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Special Opportunities
PROSPECTUS AND APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 15,
Registration Number 2-80731 filed on Form N1-A on February 28, 1995.
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STATEMENT OF ADDITIONAL INFORMATION
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Special Opportunities Fund, Inc. (the Fund) dated
April 29, 1995. You may obtain a copy of the Fund' 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.
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
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The date of this Statement of Additional Information
is April 29, 1995.
Form 19462-SO(SAI)4/95
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TABLE OF CONTENTS
PAGE
Investment Objective 2
Investment Policies 2
Investment Restrictions 3
Portfolio Transactions and Brokerage 4
Determination of Net Asset Value 4
Appendix
Investment Adviser and Sub-Adviser A-1
Directors and Officers A-2
Investment policies and techniques (continued):
options, futures, securities lending, repurchase
and reverse repurchase agreements A-2
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 maximum capital appreciation.
Realization of current investment income is not expected to be significant. 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. There can be no
assurance that the objective of the Fund will be achieved.
This Fund is managed as an aggressive, high-risk common stock fund. Investments
are made in the common stock securities of smaller, less-established companies
with above-average long-term growth prospects. Since these companies may be
involved in newer and more rapidly changing industries and technologies, there
may also be a high degree of business risk as well as market risk associated
with this kind of investing.
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, in the Prospectus.)
In addition, the Fund may engage in these Strategic Portfolio Transactions:
A. OPTIONS TRADING
The Fund may write (sell) put and covered call options and purchase covered put
options for stock and stock indices and to 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.
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
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Fund wrote a put, expecting the price of a security to increase, and it
decreased; or if the Fund wrote a call, expecting the price to decrease but it
increased, the Fund could suffer a loss if the premium received in each case did
not equal the difference between the exercise price and the market price. See
the Statement of Additional Information for a more complete description of put
and call options and the risks involved.
B. 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.
C. LENDING OF PORTFOLIO SECURITIES
The Fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions are receive collateral from the borrower, in
the form of cash (which may be invested in short-term securities), U.S.
government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, and will be in the actual or constructive
possession of the Fund during the term of the loan. The Fund will retain the
incidents of ownership of the loaned securities and will be entitled to the
interest or dividends payable on the loaned securities. In addition, the Fund
will receive interest on the amount of the loan. The loans will be terminable by
the Fund at any time and will not be made to any affiliates of the Fund or the
Adviser. The Fund may pay reasonable finders' fees to persons unaffiliated with
it in connection with the arrangement of the loans.
D. REPURCHASE AGREEMENTS
The Fund may make short-term investments in repurchase agreements. A repurchase
agreement typically involves the purchase by the Fund of securities (U.S.
government or other
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money market securities) from a financial institution such as a bank, broker or
savings and loan association, coupled with an agreement by the seller to
repurchase the same securities from the Fund at the specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The difference between the purchase price to the Fund and the resale
price to the seller represents the interest earned by the Fund which is
unrelated to the coupon rate or maturity of the purchased security. If the
seller defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement declines, or the Fund may incur disposition
costs in connection with liquidating the collateral. If bankruptcy proceedings
are commenced with respect to the seller, realization upon the collateral by the
Fund may be delayed or limited and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the bankruptcy
proceedings. However, repurchase agreements will be made only with brokers or
dealers deemed by the Board of Directors to be creditworthy; they will be fully
collateralized; and the collateral for each transaction will be in the actual or
constructive possession of the Fund during the term of the transaction, as
provided in the agreement.
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 without the
affirmative vote of a majority of the outstanding voting securities of the Fund,
as defined in the Act. See "General Information," in the Prospectus. For
purposes of the following restrictions: (1) all percentage limitations apply
immediately after the making of an investment; and (2) any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio.
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. 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.
3. 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 one time. See "Investment Policies--
Lending
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of Portfolio Securities," page in the Prospectus. The purchase of debt
securities and the entry into repurchase agreements are not considered
the making of loans.
4. Purchase puts, calls or combinations thereof, except the Fund may write
and purchase put and call options and effect closing transactions as
described under "Investment Policies."
5. 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.
6. 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.
7. Purchase securities on margin, except for such short term loans as are
necessary for the clearance of purchases of portfolio securities.
8. Make short sales of securities.
9. Purchase or sell commodities or commodity futures contracts, except
financial futures contracts and options thereon.
10. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
11. Invest in companies for the purpose of exercising control.
12. 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.
13. Pledge its assets or assign or otherwise encumber them except to secure
borrowing effected within the limitations set forth in Restriction 1 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.)
14. 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
purchase or sale of futures contracts are not deemed to be in issuance of
a senior security.)
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Fund's investment adviser (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
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sales of securities on a securities 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, 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 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. The Adviser may
from time to time direct trades to brokers which
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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 $770,480,
$464,505, and $439,604, during 1994, 1993, and 1992 respectively.
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 New Year's Day, January 2 (observed);
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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Special Opportunities
STATEMENT OF ADDITIONAL INFORMATION APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 15,
Registration Number 2-80731 filed on Form N-1A on February 28, 1995.
