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PROSPECTUS AND APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 10,
Registration Number 2-80741 filed on Form N-1A on April 30, 1995.
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STATEMENT OF ADDITIONAL INFORMATION
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.
(Formerly: Lincoln National Growth Fund, Inc.)
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Growth and Income Fund, Inc. (the Fund) dated
April 29, 1995. You may obtain a copy of the Fund's Prospectus on request and
without charge. Please write Kim Oakman, The Lincoln National Life Insurance
Company, P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-348-1212,
Extension 4912.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
The date of this Statement of Additional Information is April 29, 1995.
TABLE OF CONTENTS
Page
Investment Objective 2
Investment Policies 2
Investment Restrictions 2
Portfolio Transactions and Brokerage 3
Determination of Net Asset Value 4
Appendix
Investment Advisor and Sub-Advisor A-1
Directors and Officers A-2
Investment Policies and Techniques (continued) A-2
Options, Futures, Securities Lending, Repurchase and Reverse
Repurchase Agreements
Custodian A-6
Independent Auditors A-7
Financial Statements A-7
Bond Ratings A-7
Commercial Paper Ratings A-8
U.S. Government Obligations A-8
Taxes A-8
State Requirements A-9
Derivative Transactions - Definitions A-9
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INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital appreciation. The
Fund's investment objective and policies are fundamental and cannot be changed
without the affirmative vote of a majority of the outstanding voting securities
of the Fund. See "General Information", in the Prospectus Appendix. There can be
no assurance that the objective of the Fund will be achieved.
This Fund invests in common stocks of established companies with the objective
of maximizing long-term capital appreciation, while giving some emphasis to
earnings. The primary risk is that associated with common stock investing and
the shares will fluctuate in value with the common stock market. Because the
policy of this Fund is to emphasize investment in established companies, it is
expected that the volatility will be in line with the broad stock market indices
such as the Dow Jones Industrial Average and the Standard & Poor's 500 Composite
Index.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of common stock and securities convertible into common stock. (See Description
of the Fund and Investment Policies and Techniques, in the Prospectus.)
In addition, the Fund may write (sell) and purchase options and invest in
futures contracts and options thereon. A detailed description of put and call
options and futures contracts and options thereon appears in the Appendix.
Options Trading
The Fund may write (sell) put and covered call options and purchase covered put
options for stock and stock indices and write and purchase options to close out
positions previously entered into by the Fund; provided, that the aggregate cost
of all outstanding options would not exceed 30% of the Fund's total assets,
although the ultimate loss to the Fund from options could be substantially
greater than 30%. The Fund will only write and purchase options in standard
contracts which may be quoted on NASDAQ or traded on the national securities
exchanges.
Put and call options are generally short-term contracts with durations of nine
months or less. The Investment Adviser will generally write covered call options
when it anticipates declines in the market value of the portfolio securities and
the premiums received may offset to some extent the decline in the Fund's net
asset value. On the other hand, writing put options is a useful portfolio
investment strategy when the Fund has cash or other reserves and it intends to
purchase securities but expects prices to decline.
Generally, the risk to the Fund in writing options is that the Investment
Adviser's assumption about the price trend of the underlying security may prove
inaccurate. If, as a result, the Fund wrote a put, expecting the price of a
security to increase, and it decreased; or if the Fund wrote a call, expecting
the
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transaction, as provided in the agreement.
Futures Contracts and Options Thereon
Generally, the Fund may buy and sell financial futures contracts ("futures
contracts") and related options thereon solely for hedging purposes. The Fund
may sell a futures contract or purchase a put option on that futures contract to
protect the value of the Fund's portfolio in the event the Investment Adviser
anticipates declining security prices. Similarly, if security prices are
expected to rise, the Fund may purchase a futures contract or a call option
thereon. (For certain limited purposes, the fund is also authorized to buy
futures contracts on an unleveraged basis and not as an anticipatory hedge. See
the SAI for a more detailed explanation.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid for option
premiums exceeds 5% of the Fund's total assets. In addition the Fund will not
hedge more than one-third of its net assets. See the SAI Appendix for a more
complete description of the use of futures contracts and options thereon as
well as the risks related thereto.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the Prospectus, the
following investment restrictions have been adopted by the Fund as fundamental
policies, except as otherwise indicated. Under the Investment Company Act of
1940, as amended (the Act), a fundamental policy may not be changed with out the
affirmative vote of a majority of the outstanding voting securities of the Fund,
as defined in the Act.
The fund may not:
1. Invest more than 25% of its total assets in the securities of issuers in
any one industry. For purposes of this restriction, gas, electric, water and
telephone utilities are treated as separate industries.
2. Invest in the securities of any one issuer unless at least 75% of the value
of the Fund's total assets is represented by: (a) U.S. government
obligations, cash and cash items, (b) securities of other investment
companies, and (c) securities of issuers as to each of which, at the time
the investment was made, the Fund's investment in the issuer did not exceed
5% of the Fund's total assets.
3. Purchase or sell real estate or interests therein, although it may purchase
securities of issuers which engage in real estate operations or securities
which are secured by interests in real estate.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed
one-third of its total assets at any
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transaction, as provided in the agreement.
Futures Contracts and Options Thereon
Generally, the Fund may buy and sell financial futures contracts ("futures
contracts") and related options thereon solely for hedging purposes. The Fund
may sell a futures contract or purchase a put option on that futures contract to
protect the value of the Fund's portfolio in the event the Investment Adviser
anticipates declining security prices. Similarly, if security prices are
expected to rise, the Fund may purchase a futures contract or a call option
thereon. (For certain limited purposes, the fund is also authorized to buy
futures contracts on an unleveraged basis and not as an anticipatory hedge. See
the SAI for a more detailed explanation.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid for option
premiums exceeds 5% of the Fund's total assets. In addition the Fund will not
hedge more than one-third of its net assets. See the SAI Appendix for a more
complete description of the use of futures contracts and options thereon as well
as the risks related thereto.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the Prospectus, the
following investment restrictions have been adopted by the Fund as fundamental
policies, except as otherwise indicated. Under the Investment Company Act of
1940, as amended (the Act), a fundamental policy may not be changed with out the
affirmative vote of a majority of the outstanding voting securities of the Fund,
as defined in the Act.
The fund may not:
1. Invest more than 25% of its total assets in the securities of issuers in
any one industry. For purposes of this restriction, gas, electric, water and
telephone utilities are treated as separate industries.
2. Invest in the securities of any one issuer unless at least 75% of the value
of the Fund's total assets is represented by: (a) U.S. government
obligations, cash and cash items, (b) securities of other investment
companies, and (c) securities of issuers as to each of which, at the time
the investment was made, the Fund's investment in the issuer did not exceed
5% of the Fund's total assets.
3. Purchase or sell real estate or interests therein, although it may purchase
securities of issuers which engage in real estate operations or securities
which are secured by interests in real estate.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed
one-third of its total assets at any
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one time. See "Investment Policies--Lending of Portfolio Securities". The
purchase of debt securities and the entry into repurchase agreements are
not considered the making of loans.
5. Purchase puts, calls or combinations thereof, except the Fund may write and
purchase put and call options and may effect closing transactions as
described under "Investment Policies".
6. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of
portfolio securities.
7. Invest more than 10% of its total assets in securities (including
repurchase agreements maturing in more than seven days) which are subject to
legal or contractual restrictions upon resale or are otherwise not readily
marketable.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
9. Make short sales of securities.
10. Purchase of sell commodities or commodity futures contracts, except
financial futures contracts and options thereon.
11. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
12. Invest in companies for the purpose of, or with the effect of, acquiring
control.
13. Invest in interests in oil, gas and other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
14. Invest in securities of any issuer if, to the knowledge of the Fund,
officers or directors of the Fund or its Adviser, who individually own
beneficially 1/2 of 1% or more of the securities of such issuer,
collectively own beneficially more than 5% of the securities of such issuer.
15. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 2 in the
Prospectus. (For purposes of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial margin for futures contracts are not deemed to be pledges of
assets.)
16. Issue senior securities as defined in the Act except insofar as the Fund
may be deemed to have issued a senior security by borrowing money in
accordance with the restrictions described above. (For the purpose of this
restriction, collateral arrangements with respect to the writing of options
and initial margin deposits for futures contracts and the
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purchase or sale of futures contracts are not deemed to be the issuance of
a senior security.)
17. Hold more than 10% of the outstanding voting securities of any one issuer.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. in the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
The Adviser currently provides investment advice to a number of other clients.
See Investment Adviser and Sub-Adviser in the Appendix. It will be the practice
of the Adviser to allocate purchase and sale transactions among the Fund and
others whose assets it manages in such manner as it deems equitable. In making
such allocations, major factors to be considered are investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. Portfolio securities are not
purchased from or sold to the Adviser or any affiliated person (as defined in
the Act) of the Adviser.
In connection with effecting portfolio transactions, primary consideration will
be given to securing most favorable price and efficient execution. Within the
framework of this policy, the reasonableness of commission or other transaction
costs is a major factor in the selection of brokers and is considered together
with other relevant factors, including financial responsibility, research and
investment information and other services provided by such brokers. It is
expected that, as a result of such factors, transaction costs charged by some
brokers may be greater than the amounts other brokers might charge. The Adviser
may determine in good faith that the amount of such higher transaction costs is
reasonable in relation to the value of the brokerage and research services
provided. The Board of Directors of the Fund will review regularly the
reasonableness of commission and other transaction costs incurred by the Fund in
the light of facts and circumstances deemed relevant from time to time, and, in
that connection, will receive reports from the Adviser and published data
concerning transaction costs incurred by institutional investors generally. The
nature of the research services provided to the Adviser by brokerage firms
varies from time to time but generally includes current and historical financial
data concerning particular companies and their securities; information and
analysis concerning securities markets and economic and industry matters; and
technical and statistical studies and data dealing with various investment
opportunities, risks and trends, all of which the Adviser regards as a useful
supplement to its own internal research capabilities.
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The Adviser may from time to time direct trades to brokers which have provided
specific brokerage or research services for the benefit of the Adviser's
clients; in addition the Adviser may allocate trades among brokers that
generally provide superior brokerage and research services. Research services
furnished by brokers are used for the benefit of all of the Adviser's clients
and not solely or necessarily for the benefit of the Fund. The Adviser believes
that the value of research services received is not determinable and does not
significantly reduce its expenses. The Fund does not reduce its fee to the
Adviser by any amount that might be attributable to the value of such services.
The aggregate amount of brokerage commissions paid by the Fund was $2,429,000,
$1,224,210, and $1,172,854, during 1994, 1993 and 1992, respectively.
If the Fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same broker-
dealer who executed the sale of the option. If a call written by the Fund is
exercised, normally the sale of the underlying securities will be executed by
the same broker-dealer who executed the sale of the call.
The writing of options by the Fund will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write may be affected by
options written by other investment advisory clients of its Adviser. An exchange
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions. As of the date of this Prospectus,
these limits (which are subject to change) are 2,000 options (200,000 shares) in
each class of puts or calls.
DETERMINATION OF NET ASSET VALUE
A description of the days on which the Fund's net asset value per share will be
determined is given in the Prospectus. The New York Stock Exchange's most recent
announcement (which is subject to change) states that in 1995 it will be closed
on President's Day, February 20; Good Friday, April 14; Memorial Day, May 29;
Independence Day, July 4; Labor Day, September 4; Thanksgiving Day, November 23;
and Christmas Day, December 25. It may also be closed on other days.
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STATEMENT OF ADDITIONAL INFORMATION APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 10,
Registration Number 2-80741 filed on Form N-1A on April 30, 1995.
