, and
federally-chartered banks and U.S. branches of
foreign banks.
Lincoln National Social The investment objective is to maximize long-term
Awareness Fund, Inc. capital appreciation. The Fund buys stocks of
established companies which adhere to certain
specific social criteria.
Lincoln National Special The investment objective is to maximize capital
Opportunities Fund, Inc. appreciation. The Fund primarily invests in mid-
size companies whose stocks have significant growth
potential. Current income is a secondary
consideration.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (Continued)
Investment Valuation: Investments are stated at value. Portfolio securities
which are traded on stock exchanges 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. Long-
term debt investments are valued at their bid quotations. The Funds hedge
certain portions of their exposure to fluctuations in interest, market, and
foreign exchange risks by entering into derivative transactions. These hedges
include options, financial futures, and forward foreign currency contracts.
Options traded on exchanges are valued at the last bid price for options
purchased and the last sale price for options written. Options traded in the
over-the-counter market are valued at the last asked price for options written
and the last bid price for options purchased. Financial futures are valued at
the settlement price established each day by the board of trade or exchange on
which they are traded. Forward foreign currency contracts are valued at the
forward exchange rates prevailing on the day of valuation. 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 Funds' Board
of Directors. Money market instruments in securities 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. Interest income
includes premium and discount amortization on money market instruments and
mortgage-backed securities; it also includes original issue and market discount
amortization on long-term debt investments. Realized gains or losses from
investment transactions are reported on an identified cost basis. Gains and
losses on premiums from expired options are recognized on the date of
expiration.
Securities Sold Short: Short-selling of securities obligate the Funds to replace
the security borrowed by purchasing it at market value at the replacement date.
The Funds would realize a gain (loss) if the price of the security declines
(increases) between the sale and replacement date.
Foreign Currency Transactions: The books and records of the Funds are maintained
in U.S. dollars. All assets and liabilities denominated in a foreign currency
are translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the rate of exchange prevailing
on the respective dates of such transactions. The effects of changes in foreign
currency exchange rates on investments in securities are not segregated from the
effects of changes in market prices of those securities, but are included with
the net realized and unrealized gain or loss on investment in securities.
Reported net realized gains and losses on foreign currency transactions arise
from sales and maturities of forward foreign currency contracts, currency gains
and losses between the trade and settlement dates on securities transactions,
and the differences between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of
the amounts actually received or paid. Net change in unrealized appreciation or
depreciation on translation of assets and liability in foreign currencies arise
from changes in the value of other assets and liabilities at the end of the
period resulting from changes in the exchange rates.
Use of Estimates: The preparation of financial statements in conformity with
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 Lincoln National Bond Fund, Inc., Lincoln
National Growth and Income Fund, Inc., Lincoln National Managed Fund, Inc.,
Lincoln National Money Market Fund, Inc., Lincoln National Social Awareness
Fund, Inc. and Lincoln National Special Opportunities Fund, Inc. has agreed to
waive its custodial fees when the Funds maintain a prescribed amount of cash on
deposit in certain non-interest bearing accounts. For the year ended December
31, 1996, the custodial fees offset arrangements were not material to either
total expenses or the calculation of average net assets and the ratio of
expenses to average net assets.
Taxes: Each Fund has complied with the special provisions of the Internal
Revenue Code for regulated investment companies. As such, each 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.
Withholding taxes on foreign interest have been provided for in accordance with
the applicable country's tax rates.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS-(Continued)
2. Other Assets Over (Under) Liabilities
The statement of net assets accounts "Other Assets Over(Under) Liabilities" at
December 31, 1996 consisted of the following assets (liabilities):
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National Lincoln National National National National
Aggressive National Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and Income
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
-------------- -------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 229 $ 8,646 $ 56,710 $ (1,013) $ 29,132 $ 156,205
- --------------------------------------------------------------------------------------------------------------------------------
Foreign currency - - (3,194,446) (98,411) 4,285,515 -
- --------------------------------------------------------------------------------------------------------------------------------
Receivable for dividends earned 34,065 4,040,001 135,557 989,326 317,651 6,586,417
- --------------------------------------------------------------------------------------------------------------------------------
Receivable for interest earned 4,729 - - 165,036 2,126,486 -
- --------------------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 203,768 - 6,808,778 1,200,902 4,879,433 4,847,482
- --------------------------------------------------------------------------------------------------------------------------------
Receivable for capital shares sold 370,110 86,700 230,927 710,110 414,592 477,884
- --------------------------------------------------------------------------------------------------------------------------------
Dividends declared and unpaid (57,076) (16,821,434) (1,919,672) (6,935,436) (8,285,181) (48,237,783)
- --------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased (902,546) - (378,709) (2,239,878) (9,531,640) (4,993,222)
- --------------------------------------------------------------------------------------------------------------------------------
Management fees payable (149,903) (100,195) (176,626) (360,955) (193,582) (676,108)
- --------------------------------------------------------------------------------------------------------------------------------
Other, net (30,304) (30,539) (17,764) (55,739) 139,707 (130,668)
- --------------------------------------------------------------------------------------------------------------------------------
$ (526,928) $(12,816,821) $ 1,544,755 $(6,626,058) $ (5,817,887) $(41,969,793)
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
Lincoln Lincoln National National National
National National Money Social Special
International Managed Market Awareness Opportunities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash $ 419 $ 154,241 $ 58,697 $ 155,300 $ 428,231
- ----------------------------------------------------------------------------------------------------------------
Foreign currency 5,820,997 - - - -
- ----------------------------------------------------------------------------------------------------------------
Receivable for dividends earned 237,320 967,026 - 646,782 1,252,586
- ----------------------------------------------------------------------------------------------------------------
Receivable for interest earned 1,344 4,240,855 69,127 - -
- ----------------------------------------------------------------------------------------------------------------
Receivable for securities sold - 1,276,615 - 330,088 4,931,101
- ----------------------------------------------------------------------------------------------------------------
Receivable for capital shares sold 13,272 82,017 220,433 699,704 322,876
- ----------------------------------------------------------------------------------------------------------------
Dividends declared and unpaid (2,066,271) (25,904,853) (4,381,291) (7,063,379) (11,444,983)
- ----------------------------------------------------------------------------------------------------------------
Payable for securities purchased (2,460,482) (1,023,465) - (254,826) (5,038,519)
- ----------------------------------------------------------------------------------------------------------------
Management fees payable (296,212) (220,323) (37,243) (207,178) (210,712)
- ----------------------------------------------------------------------------------------------------------------
Other, net 221,317 (58,336) (19,804) (892,509) (154,851)
- ----------------------------------------------------------------------------------------------------------------
$ 1,471,704 $(20,486,223) $(4,090,081) $(6,586,018) $ (9,914,271)
========================================================================
</TABLE>
3. Management Fees and Other Transactions With Affiliates
Lincoln Investment Management Company (the Advisor) and it's affiliates manage
the Funds' investment portfolios and maintains their accounts and records. In
return 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 asset value of
the Funds, .40% of the next $200,000,000, and .30% of the average daily net
asset value of the Funds in excess of $400,000,000 for all the Funds except for
the Lincoln National Global Asset Allocation Fund, Inc. which has management fee
annual rates of .75%, .70%, and .68%, respectively, the Lincoln National
International Fund, Inc. which has management fee annual rates of .90%, .75%,
and .60%, respectively, and the Lincoln National Aggressive Growth Fund, Inc.
which has management fee annual rates of .75%, .70%, and .65%, respectively. The
Lincoln National Capital Appreciation Fund, Inc. and the Lincoln National Equity
Income Fund, Inc. have management fees of .80% and .95%, respectively, with no
breakpoints. In addition, Delaware which is an affiliate of Lincoln Investment
Management Company, provides accounting services and other administration
support to the funds. In return for these services, the company receives a
minium fee of $65,000 and $87,000 annually for the first $100,000,000 of the
average daily net asset value of the Domestic and International Funds
respectively, .0375% and .060% of the next $400,000,000, .035% and .060% of the
next $250,000,000, .030% and .060% of the next $250,000,000, and .020% and .050%
of the daily net asset value of the Funds in excess of $1 billion dollars.
If the aggregate annual expenses of the Funds, including the management fee,
but excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses, exceeds 1
1/2% of the average daily net asset value of the Fund, the Advisor will
reimburse the Funds in the amount of such excess. No reimbursement was due for
the year ended December 31, 1996.
Certain officers and directors of the Funds are also officers or directors of
the Company. The compensation of unaffiliated directors of the Funds is borne
by the Funds.
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS-(Continued)
4. Analysis of Net Assets
The analysis of net assets at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National Lincoln National National National National
Aggressive National Capital Equity Global Asset Growth
Growth Bond Appreciation Income Allocation and income
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
--------------- ---------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, par value
$.01 per share ** $ 173,540 $ 215,311 $ 184,250 $ 289,711 $ 222,172 $ 744,548
- ------------------------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of
par value of shares issued 189,640,628 255,239,822 221,446,952 360,204,301 253,282,842 1,743,467,801
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributd net realized
gain (loss) on investments 11,900,740 (7,806,688) 10,296,305 12,117,083 26,677,086 85,813,991
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation or
depreciation on investments
and other assests 40,893,855 5,679,460 35,314,350 84,542,242 35,869,375 635,197,162
- ------------------------------------------------------------------------------------------------------------------------------------
$242,608,763 $253,327,905 $267,241,857 $457,153,337 $316,051,475 $2,465,223,502
====================================================================================================
Lincoln Lincoln Lincoln
Lincoln Lincoln National National National
National National Money Social Special
International Managed Market Awareness Opportunities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
--------------- --------------- ---------------- --------------- ----------------
Common Stock, par value
$.01 per share ** $ 302,543 $ 415,432 $ 90,358 $ 233,050 $ 220,438
- -------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess
of par value of shares
issued 366,281,501 546,864,389 90,267,250 466,334,054 501,930,121
- -------------------------------------------------------------------------------------------------------------------
Undistributed net realized
gain (loss)
on investments 21,685,866 18,028,760 - 36,341,047 47,162,977
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
or depreciation on
investments and other
assests 52,104,752 110,431,836 - 133,686,392 99,278,200
- -------------------------------------------------------------------------------------------------------------------
$440,374,662 $675,740,417 $ 90,357,608 $636,594,543 $648,591,736
===================================================================================
</TABLE>
** In 1996, each Fund had 50,000,000 authorized shares except for the Lincoln
National Growth and Income Fund, Inc. which has 100,000,000. At the
February, 1997 Board meeting, a proposal to increase the authorized shares of
the Managed, International and Equity Income Funds to 100,000,000 shares was
made and approved by the Board members. In addition, an increase in the
shares of the Growth and Income Fund to 150,000,000 authorized shares was
approved.
5. Investments
The cost of investments for federal income tax purposes is the same as for book
purposes. The aggregate cost of investments purchased, the aggregate proceeds
from investments sold, the aggregate gross unrealized appreciation, the
aggregate gross unrealized depreciation and the net unrealized appreciation
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund, Inc. $ 176,426,644 $131,020,276 $ 47,375,710 $ (6,481,855) $ 40,893,855
Lincoln National Bond Fund, Inc. 365,648,915 340,007,493 6,840,992 (1,161,532) 5,679,460
Lincoln National Capital Appreciation Fund, Inc. 252,821,728 151,038,461 37,329,976 (2,015,626) 35,314,350
Lincoln National Equity Income Fund, Inc. 217,823,856 74,891,866 89,451,542 (4,909,300) 84,542,242
Lincoln National Global Asset Allocation Fund, Inc 489,315,547 442,039,054 39,212,024 (3,342,649) 35,869,375
Lincoln National Growth and Income Fund, Inc. 1,276,733,398 978,186,637 661,349,824 (26,152,662) 635,197,162
Lincoln National International Fund, Inc. 324,737,154 277,316,812 67,354,489 (15,249,737) 52,104,752
Lincoln National Managed Fund, Inc. 745,257,214 688,817,948 116,315,126 (5,883,290) 110,431,836
Lincoln National Social Awareness Fund, Inc 396,480,030 187,834,377 138,335,905 (4,649,513) 133,686,392
Lincoln National Special Opportunities Fund, Inc. 527,239,245 477,426,790 111,343,879 (12,065,679) 99,278,200
</TABLE>
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
6. SUPPLEMENTAL FINANCIAL INSTRUMENT INFORMATION
OPTIONS: The Funds purchase or write options which are exchange traded to hedge
fluctuation risks in the price of certain securities. When the Funds write a
call or put option, an amount equal to the premium received is reflected as a
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The premium paid by the
Funds for the purchase of a call or put option is recorded as an investment and
subsequently "marked-to-market" to reflect the current market value of the
option purchased. The Funds are subject to the risk of an imperfect correlation
between movement in the price of the instrument and the price of the underlying
security or transaction. Risks may also arise due to illiquid secondary markets
for the instruments. Written call option activity for 1996 is summarized as
follows:
<TABLE>
<CAPTION>
Lincoln National Global Lincoln National Special
Asset Allocation Fund, Inc Opportunities Fund, Inc.
-------------------------- ------------------------
Par Premiums Number of Premiums
Amount Received Shares Received
-----------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at January 1, 1996 $ - $ - - $ -
Options written 5,000,000 16,250 475,000 1,220,677
Options exercised - - (148,500) (323,501)
Options expired (5,000,000) (16,250) - -
Options closed - - (326,500) (897,176)
------------------- --------------------------
Options outstanding at December 31, 1996 $ 0 $ 0 0 $ 0
===================== =========================
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS: The Funds may purchase or sell forward
foreign currency contracts to hedge risks of fluctuations in specific
transactions or portfolio positions. Forward foreign currency contracts
obligate the Funds to take or deliver a financial instrument of foreign currency
at a future date at a specified price. The unrealized gain or loss on the
contracts are reflected in the accompanying financial statements. The Funds are
subject to the credit risks that the counter parties to these contracts will
fail to perform; although this risk is minimized by purchasing such agreements
from financial institutions with long standing, superior performance records.
In addition, the Funds are subject to the market risks associated with
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar; however, such changes in the value generally are offset by changes in
the value of the items being hedged by such contracts. The purchase and sale of
forward foreign currency contracts that were open at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Foreign Aggregate Unrealized
Fund Currency Face Value Settlement Date(s) Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lincoln National $1,035,000 Deutschemark $ 674,436 March, May 1997 $ (2,372)
Capital Appreciation 1,950,000 Great Britain Pound 3,113,468 January 1997 (94,283)
Fund, Inc. 7,800,000 Netherlands Guilder 4,623,185 February, March 1997 89,900
5,700,000 Swiss Franc 4,311,929 March 1997 23,114
--------
$ 16,359
========
Lincoln National $6,394,212 Australian Dollar $ 5,172,601 March 1997 $ 96,682
Global Asset 5,323,200 Canadian Dollar 3,960,146 March 1997 (9,132)
Allocation 40,484,700 Deutschemark 26,217,644 March, May 1997 11,662
Fund, Inc. 7,616,176 Danish Krone 1,287,656 March 1997 308
21,968,700 French Franc 4,242,261 March, May 1997 (16,519)
3,249,500 Great Britain Pound 5,372,431 March, May 1997 (68,624)
2,630,120,230 Italian Lira 1,712,000 March 1997 15,431
2,707,002,400 Japanese Yen 24,407,886 January, March 1997 35,283
2,630,000 Netherlands Guilder 1,559,750 May, 1997 22,892
22,741,515 Spanish Peseta 172,551 March 1997 (2,302)
4,332,700 Swedish Krona 637,678 March 1997 168
17,095,150 Swiss Franc 13,130,978 March 1997 120,304
--------
$206,153
========
</TABLE>
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FINANCIAL FUTURES CONTRACTS: The Funds may purchase or sell financial futures
contracts, which are exchange traded, to hedge fluctuation risks of adverse
changes in exchange markets or interest rates. Financial futures contracts
obligate the Funds to take delivery or deliver a financial instrument at a
future date at a specified price. The Funds deposit with its custodian a
specified amount of cash or eligible securities called "initial margin" or
"variation margin". The market value of investments pledged to cover margin
requirements for open positions at December 31, 1996 was $491,016 for the
Lincoln National Special Opportunities Fund, Inc., $4,637,812 for Lincoln
National Global Asset Allocation Fund, Inc., and $2,210,713 for Lincoln National
Social Awareness Fund, Inc. The unrealized gain or loss on the contracts are
reflected in the accompanying financial statements. The Funds are subject to
the market risks of unexpected changes in the underlying markets and interest
rates; however, such changes in the value generally are offset by changes in the
value of the items being hedged by such contracts. Purchased financial futures
contracts open at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Fund Contracts Cost Amount Date Gain (Loss)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lincoln National Global 65 S&P 500 contracts $24,588,069 March 1997 $ 391,820
Asset Allocation 244 U.S. Treasury contracts 26,838,047 March 1997 386,303
Fund, Inc. 9 JGB contracts 5,012,406 March 1997 62,100
46 Gilt contracts 4,193,297 March 1997 48,944
192 Ftse contracts 32,317,563 March 1997 331,892
190 Dax Index contracts 35,428,855 March 1997 (44,334)
----------
$1,176,725
==========
Lincoln National Special 145 S&P 400 midcap stock index $18,729,805 March 1997 $ (126,305)
Opportunities Fund, Inc.
Lincoln National Social
Awareness 115 S&P 500 Future $43,150,410 March 1997 $ (341,660)
</TABLE>
INDEXED SECURITIES: The Funds may invest in indexed securities whose value is
linked either directly or inversely to changes in foreign currencies, interest
rates, commodities, indices, or other reference instruments. Indexed securities
may be more volatile than the reference instrument itself, but any loss is
limited to the amount of the original investment.
REPURCHASE AGREEMENTS: The Funds, through their respective custodians, receive
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.
Repurchase agreements are subject to the risk of the default or insolvency of
the counterparty.
7. CONCENTRATION OF CREDIT RISK
The Lincoln National Money Market Fund, Inc. had investments in securities
issued by banks, including foreign banks, foreign branches of domestic banks,
and other financial institutions representing 42.6% of net assets at December
31, 1996. The ability of these entities to meet their obligations may be
affected by economic conditions related to the industry.
Lincoln National Capital Appreciation Fund, Inc., Lincoln National Equity Income
Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc., and Lincoln
National International Fund, Inc., invest in foreign securities. As a result,
there may be additional risks, such as the investments being subject to
restrictions as to repatriation of cash back to the United States and to
political or economic uncertainties. None of these Funds had investments in
excess of 5% in any individual foreign country except the Lincoln National
International Fund, Inc. Distribution of investments for the Lincoln National
International Fund, Inc. by industry, as a percentage of total investments,
consisted of the following at December 31,1996:
<TABLE>
<CAPTION>
<S> <C>
Banking and Insurance..........................11.7%
Industrial......................................9.9
Health & Personal Care..........................9.0
Office and Business Equipment and Services......8.6
Electrical and Electronics......................8.5
Telecommunications..............................6.7
Finance.........................................5.7
Machinery & Engineering.........................5.1
Real Estate.....................................4.8
Entertainment...................................4.7
Consumer Products and Services..................4.4
Building & Construction.........................4.2
Others (individually less than 4%).............16.7
-----
100.0%
=====
</TABLE>
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
8. Summary of Changes From Capital Share Transactions
Shares Issued Upon
Capital Reinvestment of Capital Shares
Shares Sold Dividends Redeemed
-------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Lincoln National Aggressive Growth Fund, Inc. 5,242,400 $ 56,157,989 7,077 $ 65,795 (591,654) $ (6,581,658)
Lincoln National Bond Fund, Inc. 2,340,450 27,385,295 1,218,139 13,491,950 (901,701) (10,359,540)
Lincoln National Capital Appreciation Fund, Inc. 4,988,791 56,695,794 33,385 352,060 (328,520) (4,053,725)
Lincoln National Equity Income Fund, Inc. 10,160,881 121,799,890 139,249 1,493,579 (253,517) (3,268,237)
Lincoln National Global Asset Allocation Fund, Inc. 1,445,957 17,741,652 498,073 5,639,619 (927,716) (11,224,018)
Lincoln National Growth and Income Fund, Inc. 8,053,315 216,522,961 4,377,795 100,769,413 (665,107) (17,108,792)
Lincoln National International Fund, Inc. 3,749,122 47,488,828 1,305,767 15,350,244 (2,588,240) (32,827,300)
Lincoln National Managed Fund, Inc. 2,090,355 30,761,358 1,590,320 20,897,760 (1,201,733) (16,669,755)
Lincoln National Money Market Fund, Inc. 4,195,254 41,952,539 319,661 3,196,613 (4,700,720) (47,007,202)
Lincoln National Social Awareness Fund, Inc. 2,904,034 58,598,901 560,629 9,583,464 (98,975) (1,827,067)
Lincoln National Special Opportunities Fund, Inc. 3,684,568 92,454,762 1,003,269 22,445,188 (584,289) (13,691,215)
Year Ended December 31, 1996:
Lincoln National Aggressive Growth Fund, Inc. 6,078,765 79,416,717 227,830 2,850,545 (318,939) (4,080,745)
Lincoln National Bond Fund, Inc. 1,788,727 21,267,708 1,275,537 15,554,772 (2,013,517) (23,420,919)
Lincoln National Capital Appreciation Fund, Inc. 8,060,307 109,806,931 545,394 7,469,658 (85,813) (1,210,130)
Lincoln National Equity Income Fund, Inc. 10,947,919 157,067,481 549,558 7,755,394 (203,395) (3,046,093)
Lincoln National Global Asset Allocation Fund, Inc. 2,499,623 32,553,085 1,632,543 22,006,756 (492,722) (6,588,842)
Lincoln National Growth and Income Fund, Inc. 9,033,760 275,921,904 4,811,213 151,848,698 (1,005,429) (31,139,607)
Lincoln National International Fund, Inc. 4,484,198 62,185,534 338,158 4,436,376 (1,318,363) (18,489,610)
Lincoln National Managed Fund, Inc. 2,263,623 35,399,848 3,696,097 60,383,859 (1,483,351) (23,189,653)
Lincoln National Money Market Fund, Inc. 7,448,642 72,720,559 278,649 4,552,350 (6,223,469) (62,234,688)
Lincoln National Social Awareness Fund, Inc. 9,212,323 226,248,315 978,353 23,475,634 (76,562) (1,951,355)
Lincoln National Special Opportunities Fund, Inc. 3,401,045 93,400,233 1,695,200 48,288,651 (1,522,103) (40,795,408)
</TABLE>
<TABLE>
<CAPTION>
Net Increase (Decrease)
Resulting From Capital
Share Transactions
--------------------------
Shares Amount
------ ------
Year Ended December 31, 1995:
<S> <C> <C>
Lincoln National Aggressive Growth Fund, Inc. 4,657,823 $ 49,642,126
Lincoln National Bond Fund, Inc. 2,656,888 30,517,705
Lincoln National Capital Appreciation Fund, Inc. 4,693,656 52,994,129
Lincoln National Equity Income Fund, Inc. 10,046,613 120,025,232
Lincoln National Global Asset Allocation Fund, Inc. 1,016,314 12,157,253
Lincoln National Growth and Income Fund, Inc. 11,766,003 300,183,582
Lincoln National International Fund, Inc. 2,466,649 30,011,772
Lincoln National Managed Fund, Inc. 2,478,942 34,989,363
Lincoln National Money Market Fund, Inc. (185,805) (1,858,050)
Lincoln National Social Awareness Fund, Inc. 3,365,688 66,355,298
Lincoln National Special Opportunities Fund, Inc. 4,103,548 101,208,735
Year Ended December 31, 1996:
Lincoln National Aggressive Growth Fund, Inc. 5,987,656 78,186,517
Lincoln National Bond Fund, Inc. 1,050,747 13,401,561
Lincoln National Capital Appreciation Fund, Inc. 8,519,888 116,066,459
Lincoln National Equity Income Fund, Inc. 11,294,082 161,776,782
Lincoln National Global Asset Allocation Fund, Inc. 3,639,444 47,970,999
Lincoln National Growth and Income Fund, Inc. 12,839,544 396,630,995
Lincoln National International Fund, Inc. 3,503,993 48,132,300
Lincoln National Managed Fund, Inc. 4,476,369 72,594,054
Lincoln National Money Market Fund, Inc. 1,503,822 15,038,221
Lincoln National Social Awareness Fund, Inc. 10,114,114 247,772,594
Lincoln National Special Opportunities Fund, Inc. 3,574,142 100,893,476
</TABLE>
9. Distribution to Shareholder
The Funds declare dividends daily on net investment income and annually, if any,
on net realized gains. Dividends are distributed annually.
10. Capital Loss Carryforward
As of December 31, 1996, the Lincoln National Bond Fund, Inc. had $7,876,109 of
unused capital loss carryforward for federal tax purposes. The loss
carryforward expires in the years 2002 to 2004.
11. Change In Management:
Effective August 29, 1996, Clay Finlay Inc., Subadvisor of the Lincoln National
International Fund Inc., accepted an offer to sell their ownership interest in
the firm to United Asset Management, a New York Stock Exchange ("NYSE") listed
company, which buys the common stock of investment advisory companies as
permanent holdings. The management of Clay Finlay remains with the company and
has complete autonomy to run the business as they were prior to the purchase.
In October 1996, variable contractholders, via proxy solicitation, instructed
Lincoln Life to vote to retain Clay Finlay as the Subadvisor of the Lincoln
National International Fund. The shares were voted as follows:
. 91.56% for retaining Clay Finlay,
. 3.26% against retaining Clay Finlay,
. 5.18% abstained
52
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Selected data for each capital share outstanding throughout the year)
Income from Investment Operation Less Dividends From:
------------------------------------------ ---------------------------------------------
Net Net
Asset Realized and Total
Year Value Net Unrealized From Net Net Realized
Ended Beginning Investment Gain(Loss) on Investment Investment Gain on Total
12/31 of Period Income(Loss) Investments Operations Income Investments Dividends
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund
1993 $10.000 $ - $ - $ - $ - $ - $ -
1994 10.000 0.019 (0.952) (0.933) (0.019) - (0.019)
1995 9.048 0.007 3.135 3.142 (0.007) - (0.007)
1996 12.183 0.004 1.989 1.993 (0.004) (0.192) (0.196)
Lincoln National Bond Fund
1987 12.448 $1.055 ($0.873) $0.182 ($1.055) ($0.434) ($1.489)
1988 11.141 1.053 (0.131) 0.922 (1.053) - (1.053)
1989 11.010 1.027 0.428 1.455 (1.027) - (1.027)
1990 11.438 0.998 (0.240) 0.758 (0.998) - (0.998)
1991 11.198 0.956 0.990 1.946 (0.956) - (0.956)
1992 12.188 0.903 0.052 0.955 (0.903) - (0.903)
1993 12.240 0.758 0.703 1.461 (0.758) (0.250) (1.008)
1994 12.693 0.741 (1.233) (0.492) (0.741) (0.519) (1.260)
1995 10.941 0.803 1.306 2.109 (0.803) - (0.803)
1996 12.247 0.767 (0.481) 0.286 (0.767) - (0.767)
Lincoln National Capital Appreciation Fund
1993 $10.000 $ - $ - $ - $ - $ - $ -
1994 10.000 0.134 0.152 0.286 (0.134) - (0.134)
1995 10.152 0.116 2.764 2.880 (0.116) - (0.116)
1996 12.916 0.135 2.051 2.186 (0.135) (0.463) (0.598)
Lincoln National Equity Income Fund
1993 $10.000 $ - $ - $ - $ - $ - $ -
1994 10.000 0.258 0.335 0.593 (0.258) - (0.258)
1995 10.335 0.275 3.218 3.493 (0.275) (0.046) (0.321)
1996 13.507 0.288 2.451 2.739 (0.288) (0.178) (0.466)
Lincoln National Global Asset Allocation Fund
1987 $10.000 $0.146 ($0.973) ($0.827) ($0.146) $ - ($0.146)
1988 9.027 0.405 0.589 0.994 (0.405) - (0.405)
1989 9.616 0.573 1.165 1.738 (0.573) - (0.573)
1990 10.781 0.549 (0.516) 0.033 (0.549) (0.279) (0.828)
1991 9.986 0.426 1.391 1.817 (0.426) (0.138) (0.564)
1992 11.239 0.404 0.271 0.675 (0.404) (0.306) (0.710)
1993 11.204 0.362 1.522 1.884 (0.362) (0.224) (0.586)
1994 12.502 0.349 (0.702) (0.353) (0.349) (0.656) (1.005)
1995 11.144 0.412 2.247 2.659 (0.412) - (0.412)
1996 13.391 0.392 1.522 1.914 (0.392) (0.687) (1.079)
Lincoln National Growth and Income Fund
1987 $18.031 $0.587 $2.148 $2.735 ($0.587) ($0.539) ($1.126)
1988 19.640 0.540 0.729 1.269 (0.540) (2.997) (3.537)
1989 17.372 0.793 2.859 3.652 (0.793) - (0.793)
1990 20.231 0.512 (0.539) (0.027) (0.512) (1.068) (1.580)
1991 18.624 0.617 5.142 5.759 (0.617) - (0.617)
1992 23.766 0.663 (0.336) 0.327 (0.663) (0.503) (1.166)
1993 22.927 0.610 2.285 2.895 (0.610) (0.519) (1.129)
1994 24.693 0.668 (0.428) 0.240 (0.668) (0.968) (1.636)
1995 23.297 0.701 7.680 8.380 (0.701) (1.221) (1.921)
1996 29.756 0.683 4.943 5.626 (0.683) (1.589) (2.272)
Lincoln National International Fund
1991* $10.000 ($0.030) $0.047 $0.017 ($0.059) $ - ($0.059)
1992 9.958 0.037 (0.867) (0.830) (0.037) - (0.037)
1993 9.091 0.010 3.551 3.561 (0.010) - (0.010)
1994 12.642 0.033 0.385 0.418 (0.033) - (0.033)
1995 13.027 0.069 0.892 0.961 (0.069) (0.521) (0.590)
1996 13.398 0.071 1.244 1.315 (0.071) (0.086) (0.157)
</TABLE>
<TABLE>
<CAPTION>
Net Ratio of Net
Asset Ratio of Investment Net Assets
Year Value Expenses Income Portfolio At End Average
Ended End Total To Average To Average Turnover of Period Commission
12/31 of Period Return** Net Assets Net Assets Rate (000's) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund
1993 $10.000 - - - - $110 -
1994 9.048 (9.52%) 1.11% 0.21% 100.31% 60,697 -
1995 12.183 34.78% 0.94% 0.06% 85.82% 138,471 -
1996 13.980 16.96% 0.82% 0.03% 77.51% 242,609 $0.0332
Lincoln National Bond Fund
1987 $11.141 (0.470%) 0.56% 9.17% 176.75% $50,795 -
1988 11.010 9.24% 0.57% 9.41% 183.79% 59,947 -
1989 11.438 13.23% 0.53% 9.13% 121.19% 91,152 -
1990 11.198 5.45% 0.53% 9.00% 76.67% 103,845 -
1991 12.188 17.96% 0.52% 8.32% 72.80% 139,854 -
1992 12.240 7.68% 0.52% 7.45% 257.27% 168,636 -
1993 12.693 13.39% 0.50% 6.05% 324.90% 226,150 -
1994 10.941 (5.01%) 0.50% 6.40% 213.26% 195,010 -
1995 12.247 19.59% 0.49% 6.90% 139.61% 250,816 -
1996 11.766 1.91% 0.51% 6.56% 142.19% 253,328 N/A***
Lincoln National Capital Appreciation Fund
1993 $10.000 - - - - $110 -
1994 10.152 1.52% 1.18% 1.33% 185.28% 52,904 -
1995 12.916 27.95% 1.07% 1.00% 195.63% 127,936 -
1996 14.504 18.38% 0.93% 0.99% 92.73% 267,242 $0.0374
Lincoln National Equity Income Fund
1993 $10.000 - - - - $110 -
1994 10.335 3.35% 1.26% 2.48% 33.40% 78,861 -
1995 13.507 32.84% 1.15% 2.27% 27.81% 238,771 -
1996 15.780 20.20% 1.08% 1.99% 22.17% 457,153 $0.0292
Lincoln National Global Asset Allocation Fund
1987 $ 9.027 (9.73%) 0.45% 1.42% 12.92% $21,084 -
1988 9.616 7.56% 1.16% 4.36% 136.79% 26,885 -
1989 10.781 16.74% 1.33% 5.59% 79.11% 44,913 -
1990 9.986 (0.12%) 1.14% 5.49% 56.28% 56,088 -
1991 11.239 20.17% 1.04% 4.01% 101.41% 76,269 -
1992 11.204 6.39% 1.07% 3.70% 128.53% 95,607 -
1993 12.502 17.88% 1.05% 3.04% 208.55% 153,500 -
1994 11.144 (2.43%) 1.06% 3.07% 134.33% 195,697 -
1995 13.391 23.58% 0.92% 3.36% 146.49% 248,772 -
1996 14.226 15.96% 1.00% 2.93% 167.33% 316,051 $0.0321
Lincoln National Growth and Income Fund
1987 $19.640 14.75% 0.52% 2.78% 142.01% $177,354 -
1988 17.372 8.06% 0.54% 3.08% 179.88% 209,513 -
1989 20.231 19.86% 0.50% 4.06% 208.98% 295,399 -
1990 18.624 1.68% 0.48% 2.79% 59.47% 356,329 -
1991 23.766 30.83% 0.44% 2.86% 33.59% 581,297 -
1992 22.927 1.24% 0.41% 2.97% 74.50% 765,457 -
1993 24.693 13.31% 0.38% 2.58% 60.76% 1,034,105 -
1994 23.297 0.65% 0.37% 2.85% 76.34% 1,161,324 -
1995 29.756 39.06% 0.35% 2.64% 51.76% 1,833,450 -
1996 33.110 19.90% 0.36% 2.23% 46.70% 2,465,224 $0.0459
Lincoln National International Fund
1991 $ 9.958 (0.42%) 1.06% (0.30%) 25.18% $20,935 -
1992 9.091 (8.41%) 1.46% 0.39% 22.86% 45,627 -
1993 12.642 39.46% 1.24% 0.09% 61.44% 161,470 -
1994 13.027 3.09% 1.24% 0.25% 52.78% 316,350 -
1995 13.398 8.34% 1.27% 0.59% 63.15% 358,391 -
1996 14.556 9.97% 1.19% 0.51% 68.67% 440,375 $0.0196
</TABLE>
53
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Income from Investment Operation Less Dividends From:
---------------------------------------- ------------------------------------------
Net Net
Asset Realized and Total
Year Value Net Unrealized From Net Net Realized
Ended Beginning Investment Gain(Loss) on Investment Investment Gain on Total
12/31 of Period Income Investments Operations Income Investments Dividends
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Managed Fund
1987 $12.248 $0.674 $0.352 $1.026 ($0.674) ($0.317) ($0.991)
1988 12.283 0.666 0.352 1.018 (0.666) (1.108) (1.774)
1989 11.527 0.798 1.186 1.984 (0.798) - (0.798)
1990 12.713 0.705 (0.334) 0.371 (0.705) (0.438) (1.143)
1991 11.941 0.710 1.906 2.616 (0.710) - (0.710)
1992 13.847 0.653 (0.158) 0.495 (0.653) (0.036) (0.689)
1993 13.653 0.584 0.908 1.492 (0.584) (0.409) (0.993)
1994 14.152 0.628 (0.814) (0.186) (0.628) (0.555) (1.183)
1995 12.783 0.623 3.132 3.755 (0.623) (0.020) (0.643)
1996 15.895 0.628 1.291 1.919 (0.628) (0.920) (1.548)
Lincoln National Money Market Fund
1987 $10.000 $0.658 - $0.658 ($0.658) - ($0.658)
1988 10.000 0.744 - 0.744 (0.744) - (0.744)
1989 10.000 0.909 - 0.909 (0.909) - (0.909)
1990 10.000 0.802 - 0.802 (0.802) - (0.802)
1991 10.000 0.571 - 0.571 (0.571) - (0.571)
1992 10.000 0.354 - 0.354 (0.354) - (0.354)
1993 10.000 0.276 - 0.276 (0.276) - (0.276)
1994 10.000 0.381 - 0.381 (0.381) - (0.381)
1995 10.000 0.570 - 0.570 (0.570) - (0.570)
1996 10.000 0.505 - 0.505 (0.505) - (0.505)
Lincoln National Social Awareness Fund
1988 * $10.000 $0.032 $0.454 $0.486 ($0.032) $ - ($0.032)
1989 10.454 0.309 2.920 3.229 (0.309) (0.024) (0.333)
1990 13.350 0.289 (0.989) (0.700) (0.289) (0.154) (0.443)
1991 12.207 0.348 4.242 4.590 (0.348) - (0.348)
1992 16.449 0.399 0.179 0.578 (0.399) (0.051) (0.450)
1993 16.577 0.326 1.792 2.118 (0.326) (0.454) (0.780)
1994 17.915 0.377 (0.461) (0.084) (0.377) (0.812) (1.189)
1995 16.642 0.432 6.491 6.923 (0.432) (0.543) (0.975)
1996 22.590 0.389 5.748 6.137 (0.389) (1.022) (1.411)
Lincoln National Special Opportunities Fund
1987 $16.617 $0.064 $1.316 $1.380 ($0.064) $ - ($0.064)
1988 17.933 0.060 0.327 0.387 (0.060) (2.659) (2.719)
1989 15.601 0.276 4.904 5.180 (0.276) - (0.276)
1990 20.505 0.236 (1.931) (1.695) (0.236) (1.208) (1.444)
1991 17.366 0.323 7.195 7.518 (0.323) - (0.323)
1992 24.561 0.546 1.106 1.652 (0.546) (0.955) (1.501)
1993 24.712 0.530 2.703 3.233 (0.530) (2.937) (3.467)
1994 24.478 0.565 (0.942) (0.377) (0.565) (1.372) (1.937)
1995 22.164 0.616 6.131 6.747 (0.616) (0.912) (1.528)
1996 27.383 0.548 3.867 4.414 (0.548) (1.827) (2.374)
Net Ratio of Net
Asset Ratio of Investment Net Assets
Year Value Expenses Income Portfolio At End Average
Ended End Total To Average To Average Turnover of Period Commission
12/31 of Period Return** Net Assets Net Assets Rate (000's) Rate
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Managed Fund
1987 $12.283 7.35% 0.53% 5.23% 121.98% $121,167 -
1988 11.527 8.17% 0.55% 5.71% 166.57% 140,135 -
1989 12.713 16.00% 0.52% 6.47% 158.73% 182,576 -
1990 11.941 3.41% 0.52% 5.96% 93.38% 204,310 -
1991 13.847 22.59% 0.50% 5.53% 22.70% 276,899 -
1992 13.653 3.69% 0.49% 4.86% 226.66% 343,439 -
1993 14.152 11.91% 0.45% 4.24% 235.59% 445,040 -
1994 12.783 (2.42%) 0.44% 4.45% 160.79% 442,140 -
1995 15.895 30.11% 0.43% 4.37% 112.52% 589,165 -
1996 16.266 12.66% 0.43% 4.05% 108.86% 675,740 $0.0441
Lincoln National Money Market Fund
1987 $10.000 8.02% 0.56% 6.50% - $55,093 -
1988 10.000 5.45% 0.55% 7.21% - 59,160 -
1989 10.000 7.20% 0.54% 9.09% - 88,551 -
1990 10.000 7.61% 0.53% 7.94% - 102,399 -
1991 10.000 7.48% 0.53% 5.79% - 149,555 -
1992 10.000 4.70% 0.53% 3.48% - 92,472 -
1993 10.000 4.46% 0.50% 2.76% - 81,042 -
1994 10.000 3.20% 0.52% 3.82% - 77,177 -
1995 10.000 4.22% 0.52% 5.67% - 75,319 -
1996 10.000 6.40% 0.57% 5.07% - 90,358 N/A ***
Lincoln National Social Awareness Fund
1988 $10.454 4.54% 1.64% 0.30% 10.07% $2,067 -
1989 13.350 28.51% 0.99% 2.43% 63.37% 9,565 -
1990 12.207 (5.54%) 0.65% 2.34% 29.39% 24,674 -
1991 16.449 36.98% 0.56% 2.33% 45.00% 52,959 -
1992 16.577 2.87% 0.55% 2.50% 84.32% 89,669 -
1993 17.915 13.77% 0.51% 1.90% 84.43% 137,606 -
1994 16.642 (0.39%) 0.53% 2.22% 64.97% 163,514 -
1995 22.590 43.50% 0.50% 2.21% 54.02% 297,983 -
1996 27.316 29.53% 0.46% 1.58% 45.90% 636,595 $0.0440
Lincoln National Special Opportunities Fund
1987 $17.933 8.77% 0.56% 0.31% 110.80% $58,866 -
1988 15.601 3.73% 0.59% 0.39% 73.91% 63,982 -
1989 20.505 31.92% 0.55% 1.50% 92.56% 75,245 -
1990 17.366 (7.28%) 0.55% 1.33% 37.50% 83,762 -
1991 24.561 43.14% 0.53% 1.49% 111.60% 132,753 -
1992 24.712 6.24% 0.53% 2.35% 128.49% 189,867 -
1993 24.478 18.31% 0.49% 2.29% 74.11% 273,998 -
1994 22.164 (1.55%) 0.48% 2.49% 74.63% 318,417 -
1995 27.383 32.05% 0.45% 2.39% 90.12% 505,755 -
1996 29.423 17.27% 0.44% 2.00% 88.17% 648,592 $0.0429
</TABLE>
* The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on
August 3, 1997 through December 31, 1987 for the Lincoln National Global
Asset Allocation Fund, Inc., May 2, 1988 through December 31, 1988 for the
Lincoln National Social Awareness Fund, Inc., and May 1, 1991 through
December 31, 1991 for the Lincoln National International Fund Inc.
Accordingly, the total return percentage, ratios, and portfolio turnover
have NOT been calculated on an annualized basis.
** 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 in which Separate Account C, D,
G, and K may invest. The total return percentages in the table are NOT
calculated on the same basis as the performance percentages noted in the
letter at the front of this booklet (those percentages are based upon the
change in unit value).
*** The Average Commission rate is calculated on funds holding long term equity
securities. These funds do not hold long term equity securities; thus, an
average commission rate has not been calculated.
54
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholder of Lincoln National Aggressive Growth Fund,
Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital Appreciation
Fund, Inc., Lincoln National Equity Income Fund, Inc., Lincoln National Global
Asset Allocation Fund, Inc., Lincoln National Growth and Income Fund, Inc.,
Lincoln National International Fund, Inc., Lincoln National Managed Fund, Inc.,
Lincoln National Money Market Fund, Inc., Lincoln National Social Awareness
Fund, Inc., and Lincoln National Special Opportunities Fund, Inc.
We have audited the accompanying statements of net assets of Lincoln National
Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National
Capital Appreciation Fund, Inc., Lincoln National Equity Income Fund, Inc.,
Lincoln National Global Asset Allocation Fund, Inc., Lincoln National Growth and
Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln National
Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National
Social Awareness Fund, Inc., and Lincoln National Special Opportunities Fund,
Inc. (Funds) as of December 31, 1996, and the related statements of operations,
the statements of changes in net assets, and the financial highlights presented
herein for each of the respective years or periods in the period ended December
31, 1996. These financial statements and financial highlights are the
responsibility of the Funds' 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. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the 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 the
Funds at December 31, 1996, the results of their operations, the changes in
their net assets, and the financial highlights presented herein for each of the
respective years or periods in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Fort Wayne, Indiana
January 27, 1997
<PAGE>
Delaware Group Premium Fund, Inc.--
Equity/Income Series
Statement of net assets
December 31, 1996
<TABLE>
<CAPTION>
Number Market
Common stock-96.91% of shares value
-------------------------
<S> <C> <C>
Aerospace & defense-1.46%
General Dynamics 34,500 $ 2,432,250
------------
2,432,250
------------
Automobiles & automotive parts-4.86%
Ford Motor 118,000 3,761,250
General Motors 47,400 2,642,550
ITT Industries 69,300 1,697,850
------------
8,101,650
------------
Banking, finance & insurance-21.35%
American General 47,200 1,929,300
AmSouth Bancorporation 37,900 1,833,413
Aon 59,250 3,680,906
Bank of Boston 33,300 2,139,525
Chase Manhattan 33,600 2,998,800
CIGNA 16,500 2,254,313
Crestar Financial 35,600 2,647,750
First Chicago NBD 44,125 2,371,719
First Union 31,000 2,294,000
ITT Hartford Group 45,000 3,037,500
Mellon Bank 33,800 2,399,800
Mercantile Bancorporation 42,900 2,203,988
Signet Banking 29,900 919,425
Summit Bancorp 59,650 2,609,688
U.S. Bancorp 50,400 2,264,850
------------
35,584,977
------------
Buildings & materials-1.17%
Armstrong World Industries 17,100 1,188,450
Masco 21,100 759,600
------------
1,948,050
------------
Cable, media & publishing-2.30%
McGraw-Hill 83,100 3,832,988
------------
3,832,988
------------
Chemicals-5.20%
duPont (E.I.) deNemours 51,700 4,879,188
Imperial Chemical ADR 27,100 1,409,200
Rhone-Poulenc ADR 35,000 1,185,625
Witco 38,900 1,186,450
------------
8,660,463
------------
Electronics & electrical equipment-6.44%
AMP 50,900 1,953,288
Eaton 31,100 2,169,225
Hubbell Class B 20,000 865,000
Thomas & Betts 59,900 2,658,063
Xerox 58,600 3,083,825
------------
10,729,401
------------
Energy-9.20%
British Petroleum ADR 21,547 3,046,276
Mobil 29,800 3,643,050
Texaco 37,500 3,679,688
USX-Marathon Group 122,000 2,912,750
Williams 54,750 2,053,125
------------
15,334,889
------------
Food, beverage & tobacco-7.85%
American Brands 26,600 1,320,025
Anheuser-Busch 47,200 1,888,000
Heinz (H.J.) 73,700 2,634,775
Philip Morris 29,200 3,288,650
Quaker Oats 48,700 1,856,688
RJR Nabisco Holdings 61,540 2,092,360
------------
13,080,498
------------
Healthcare & pharmaceuticals-14.38%
American Home Products 49,800 2,919,525
Baxter International 96,400 3,952,400
Bristol-Myers Squibb 33,200 3,610,500
Glaxo Wellcome-ADR 54,400 1,727,200
Pharmacia & Upjohn 108,600 4,303,275
SmithKline Beecham ADR Unit 71,000 4,828,000
Tambrands 39,000 1,594,125
Warner-Lambert 13,700 1,027,500
------------
23,962,525
------------
Metals & mining-1.81%
Freeport-McMoRan Copper & Gold Class B 68,400 2,043,450
Reynolds Metals 17,300 975,288
------------
3,018,738
------------
Paper & forest products-3.90%
Georgia-Pacific 17,500 1,260,000
Temple-Inland 40,040 2,167,165
Union Camp 22,000 1,050,500
Weyerhaeuser 42,600 2,018,175
------------
6,495,840
------------
Retail-2.46%
May Department Stores 43,300 2,024,275
Penney (J.C.) 42,600 2,076,750
------------
4,101,025
------------
Telecommunications-5.14%
ALLTEL 57,700 1,810,338
BCE 42,900 2,048,475
BellSouth 38,500 1,554,438
Frontier 139,100 3,147,138
------------
8,560,389
------------
Transportation & shipping-4.19%
Conrail 16,500 1,643,813
Norfolk Southern 11,500 1,006,250
Union Pacific 72,200 4,341,025
------------
6,991,088
------------
Utilities-1.02%
PECO Energy 67,500 1,704,375
------------
1,704,375
------------
Miscellaneous-4.18%
Minnesota Mining & Manufacturing 36,000 2,983,500
Pitney Bowes 73,000 3,978,500
------------
6,962,000
------------
Total common stock
(cost $140,172,412) 161,501,146
------------
Convertible preferred stock-0.65%
Banking, finance & insurance-0.65%
Salomon 7.625% pfd cv Series FSA 35,000 1,080,625
------------
Total convertible preferred stock
(cost $931,875) 1,080,625
------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Repurchase agreements-5.38% amount value
------------------------
<S> <C> <C>
With Chase Manhattan 6.50% 1/2/97
(dated 12/31/96, collateralized by $2,452,000
U.S. Treasury Notes 6.50% due 4/30/99,
market value $2,508,375 and $991,000
U.S. Treasury Notes 7.125% due 9/30/99,
market value $1,037,163) $3,474,000 $ 3,474,000
With J.P. Morgan Securities 6.60% 1/2/97
(dated 12/31/96, collateralized by $2,452,000
U.S. Treasury Notes 7.75% due 1/31/00,
market value $2,652,235 and $452,000
U.S. Treasury Notes 5.50% due 4/15/00,
market value $450,018) 3,040,000 3,040,000
With PaineWebber 6.60% 1/2/97
(dated 12/31/96, collateralized by $634,000
U.S. Treasury Notes 6.75% due 5/31/99,
market value $649,030 and $1,716,000
U.S. Treasury Notes 7.75% due 1/31/00,
market value $1,856,770) 2,452,000 2,452,000
------------
Total repurchase agreements
(cost $8,966,000) 8,966,000
------------
Total market value of securities-102.94%
(cost $150,070,287) 171,547,771
------------
Other assets under liabilities-(2.94%) (4,901,194)
------------
Net assets applicable to 10,426,800 shares
($.01 par value outstanding); equivalent to
$15.98 per share-100.00% $166,646,577
============
</TABLE>
ADR-American Depository Receipt
See accompanying notes
Delaware Group Premium Fund, Inc.--
Emerging Growth Series
Statement of net assets
December 31, 1996
<TABLE>
<CAPTION>
Number Market
Common stock-72.85% of shares value
------------------------
<S> <C> <C>
Aerospace & defense-1.07%
AAR 15,500 $ 468,875
*Kellstrom Industries 16,400 137,350
------------
606,225
------------
Automobiles & automotive parts-0.22%
*Boyd Wheels 8,800 121,550
------------
121,550
------------
Banking, finance & insurance-1.93%
*CRW Financial 16,680 142,823
*First Alliance 12,300 367,463
Medallion Financial 3,900 58,988
*NAL Financial Group 11,300 109,469
*United Dental Care 13,500 412,594
------------
1,091,337
------------
Buildings & materials-0.24%
LSI Industries 10,000 133,750
------------
133,750
------------
Cable, media & publishing-5.46%
*Central European Media Entertainment 15,400 485,100
Evergreen Media Class A 9,300 231,338
*Groupe AB SA-ADR 11,900 171,063
*Hollywood Entertainment 7,700 143,413
*Home Shopping Network 20,452 483,178
*Infinity Broadcasting Class A 13,850 465,706
*Mecklermedia 11,400 227,288
*Metro Networks 4,100 103,013
*Norwood Promotional Products 20,600 365,650
*Univision Communications-Class A 3,700 136,900
*Young Broadcasting Class A 9,200 270,250
------------
3,082,899
------------
Computers & technology-12.88%
*Activision 11,800 148,975
*Aspect Development 3,600 97,650
*Aware 7,700 79,406
*C-COR Electronics 12,700 169,069
*Cadence Design Systems 17,300 687,675
*Cayenne Software 18,300 70,913
*Credit Management Solutions 7,300 103,113
*Cypress Semiconductor 5,800 81,925
*EMC 22,100 732,063
*Elamex S.A. de C.V. 17,700 172,575
*Fore Systems 11,700 385,369
*GTECH Holdings 13,500 432,000
*Geoworks 9,600 234,000
*HPR 24,100 328,363
*INSO 3,600 141,750
*Komag 21,900 592,669
*Maxis 23,100 280,088
*NOVA 19,700 435,863
*PLATINUM Technology 35,395 480,045
*Peerless Systems 21,700 366,188
*Puma Technology 4,100 69,700
*Rogue Wave Software 7,200 115,200
*Ross Systems 33,200 317,475
*Storage Technology 15,700 747,713
------------
7,269,787
------------
Consumer products-0.30%
*Zag Industries Ltd. 10,200 168,938
------------
168,938
------------
Electronics & electrical-6.92%
*Altera 3,100 225,331
*American Residential Services 3,500 94,938
Cable Design Technologies 10,300 318,656
*ESS Technology 11,000 309,375
*ITI Technologies 11,500 173,219
KLA Instruments 4,200 148,838
*Kulicke & Soffa Industries 4,200 80,063
*P-COM 14,900 443,275
Pittston Brink's Group 15,700 423,900
*Protection One 21,400 212,663
*Sawtek 8,000 314,500
*Sipex 18,900 607,163
*TriQuint Semiconductor 16,800 439,950
*Triumph Group 4,600 109,825
------------
3,901,696
------------
Energy-0.48%
*Bouygues Offshore S.A. 21,000 270,375
------------
270,375
------------
Environmental services-5.95%
*Republic Industries 90,240 2,814,361
*Superior Services 26,700 540,675
------------
3,355,036
------------
Food, beverage & tobacco-1.22%
*Sonic 19,250 486,063
*United Natural Foods 11,900 204,531
------------
690,594
------------
Healthcare & pharmaceuticals-6.87%
*Advanced Health 14,400 181,800
*Agouron Pharmaceuticals 9,000 608,625
*Alternative Living Services 14,100 204,450
*American Oncology Resources 29,700 302,569
*Ascend Communications 4,500 279,563
*Capstone Pharmacy 34,100 383,625
*Carriage Services 11,700 259,594
*Columbia Laboratories 12,600 182,700
*DUSA Pharmaceuticals 11,800 81,863
*FPA Medical Management 10,200 226,313
*NeoPath 9,600 176,400
*Renal Treatment Centers 19,200 489,600
*Sano 12,100 181,500
*Total Renal Care Holdings 8,800 319,000
------------
3,877,602
------------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Number Market
of shares value
----------------------
<S> <C> <C>
Industrial machinery-1.56%
*Central Sprinkler 11,900 $ 298,988
*PRI Automation 6,600 297,825
*+Spinnaker Industries 14,000 281,960
-----------
878,773
-----------
Leisure, lodging & entertainment-7.13%
*Ascent Entertainment Group 21,700 341,775
*CapStar Hotel 20,600 404,275
*Cinergi Pictures Entertainment 11,100 22,373
*Dave & Buster's 10,900 217,319
*Equity Marketing 16,200 299,700
*Extended Stay America 23,900 480,988
K2 9,500 261,250
*Mirage Resorts 22,600 488,725
*Morton's Restaurant Group 16,300 275,063
*Overseas Filmgroup 5,100 23,906
*Rio Hotel and Casino 20,500 299,813
*Studio Plus Hotels 18,150 288,131
*Sun International Hotels 10,800 394,200
*Teardrop Golf 4,900 24,041
*Ticketmaster Group 16,800 201,600
-----------
4,023,159
-----------
Metals & mining-1.03%
*Gibraltar Steel 14,200 369,200
*Steel Dynamics 11,100 210,206
-----------
579,406
-----------
Real estate-1.00%
Security Capital Pacific Trust 24,800 567,300
-----------
567,300
-----------
Retail-9.09%
*Alrenco 27,700 289,119
*Aviation Sales 6,800 139,400
*Charming Shoppes 14,200 71,444
*DELIA*S 1,500 29,531
Duty Free International 29,600 429,200
*Eagle Hardware & Garden 13,800 286,350
*Egghead 21,800 113,088
*Finish Line Class A 11,600 244,325
*General Nutrition 18,600 316,200
*Hot Topic 4,600 89,700
*Meyer,(Fred) 12,200 433,100
*Neiman-Marcus Group 10,700 272,850
*Petco Animal Supplies 8,900 181,338
*Piercing Pagoda 10,400 249,600
Russ Berrie 30,500 549,000
Schultz Sav-O Stores 14,400 208,800
*Staples 13,350 241,134
*Vons Companies 6,600 395,175
*Wet Seal 27,900 591,131
-----------
5,130,485
-----------
Telecommunications-2.89%
*ICG Communications 14,000 246,750
*PageMart Wireless 8,700 58,181
*Telco Systems 14,400 276,300
*Tele-Communications International 13,800 185,438
*Teleport Communications Group 16,800 512,400
*TeleSpectrum Worldwide 21,200 333,900
*TresCom International 2,400 18,300
-----------
1,631,269
-----------
Textiles, apparel & furniture-1.51%
*Cutter & Buck 1,200 14,175
*Cyrk 28,300 369,669
*Sport-Haley 8,800 111,100
Wolverine World Wide 12,300 356,700
-----------
851,644
-----------
Transportation & shipping-0.30%
*Midwest Express Holdings 4,700 169,200
-----------
169,200
-----------
Utilities-1.03%
*AES China Generating Class A 23,100 291,638
*York Research 30,700 287,813
-----------
579,451
-----------
Miscellaneous-3.77%
*CUC International 47,960 1,139,050
*NCO Group 4,700 77,844
*NFO Research 12,300 276,750
*National Education 21,200 323,300
Norrell 11,300 307,925
-----------
2,124,869
-----------
Total common stock
(cost $36,958,416) 41,105,345
-----------
Warrants-0.01%
Leisure, lodging & entertainment-0.01%
*Teardrop Golf 3,100 3,294
-----------
Total warrants
(cost $310) 3,294
-----------
Repurchase agreements-26.80% Principal
Amount
----------
With Chase Manhattan 6.50% 1/2/97
(dated 12/31/96, collateralized by $4,136,000
U.S. Treasury Notes 6.50% due 4/30/99,
market value $4,231,404 and $1,670,000
U.S. Treasury Notes 7.125% due 9/30/99,
market value $1,748,938) $5,860,000 5,860,000
With J.P. Morgan Securities 6.60% 1/2/97
(dated 12/31/96, collateralized by $762,000
U.S. Treasury Notes 5.50% due 4/15/00,
market value $759,595 and $4,136,000
U.S. Treasury Notes 7.75% due 1/31/00,
market value $4,474,490) 5,129,000 5,129,000
With PaineWebber 6.60% 1/2/97
(dated 12/31/96, collateralized by $1,070,000
U.S. Treasury Notes 6.75% due 5/31/99,
market value $1,094,947 and $2,895,000
U.S. Treasury Notes 7.75% due 1/31/00,
market value $3,132,143) 4,136,000 4,136,000
-----------
Total repurchase agreements
(cost $15,125,000) 15,125,000
-----------
Total market value of securities-99.66%
(cost $52,083,726) 56,233,639
Other assets over liabilities-0.34% 189,854
-----------
Net assets applicable to 3,874,180 shares
($0.01 par value outstanding); equivalent to
$14.56 per share-100.00% $56,423,493
===========
</TABLE>
*Non-income producing securities for the year ended December 31, 1996.
+Restricted Securities-Investment in securities not registered under the
Securities Act of 1933, as amended. These securities have contractual
restrictions on resale. At December 31, 1996, these securities amounted to
$281,960 or 0.50% of net assets (see note 7).
ADR-American Depository Receipt
See accompanying notes
58
<PAGE>
Delaware Group Premium Fund, Inc.--
Global Bond Series
Statement of net assets
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal value
Bonds-87.23% amount* (U.S. $)
---------------------------
<S> <C> <C>
Australia-11.97%
Australian Government 6.25% 3/15/99 Aus$ 600,000 $ 475,308
Australian Government 9.50% 8/15/03 100,000 88,972
Australian Government 10.00% 2/15/06 100,000 93,095
Banque National De Paris 9.00% 8/13/02 250,000 212,126
New South Wales International 7.00% 4/1/04 150,000 116,487
Queensland Treasury-Global 8.00% 5/14/03 180,000 148,009
----------
1,133,997
----------
Canada-7.71%
Autobahn Schnell 8.50% 3/3/03 C$ 60,000 49,270
Export-Import Bank of Japan 7.75% 10/8/02 160,000 127,084
General Electric Capital of Canada
7.125% 2/12/04 100,000 76,600
Government of Canada 9.00% 12/1/04 100,000 85,778
Government of Canada 10.25% 3/15/14 100,000 97,401
KFW International Finance 6.50% 12/28/01 60,000 45,468
Kingdom of Norway 8.375% 1/27/03 200,000 163,141
Ontario Hydro 10.00% 3/19/01 100,000 85,674
----------
730,416
----------
Denmark-10.21%
Danish Government 8.00% 5/15/03 Dk 800,000 150,337
Kingdom of Denmark 8.00% 11/15/01 2,950,000 555,518
Kingdom of Denmark 8.00% 3/15/06 1,400,000 261,260
----------
967,115
----------
Germany-12.58%
Baden Wurt L-Finance NV 6.63% 8/20/03 Dem 250,000 171,966
Bundesrepblik Deutscheland 8.375% 5/21/01 350,000 260,217
Deut Pfandbriefe Hypobk Bank 5.625% 2/7/03 500,000 329,332
European Bank Reconstruction &
Development 4.875% 2/28/01 500,000 327,060
International Bank Reconstruction &
Development 6.125% 9/27/02 150,000 102,596
----------
1,191,171
----------
New Zealand-5.83%
Government of New Zealand 8.00% 2/15/01 NZ$ 250,000 182,649
Government of New Zealand 8.00% 4/15/04 500,000 369,077
----------
551,726
----------
Spain-7.19%
DSL Finance NV Amsterdam
7.875% 2/10/04 Sp 20,000,000 165,140
Spanish Government 8.30% 12/15/98 50,000,000 403,264
Spanish Government 11.30% 1/15/02 12,000,000 112,711
----------
681,115
----------
Sweden-5.86%
Swedish Government 9.00% 4/20/09 Sk 300,000 51,550
Swedish Government 10.25% 5/5/03 2,300,000 408,949
Swedish Government 13.00% 6/15/01 500,000 94,186
----------
554,685
----------
United Kingdom-11.19%
Abbey National Treasury 8.00% 4/2/03 Gbp 50,000 86,642
Barclays Bank 6.50% 2/16/04 30,000 47,971
Depfa Finance 7.125% 11/11/03 100,000 165,256
Glaxo Wellcome 8.75% 12/1/05 80,000 143,422
Powergen 8.50% 7/3/06 100,000 173,605
Smithkline Beecham Nts 8.375% 12/29/00 150,000 263,297
UK Conversion S47 Stock Guilt 9.00% 3/3/00 100,000 180,241
----------
1,060,434
----------
United States-14.69%
U.S. Treasury Notes 5.625% 11/30/98 $ 400,000 398,296
U.S. Treasury Notes 6.125% 7/31/00 150,000 150,110
U.S. Treasury Notes 7.50% 11/15/01 800,000 842,703
----------
1,391,109
----------
Total bonds
(cost $8,008,272) 8,261,768
----------
Repurchase agreements-5.37%
With Chase Manhattan 6.50% 1/2/97 (dated
12/31/96, collateralized by $56,000
U.S. Treasury Notes 7.125% due 9/30/99,
market value $58,739 and $139,000
U.S. Treasury Notes 6.50% due 4/30/99, market
value $142,119) 197,000 197,000
With J.P. Morgan Securities 6.60% 1/2/97 (dated
12/31/96, collateralized by $139,000 U.S. Treasury
Notes 7.75% due 1/31/00, market value
$150,284 and $26,000 U.S. Treasury Notes
5.50% due 4/15/00, market value $25,512) 172,000 172,000
With PaineWebber 6.60% 1/2/97
(dated 12/31/96, collateralized by $36,000
U.S. Treasury Notes 6.75% due 5/31/99, market
value $36,776 and $97,000 U.S. Treasury Notes
7.75% due 1/31/00, market value $105,199) 139,000 139,000
----------
Total repurchase agreements
(cost $508,000) 508,000
----------
Total market value of securities-92.60%
(cost $8,516,272) 8,769,768
----------
Other assets over liabilities-7.40% 701,050
----------
Net assets applicable to 864,446 shares
($.01 par value outstanding); equivalent to
$10.96 per share-100.00% $9,470,818
==========
</TABLE>
*Principal amount is stated in the currency in which each bond is denominated.
Aus$-Australian Dollars Sp-Spanish Pesetas
C$-Canadian Dollars Sk-Swedish Kroner
Dk-Danish Kroner Gbp-British Pounds
Dem-German Marks $-U.S. Dollars
NZ$-New Zealand Dollars
See accompanying notes
59
<PAGE>
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Equity/ Emerging Global
Income Growth Bond
Series Series Series
-------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments at market $171,547,771 $56,233,639 $8,769,768
- ------------------------------------------------------------------------------------
Dividends and interest receivable 398,518 5,401 228,248
- ------------------------------------------------------------------------------------
Receivable for fund shares sold 73,533 101,738 40,558
- ------------------------------------------------------------------------------------
Receivable for investment securities sold 120,033 272,767 --
- ------------------------------------------------------------------------------------
Cash and foreign currencies 15,710 40,993 446,952
- ------------------------------------------------------------------------------------
Other assets 1,950 16 11,552
- ------------------------------------------------------------------------------------
Total assets 172,157,515 56,654,554 9,497,078
- ------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 5,355,926 151,841 --
- ------------------------------------------------------------------------------------
Payable for fund shares repurchased 64,565 20,207 568
- ------------------------------------------------------------------------------------
Dividend payable -- -- --
- ------------------------------------------------------------------------------------
Other accounts payable and accrued expenses 90,447 59,013 25,692
- ------------------------------------------------------------------------------------
Total liabilities 5,510,938 231,061 26,260
- ------------------------------------------------------------------------------------
NET ASSETS $166,646,577 $56,423,493 $9,470,818
=====================================
Shares outstanding 10,426,800 3,874,180 864,446
====================================================================================
Net asset value $15.98 $14.56 $10.96
====================================================================================
</TABLE>
60
<PAGE>
Statements of operations
<TABLE>
<CAPTION>
Equity/ Emerging Global
Income Growth Bond
Series Series Series
-----------------------------------
Period
5/2/96*
Year ended to
December 31, 1996 12/31/96
<S> <C> <C> <C>
Investment income:
Interest (net of $767 foreign tax withheld for the Global Bond Series) $ 169,527 $ 313,916 $ 259,357
- ---------------------------------------------------------------------------------------------------------------------
Dividends 4,094,834 134,603 --
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 4,264,361 448,519 259,357
- ---------------------------------------------------------------------------------------------------------------------
Expenses:
Management fees 765,301 247,520 26,503
- ---------------------------------------------------------------------------------------------------------------------
Dividend disbursing and transfer agent fees and expenses 12,166 2,362 291
- ---------------------------------------------------------------------------------------------------------------------
Custodial fees 6,986 16,949 5,950
- ---------------------------------------------------------------------------------------------------------------------
Professional fees 2,896 5,035 4,830
- ---------------------------------------------------------------------------------------------------------------------
Accounting fees and salaries 35,398 9,920 1,067
- ---------------------------------------------------------------------------------------------------------------------
Taxes other than income 10,995 2,818 302
- ---------------------------------------------------------------------------------------------------------------------
Registration fees 10,400 11,833 1,180
- ---------------------------------------------------------------------------------------------------------------------
Directors fees 2,226 1,339 581
- ---------------------------------------------------------------------------------------------------------------------
Printing and Postage 1,200 3,756 920
- ---------------------------------------------------------------------------------------------------------------------
Other 10,992 3,347 453
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 858,560 304,879 42,077
- ---------------------------------------------------------------------------------------------------------------------
Less expenses absorbed by Delaware Management Company, Inc. or
Delaware International Advisers Ltd. -- (42,019) (13,906)
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 3,405,801 185,659 231,186
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
Net realized gain (loss) on:
Investment transactions 14,743,863 661,923 83,703
- ---------------------------------------------------------------------------------------------------------------------
Foreign currency transactions -- -- (173)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currencies 14,743,863 661,923 83,530
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 6,445,954 1,635,650 253,496
- ---------------------------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies -- -- 11,271
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments
and foreign currencies 6,445,954 1,635,650 264,767
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currencies 21,189,817 2,297,573 348,297
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $24,595,618 $2,483,232 $ 579,483
=====================================================================================================================
</TABLE>
*Date of initial public offering.
See accompanying notes.
61
<PAGE>
Statements of changes in net assets
Years ended December 31, 1995, and December 31, 1996
<TABLE>
<CAPTION>
Equity/ Emerging Global
Income Growth Bond
Series Series Series*
---------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1995 $ 72,724,783 $ 7,086,759 $ --
- ----------------------------------------------------------------------------------------------------------------------------
Changes from operations:
Net investment income 2,891,895 128,617 --
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 8,991,108 1,200,003 --
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 15,300,401 2,501,445 --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 27,183,404 3,830,065
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from:
Net investment income (2,866,310) (57,059) --
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (1,335,871) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (4,202,181) (57,059) --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions 13,297,450 9,649,899 --
- ----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 36,278,673 13,422,905 --
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1995 $109,003,456 $20,509,664 --
- ----------------------------------------------------------------------------------------------------------------------------
Changes from operations:
Net investment income 3,405,801 185,659 231,186
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currencies 14,743,863 661,923 83,530
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments
and foreign currencies 6,445,954 1,635,650 264,767
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 24,595,618 2,483,232 579,483
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from:
Net investment income (3,496,319) (131,779) (119,481)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (8,895,014) (1,171,368) --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (12,391,333) (1,303,147) (119,481)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions 45,438,836 34,733,744 9,010,816
- ----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 57,643,121 35,913,829 9,470,818
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1996 $166,646,577 $56,423,493 $9,470,818
============================================================================================================================
</TABLE>
*May 2, 1996, was the date of initial public offering for the Global Bond
Series.
See accompanying notes.
62
<PAGE>
Notes to financial statements
December 31, 1996
Delaware Group Premium Fund, Inc. (the "Fund"), is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland corporation and offers ten series:
the Equity/Income Series, the High Yield Series, the Capital Reserves Series,
the Multiple Strategy Series, the Money Market Series, the Growth Series, the
International Equity Series, the Emerging Growth Series, the Value Series and
the Global Bond Series. The shares of the Series are sold only to separate
accounts of life insurance companies. The three series offered under the Multi
Fund Variable Annuity contract are the Equity/Income Series, the Emerging Growth
Series, and the Global Bond Series (the "Series").
The Series' investment objectives are as follows:
Series Investment objective
------ --------------------
Equity/Income Series The investment objective is to seek the highest
possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while
providing higher than average dividend income.
Emerging Growth Series The investment objective is to seek long-term capital
appreciation by investing primarily in small-capital
common stocks and convertible securities of emerging
and other growth-oriented companies. These securities
will have been judged to be responsive to changes in
the market place and to have fundamental
characteristics to support growth. Income is not an
objective.
Global Bond Series The investment objective is to seek current income
consistent with preservation of principal by investing
primarily in fixed income securities that may also
provide the potential for capital appreciation. The
Series is a global fund, as such, at least 65% of the
Series' assets will be invested in fixed income
securities of issuers organized or having a majority of
their assets in or deriving a majority of their
operating income in at least three different countries,
one of which may be the United States.
1. Significant accounting policies
Investment valuation: Investments are stated at market value. Portfolio
securities which are traded on stock exchanges are valued at the last reported
sale price on the exchange or market where primarily traded or listed.
Securities not traded or securities not listed are valued at the mean between
the last quoted bid and asked prices. Long-term debt securities are valued at
their bid quotations. Forward foreign currency contracts are valued at the
forward exchange rates prevailing on the day of valuation. Interpolated values
are derived when the settlement date of the contract is on an interim date for
which quotations are not available. 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 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. Interest income
includes premium and discount amortization on money market instruments; it also
includes original issue and market discount amortization on long-term debt
investments. Realized gains or losses from investment transactions are reported
on an identified cost basis.
Certain fund expenses are paid directly by brokers. The amount of these expenses
was less than 0.01% of each Series' average net assets.
Expenses common to all funds within the Delaware Group are allocated amongst the
funds on the basis of average net assets.
63
<PAGE>
Notes to financial statements--(continued)
Foreign currency transactions: The books and records of each Series are
maintained in U.S. dollars. All assets and liabilities denominated in a foreign
currency are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Income and expenses and purchases and sales
of investments are translated into U.S. dollars at the rate of exchange
prevailing on the respective dates of such transactions.
The effects of changes in foreign currency exchange rates on investments in
securities are not segregated from the effects of changes in market prices of
those securities, but are included with the net realized and unrealized gain or
loss on investment in securities. Reported net realized gains and losses on
foreign currency transactions arise from sales and maturities of forward foreign
currency contracts, currency gains and losses between the trade and settlement
dates on securities transactions, and the differences between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received paid. Net change
in unrealized appreciation or depreciation on translation of assets and
liabilities in foreign currencies arise from changes in the value of other
assets and liabilities at the end of the period resulting from changes in the
exchange rates.
Taxes: Each Series has complied with the special provisions of the Internal
Revenue Code for regulated investment companies. As such, each Series is not
subject to U.S. federal income taxes to the extent that it distributes all of
its taxable income for its fiscal year.
Withholding taxes on foreign interest have been provided for in accordance with
the applicable country's tax rates.
2. Other assets over (under) liabilities
The statement of net assets accounts "Other assets over (under) liabilities" at
December 31, 1996, consisted of the following assets (liabilities):
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
-------------- --------------- -----------
<S> <C> <C> <C>
Cash $ 15,710 $ 40,993 $446,952
- ---------------------------------------------------------------------------------------
Receivable for dividends earned 396,884 2,644 --
- ---------------------------------------------------------------------------------------
Receivable for interest earned 1,634 2,757 228,248
- ---------------------------------------------------------------------------------------
Receivable for securities sold 120,033 272,767 --
- ---------------------------------------------------------------------------------------
Receivable for capital shares sold 73,533 101,738 40,558
- ---------------------------------------------------------------------------------------
Payable for securities purchased (5,355,926) (151,841) --
- ---------------------------------------------------------------------------------------
Payable for capital shares repurchased (64,565) (20,207) (568)
- ---------------------------------------------------------------------------------------
Accrued expenses (90,447) (59,013) (25,692)
- ---------------------------------------------------------------------------------------
Other, net 1,950 16 11,552
- ---------------------------------------------------------------------------------------
$(4,901,194) $ 189,854 $701,050
===========================================
</TABLE>
3. Management fees and other transactions with affiliates
In accordance with the terms of the Investment Management Agreement, the
Equity/Income Series and the Emerging Growth Series pay Delaware Management
Company, Inc. ("DMC"), the investment manager of these Series, and the Global
Bond Series pays Delaware International Advisers Ltd. ("DIAL"), the investment
manager of this Series, a fee which is calculated on the average daily net
assets of each Series, at an annual rate less fees paid to the unaffiliated
directors for the Equity/Income Series. The management fees for the Emerging
Growth Series and the Global Bond Series are calculated daily on the net assets
of each Series at an annual rate without consideration of amounts paid to
unaffiliated directors. The management fee rates are as follows:
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
------------- --------------- -----------
<S> <C> <C> <C>
Management fees as a percentage of average
daily net assets (per annum) 0.60% 0.75% 0.75%
</TABLE>
64
<PAGE>
Notes to financial statements--(continued)
DMC and DIAL have elected voluntarily to waive their fees and reimburse each
Series to the extent that annual operating expenses, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, exceed 0.80% of
average daily net assets for each Series through December 31, 1996. Total
expenses absorbed by DMC and DIAL for the year ended December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
------------- --------------- -----------
<S> <C> <C> <C>
Total expenses absorbed by DMC or DIAL -- $42,019 $13,906
</TABLE>
The Equity/Income Series, the Emerging Growth Series and the Global Bond Series
have engaged Delaware Service Company, Inc. ("DSC"), an affiliate of DMC, to
serve as dividend disbursing and transfer agent for each Series. Effective
August 19, 1996, the Fund also engaged DSC to provide accounting services for
the Fund. Previously, fund personnel provided this service and the related costs
were recorded in salaries and other expense categories in the statement of
operations. For the year ended December 31, 1996, the amounts expensed for each
Series are as follows:
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
------------- --------------- -----------
<S> <C> <C> <C>
Dividend disbursing and transfer agent fees and
other expenses $12,166 $ 2,362 $ 291
Accounting fees 11,875 4,507 666
</TABLE>
On December 31, 1996, the Series had payables to affiliates as follows:
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
------------- --------------- -----------
<S> <C> <C> <C>
Investment management fee payable to DMC or DIAL $55,988 $29,301 $12,597
Dividend disbursing, transfer agent fees, accounting
fees and other expenses payable to DSC 3,903 1,252 1,490
Other expenses payable to DMC and its affiliates 3,385 4,506 6,451
</TABLE>
Certain officers of DMC and DIAL are officers, directors and/or employees of the
Fund. These officers, directors and employees are paid no compensation by the
Fund.
4. Analysis of net assets
The analysis of net assets at December 31, 1996, consisted of the following:
<TABLE>
<CAPTION>
Equity/ Emerging Global
Income Growth Bond
Series Series Series
------------ ----------- ----------
<S> <C> <C> <C>
Common stock par value $.01 per share* $ 104,268 $ 38,742 $ 8,644
- -----------------------------------------------------------------------------------------------------
Paid-in-capital in excess of par value of shares issued 129,692,088 51,398,741 9,002,172
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income** 761,574 180,621 111,532
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments** 14,611,163 655,476 83,703
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments
and foreign currencies 21,477,484 4,149,913 264,767
- -----------------------------------------------------------------------------------------------------
$166,646,577 $56,423,493 $9,470,818
=====================================
</TABLE>
*Each Series has 50,000,000 authorized shares.
**Accumulated undistributed net investment income includes net realized gains on
foreign currencies. Net realized gains on foreign currencies are distributed
as net investment income in accordance with provisions of the Internal Revenue
Code.
65
<PAGE>
Notes to financial statements--(continued)
5. Investments
The aggregate cost of investments purchased, the aggregate proceeds from
investments sold, the cost of investment securities, the aggregate gross
unrealized appreciation, the aggregate gross unrealized depreciation, and the
net unrealized appreciation of investments and other financial instruments for
federal income tax purposes at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
cost of proceeds Cost of unrealized unrealized unrealized
purchases* from sales* investments appreciation depreciation appreciation
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Equity/Income Series $136,351,198 $101,144,143 $150,221,873 $22,237,996 $ 912,098 $21,325,898
Emerging Growth Series 54,837,925 31,059,415 52,181,713 6,092,676 2,040,750 4,051,926
Global Bond Series 9,817,422 1,909,938 8,516,272 266,316 12,820 253,496
</TABLE>
*Does not include U.S. government securities and temporary cash investments.
6. Supplemental financial instrument information
Forward foreign currency contracts: The Global Bond Series may purchase or sell
forward foreign currency contracts to hedge risks of fluctuations in specific
transactions or portfolio positions. Forward foreign currency contracts obligate
the Funds to take or deliver a financial instrument of foreign currency at a
future date at a specified price. The unrealized gain or loss on the contracts
is reflected in the accompanying financial statements. The Series is subject to
the credit risks that the counterparties to these contracts will fail to
perform; although this risk is minimized by purchasing such agreements from
financial institutions with long standing, superior performance records. In
addition, the Series is subject to the market risks associated with
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar; however, such changes in the value generally are offset by changes in
the value of the items being hedged by such contracts. Forward foreign currency
contracts that were open at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Contract In exchange Settlement Unrealized
Fund to deliver for date gain
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Bond Series 1,328,567 Deutsche Marks $877,000 2/28/97 $11,552
</TABLE>
Repurchase agreements: Each Series may invest in a pooled cash account along
with other members of the Delaware Group of Funds. The aggregate daily balance
of the pooled cash account is invested in repurchase agreements secured by
obligations of the U.S. government. The respective collateral is held by each
Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
7. Concentration of credit risk
Each Series may invest up to 10% of its total assets in illiquid securities
which include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect the Series' ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities. These securities, if any, have been
denoted in each Series' Statement of net assets.
66
<PAGE>
Notes to financial statements--(continued)
The Global Bond Series invests in foreign securities. As a result, there may be
additional risks, such as the investments being subject to restrictions as to
repatriation of cash back to the United States and to political or economic
uncertainties.
Distribution of investments for the Global Bond Series by industry, as a
percentage of net assets, consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Foreign Government................................ 46%
U.S. Government................................... 15
Banking........................................... 12
Financial Services................................ 8
Pharmaceuticals................................... 4
Utilities......................................... 2
Cash and other.................................... 13
---
100%
===
</TABLE>
8. Summary of changes from capital share transactions
<TABLE>
<CAPTION>
Shares issued
upon Capital Net increase
Capital reinvestment of 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, 1995:
Equity/Income Series 1,543,303 $20,442,574 345,969 $ 4,202,181 (877,396) $(11,347,305) 1,011,876 $13,297,450
Emerging Growth Series 1,127,143 13,704,620 5,605 57,059 (367,575) (4,111,780) 765,173 9,649,899
Global Bond Series -- -- -- -- -- -- -- --
Year ended December 31, 1996*:
Equity/Income Series 3,486,920 $52,083,570 899,233 $12,391,333 (1,307,916) $(19,036,067) 3,078,237 $45,438,836
Emerging Growth Series 3,395,485 49,046,522 101,808 1,303,147 (1,086,091) (15,615,925) 2,411,202 34,733,744
Global Bond Series 876,461 9,137,415 11,182 119,481 (23,197) (246,080) 864,446 9,010,816
</TABLE>
*May 2, 1996, was the date of initial public offering for the Global Bond
Series.
9. Distributions to shareholders
The Equity/Income Series declares dividends from net investment income quarterly
and net realized gain, if any, annually. The Emerging Growth Series declares
dividends from net investment income and net realized capital gains, if any,
annually. The Global Bond Series declares dividends from net investment income
monthly and net realized gains, if any, annually.
Dividends from net investment income and distributions from net realized gain
from security transactions payable on January 30, 1997, to shareholders of
record January 28, 1997, were as follows:
<TABLE>
<CAPTION>
Equity/Income Emerging Growth Global Bond
Series Series Series
------------- --------------- -----------
<S> <C> <C> <C>
Dividends per share from net investment income
Distributions per share from net realized gain from $0.070 $0.050 $0.130
security transactions 1.350 0.180 0.085
</TABLE>
The ex-dividend date was January 29, 1997.
67
<PAGE>
Financial highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Income from investment operations Less dividends from:
----------------------------------------- -------------------------------------
Net Net Net
asset realized and Total asset
Year value Net unrealized from Net Net realized value
ended beginning investment gain (loss) on investment investment gain on Total end
12/31 of period income (loss) investments operations income investments dividends of period
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity/Income Series
1988* $10.000 $0.093 $ 0.067 $ 0.160 $ - $ - $ - $10.160
1989 10.160 0.281 1.034 1.315 (0.075) - (0.075) 11.400
1990 11.400 0.449 (1.919) (1.470) (0.560) (0.130) (0.690) 9.240
1991 9.240 0.450 1.550 2.000 (0.490) - (0.490) 10.750
1992 10.750 0.416 0.504 0.920 (0.450) - (0.450) 11.220
1993 11.220 0.434 1.266 1.700 (0.410) - (0.410) 12.510
1994 12.510 0.412 (0.422) (0.010) (0.420) (0.600) (1.020) 11.480
1995 11.480 0.416 3.574 3.990 (0.430) (0.210) (0.640) 14.830
1996 14.830 0.377 2.398 2.775 (0.420) (1.205) (1.625) 15.980
Emerging Growth Series
1993* $10.000 $ - $ 0.200 $ 0.200 $ - $ - $ - $10.200
1994 10.200 0.079 (0.119) (0.040) - - - 10.160
1995 10.160 0.098 3.852 3.950 (0.090) - (0.090) 14.020
1996 14.020 0.050 1.380 1.430 (0.090) (0.800) (0.890) 14.560
Global Bond Series
1996* $10.000 $0.339 $ 0.831 $ 1.170 $(0.210) - $(0.210) $ 10.96
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
expenses to Ratio of net net investment
Ratio of average met investment income to average Net assets
Year expenses assets prior income net assets prior Portfolio at end Average
ended Total to average to expense to average to expense turnover of period commission
12/31 return** net assets limitation net assets limitation rate (000's omitted) rate paid
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity/Income Series
1988* 3.77% 2.00% 2.00% 6.40% 6.40% - $ 1,873 N/A
1989 13.04% 1.31% 1.31% 5.06% 5.06% 26% 12,959 N/A
1990 (13.31%) 0.96% 0.96% 5.80% 5.80% 34% 29,598 N/A
1991 22.32% 0.85% 0.85% 4.46% 4.46% 79% 38,840 N/A
1992 8.82% 0.79% 0.81% 3.86% 3.84% 72% 38,278 N/A
1993 15.45% 0.75% 0.76% 3.95% 3.94% 67% 65,519 N/A
1994 (0.20%) 0.71% 0.71% 3.63% 3.63% 91% 72,725 N/A
1995 36.12% 0.69% 0.69% 3.24% 3.24% 85% 109,003 N/A
1996 20.72% 0.67% 0.67% 2.66% 2.66% 81% 166,647 0.06
Emerging Growth Series
1993* 2.00% *** *** *** *** *** $ 204 N/A
1994 (0.39%) 0.80% 1.47% 1.63% 0.96% 59% 7,087 N/A
1995 39.21% 0.80% 0.96% 1.03% 0.87% 76% 20,510 N/A
1996 11.00% 0.80% 0.92% 0.56% 0.44% 112% 56,423 0.06
Global Bond Series
1996* 11.79% 0.80% 1.19% 6.51% 6.12% 56% $ 9,471 N/A
</TABLE>
* The date of initial public offering was July 28, 1988, for the Equity/Income
Series, December 27, 1993, for the Emerging Growth Series and May 2, 1996,
for the Global Bond Series. Ratios and total return have been annualized for
the Equity/Income Series; total return has not been annualized for the
Emerging Growth Series; ratios and portfolio turnover have been annualized
and total return has not been annualized for the Global Bond Series.
** 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 in which Separate Account C, D, G and K may
invest. The total return percentages in the table are NOT calculated on the
same basis as the performance percentages notes in the letter at the front of
this booklet (those percentages are based upon the change in unit values).
***The ratios of expenses and net investment income to average net assets and
portfolio turnover have been omitted as management believes that such ratios
are not meaningful due to the limited assets of the Series.
68
<PAGE>
Delaware Group Premium Fund, Inc.
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc.
We have audited the accompanying statements of net assets and statements of
assets and liabilities of the "Delaware Group Premium Fund, Inc." (the "Fund")
(comprising, respectively, the Equity/Income Series, the Emerging Growth Series
and the Global Bond Series) as of December 31, 1996, and the related statements
of operations, the statements of changes in net assets, and the financial
highlights for each of the periods indicated therein. 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. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the 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 the
Equity/Income Series, the Emerging Growth Series and the Global Bond Series of
Delaware Group Premium Fund, Inc. at December 31, 1996, and the results of their
operations, the changes in their net assets, and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 31, 1997
69
