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As filed with the Securities and Exchange Commission on April 28, 1995
Registration No. 33-13530
-------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [___]
Post-Effective Amendment No. 10 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [___]
Amendment No. 12 [ X ]
(Check appropriate box or boxes)
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Lincoln National Global Asset Allocation Fund, Inc.
(Formerly: LINCOLN NATIONAL PUTNAM MASTER FUND, INC.)
(Exact name of registrant as specified in charter)
1300 South Clinton Street
Fort Wayne, Indiana 46802
(Address of Principal Executive Offices - Zip Code)
Registrant's Telephone Number, including Area Code (219)455-2000
Jack D. Hunter, Esq.
200 East Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
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Fiscal year-end: December 31
- --------------------------------------------------------------------------------
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. Pursuant to Rule 24f-2(b)(2), the Registrant filed a Rule 24f-2 Notice for
the last fiscal year (1994) on February 21, 1995.
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It is proposed that this filing will become effective:____
[ X ] On April 29, 1995 pursuant to paragraph (b) of Rule 485.
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 10 AND
AMENDMENT NO. 12
to
Registration on Form N-1A
This amendment consists of the following papers and documents:
Facing Sheet
Contents sheet
Cross-reference sheet
Part A -
Prospectus
Part B -
Statement of Additional Information
Part C -
Items 24 through 32
Signatures
Exhibit Index
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
<TABLE>
<CAPTION>
Item Number - Part A Location in Prospectus
- -------------------- ----------------------
<S> <C>
1. Cover Page Preface
2. Synopsis Not Applicable
3. Condensed Financial
Information Preface
4. General Description of Description of the Fund; Investment
Registrant Policies and Techniques; Investment
Restrictions; Strategic Portfolio
Transactions (Prospectus and
Appendix)
5. Management of the Fund Description of the Fund; Investment
Policies and Techniques; Management
of the funds (Appendix)
5A. Management's Discussion Management Discussion of Fund
of Fund Performance Performance (Appendix)
6. Capital Stock and Other Description of Shares; Sales and
Securities Redemption of Shares; General
Information; Distribution and
Federal Income Tax Considerations
(All in Appendix)
7. Purchase of Securities Net Asset Value; Purchase of
Being Offered Securities Being Offered; Sale and
Redemption of Shares (All in Appendix)
8. Redemption or Repurchase Sale and Redemption of Shares
(Appendix)
9. Legal Proceedings Not Applicable
Location in Statement of
Item Number - Part B Additional Information
- -------------------- ------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LNGAA - CROSS REFERENCE SHEET (Continued)
<S> <C>
14. Management of the Directors and Officers (Appendix)
Fund
15. Control Persons and See "Management of the Funds" and
Principal Holders of "Description of Shares" in the
Securities Prospectus Appendix
16. Investment Advisory Investment Advisor and Sub-Advisor;
and Other Services Custodian; Independent Auditors (All in
Appendix)
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Not Applicable
Other Securities
19. Purchase, Redemption Purchase of Securities Being Offered;
and Pricing of Sale and Redemption of Shares; and
Securities Being Offered Net Asset Value; all in the Prospectus
Appendix
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Not Applicable (See the SAI for the
Performance Data Variable Annuity Account on Form
N-4.)
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
THESE PAGES ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING 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.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Shares of all the Funds are sold to Lincoln National Life Insurance Company
(Lincoln Life) for allocation to our Variable Annuity Account C (the Variable
Annuity Account [VAA]) to fund Variable Annuity Contracts and for allocation to
our Variable Life Account K to fund Variable Life Insurance Contracts. Shares of
the Bond, Growth and Income, Managed, Money Market, and Special Opportunities
Funds are sold to Lincoln Life for allocation to our Variable Life Account D to
fund Variable Life Insurance Contracts. Shares of the Growth and Income Fund and
Special Opportunities Fund are sold to Lincoln Life for allocation to our
Variable Life Account G to fund Variable Life Insurance Contracts. Each of these
Variable Life and Annuity Accounts may be referred to as a Variable Account. For
each Fund listed above, see Description of the Fund in its Prospectus, for a
statement of that Fund's investment objective. We refer to each of these funds
individually as a Fund; collectively, the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THESE PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
These Prospectuses set forth concisely the information about each Fund that you
ought to know before investing. Please read and keep this Prospectus booklet for
future reference.
A separate Statement of Additional Information (SAI) for each Fund has been
filed with the SEC. By this reference, each SAI, dated April 29, 1995, is
incorporated into the Prospectus of the Fund with which it is registered. A free
copy will be provided upon request. Either write Kim Oakman, Lincoln National
Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call
1-800-348-1212, Ext. 4912.
The Financial Highlights of each Fund contain per-share data calculated on the
basis of a share outstanding throughout the period, together with financial
ratios and other supplemental data. The highlights are incorporated by reference
to the Fund's 1994 Annual Report (see pages 45-47 of the Report). A copy of the
Annual report will be provided on request and without charge. Please write or
call Eric Jones, Lincoln National Life Insurance Company, P.O. Box 2340, Fort
Wayne, Indiana 46801; telephone: 1-800-348-1212, Ext. 6536.
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES, IN CONNECTION WITH THE OFFERS CONTAINED IN THEM. IF ANY ARE GIVEN
OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND(S) IN QUESTION. THESE PROSPECTUSES DO NOT CONSTITUTE
OFFERS BY THE FUNDS TO SELL, OR SOLICITATIONS OF ANY OFFERS TO BUY, ANY OF THE
SECURITIES OFFERED BY THEM IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUNDS TO MAKE THOSE OFFERS.
Prospectuses dated April 29, 1995
21
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DIRECTORY FOR THE FUND PROSPECTUSES
<TABLE>
<CAPTION>
Subject Page
- ----------------------------------------------------
<S> <C>
PREFACE 21
DESCRIPTION OF THE FUND
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 45
International Fund 47
Managed Fund 51
Money Market Fund 55
Social Awareness Fund 57
Special Opportunities Fund 59
____________________________________________________
INVESTMENT POLICIES TECHNIQUES
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Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 45
International Fund 47
Managed Fund 51
Money Market Fund 55
Social Awareness Fund 57
Special Opportunities Fund 59
____________________________________________________
INVESTMENT RESTRICTIONS
<S> <C>
Aggressive Growth Fund 26
Bond Fund 30
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 43
Growth and Income Fund 45
International Fund 49
Managed Fund 52
Money Market Fund 56
Social Awareness Fund 58
Special Opportunities Fund 60
____________________________________________________
Subject Page
- -----------------------------------------------------
SPECIAL RISK FACTORS
<S> <C>
Aggressive Growth Fund 26
Capital Appreciation Fund 35
Equity-Income Fund 39
______________________________________________________
STRATEGIC PORTFOLIO TRANSACTIONS
<S> <C>
Aggressive Growth Fund 26
Bond Fund 31
Capital Appreciation Fund 36
Equity-Income Fund 40
Global Asset Allocation Fund 43
Growth and Income Fund 46
International Fund 49
Managed Fund 53
Money Market Fund 56
Social Awareness Fund 58
Special Opportunities Fund 60
____________________________________________________
<CAPTION>
APPENDIX - CONTAINS IMPORTANT
INFORMATION FOR ALL FUNDS
<S> <C>
Net asset value 63
Management of the funds 63
Purchase of securities being offered 65
Sale and redemption of shares 66
Distributions and federal income tax
considerations 66
Management discussion of fund performance 66
Description of shares 66
Strategic portfolio transactions-
additional information 67
Foreign investments 69
General information 70
Statement of Additional Information
table of contents - eleven underlying funds 71
</TABLE>
22
<PAGE>
Lincoln National Global Asset Allocation Fund, Inc. (former name: Lincoln
National Putnam Master Fund, Inc.)
Description of the fund
The Global Asset Allocation Fund (Fund) was incorporated in Maryland in March,
1987 under its former name, Lincoln National Putnam Master Fund, Inc. It is an
open-end diversified management investment company whose investment objective is
long-term total return consistent with preservation of capital. The concept of
total return is to increase the value of a shareholder's investment through both
capital appreciation and current income. The Fund pursues its objective by
investing in a diversified portfolio of equity and fixed income securities of
both United States and foreign issuers (including money market instruments)
through the allocation of Fund assets among a number of investment categories
described more fully in Investment Policies and Techniques. The Fund's objective
is fundamental and cannot be changed without the affirmative vote of a majority
of the outstanding shares of the Fund. See General information in the Appendix.
There is no assurance that the objective of the Fund will be achieved.
The Fund is designed to provide a complete investment program for investors
seeking a diversified portfolio that will be professionally managed to achieve
long-term results through a variety of market conditions.
Portfolio managers
Since this is an asset allocation fund, day-to-day investment advice is provided
by eight individual portfolio managers from Putnam Investment Management, Inc.
(Putnam) the Sub-Advisor to the Fund. The managers are:
William J. Landes, Managing Director, is the lead manager for the Fund and is
responsible for the asset allocation of the portfolio. Landis has managed the
Fund since January, 1993, and has been with Putnam since 1985.
John J. Morgan, Jr., Managing Director, is responsible for the Growth Equity
Securities segment of the Fund's portfolio. Morgan has managed this segment of
the Fund since July, 1992, and has been with Putnam since 1987.
Anthony I. Kreisel, Managing Director, is responsible for the Conservative
Equity Securities segment of the Fund's portfolio. Kreisel has been with this
segment of the Fund since November, 1992, and has been with Putnam since 1986.
Christopher A. Ray, Vice-President, is responsible for the U.S. Fixed Income
Securities segment of the Fund's portfolio. Ray has been with this segment of
the Fund since January, 1993. Prior to January, 1993, Ray was Vice-President and
Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to
March, 1992, he was Vice-President at Putnam.
Jonathan H. Francis, Vice-President, is responsible for the International Fixed
Income Securities segment of the Fund's portfolio. Francis has been with this
segment of the Fund since April, 1994, has been with Putnam since 1992. Before
that , Francis was an independent consultant.
Richard M. Frucci, Senior Vice-President, is responsible for the Aggressive
Equity Securities segment of the Fund's portfolio. Frucci has been with this
segment of the Fund since March, 1994, and has been with Putnam since 1984.
John K. Storkerson, Senior Vice-President, is responsible for the International
Equity Securities segment of the Fund's portfolio. Storkerson has been with this
segment of the Fund since April, 1992, and has been with Putnam for more than
six years.
Lindsey Callen, Vice-President, is responsible for the Money Market Instruments
segment of the Fund's portfolio. Callen has been with this segment of the Fund
since February, 1992, and has been with Putnam since 1984.
Investment policies and techniques
The Fund's investment strategy is based on two principles:
1. Greater diversification among different types of securities reduces
fluctuations in the value of a portfolio and therefore reduces the risk of
loss in unfavorable market conditions and/or
2. The relative market opportunities and risks in the major securities
categories typically represented in a fully diversified portfolio-equities,
fixed income securities and money market instruments-vary at times. By
employing an investment practice known as asset allocation, the proportion of
the Fund's assets invested in each category can be shifted in anticipation of
or in response to changing market conditions, in pursuit of the Fund's
objective.
In regard to the asset allocation method, the Fund's portfolio may include
investments in each of the following categories:
Aggressive Equity Securities
Growth Equity Securities
Conservative Equity Securities
41
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International Equity Securities
Convertible Securities (including Common Stock Equivalents)
U.S. Fixed-Income Securities
International Fixed-Income Securities
Money Market Instruments
The specific allocation of Fund assets among the categories will be determined
by the Sub-Advisor at least quarterly based on the Sub-Advisor's assessment of
relative market opportunities and risks. The determination of asset mix is based
on the Sub-Advisor's analyses and forecasts relating to economic and market
factors.
Aggressive Equity Securities
This category will include investments in common stocks of companies which the
Sub-Advisor believes have potential for capital appreciation which is
significantly greater than that of the market averages. A significant portion of
the investments will generally consist of smaller and less seasoned issuers
which the Sub-Advisor believes have a unique proprietary product or profitable
market niche and the potential to grow rapidly. These securities present greater
opportunity for capital appreciation, but may also involve greater risk, and may
change in value more than securities of larger, more established companies. The
Fund will also invest in securities of larger companies where opportunities for
above average capital appreciation appear favorable. Portfolio securities in
this category may be traded for short-term profits. Portfolio securities in this
category are not purchased to generate current income.
Growth Equity Securities
This category will include investments in common stocks of companies believed to
have above-average growth characteristics. In selecting such instruments, growth
potential is given greater consideration than current income.
Conservative Equity Securities
This category will include investments in common stocks of large, mature
companies that offer the potential for capital growth, current income or both.
These stocks often have relatively high levels of dividend payments.
International Equity Securities
This category will include investments in equity securities principally traded
in foreign securities markets. The securities will primarily be in common stocks
or securities convertible into common stock. Investments will be made in small
or large companies (including relatively less well-known companies) whose
earnings are believed to be in a fairly strong growth trend or whose market
value per share is, in the Sub-Advisor's opinion, undervalued. With respect to
65% of the assets allocated to this category, the Fund will hold securities in
at least three countries outside the United States at all times.
Convertible Securities
This category will include investments in corporate bonds, notes or preferred
stocks that can be converted into or exchanged for common stock.
U.S. Fixed-Income Securities
This category will include investments in investment grade debt securities,
including both government and corporate obligations, with maturities of 1 to 40
years. Investment grade bonds include high grade bonds which are in the top
three rating categories of Moody's Investors Service and Standard & Poor's
Corporation. Investments may also be made in bonds rated Baa and BBB,
respectively, by these organizations, which are considered medium grade. As
such, they may bear a greater element of risk than those rated in the top three
categories. That risk can involve increased market price volatility stemming
from the sensitivity of interest rates, concerns over creditworthiness, and
availability of quotations on the secondary market. For a description of these
ratings, see Bond Ratings in the SAI.
International Fixed-Income Securities
This category will include investments principally in debt securities
denominated in foreign currencies which are issued by foreign governments and
governmental or supranational agencies. The Fund may also invest in other debt
securities, convertible securities, and preferred stocks principally traded in
foreign securities markets. The Fund will invest only in securities which, at
the time of purchase, are rated at least A or higher by Moody's Investors
Service or Standard & Poor's Corporation or in unrated securities judged by
Putnam Management to be of comparable quality. With respect to 65% of the assets
allocated to this category, the Fund will hold securities in at least three
countries outside the United States, at all times.
Money Market Instruments
This category will include investments in money market instruments consisting of
certificates of deposit and bankers, acceptances of major banks, high-grade,
short-term municipal obligations, U.S. Government securities and related
repurchase agreements, and high grade commercial paper, and other corporate
obligations.
Asset allocation policy
Under normal circumstances, not more than 50% of the Fund's assets will be
invested in the Conservative Equity Securities category, and not more than 35%
of the Fund's assets will be invested in any other category. When conditions
dictate a defensive position or during periods of structuring or restructuring,
the Sub-Advisor may invest up to 50% of the Fund's assets in each of the U.S.
Fixed Income Securities and Money Market instruments categories. Within those
limitations, the Sub-Advisor will adjust the percentage of the Fund assets in
each category based upon its market outlook and its analysis of long term
trends. For example, if the Sub-Advisor believes that conditions will be
favorable for
42
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equity securities, a greater proportion may be invested in Aggressive Equity
Securities. Similarly, a greater proportion will be invested in International
Equity Securities if foreign equity markets are viewed favorably. Since the
Fund's objective of total return consistent with preservation of capital may be
achieved by receipt of income, as well as by capital gains, the Sub-Advisor may
increase the proportion of Fund assets in Fixed Income Securities or Convertible
Securities when it believes the outlook for the bond market is favorable.
In pursuing the Fund's objective, the Sub-Advisor expects generally to employ a
relatively conservative strategy for seeking total return. Accordingly, the Sub-
Advisor's asset allocation decisions will seek to have the Fund's assets decline
significantly less in value than the Standard and Poor's 500 Index in
unfavorable securities markets, while correlating more closely with the
performance of the index in favorable securities markets. There is no assurance
that this strategy will be successful.
Changes in investment policies
The investment policies of the Fund may be changed without shareholder approval,
although the shareholders will be notified of any material changes, additions or
deletions.
Foreign investments; American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs)
The International Equity and International Fixed Income Securities investment
categories will each invest 100% of their respective assets in securities
principally traded in foreign markets. The other investment categories may do so
as well, but only up to the following percentages of their total assets: the
Money Market instruments category-50%; all other categories-10%. (Eurodollar
certificates of deposit are excluded for purposes of these limitations.) Foreign
investments can involve risks not present in domestic investments. For a
discussion of those risks, see Foreign investments in the Appendix. A detailed
discussion of how the Fund intends to handle these risks appears in the
SAI.
For the domestic categories, the Fund may invest in Depositary Receipts. These
consist of ADRs and EDRs, and involve investing indirectly in an underlying
foreign security. Generally ADRs, which are in registered form, are U.S. dollar-
denominated securities designed for use in the U.S. securities markets and which
may be converted into the underlying security. EDRs, which are in bearer form,
are designed for use in the European securities markets.
Portfolio turnover
The Fund's portfolio turnover rate is expected to average approximately 200%.
(For example, a rate of portfolio turnover of 100% would occur if all of the
Fund's portfolio were replaced in a period of one year.) The actual turnover
rate will vary, depending upon the turnover rate in each investment category,
the amount of assets allocated to each category, and the extent to which assets
are reallocated among categories from time to time. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. See Portfolio Transactions and
Brokerage in the SAI. The Fund's portfolio turnover rate in 1994 was 134.33% and
in 1993 was 208.55%.
Investment restrictions
There are some specific investment restrictions that help the Fund limit
investment risks for its shareholder. The restrictions in this section are
fundamental. See General information in the Appendix.
The Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer;
2. Invest more than 5% of its total assets in securities of any one issuer
(other than the U.S. Government or its agencies or instrumentalities);
3. Invest more than 5% of its net assets in securities restricted as to resale;
and/or
4. Invest more than 25% of its assets in any one industry.
A complete listing of all of the Fund's fundamental and non-fundamental
restrictions can be found in the SAI.
Strategic portfolio transactions
The portfolio manager (PM) for the Fund has considerable discretion in the
selection of appropriate Fund investments. In the exercise of that discretion,
the PM may, at any given time, invest a portion of the Fund's assets in one or
more strategic portfolio transactions which we define as derivative transactions
and cash enhancement transactions.
For your convenience, in the Appendix, we have included a basic discussion of
these special financial arrangement transactions and some of the risks
associated with them. Note also that the SAI booklet for the 11 Funds contains
definitions of the more commonly used derivative transactions, technical
explanations of how these transactions will be used, and the limits on their
use. You should consult your financial counselor if you have specific questions.
THE GLOBAL ASSET ALLOCATION FUND IS AUTHORIZED: a) for derivative transactions,
to: buy and sell foreign currency forward contracts; buy and sell foreign
currency futures contracts; and buy exchange-listed and over-the-counter put and
call options on foreign currency futures contracts and on foreign currencies.
For
43
<PAGE>
hedging purposes, the Fund may sell covered call options on foreign currencies.
All of the foregoing may also be done as cross-hedging- that is, using a
currency different than the one in which the portfolio securities are
denominated. (See Foreign Currency Exchange Transactions in the SAI.)
In addition, the Fund may sell covered call and put options on equity and fixed-
income (debt) securities of U.S. issuers; sell put and call options and buy put
options on securities of U.S. issuers; buy and sell futures contracts and
options on futures contracts with respect to securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities; buy and sell futures
contracts and related options with respect to stock indices, foreign fixed-
income securities, and foreign currencies (See Options and Futures Portfolio
Strategies in the SAI); engage in spread and straddle transactions.
b) for cash enhancements transactions, to: lend portfolio securities; engage in
repurchase transactions. Collateral will be continually maintained at no less
than 102% of the value of the loaned securities or of the repurchase price, as
applicable.
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APPENDIX - CONTAINS
IMPORTANT INFORMATION FOR
ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National
Aggressive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond
Fund, Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation Fund), Lincoln National Equity-Income Fund, Inc. (Equity-
Income Fund), Lincoln National Global Asset Allocation Fund, Inc. (Global Asset
Allocation Fund), Lincoln National Growth and Income Fund, Inc. (Growth and
Income Fund), Lincoln National International Fund, Inc. (International Fund),
Lincoln National Managed Fund, Inc. (Managed Fund), Lincoln National Money
Market Fund, Inc. (Money Market Fund), Lincoln National Social Awareness Fund,
Inc. (Social Awareness Fund), and Lincoln National Special Opportunities Fund,
Inc. (Special Opportunities Fund). Unless otherwise indicated, the following
information applies to each Fund.
NET ASSET VALUE
Each Fund's net asset value per share is determined as of close of business
(currently 4:00 p.m., New York Time) on the New York Stock Exchange (NYSE) on
each day it is open for trading. The net asset value per share for all Funds
except the Money Market Fund is determined by adding the values of all
securities and other assets, subtracting liabilities (including dividends
payable) and dividing by the number of shares outstanding. Debt securities and
other assets of the Fund, other than equity securities, for which market
quotations are readily available, are valued at their bid quotations.
When market quotations are not readily available, debt securities and other
assets are valued at their fair value as determined in good faith. This
valuation is made by or under the authority of the Fund's Board of Directors
and it may include the use of valuations furnished by outside sources, including
pricing services which utilize electronic data processing techniques for valuing
normal institutional-size trading units of debt securities. The value of equity
securities is based on the last sale prices of those securities on national
securities exchanges or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on exchanges or over-the-counter.
In the absence of readily available closing bid and asked prices, equity
securities will be valued at fair value.
Short-term investments. For Funds (other than the Money Market Fund) that trade
in short-term investments which mature in less than 60 days, these instruments
are valued at amortized cost; if these securities are acquired with a remaining
maturity of 61 days or more, the cost for purposes of valuation is deemed to be
the value on the sixty-first day prior to maturity.
Options trading. For those Funds engaging in options trading, Fund investments
underlying call options will be valued as described previously. Options are
valued at the last sale price or, if there has been no sale that day, at the
mean of the last bid and asked price on the principal exchange where the option
is traded, as of the close of trading on the NYSE. The Fund's net asset value
will be increased or decreased by the difference between the premiums received
on writing options and the cost of liquidating those positions measured by the
closing price of those options on the exchange where traded.
Foreign securities. For Funds investing in foreign securities, the value of a
foreign portfolio security held by a Fund is determined based upon its closing
price or upon the mean of the closing bid and asked prices on the foreign
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that Fund's portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market rates,
as computed by the Custodian of the Fund's assets.
However, trading on foreign exchanges may take place on dates or at times of day
when the NYSE is not open; conversely, overseas trading may not take place on
dates or at times of day when the NYSE is open. Any of these circumstances could
affect the net asset value of Fund shares on days when the investor has no
access to the Fund. There are more detailed explanations of these circumstances
in the SAI for the various Funds. See the Preface to the Prospectus booklet for
information about how to obtain a copy of the SAI booklet.
Money Market Fund. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, pursuant to Rule 2a-7 (the
Rule) of the 1940 Act. Under the Rule, the Fund's net asset value under the
amortized cost method must fairly reflect the value calculated under a
market-based valuation method. The Board of Directors of the Fund has put in
force procedures to assist Fund management and the Investment Advisor in
complying with the requirements of the Rule. In 1991, an amendment imposed
specific standards for the maturity, quality, and diversification of portfolio
securities. It also revised and expanded the duties of the Money Market Fund's
management and its Board of Directors. The Fund's procedures have been amended
in accordance with those requirements.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction of its
Board of Directors. The Board has the power to amend the Bylaws of each Fund, to
declare and pay dividends, and to exercise all the powers of the Fund except
those granted to the shareholder. Lincoln Life is the sole shareholder of each
Fund.
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INVESTMENT ADIVSOR. Lincoln National Investment Management Company (LNIMC) is
the Investment Advisor to the Funds and is headquartered at 200 East Berry
Street, Fort Wayne, Indiana 46802. LNIMC (the Advisor) is registered with the
Securities and Exchange Commission (the Commission) [SEC] as an Investment
Advisor and has acted as an Investment Advisor to mutual funds for over 40
years. The Advisor also acts as Investment Advisor to Lincoln National
Convertible Securities Fund, Inc., and Lincoln National Income Fund, Inc.,
closed-end investment companies as well as Lincoln Advisor Funds, Inc., an open-
end series.
The Advisor is a wholly-owned subsidiary of Lincoln National Corporation (LNC),
a publicly-held insurance holding company organized under Indiana law. Through
its subsidiaries, LNC provides life insurance and annuities, property-casualty
insurance, reinsurance, and financial services.
Under Advisory Agreements described in the Prospectus for the Variable Account,
the Advisor provides portfolio management and investment advice to the Funds and
administers their other affairs, subject to the supervision of each Fund's Board
of Directors.
As compensation for its services to each Fund, the Advisor is paid an Investment
Advisory Fee at an annual rate based on the average daily net asset value of
each Fund, as shown in the following chart:
<TABLE>
<CAPTION>
First Next In excess of
Fund $200 million..... $200 million.... $400 million
...Of average daily net asset value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
All other Funds .48 of 1 .40 of 1 .30 of 1
</TABLE>
The Advisory fees for the Capital Appreciation, Equity-Income, and International
Funds reflect the more extensive services and increased expense associated with
portfolios of securities issued outside the United States.
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1994 ration of the Advisor's 1994 ratio of total expenses
compensation to average to average net assets
Fund net assets operational fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth* .75% 1.11%
Bond .47 .50
Capital Appreciation* .80 1.18
Equity-Income* .94 1.26
Global Asset Allocation .75 1.06
Growth and Income .35 .37
International .87 1.24
Managed .42 .44
Money Market .48 .52
Social Awareness .48 .53
Special Opportunities .45 .48
</TABLE>
Expenses specifically assumed by each Fund include:
compensation and expenses of Directors of the Fund who are not interested
persons of the Fund as defined in the 1940 Act; registration, filing, and other
fees in connection with filings with regulatory authorities, including the costs
of printing and mailing registration statements and updated prospectuses
provided to current Contract Owners; fees and expenses of independent auditors;
the expenses of printing and mailing proxy statements and shareholders reports;
custodian and transfer agent charges; brokerage commissions and securities and
options transaction costs incurred by the Fund; taxes and corporate fees; legal
fees incurred in connection with the affairs of the Fund (other than legal
services provided by personnel of the Advisor or its affiliated companies); the
fees of any trade association of which the Fund is a member; and expenses of
shareholder and Director meetings. The Aggressive Growth, Capital Appreciation,
and Equity-Income Funds (new in 1994) will bear their full share of Fund
expenses beginning in 1995. For 1994 Lincoln Life paid some of the expenses of
these Funds, as follows: $30,814 for Aggressive Growth; $15,544 for Capital
Appreciation; and $30,814 for Equity-Income.
*These ratios are based on less than a full year's experience.
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<PAGE>
SUB-ADVISORS. As Advisor, LNIMC is primarily responsible for investment
decisions affecting each of the Funds. However, LNIMC has entered into
Sub-Advisory agreements with several professional investment management firms.
These firms provide some or substantially all of the investment advisory
services required by the Funds, including day-to-day investment management of
those Fund's portfolios. Each Sub-Advisor makes investment decisions for its
respective Fund in accordance with that Fund's investment objectives and places
orders on behalf of that Fund to effect those decisions. See the following
tables for more information about the Sub-Advisors and their fees:
<TABLE>
<CAPTION>
Date of
Fund Sub-advisor agreement Annual fee rate based on average daily net asset value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive 12/20/93 .50 of 1% of the first $150 million
Growth Lynch & Mayer .35 of 1% of the excess over $150 million
Capital
Appreciation Janus 1/1/94 .60 of 1% of the first $100 million
.55 of 1% of the excess over $100 million
Equity-Income Fidelity 12/20/93 .75 of 1%
Global Asset the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation Putnam 6/8/87 first $200 million; .42 of 1% of the next $200 million;
and .40 of 1% of any excess over $400 million
International Clay Finlay 11/19/90 .665 of 1% of the first $50 million; 475 of 1% of the next
$50 million; and .250 of 1% of any excess over $100 million
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual fee rate based on market value of securities held
Date of in the portfolio of each respective client fund at the close
Fund Sub-advisor agreement of business on the last trading day of each calendar quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and
Income Vantage 8/21/85 .20 of 1%
Managed Vantage 8/21/85 .20 of 1%
(stock portfolio only)
Social
Awareness Vantage 4/30/88 .20 of 1%
Special
Opportunities Vantage 8/21/85 .20 of 1%
</TABLE>
No additional compensation from the assets of the Funds will be assessed as a
result of the Sub-Advisory agreements; the Sub-Advisors are paid by LNIMC.
(There is no Sub-Advisor for the Bond and Money market Funds.)
SERVICE MARKS. The service mark for the Funds and the name Lincoln National
have been adopted by the Funds with the permission of LNC, and their continued
use is subject to the right of LNC to withdraw this permission in the event the
Advisor should not be the Investment Advisor of the Funds.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund, and
Putnam with the Global Asset Allocation Fund. The continued use of these names
is subject to the right of the respective Sub-Advisor to withdraw its permission
in the event it ceases to be the Sub-Advisor to the particular Fund it advises.
PURCHASE OF SECURITIES BEING OFFERED
Shares of the Funds' common stock ($.01 par value) will be sold to Lincoln Life
for allocation to the Variable Annuity Account (VAA), which has been established
for the purpose of funding Variable Annuity Contracts; shares in the Funds will
also be sold to Lincoln Life for allocation to one or more of the Variable Life
Accounts, which have been established for the purpose of funding variable life
insurance contracts. Shares of each Fund are sold and redeemed at their net
asset value determined daily. See Sale and redemption of shares. Also see Net
asset Value. The Funds' shares are sold to Lincoln Life for the Variable
Accounts on a no-load basis-that is; without the imposition of a sales charge.
65
<PAGE>
SALES AND REDEMPTION OF SHARES
The shares of each Fund are sold and redeemed by the Fund at their net asset
value next determined after receipt of a purchase or redemption order in
acceptable form. The value of shares redeemed may be more or less than original
cost, depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made within seven days after the
redemption request is received in proper form by the Fund's. However, the right
to redeem Fund shares may be suspended or payment postponed for any period
during which (1) trading on the NYSE is restricted as determined by the
Commission, or the NYSE is closed for other than weekends and holidays; (2) an
emergency exists, as determined by the Commission, as a result of which (a)
disposal by each Fund of securities owned by it is not reasonably practicable,
or (b) it is not reasonably practicable for Fund to determine fairly the value
of its net assets; or (3) the Commission by order so permits for the position
of shareholders of the Funds.
DISTRIBUTION AND FEDERAL INCOME TAX CONSIDERATIONS
Each Fund's policy is to distribute, at least once a year, substantially all of
its net investment income. Net realized capital gains may only be disturbed
annually, These distributions, when paid to Lincoln Life for the Variable
Accounts, will be reinvested automatically in additional shares of that Fund,
at its net asset value.
Each Fund intends to qualify had has elected to be taxed as a regulated
investment company under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the Code). If a Fund qualifies as a regulated
investment companies which distribute substantially all of their net income
(both ordinary income and capital gain) from Federal income tax and the four
percent nondeductible Federal Excise tax, the Funds will be relieved of those
taxes on the amounts dis distributed. See the SAI for more complete discussion.
Since the sole shareholder of the Funds is Lincoln Life, there is no discussion
here about the Federal income tax consequences at the shareholder level. For
information concerning the Federal income tax consequences to holders of
annuity or life insurance contracts, see the Prospectus for the Variable Account
at the front of this booklet.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
As a condition of maintaining the tax-deferred status of variable contracts,
the Funds intend to comply with the diversification requirements currently
imposed by the IRS on separate accounts of insurance companies. More specific
information is contained in the prospectus for the Variable Account.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
In the Annual Report for the Funds, the portfolio manager for each Fund's
discusses that Fund's performance for the previous fiscal year and the factors
which affected that performance. We will send you a copy of the Annual Report
free upon request.
DESCRIPTION OF SHARES
The authorized capital stock of each Fund consists of 50 million shares of
common stock (100 million for the Growth and Income Fund), $.01 par value. As
of April 1, 1995, each Fund had the following number of shares issued and
outstanding:
<TABLE>
<CAPTION>
<S> <C>
Aggressive Growth Fund 7,879,088
Bond Fund 19,132,892
Capital Appreciation Fund 6,755,630
Equity-Income Fund 9,950,564
Global Asset Allocation Fund 18,158,185
Growth and Income Fund 55,124,560
International Fund 26,075,406
Managed Fund 35,857,439
Money Market Fund 8,297,560
Social Awareness Fund 10,652,462
Special Opportunities Fund 16,019,752
</TABLE>
Fund Shares will owned by Lincoln Life and will be held by it the Variable
Accounts. As stated in the Prospectuses for the Variable Accounts, Lincoln
Life provides to Contract Owners of the Variable Accounts the right to direct
the voting of Fund shares at shareholder meetings, to the extent provided by
law. However, if the 1940 Act or any regulation under it should change, and
as a result Lincoln Life determines it is permitted to vote Fund shares in its
own right, it may elect to do so.
All the shares of each Fund are of the same class with equal rights and
privileges. Each full share is entitled to one vote and fractional share is
entitled to a proportionate fractional vote, on all matters subjected to a
vote of the shareholder. All shares, full and fractional, participate
proportionately in any dividends and capital gains distributions and, in the
event of liquidation, in that Fund's net assets remaining after satisfaction
of outstanding liabilities.
When issued, each share is fully-paid and non-assessable and shareholders have
no preemptive or conversion
66
<PAGE>
rights. Fund shares have non-cumulative voting rights, which means that holders
of more than 50% of the shares voting for the election of directors can elect
100% of the directors if they choose to do so. In that event the holders of the
remaining shares so voting will not be able to elect any directors. Shares may
be redeemed as set forth under Sale and redemption of shares.
The Bylaws of the Funds allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as: (1)
a majority of the Directors then in office have at some point been elected by
shareholder and, if any vacancy is filled by vote of the Board of Directors,
then immediately after filling the vacancy at least two thirds of the Directors
shall have been elected by the shareholder; (2) there is no change in the
independent auditor of the Funds; (3) there is no material change to the
investment advisory and/or sub-advisory agreements; and (4) a shareholder vote
is not required with respect to a distribution agreement. In adopting this
procedure for dispensing with annual meetings that are a formality, the
Directors of the Funds have undertaken to comply with the requirement of
Section 16(c)) of the 1940 Act. That Section protects Contract Owners by
providing a procedure by which they may require management to convene a meeting
of the shareholder to vote on removal of one or more Directors. The Directors
also have agreed to facilitate communication among Contract Owners for the
purpose of calling those meetings. Further information about these procedures
is available from Fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objective and portfolio management
philosophies many of the Funds engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to increase a Fund's overall value
(or, depending on the condition of the securities markets, at least to slow its
decrease). Cash enhancement transactions are designed to make some extra money
for the Fund when it has excess cash, or help a Fund obtain some cash for
temporary purposes when needed. SEE THE PROSPECTUS FOR EACH FUND FOR A LISTING
OF THE KINDS OF TRANSACTIONS IN WHICH EACH FUND MAY ENGAGE.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one more indices of assets values. The following types are
currently in fairly common use in the investmnent community, although
not every Fund will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps;
stock index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs): interest rate swaps and their related
transactions (e.g., caps, floors, collars and corridors); and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest
rate swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED IN THE SAI APPENDIX.
Although they may be structured in complex combinations, derivative
transactions in which the Funds engage generally fall into two broad
categories: options contracts or forward contracts. The combined forms are
constantly evolving. In fact, variations on the types listed previously may
come into use after the date of these Prospectuses. Therefore, where the
Prospectus for a particular Fund discloses the intent of that Fund to engage in
any of the types listed, that Fund hereby reserves the right to engage in
related variations on those transactions.
The Funds intend to engage in derivative transactions only defensively.
Examples of this defensive use might be: to hedge against a perceived decrease
in a Fund's asset value; to control transaction costs associated with market
timing (e.g., by using futures on an unleveraged basis); and to lock in
returns, spreads, or currency exchange rates in anticipation of future cash
market transactions.
There is no discussion here of asset-backed or mortgage backed securities
(such as collateralized mortgage obligations, structured notes, inverse
floaters, principal only or interest-only securities, etc.). See the Prospectus
and SAI for the Capital Appreciation and Equity-Income Funds, which are
authorized to engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some
derivatives involve more of these risks than others. We briefly
describe the most common ones here; however, this is not an exhaustive
list. Consult your financial counselor if you have additional
questions.
67
<PAGE>
CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one
counterparty(ies) receive payment in the others, those awaiting payment
are exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in particular
jurisdictions or against a financially troubled entity; or will be subject
to regualtion from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will unable to control its
losses if a liquid secondary market for a financial instrument does not
exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundmental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying area asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a market
segment, to a settlement system, etc.) might cause widespread difficulties
at other firms, in other market segments, or in the financial system as a
whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's ability
to correctly predict the direction of stock prices and interest rates, and
other economic factors. Options and futures trading may fail as hedging
techniques in cases where the price movement of the securities underlying
the options and futures do not follow the price movements of the portfolio
securities subject to the hedge. The loss from investing in futures
transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular Fund, please consult your
financial counselor if you have questions about the risks associated with
that Fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each Fund, that Fund's
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each Fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the Comptroller
of the Currency), and by self-regulatory agencies (such as the NASD).
Should legislation or regulatory initiatives be enacted resulting in
additional restrictive requirements for derivative transactions, we
reserve the right to make all necessary changes in the Contracts and/or
the Registration Statements for the Funds to comply with those
requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the Fund. They
are discused more fully in the SAI.
A. Lending of portfolio securities
Any Fund authorized to do so may make secured loans of its portfolio
securities, in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the Fund's total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to
102% of the value of the securties lent.
The borrower pays the Fund an amount equal to any dividends or interest
received on securities lent. The Fund retains all or a portion of the
interest received on securities lent. The Fund also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
68
<PAGE>
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the Fund retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of those
securities-including the Fund-to vote or consent on matters which could
materially affect the holders' investment. The Fund may also call in the
loaned securities in order to sell them. None of the Funds' portfolio
securities will be loaned to LNIMC, to any Sub-Advisor, or to any of their
respective affiliates. The Fund may pay reasonable finder's fees to persons
unaffiliated with it in connection with the arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. Repos. From time to time, the Funds may enter into Repo transactions. In a
typical Repo transaction, the Fund involved buys U.S. Government or other
money market securities from a financial institution (such as a bank,
broker, or savings and loan association). At the same time, as part of the
arrangement, the Fund obtains an agreement from the seller to repurchase
those same securities form the Fund at a specified price on a fixed future
date.
The repurchase date is normally not more than seven days from the date of
purchase. Keeping the term under seven days is significant, because the
SEC considers Repo Agreements with maturities of more than seven days to
be illiquid assets of the Fund, and the Funds have strict limitations on
the percentage of their respective assets which may be illiquid.
2. Reverse repos. A Fund may also be authorized to enter into Reverse Repo
transactions. This simply means the Fund is on the reverse side of a Repo
transaction. That is, the Fund is the Seller of some of its portfolio
securities, subject to buying them back at a set price and date.
Authorized Funds will engage in Reverse Repos for temporary purposes, such
as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the Fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse repo
transaction is considered to be the borrowing of money by the Fund. Funds
authorized to engage in Repos as buyers are not necessarily authorized to
do Reverse Repos.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; reduced availability of public information concerning issuers; and
the fact that foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. With respect
to certain foreign countries, there is also the possibility of expropriation,
nationalization, confiscatory taxation, and limitations on the use or removal of
cash or other assets of a Fund, including the withholding of interest payments
or dividends.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a Fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The Funds will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a Fund
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries that in the United States. There may be difficulty
in enforcing legal rights outside the United States. For example, in the event
of default on any foreign debt obligations, it may be more difficult or
impossible for the Fund or to enforce a judgment against the issuers of these
securities. The Advisor or Sub-Advisor will take all these factors into
consideration in managing a Fund's foreign investments.
Certain state insurance regulations impose additional restrictions on the extent
to which a Fund may invest in foreign securities. See the SAI.
The share price of a Fund that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a Fund's
investments abroad, changes in a Fund's share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the Fund invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the Fund.
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<PAGE>
FOREIGN CURRENCIES
When an Advisor or Sub-Advisor believes that a currency in which a portfolio
security or securities is denominated may suffer a decline against the U.S.
dollar, it may hedge that risk by entering into a forward contract to sell an
amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a Fund may hold various foreign currencies,
the value of the net assets of that Fund as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a Fund's Advisor or Sub-
Advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the Fund's assets denominated in that
currency), or by participating in options or futures contracts with respect to
that currency. If the Advisor or Sub-Advisor believes that a particular currency
may decline relative to the U.S. dollar, the Fund may also enter into contracts
to sell that currency (up to the value of the Fund's assets denominated in that
currency) in exchange for another currency that the Advisor or Sub-Advisor
expects to remain stable or to appreciate relative to the U.S. dollar. This
technique is known as currency cross-hedging. Refer to the Prospectus for each
Fund to determine which Funds may engage in these transactions.
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, these strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may adversely impact the Fund's performance if the Advisor or Sub-Advisor's
projection of future exchange rates is inaccurate. See Strategic portfolio
transactions.
GENERAL INFORMATION
Your inquiries should be directed to Lincoln National Life Insurance Co., at
P.O. Box 2348, Fort Wayne, Indiana 46801; or, you may call 1-800-348-1212.
The Funds will issue unaudited semi-annual reports showing current investments
in each Fund and other information and annual financial statements audited by
their independent auditors.
Under the 1940 Act a fundamental policy of a fund may not be changed without the
affirmative vote of a majority of the fund's outstanding shares.
As used in this Prospectus, the term majority of the Fund's outstanding shares
means the vote of: (1) 67% or more of each Fund's shares present at a meeting,
if the holders of more than 50% of the outstanding shares of each Fund are
present or represented by proxy, or (2) more than 50% of each Fund's outstanding
shares, whichever is less.
These Prospectuses do not contain all the information included in their
Registration Statements filed with the Commission. The Registration Statements,
including the exhibits filed with them, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Prospectuses about
the contents of any Contract or other document referred to in them are not
necessarily complete. In each instance, reference is made to the copy of that
Contract or other document filed as an exhibit to the Registration Statement of
which the particular Prospectus forms a part, and each statement is qualified in
all respects by that reference.
The use of Funds by both variable annuity and variable life insurance separate
accounts is known as mixed funding. Due to differences in redemption rates, tax
treatment, or other considerations, the interests of Contract Owners under the
Variable Life Accounts may conflict with those of Contract Owners under the
Variable Annuity Account, in those cases where mixed funding occurs. The Board
of Directors of each Fund will monitor for any material conflicts and determine
what action, if any, should be taken.
Should any conflict arise which requires that a substantial amount of assets be
withdrawn from any of the Funds, orderly portfolio management could be
disrupted, to the detriment of those Contract Owners still investing in that
Fund. Also, if that Fund believes that any portfolio has become so large as to
materially impair investment performance, then the Fund will examine other
investment options.
Lincoln Life performs the dividend and transfer functions for the Funds.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
<PAGE>
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
(former name: Lincoln National Putnam Master Fund, Inc.)
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Global Asset Allocation 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.
Form 19462-PM(SAI)4/95
<PAGE>
TABLE OF CONTENTS
Page
Investment Objective and Policies of the Fund
Investment Restrictions
Portfolio Transactions and Brokerage
Determination of Net Asset Value
Appendix
Investment Advisor and Sub-Advisor
Directors and Officers
Investment Policies and Techniques (continued)
Custodian
Independent Auditors
Financial Statements
Bond Ratings
Commercial Paper Ratings
U.S. Government Obligations
Taxes
State Requirements
Derivative Transactions - Definitions
____________
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Prospectus describes the Fund's investment objective and its general
investment policies. This Statement of Additional information includes
additional information about engaging in options and futures trading and the
various investment restrictions of the Fund.
The investment policies described in the Prospectus and in this Statement of
Additional Information are not fundamental, and the Directors may change such
policies without stockholder approval.
DEPOSITARY RECEIPTS
As discussed in the Prospectus, the Fund may invest in American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs in
registered form are U.S. dollar denominated securities designed for use in the
U.S. securities markets, which represent and may be converted into the
underlying foreign security. EDRs are typically issued in bearer form and are
designed for use in the European securities markets. No more than 5% of the
Fund's assets will be invested in unsponsored ADRs or EDRs. Issuers of the stock
of such unsponsored ADRs and EDRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
The Fund may seek to increase its current return by writing covered call or put
option with respect to some or all of the debt or equity securities of issuers
in the United States ("U.S. Securities") held in
<PAGE>
its portfolio. In addition, through writing of options and purchase of put
option on U.S. Securities and the purchase and sale of futures contracts and
related options with respect to securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, and with respect to stock
indices, foreign fixed income securities and foreign currencies, the Fund may at
times seek to reduce fluctuations in net asset value by hedging against a
declines in the value of U.S. Securities or other securities owned by the Fund
or an increase in the price of U.S. Securities intended to reduce fluctuations
in the Fund's net asset value, the Fund nonetheless anticipates that its net
asset value will fluctuate to some degree. Expenses and any losses resulting
from such hedging strategies will tend to reduce the Fund's current return.
The Fund's ability to engage in options and futures strategies will depend on
the availability of liquid markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
options or futures contracts. Therefore no assurance can be given that the Fund
will be able to utilize these instruments effectively for the purposes stated
above. Furthermore, the Fund's ability to engage in options and futures
contracts transactions may be limited by tax considerations. Although the Fund
will only engage in options and futures contracts transactions for limited
purposes, they involve certain risks which are described below under "Risk
factors in options and futures transactions."
In connection with transactions in futures contracts, including foreign currency
futures contracts and related options, the Fund will be required to deposit as
"initial margin" an amount of cash and short-term U.S. government securities of
up to 5% of the contract amount. Thereafter, subsequent payments are made to and
from the broker to reflect changes in the value of the futures contracts. The
Fund will not purchase or sell futures contracts or related options if, as a
result, the sum of the initial margin deposits on the Fund's existing futures
and related options positions and premiums paid for options on futures contracts
would exceed 5% of the Fund's assets. (For options are "in-the-money" at the
time of purchase, the amount by which the option is "in-the-money" is excluded
from this calculation.)
The Fund may purchase and sell options and futures on foreign securities and
currencies held in it portfolio when, in the opinion of the Adviser, the
investment characteristics of such options and contracts are acceptable. It is
expected that risks related to those transactions will not differ materially
from risks related to options and futures on U.S. Securities. However, position
limits and other rules of foreign exchanges may differ from those in the United
States. Also, options and futures markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the United States.
In addition to the options strategies described above, the Fund may engage in
"spread" transactions in which it purchases and writes a put or call option on
the same underlying security or currency, with the options having different
exercise prices and/or expiration dates. The Fund may also engage in so-called
"straddles," in which it purchases
<PAGE>
or sells combinations of put and call options on the same security or currency.
When it engages in spread and straddle transactions, the Fund seeks to profit
from differentials in the option premiums paid and received by it and in the
market options by the Fund in connection with these transactions may, under
certain circumstances, involve a limited degree of investment leverage, the Fund
will not enter into any spreads or straddles or otherwise purchase puts or calls
if, as a result, more than 5% of its net assets will be invested at any time in
such option transactions. Spread and straddle transactions require the Fund to
purchase and/or write more than one option simultaneously. Accordingly, the
Fund's ability to enter into such transactions and to liquidate its positions
when necessary or deemed advisable may be more limited than if the Fund were to
purchase or sell a single option. Similarly, costs incurred by the Fund in
connection with these transactions will in many cases be greater than if the
Fund were to purchase or sell a single option.
A call option included in a spread or straddle will be deemed to be covered if
the Fund holds, on a security-for-security or currency-for-currency basis, a
call option on the same security or currency with an exercise price equal to or
less than the exercise price of the call written (or, where the high-grade,
short-term debt obligations equal tot he difference). Similarly, a put option
included in a high-grade, short-term debt obligations equal to the difference).
Similarly, a put option included in a spread or straddle will be deemed to be
covered if the Fund holds, on a security-for-security or currency-for-currency
basis, a put option on the same security or currency with an exercise price
equal to or greater than the exercise price of the put option written by the
Fund (or, where the high-grade short-term debt obligations equal to the
difference). The Fund's ability to engage in spread or straddle transactions may
be limited by state securities laws.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
The use of options and futures for hedging may involve certain special risks.
Options and futures transactions involve costs and may result in losses. Options
and futures transactions involve certain special risks, including the risk that
the Fund may be unable at times to close out such positions, that hedging
transactions may not accomplish their purpose because of imperfect market
correlations, or that the Adviser may not forecast market or interest rate
movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, the Fund's ability to terminate options and futures positions at times
when the Adviser deems it desirable to do so. Although the Fund will enter into
an option or futures contract position only if the Adviser believes that a
liquid secondary market exists for such an option or futures contract, there is
no assurance the Fund will be able to effect closing transactions at any
particular time or at any acceptable price. The Fund generally expects that its
option and futures contract transactions may purchase and sell options in the
over-the-counter market. The Fund's ability to terminate option positions in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in such
transactions would fail to
<PAGE>
meet their obligations to the Fund. However, the Fund will engage in these
transactions only if, in the opinion of the Adviser, the pricing mechanism and
liquidity of the over-the-counter market are satisfactory and the participants
are responsible parties likely to meet their contractual obligations.
The use of options and futures strategies also involve the risk of imperfect
correlation between movements in options and futures contracts prices and
movements in the prices of securities or currencies which are the subject of the
hedge. The successful use of these strategies further depends on the ability of
the Adviser to forecast market or interest rate movements correctly.
The securities exchanges have established limitations governing the maximum
number of options which may be written by an investor or group of investors
acting in concert. It is possible that the Fund and other clients of the Adviser
may be considered to be such a group. These position limits may restrict the
Fund's ability to sell options on a particular security.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put
options on optionable securities held in its portfolio, when in the opinion of
the Adviser such transactions are consistent with the Fund's investment
objectives and policies. Call options written by the Fund give the purchaser the
right to buy the underlying securities from the Fund at a stated exercise price;
put options give the purchaser the right to sell the underlying securities to
the Fund at a state price.
The Fund may write only covered options, which means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security in the even the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration, current
interest rates, and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the Fund
limits its opportunity to profit from any increase in the market value of
<PAGE>
the underlying security above the exercise price of the option but continues to
bear the risk of a decline in the value of the underlying security. By writing a
put option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction, in which it purchases an
offsetting option. The Fund realizes a profit or loss from a closing transaction
if the cost of the transaction (option premium plus transaction costs) is less
or more than the premium received from writing the option. Because increases in
the market price of a call option generally reflect increases in the market
price of the security underlying the option, any loss resulting from a closing
purchase transaction may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
If the Fund writes a call option but does not own the underlying security, and
when it writes a put option, the Fund may be required to deposit cash or
securities with its broker as "margin," or collateral, for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such protection is provided during the life of the put option since the Fund, as
holder of the option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid, for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs.
<PAGE>
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on the ability of
the Adviser to forecast correctly interest rate and market movements. For
example, if the Fund were to write a call option based on the Adviser
expectation that the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the security upon
exercise at a price below the current market price. Similarly, if the Fund were
to write a put option based on the Adviser-s expectation that the price of the
underlying security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a price higher than
the current market price.
When the Fund purchases an option, it runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by the Fund
in the underlying security, since the Fund will not lose any of its investment
in such security if the price does not change.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the Fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary market in options were to become unavailable, the Fund could no
longer engage in closing transactions. Lack of investor interest might adversely
affect the liquidity of the market for particular options or series of options.
A market may discontinue trading of a particular option or options generally. In
addition, a market could become temporarily unavailable if unusual events--such
as volume in excess of trading or clearing capability--were to interrupt its
normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, the Fund as a holder of an option would be able to realize profits
or limit losses only by exercising the option, and the Fund, as option writer,
would remain obligated under the option until expiration or exercise.
<PAGE>
Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Fund, as holder of such a put option, could lose
its entire investment if the prohibition remained in effect until the put
option's expiration and the Fund was unable either to acquire the underlying
security or to sell the put option in the market.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and the various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current prices of the
underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
A financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial instrument
called for in the contract in a specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at settlement date are
not determined until on or near that date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade--known as "contract markets"--approved
for such trading by the Commodity Futures Trading Commission (the "CFTC"), and
must be executed through a futures commission merchant or brokerage firm which
is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial
<PAGE>
instrument or commodity with the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract. Upon entering into
a contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin." The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when the Fund has purchased a futures contract on a security and the
price of the underlying security has risen, that position will have increased in
value and the Fund will receive from the broker a variation margin payment based
on that increase in value. Conversely, when the Fund has purchased a security
futures contract and the price of the underlying security has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. The
Fund may use options on
<PAGE>
futures contracts in lieu of writing or buying options directly on the
underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, the Fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the Fund may
purchase call options or write put options on futures contracts rather than
selling futures contracts. Similarly, the Fund may purchase call options or
write put options on futures
<PAGE>
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as options purchased
or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above. With respect to long
positions assumed by the Fund, the Fund will establish a segregated asset
account with its custodian, and will deposit into it an amount of cash and other
assets permitted by CFTC regulations. The Fund does not intend to leverage the
futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Adviser's ability to predict
movements in the direction of interest rates and other factors affecting
securities markets. For example, if the Fund has hedged against the possibility
of decline in the values of its investments and the values of its investments
increase instead, the Fund will lose part or all of the benefit of the increase
through payments of daily maintenance margin. The Fund may have to sell
investments at a time when it may be disadvantageous to do so in order to meet
margin requirements.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on the futures contract itself would result in a loss to the
Fund when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result
<PAGE>
in the institution by exchanges of special procedures which may interfere with
the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that exchange for
such contracts or options (or in the class or series of contracts or options)
would cease to exist, although outstanding contracts or options on the exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the Fund invests in
tax-exempt securities issued by a governmental entity, the Fund may purchase and
sell futures contracts and related options on U.S. Treasury securities when, in
the opinion of the Adviser, price movements in Treasury security futures and
related options will correlate closely with price movements in the tax-exempt
securities which are the subject of the hedge. U.S. Treasury security futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of U.S. Treasury security called for in the contract at a specified
date and price. Options on U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
U.S. Treasury security futures contract at the specified option exercise price
at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the Fund is
subject to the Adviser's ability to predict movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if the Fund has sold U.S. Treasury security futures contracts in order
to hedge against the possibility of an increase in interest rates which would
adversely affect tax-exempt securities held in its
<PAGE>
portfolio, and the prices of the Fund's tax-exempt securities increase instead
as a result of a decline in interest rates, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
With respect to investments made for the International Fixed Income Securities
and the International Equity Securities investment categories, the Fund may
engage in foreign currency exchange transactions to protect against uncertainty
in the level of future exchange rates. The Adviser may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging"), and to protect the value of
specific portfolio positions ("position hedging").
The Fund may engage in "transaction hedging" to protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell the security and the settlement date, or to "lock in" the U.S.
dollar equivalent of a dividend or interest payment in a foreign currency. For
the purpose, the Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency.
If conditions warrant, the Fund may also enter into contract to purchase or sell
foreign currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts as a hedge against changes in foreign
currency exchange rates between the trade and settlement dates on particular
transactions and not for speculation. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes the Fund may also purchase exchange-listed and
over-the counter call and put options on foreign currency futures contracts and
on foreign currencies.
The Fund may engage in "position hedging" to protect against the decline in the
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of currency
for securities which the Fund expects to buy, when the Fund holds cash reserves
and short-term investments). For position hedging purposes the Fund may purchase
or sell foreign currency futures contracts and foreign currency forward
contracts, and may purchase put or call options on foreign currency futures
contracts and on foreign
<PAGE>
currencies on exchanges or over-the-counter markets. In connection with position
hedging, the Fund may also purchase or sell foreign currency on a spot basis. In
addition, as part of its position hedging strategies, the Fund may engage in the
forward contract, futures contract and options transactions described above
using a currency different from that in which the portfolio securities are
denominated ("cross-hedging") if the Adviser believes that the U.S. dollar value
of the currency used in cross-hedging will fall or rise, as the case may be,
whenever there is a decrease or increase, respectively, in the U.S. dollar value
of the currency in which the portfolio securities are denominated.
Hedging transactions involve costs and may result in losses. The Fund may write
covered call options on foreign currencies to offset some of the costs of
hedging those currencies, as well as to increase current return. The Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Adviser, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. The Fund's
ability to engage in hedging and related option transactions may be limited by
tax considerations.
LENDING OF SECURITIES
The FUND may make secured loans of its portfolio securities amounting to not
more than 25% of its total assets, thereby realizing additional income. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities
lent. The borrower pays to the Fund an amount equal to any dividends or interest
received on securities lent. The Fund retains all or a portion of the interest
received on securities lent. The Fund retains all or a portion of the interest
received on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with respect to the
loaned securities pass to the borrower, the Fund retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Fund if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The Fund
may also call such loans in order to sell the securities involved. The Fund will
not loans its portfolio securities to the Adviser, the Sub-Adviser or an
affiliate thereof.
<PAGE>
FORWARD COMMITMENTS
The Fund may make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time ("Forward commitments") if the Fund holds,
and maintains until the settlement date in a segregated account, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or if
the Fund enters into offsetting contracts for the forward sale of other
securities it purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield of price. Although the Fund will generally enter into forward
commitments with the intention of acquiring the securities for its portfolio,
the Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. The Fund may realize short-term profits or losses upon the
sale of forward commitments.
REPURCHASE AGREEMENTS
The FUND may enter into repurchase agreements with respect to the amount of its
total assets (taken at current value) specified in the Prospectus. A repurchase
agreement is a contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to re-sell such security at
a fixed time and price (representing the Fund's cost plus interest). It is the
Fund's present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. Government or its agencies or instrumentalities. The
Board of Directors of the Fund will evaluate the creditworthiness of all
entities with which the Fund proposes to enter into repurchase agreements.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to the repurchase. The Adviser will
monitor such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including the interest factor. If the seller defaults, the fund
could realize a loss on the sale of the underlying security to the extent that
the proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, if the seller should
be involved in bankruptcy or insolvency proceedings, the Fund may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
<PAGE>
INVESTMENT RESTRICTIONS
The following 17 restrictions are fundamental. The Fund may not and will not:
1. Borrow money in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
15% of its total assets (taken at current value) and then only to secure
borrowings permitted by restriction 1 above. (The deposit of underlying
securities and other assets in escrow and other collateral arrangements in
connection with the writing of put or call options and collateral arrangements
with respect to margin for options on financial futures contracts are not deemed
to be pledges or other encumbrances.)
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with options on financial futures
contracts.
4. Make short sales of securities or maintain a short sale position for the
account of the Fund unless at all times when a short position is open it owns an
equal amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short.
5. Underwrite securities issued by other persons except to the extent that, in
connection with disposition of its portfolio investments, it may be deemed to be
an underwriter under certain federal securities laws.
6. Purchase or sell real estate, although it may purchase securities which are
secured by or represent interests in real estate.
7. Purchase or sell commodities or commodity contracts, except that the Fund
may write and purchase options on financial futures contracts.
8. Make loans, except by purchase of debt obligations in which the Fund may
invest consistent with its investment policies, by entering into repurchase
agreements with respect to not more than 25% of its total assets (taken at
current value), or through the
<PAGE>
lending of its portfolio securities with respect to not more than 25% of its
assets.
9. Invest in securities of any issuer, if, to the knowledge of the Fund,
officers and directors of the Fund and officers and directors of the Adviser or
the Sub-Adviser who beneficially own more than 0.5% of the shares of securities
of that issuer together own more than 5%.
10. Invest in securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the Fund (taken at current value) would be
invested in the securities of such issuer; provided that this limitation does
not apply to securities issued by the U.S. government or its agencies or
instrumentalities (U.S. Government obligations).
11. Acquire more than 10% of the voting securities of any issuer.
12. Invest more than 25% of the value of its total assets in any one industry.
13. Invest in the securities of other investment companies, except as they may
be acquired as part of a merger of consolidation or acquisition of assets.
14. Invest more than 5% of its net assets in securities restricted as to resale.
15. Buy or sell oil, gas or other mineral leases, rights or royalty contracts.
16. Make investments for the purpose of gaining control of a company's
management.
17. Issue any class of securities which is senior to the Fund's stock. (For
purposes of this restriction, collateral arrangements with respect to the
writing of options are not deemed to be the issuance of a senior security).
The following three restrictions are not fundamental, but are contrary to the
Fund's present policy:
A. To invest in (i) securities which at the time of such investment are not
readily marketable, (ii) restricted securities and (iii) repurchase agreements
maturing in more than seven days, if, as a result, more than 10% of the Fund's
total assets (taken at current value) would then be invested in the aggregate in
securities described in (i), (ii) and (iii) above.
B. To invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase).
C. To invest in securities of any issuer, which together with any predecessors
or controlling persons, has been in operation for less than three consecutive
years and in equity securities
<PAGE>
for which market quotations are not readily available if, as a result, the
aggregate of such investments would exceed 5% of the value of the Fund's net
assets; provided, however, that this restriction shall not apply to U.S.
Government obligations. (Debt securities having equity features are not
considered "equity securities" for purposes of this restriction.)
Although the provisions of fundamental investment restrictions 1, 2 and 4 permit
the Fund to engage in certain practices to a limited extent, the Fund does not
have any present intention of engaging in such practices.
All percentage limitations on investments will apply at the time of the making
of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
The Investment Company Act of 1940 (the Act) provides that a "vote of a majority
of the outstanding voting securities" means the affirmative vote of the lesser
of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more
of the shares present at a meeting in person or by proxy.
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 security exchange are effected through brokers who charge a commission for
their services. Transactions in foreign securities generally involve the payment
of fixed brokerage commissions, which are generally higher than those in the
United States. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In the U.S. Government
securities 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 securities 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." It will be the practice of the Adviser to allocate
purchase and sale transactions among the Fund and others whose assets are
managed in such manner as is deemed 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
<PAGE>
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 the 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 of its own internal research
capabilities. 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 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 during
1994 was $309,000; for 1993 was $427,400; and for 1992 it was $158,546.
Under the Sub-Advisory Agreement between the Adviser and the Sub-Adviser, the
Sub-Adviser may perform some, or substantially all, of the investment advisory
services required by the Fund, even though the Adviser remains primarily
responsible for investment decisions affecting the Fund. The Sub-Adviser will
follow the same procedures and policies which are followed by the Adviser as
described above. The Sub-Adviser currently provides investment advice to a
number of other clients. See "Sub-Adviser." References to "Adviser" in this
Statement of Additional
<PAGE>
Information include both Lincoln National Investment Management Company and the
Putnam Management Company, Inc.
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 1; 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.
Since a significant portion of the Fund's portfolio may at any one time consist
of securities primarily listed on foreign exchanges or otherwise traded outside
the United States, those securities may be traded (and the net asset value of
the Fund could therefore be significantly affected) on days when the investor
has no access to the Fund.
<PAGE>
APPENDIX
(NOTE: THIS IS UNIFORM INFORMATION FOR THE ELEVEN FUNDS. SEE EACH FUND'S
SAI FOR INFORMATION SPECIFIC TO THAT FUND.)
THIS APPENDIX CONSTITUTES PART OF THE STATEMENTS OF ADDITIONAL INFORMATION OF
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC. (AGGRESSIVE GROWTH FUND), LINCOLN
NATIONAL BOND FUND, INC. (BOND FUND), LINCOLN NATIONAL CAPITAL APPRECIATION
FUND, INC. (CAPITAL APPRECIATION FUND), LINCOLN NATIONAL EQUITY-INCOME FUND,
INC. (EQUITY-INCOME FUND), LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
(GLOBAL ASSET ALLOCATION FUND), LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.
(GROWTH AND INCOME FUND), LINCOLN NATIONAL INTERNATIONAL FUND, INC.
(INTERNATIONAL FUND), LINCOLN NATIONAL MANAGED FUND, INC. (MANAGED FUND),
LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY MARKET FUND), LINCOLN NATIONAL
SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS FUND), AND LINCOLN NATIONAL
SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL OPPORTUNITIES FUND), UNLESS OTHERWISE
INDICATED, THE FOLLOWING INFORMATION APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln National Investment Management Company (LNIMC) is the investment Advisor
to the funds and is headquartered at 200 E. Berry Street, Fort Wayne, Indiana
46802. LNIMC (the Advisor) is a wholly-owned subsidiary of Lincoln National
Corporation (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis, life
insurance and annuities, property-casualty insurance, reinsurance, and financial
services. LNIMC is registered with the Securities and Exchange Commission (the
Commission) as an investment Advisor and has acted as an investment Advisor to
mutual funds for over 40 years. The Advisor also acts an investment Advisor
to Lincoln National Income Fund, Inc. (a closed-end investment company whose
investment objective is to provide a high level of current income from interest
of fixed-income securities); and Lincoln National Convertible Securities Fund,
Inc. (a closed-end investment company whose investment objective is a high level
of total return on its assets through a combination of capital appreciation and
current income), Lincoln Advisor Funds, Inc. (a retail mutual fund complex) and
to other clients.
Under Advisory Agreements with the Funds, the Advisor provides portfolio
management and investment advice to the Funds and administers its other affairs,
subject to the supervision of the Funds' Board of Directors. The Advisor, at its
expense, will provide office space to the Funds and all necessary office
facilities, equipment and personnel, and will make its officers and employees
available to the Funds as appropriate. In addition, the Advisor will pay all
expenses incurred by it or by the Funds in connection with the management of
each Fund's assets or the administration of its affairs, other than those
assumed by the Funds, as described below. Lincoln Life has paid the
organizational expenses of all the funds. The rates of compensation to the
Advisor and the Sub-Advisor are set forth in the Appendix to the
Prospectus.
During the last three years, the Advisor received the following amounts for
investment Advisor services:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Aggressive Growth Fund $ 232,000 $ N/A $ N/A
Bond Fund 999,397 978,266 754,618
Capital Appreciation Fund 211,773 N/A N/A
Equity-Income Fund 348,255 N/A N/A
Global Asset Allocation Fund 1,381,059 901,004 643,332
Growth and Income Fund 3,896,902 3,293,315 2,537,432
International Fund 2,262,664 759,801 307,100
Managed Fund 1,919,150 1,756,544 1,403,073
Money Market Fund 404,441 449,374 570,352
Social Awareness Fund 736,602 542,142 331,256
Special opportunities Fund 1,351,374 1,052,967 733,475
</TABLE>
Expenses specifically assumed by the Funds include: compensation and expenses
of directors of the Funds who are not "interested persons" of the Funds as
defined in the Investment Company Act of 1940 (the Act);
<PAGE>
registration, filing and other fees in connection with filings with regulatory
authorities, including the costs of printing and mailing registration statements
and updated prospectuses provided to current stockholders; fees and expenses of
independent auditors; the expenses of printing and mailing proxy statement and
stockholder reports; custodian charges; brokerage commissions and securities
transaction costs incurred by the funds; taxes and corporate fees; legal fees
incurred in connection with the affairs of the Funds (other than legal services
provided by personnel of the Advisor or its affiliated companies); the fees of
any trade association of which the Funds are members: and expenses of
stockholder and director meetings.
If total expenses of the Funds (excluding taxes, interest, portfolio brokerage
commissions and fees, and expenses of an extraordinary and non-recurring nature,
but including the investment Advisory fee) exceed 1 1/2% per annum of the
average daily net assets of each Fund (2% for the International Fund), the
Advisor will pay such excess by offsetting it against the Advisory fee. If such
offset is insufficient to cover the excess, any balance remaining will be paid
directly by the Advisor to each Fund.
The current Advisory Agreements between the Advisor and the Funds will remain in
effect from year to year if approved annually by: (1) the Board of Directors of
each Fund or by the vote of a majority of the outstanding voting securities of
each Fund, and (2) a vote of a majority of the directors who are not "interested
persons" of the Funds or the Advisor, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be terminated
without penalty at any time, on 60 days' written notice by: (1) the Board of
Directors of each Fund, (2) vote of majority of the outstanding voting
securities of each Fund or (3) the Advisor. The Advisory Agreement terminates
automatically in the event of assignment.
In like manner, the current Sub-Advisory Agreements will remain in effect from
year to year if approved annually by the Board of Directors of the applicable
Funds or by the vote of a majority of the outstanding voting securities of those
Funds. The Sub-Advisory Agreements may be terminated without penalty at any
time, on 60 days' written notice, by: (1) the Board of Directors of the
applicable fund, (2) vote of the majority of the outstanding voting securities
of the applicable Fund, (3) the Sub-Advisor, or (4) the Advisor. The Sub-
Advisory Agreements terminate automatically in the event of assignment.
DIRECTORS AND OFFICERS
The directors and executive officers of each Fund and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITIONS WITH FUND PRINCIPAL OCCUPATION
ADDRESS DURING PAST FIVE YEARS
- ----------------- ------------------- ----------------------
<S> <C> <C>
*Kelly D. Clevenger Chairman of the Vice President, Lincoln National
1300 S. Clinton Street Board Life Insurance Company
Fort Wayne, Indiana 46802 President and
Director
John B. Borsch, Jr. Director Retired, formerly Associate Vice
1776 Sherwood Road President-Investments, Northwestern
Des Planes, IL 60016 University
Nancy L. Frisby, CPA Director Regional Vice President/Chief
Financial Officer (formerly Vice-President
700 Broadway -Finance; Regional Controller of
Fort Wayne, IN 46802 Finance) , St. Joseph Medical Center,
Fort Wayne, Indiana
*Barbara S. Kowalczyk Director Executive Vice President,, Lincoln
1300 S. Clinton National Investment Management
Street Fort Wayne, Company (formerly, Senior Vice
IN 46802 President, The Lincoln National
Life Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITIONS WITH FUND PRINCIPAL OCCUPATION
ADDRESS DURING PAST FIVE YEARS
- ----------------- ------------------- ----------------------
<S> <C> <C>
Stanley R. Nelson Director Executive in Residence
420 Delaware St., S.E. Program in Health
Minneapolis, MN 55455 Services Administration,
University of Minnesota,
Minneapolis, Minnesota,
(formerly President, Henry
Ford Health Care
Corporation, Detroit,
Michigan)
* Max A. Roesler Vice President and Vice President and
1300 S. Clinton Street Treasurer Treasurer, The Lincoln
Fort Wayne, Indiana 46808 National Life Insurance
Company; Vice President and
Treasurer, Lincoln National
Corporation
* Cynthia A. Rose Assistant Secretary Assistant Secretary,
200 East Berry Street Lincoln National
Fort Wayne, IN 46802 Corporation; Assistant
Secretary, The Lincoln
National Life Insurance
Company
</TABLE>
* "Interested persons" of the Funds, as defined in the Act.
Directors' fees of $250 per meeting are paid by each Fund to each director who
is not an "interested person" of the Fund.
INVESTMENT POLICIES AND TECHNIQUES (CONTINUED)
OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to the Bond, Growth, Managed, Social Awareness, and
Special Opportunities Funds. Neither the International Fund nor the Money Market
Fund has sought the authority to engage either in options or in futures trading.
(NOTE: The Aggressive Growth, Capital Appreciation, Equity-Income and Global
Asset Allocation Funds have their own respective discussions of the Strategic
Portfolio Transactions in which they may engage).
OPTIONS TRADING
The Fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund may not write put or covered call options in an amount
exceeding 30% of the value of its total assets. The Fund would invest in options
in standard contracts which may be quoted on NASDAQ, or on national securities
exchanges. Currently options are traded on numerous securities and indices
including, without limitation, the S & P 100 Index, the S&P 500 Index, and the
NYSE Beta Index.
A) In General. Put and call options are generally short-term contracts with
durations of nine months or less. The Investment Advisor 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
Advisor'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 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.
B) Call Options. The Fund may write only call options which are "covered,"
meaning that the Fund either owns the underlying security or has an absolute and
immediate right to acquire that security, without additional cash consideration,
upon conversion or exchange of other securities currently held in its portfolio.
In addition, the Fund will not, prior to the expiration of a call option, permit
the call to become uncovered. If the Fund writes a call option, the purchaser of
the option has the right to buy (and the Fund has the obligation to sell) the
underlying security at the exercise price throughout the term of the option. The
amount paid to the Fund by the purchaser of the option is the "premium." The
Fund's obligation to deliver the
<PAGE>
underlying security against payment of the exercise price would terminate either
upon expiration of the option or earlier if the Fund were to effect a "closing
purchase transaction" through the purchase of an equivalent option on an
exchange. The Fund would not be able to effect a closing purchase transaction
after it had received notice of exercise.
In order to write a call option, the Fund is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corporation and the various exchanges. The Fund may not purchase call
options except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing purchase transaction may be greater than
the premium received by the Fund for writing the option.
Generally, the investment Advisor (the Advisor) intends to write listed covered
calls during periods when it anticipates declines in the market valued of
portfolio securities and the premiums received (not of transaction costs) may
offset to some extent the decline in the Fund's net asset value occasioned by
such declines in market value. The Advisor will generally not write listed
covered call options when it anticipates that the market value of the Fund's
portfolio securities will increase.
If the Advisor decides that at a price higher than the current value a portfolio
security would be overvalued and should be sold, the Fund may write an option on
the security at that price. Should the security subsequently reach that price
and the option be exercised, the Fund would, in effect, have increased the
selling price of that security, which it would have sold at that price in any
event, by the amount of the premium. In the event the market price of the
security declined and the option were not exercised, the premium would offset
all or some portion of that decline. It is possible, of coarse, that the price
of the security could increase beyond the exercise price; in that event, the
Fund would forego the opportunity to sell the security at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgement of the
Advisor, the market price of a security is overvalued and it should be sold, the
Fund may elect to write a call with an exercise price substantially below the
current market price. So long as the value of the underlying security remains
above the exercise price during the term of the option, the option will be
exercised, and the Fund will be required to sell the security at the exercise
price. If the sum of the premium and the exercise price exceeds the market price
of the security at the time the call is written, the Fund would, in effect, have
increased the selling price of the security. The Fund would not write a call
under these circumstances if the sum of the premium and the exercise price were
less than the current market price of the security.
In summary, a principal reason for writing calls on a securities portfolio is to
attempt to realize, through receipt of premium income, a greater return than
would be earned on the securities alone. A covered call writer, such as the
Fund, which owns the underlying security has, in return for the premium, given
up the opportunity for profit from a price increase in the underlying security
above the exercise price, but has retained the risk of loss should the price of
the security decline. Unlike one who owns securities not subject to a call, the
Fund as a call writer may be required to hold such securities until the
expiration of the call option or until the Fund engages in a closing purchase
transaction at a price that may be below the prevailing market.
C) Put Options. The Fund may also write put options. If the Fund writes a put
option, it is obligated to purchase a given security at a specified price at any
time during the term of the option. The rules regarding the writing of put
options are generally comparable to those described above with respect to call
options.
Writing put options is a useful portfolio investment strategy when the Fund has
cash or other reserves available for investment as a result of sales of Fund
shares or because the Advisor believes a more defensive and less fully invested
position is desirable in light of market conditions. If the Fund wishes to
invest its cash or reserves in a particular security at a price lower than
current market value, it may write a put option on that security at an exercise
price which reflects the lower price it is willing to pay. The buyer of the put
option generally will not exercise the option unless the market price of the
underlying security declines to a price near or below the exercise price. If the
Fund writes a put option, the price of the underlying security declines and the
option is exercised, the premium, net of transaction charges, will reduce the
purchase price paid by the Fund for the security. Of course, the price of the
security may continue to decline after exercise of the put options, in which
event the Fund would have foregone an opportunity to purchase the security at a
lower price, or the option might never be exercised.
If, prior to the exercise of a put, the Advisor determines that it no longer
wishes to invest in the security on
<PAGE>
which the put has been written, the Fund may be able to effect a closing
purchase transaction on an exchange by purchasing a put of the same series as
the one which it has previously written. The cost of effecting a closing
purchase transaction may be greater than the premium received on writing the put
option, and there is no guarantee that a closing purchase transaction can be
effected. The Fund may purchase put options only in connection with a closing
transaction.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the Fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of his position in the underlying security), the
Fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
At the time a put option is written, the Fund will be required to extablish, and
will maintain until the put is exercised or has expired, a segregated account
with its custodian consisting of cash or short-term U.S. government securities
equal in value to the amount which the Fund will be obligated to pay upon
exercise of the put. Principal factors affecting the market value of a put or
call option include supply and demand, interest rates, the current market price
and price volatility of the underlying security and the time remaining until the
expiration date. In addition, there is no assurance that the Fund will be able
to effect a closing transaction at a favorable price. If the Fund cannot enter
into such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be a market risk on the
security. If a substantial number of covered options written by the Fund are
exercised, the Fund's rate or portfolio turnover could exceed historic levels.
This could result in higher transaction costs, including brokerage commissions.
The Fund will pay brokerage commissions in connection with the writing and
purchasing of option to close out previously written options. Such brokerage
commissions are normally higher than those applicable to purchases and sales of
portfolio securities.
FUTURES CONTRACTS AND OPTIONS THEREON
A. In General. 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 Advisor 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, as explained below, the Fund is
also authorized to buy futures contracts on an unleveraged basis and not as an
anticipatory hedge.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid or 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.
B. Futures Contracts. The Fund may purchase and sell financial futures
contracts ("futures contracts") as a hedge against fluctuations in the value of
securities which are held in the Fund's portfolio or which the Fund intends to
purchase. The Fund will engage in such transactions consistent with the Fund's
investment objective. Currently, futures contracts are available on Treasury
bills, notes, and bonds.
There are a number of reasons why entering into futures contracts for hedging
purposes can be beneficial to the Fund. First, futures markets may be more
liquid than the corresponding cash markets on the underlying securities. Such
enhanced liquidity results from the standardization of the futures contracts and
the large transaction volumes. Greater liquidity permits a portfolio manager to
effect a desired hedge both more quickly and in greater volume than would be
possible in the cash market. Second, a desired sale and subsequent purchase can
generally be accomplished in the futures market for a fraction of the
transaction costs that might be incurred in the cash market.
The purpose of selling a futures contract is to protect the Fund's portfolio
from fluctuation in asset value resulting from stock price changes. Selling a
futures contract has an effect similar to selling a portion of the Fund's
portfolio securities. If stock prices were to decline, the value of the Fund's
futures contracts would increase, thereby keeping the net asset value of the
Fund from declining as much as it otherwise might have. In this way, selling
futures contracts acts as a hedge against the effects of declining stock prices.
However, an increase in the value of portfolio securities tends to be offset by
a decrease in the value of corresponding futures contracts.
Similarly, when stock prices are expected to rise, futures contracts may be
purchased to hedge against anticipated subsequent purchases of portfolio
securities at higher prices. By buying futures, the Fund could
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effectively hedge against an increase in the price of the securities it intends
to purchase at a later date in order to permit the purchase to be effected in an
orderly manner. At the time, the futures contracts could be liquidated at a
profit if stock prices had increased as expected, and the Fund's cash position
could be used to purchase securities.
When a purchase or sale of a futures contract occurs, a deposit of high-quality,
liquid securities called "initial margin" is made by both buyer and seller with
a custodian for the benefit of the broker. Unlike other types of margin, a
futures margin account does not involve any loan or borrowing but is merely a
good faith deposit that must be maintained in a minimum amount of cash or U.S.
Treasury bills. All futures positions, both long and short, are marked-to-market
daily, with cash payments called "variation margin" being made by buyers and
sellers to the custodian, and passed through to the sellers and buyers, to
reflect daily changes in the contract values.
Most futures contracts are typically cancelled or closed out before the
scheduled settlement date. The closing is accomplished by purchasing (or
selling) an identical futures contract to offset a short (or long) position.
Such an offsetting transaction cancels the contractual obligations established
by the original futures transaction. Other financial futures contracts call for
cash settlements rather than delivery of securities.
If the price of an offsetting futures transaction varies from the price of the
original futures transaction, the hedger will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
unrealized loss or gain on the hedged securities position, but may not always or
completely do so.
The Fund will not enter into any futures contract if, immediately thereafter,
the aggregate initial margin for all existing futures contracts and options
thereon and for premiums paid for related options would exceed 5% of the Fund's
total assets. The Fund will not purchase or sell futures contracts or related
options of immediately thereafter more than one-third of its net assets would be
hedged.
C. Risks and Limitations Involved in Futures Hedging. There are a number of
risks associated with futures hedging. Changes in the price of a futures
contract generally parallel but do not necessarily equal changes in the prices
of the securities being hedged. The risk of imperfect correlation increases as
the composition of the Fund's securities portfolio diverges from the securities
that are the subject of the futures contract. Because the change in the price
of the futures contract may be more or less than the change in the prices of the
underlying securities, even a correct forecast of stock price changes may not
result in a successful hedging transaction. Another risk is that the Investment
Advisor could be incorrect in its expectation as to the direction or extent of
various market trends or the time period within which the trends are to take
place.
The Fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. There can be no assurance that a liquid
market will always exist for any particular contract at any particular time.
Accordingly, there can be no assurance that it will always be possible to close
a futures position when such closing is desired, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been sold to
hedge portfolio securities, such securities will not be sold until the
offsetting futures contracts can be executed. Similarly, in the event futures
have been bought to hedge anticipated securities purchases, such purchases will
not be executed until the offsetting futures contracts can be sold.
Successful use of futures contracts by the Fund is also subject to the ability
of the Investment Advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. For example,
if the Fund has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and prices
of such securities increase instead, the Fund will lose part or all of the
increased value of its securities because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities
to meet such requirements. Such sale of securities may be, but will not
necessarily be, at increased prices that reflect the rising market. The Fund may
have to sell securities at a time when it is disadvantageous to do so. Where
futures are purchased to hedge against a possible increase in the price of
securities before the Fund is able to invest its cash in an orderly fashion, it
is possible that the market may decline instead; if the Fund is able to invest
its cash in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in securities at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
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The selling of futures contracts by the Fund and use of related transactions in
options on futures contracts (discussed below) are subject to position limits,
which are affected by the activities of the Investment Advisor.
The hours of trading of futures contracts may not conform to the hours during
which the Fund may trade equity securities. To the extent that the futures
markets close before the equity securities markets, significant price and rate
movements can take place in the equity securities markets that cannot be
reflected in the futures markets.
Pursuant to Rule 4.5 under the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), are exempted from the definition of "commodity pool operator" in
the Commodity Exchange Act, subject to compliance with certain conditions. The
exemption is conditioned upon a requirement that all of the investment company's
commodity futures transactions constitute bona fide hedging transactions (except
on an unleveraged basis, as described in E. below). With respect to long
positions assumed by the Fund, the Fund will segregate with its custodian, an
amount of cash and other assets permitted by Commodity Futures Trading
Commission (CFTC) regulations equal to the market value of the futures contracts
and thereby insure that the use of futures contracts is unleveraged. The Fund
will use futures in a manner consistent with these requirements.
D. Options on Futures Contracts. The Fund only intends to engage in options on
futures contracts for bona fide hedging purposes in compliance with CFTC
regulations. An option on a futures contract gives the purchaser the right, but
not the obligations, to assume a position in a futures contract (which position
may be a long or short position) at a specified exercise price at any time
during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (which position may be a long
or short position). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
The Fund will be required to deposit initial and variation margin with respect
to put and call options on futures contracts written by it pursuant to the
Fund's futures commissions merchants' requirements similar to those applicable
to the futures contracts themselves, described above.
E. Risks of Futures Transactions. The Fund's successful use of futures
contracts and options thereon depends upon the ability of its Investment Advisor
to predict movements in the stock market and other factors affecting markets
for securities and upon the degree of correlation between the prices of the
futures contracts and the prices of the securities being hedged. As a result,
even a correct forecast of stock price changes may not result in a successful
hedging transaction. Although futures contracts and options thereon may limit
the Fund's exposure to loss, they may also limit the Fund's potential for
capital gains. For example, if the Fund has hedged against the possibility of
decrease in stock prices which would adversely affect the price of
securities in its portfolio and prices of such securities increase instead, the
Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions.
Although the Fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
F. The Fund also is authorized, subject to the limitations set out in the
Prospectus, to purchase futures contracts on an unleveraged basis, when not
intended as an anticipatory hedge. When a contract is purchased on this basis
the investment company establishes a segregated account, composed of cash and/or
cash equivalents, equal to the total value of the contract (less margin on
deposit). As with other futures trading, these purchases must not be for
speculative purposes.
The ability to engage in these purchases on an unleveraged basis can
significantly decrease transaction costs to the Funds in certain instances. For
example, if an inordinately large deposit should occur on a single day, the
sheer volume of securities purchases required for that day may place the Fund at
a market disadvantage by requiring it to purchase particular securities in such
volume that its own buying activity could cause prices to increase. In
addition, if this deposit had involved 'market-timing' and as a result there
subsequently were an oversized withdrawal, the Fund could again suffer market
disadvantage, this time because the volume of sales could, for the same reason,
force prices of particular securities to decrease. The Fund, by buying a
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futures contract (followed by the appropriate closing transaction) instead of
purchasing securities could achieve considerable savings in transaction costs
without departing from Fund objectives. Furthermore, as stated in (B.) above,
price changes in a futures contract generally parallel price changes in the
securities that the Fund might otherwise have purchased. Thus, purchase of a
futures contract on an unleveraged basis allows the Fund to comply with its
objective while at the same time achieving these lower transaction costs.
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LENDING OF PORTFOLIO SECURITIES
As described in the Prospectus, the Funds may from time to time lend securities
from their portfolios to brokers, dealers and financial institutions and 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 and will be in
the actual or constructive possession of the particular Fund during the term of
the loan. The Fund will maintain the incidents of ownership of the loaned
securities and will continue to 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 finder's fees to persons unaffiliated with it in connection with the
arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made only to firms deemed by the Adviser to be
creditworthy.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Funds 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 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 the 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. The Board of Directors of the Fund will evaluate the
creditworthiness of all entities, including banks and broker-dealers, with which
they propose to enter into repurchase agreements. These transactions will be
fully collateralized; and the collateral for each transaction will be in the
actual or constructive possession of the particular Fund during the terms of the
transaction, as provided in the agreement.
In a reverse repurchase agreement, the Fund involved sells a portfolio security
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Fund will maintain cash and appropriate
liquid assets in a segregated custodial account to cover its obligation under
the agreement. The Fund will enter into reverse repurchase agreements only with
parties that the Advisor or Sub-Advisor deems creditworthy. Reverse repurchase
agreements are considered to be borrowing transactions, and thus are subject to
the Fund's limitation to borrowing. Not every Fund is authorized to enter into
reverse repurchase agreements.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities Funds are
currently held in custody by Bankers Trust Company, 14 Wall Street, 4th Floor,
New York, New York 10005. Bankers Trust agreed to act as custodian for each Fund
pursuant to a Custodian Agreement dated June 17, 1985 (March 10, 1986 for the
Social Awareness Fund). These six Funds expect to change custodian to Chase
Manhattan Bank, New York, New York, in mid-1995.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation (formerly Putnam Master)
and International Funds are held in custody by State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110. State Street agreed
to act as custodian for these Funds pursuant to Custodian Contracts effective
July 21, 1987 for the Global Asset Allocation Fund, April 29, 1991 for the
International Fund, and December 6, 1993 for the other three funds.
Under these Agreements, the respective custodians shall (1) receive and disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit
<PAGE>
receipts to be executed; (6) register securities; and (7) deliver to the Funds
proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each Fund's Board of Directors has engaged Ernst & Young LLP, 2300 Fort Wayne
National Bank Building, Fort Wayne, Indiana 46802, to be the independent
auditors for the Fund. In addition to the audit of the 1994 financial statements
of the Funds, other services provided include review and consultation connected
with filings of annual reports and registration statements with the Securities
and Exchange Commission; consultation on financial accounting and reporting
matters; and meetings with the Audit Committee.
FINANCIAL STATEMENTS
The financial statements for the Funds are incorporated by reference to the
Funds' 1994 Annual Report (see Pages 34-47 for all Funds; and Page 10,
Aggressive Growth Fund; Pages 11-12, Bond Fund; Pages 13-14, Capital
Appreciation Fund; Pages 14-16, Equity-Income Fund; Pages 24-30, Global Asset
Allocation Fund; Pages 17-18, Growth and Income Fund; Pages 18-20, International
Fund; Pages 20-23, Managed Fund; Page 23, Money Market Fund; Pages 30-31, Social
Awareness Fund; and Pages 31-33, Special Opportunities Fund). We will provide a
copy of the Annual Report on request and without charge. Please write or call
Eric Jones, The Lincoln National Life Insurance Company, P.O. Box 2340, Fort
Wayne, Indiana 46801; telephone: 1-800-1212, Extension 6536.
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments are
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
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STANDARD & POOR'S CORPORATION
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest than
for bonds in the A category and higher.
BB-B-CCC-CC--Bonds rated BB,B,CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1--Highest Quality; Prime 2--Higher Quality; Prime 3--High Quality. (The
Fund will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORPORATION
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The Fund will invest in commercial paper rated in the "A" Categories,
as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The Fund
will not invest in commercial paper rated A-3).
A--1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A--2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of one to seven years and
Treasury bonds generally have a maturity of greater than five years.
Various agencies of the U.S. government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority). Obligations of instrumentalities of the U.S.
government are supported by the right of the issuer to borrow from the Treasury
(for example, those issued by Federal Farm Credit Banks, Federal Home Loan Bank,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Bank and the U.S. Postal Service).
<PAGE>
Obligations supported by the credit of the instrumentality include securities
issued by government sponsored corporations whose stock is publicly held (for
example, the Federal National Mortgage Association, and the Student Loan
Marketing Association).
TAXES
Each Fund intends to qualify and has elected to be taxed as a "regulated
investment company" under certain provisions of the Internal Revenue Code of
1986, as amended (the "Code"). If a Fund qualifies as a "regulated investment
company" and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from Federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a "regulated investment company," each Fund must, among other
things, derive in each taxable year at least 90 percent of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies
(subject to the authority of the Secretary of the Treasury to exclude foreign
currency gains which are not directly related to the Fund's principal business
of investing in stock or securities or options and futures with respect to such
stock or securities), or other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to its investing in
such stock, securities, or currencies. In addition to qualify as a "regulated
investment company" each Fund must derive less than 30% of its gross income from
the sale or other disposition of securities held for less than three months. In
order to meet these requirements, a Fund may be required to defer disposing of
certain futures contracts and underlying securities beyond the time when it
might otherwise be advantageous to do so. Specifically, these requirements may
limit a Fund's ability to (a) sell securities held for less than three months;
(b) effect closing transactions on futures contracts entered into less than
three months previously; (c) enter into futures contracts for a period of less
than three months; and (d) enter into futures contracts on securities held for
less than the long-term capital gains holding period. Further, for purposes of
the 30% test, increases (and decreases) in the value of positions that are part
of a "designated hedge" (as defined in the Code) are netted.
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to an amount, if any, by which such
company does not meet distribution requirements specified in such tax laws,
unless certain exceptions apply. Each Fund intends to comply with such
distribution requirements or qualify under one or more exceptions, and thus does
not except to incur the four percent nondeductible excise tax.
Since the sole shareholder of each Fund will be LNL, no discussion is stated
herein as to Federal income tax consequences at the shareholder level.
The discussion of Federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service. These
interpretations can be changed at any time. The above discussion covers only
Federal tax considerations with respect to the Fund. State and local taxes vary.
STATE REQUIREMENTS
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account. The Funds intend to comply
with these Guidelines:
BORROWING
The borrowing limits for any variable contract separate account portfolio are
(1) 10% of net asset value when borrowing for any general purpose and (2) 25% of
net asset value when borrowing as a temporary measure to facilitate redemptions.
Net asset value of a portfolio is the market value of all investments or assets
owned less outstanding liabilities of the portfolio at the time that any new or
additional borrowing is undertaken.
FOREIGN INVESTMENTS--DIVERSIFICATION
The foreign country diversification guidelines to be followed by the Funds are
as follows:
1. A Portfolio will be invested in a minimum of five different foreign
countries at all times. However, this
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minimum is reduced to four when foreign country investments comprise less than
80% of the Portfolio's net asset value; to three when less than 60% of such
value; to two when less than 40%; and to one when less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its value invested in securities
of issuers located in any one of the following countries: Australia, Canada,
France, Japan, the United Kingdom or West Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
DERIVATIVE TRANSACTIONS - DEFINITIONS
The Prospectus for each Fund and the uniform Appendix for the Prospectus booklet
discuss the type of Derivative Transactions in which the Funds may engage and
the risks typically associated with many Derivative transactions. Here are some
definitions for the derivatives listed in the Appendix:
OPTION: a contract which gives the Fund the right, but not the obligation,
to buy or sell specified securities at a fixed price before or at a designated
future date. If the Contract allows the Fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options
trading to terminate an outstanding option contract by entering into an
offsetting transaction known as a 'closing transaction;, as a result of which
the Fund would either pay out or receive a cash settlement. This is discuss
below.
CURRENCY OPTION: Discussed below.
FIXED INCOME OPTION: one based on a fixed-income security, such as a
corporate or government bond.
INDEXED OPTION: one based on the value of an index which measures the
fluctuating value of a 'basket' of pre-selected securities.
STOCK (EQUITY) OPTION: one based on the shares of stock of a particular
company.
OPTION ON A FUTURES CONTRACT: Discussed below.
SWAP: a financial transaction in which the Fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price, level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the 'notional
amount'. A swap is normally used to change the market risk associated with a
loan or bond borrowing from one interest rate base (fixed term or floating rate)
or currency of one denomination to another.
EQUITY SWAP: one which allows the Fund to exchange the rate of return
(or some portion of the rate) on its portfolio stocks (an individual
share, a basket or index) for the rate of return on another equity or
non-equity investment.
INTEREST RATE SWAP: one in which the Fund and another party exchange
different types of interest payment streams, pegged to an underlying
notional principal amount. The three main types of interest rate swaps
are coupon swaps (fixed rate to floating rate in the same currency);
basis swaps (one floating rate index to another floating rate index in
the same currency); and cross-currency interest rate swaps (fixed rate
in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. CAP: A contract for which the buyer pays a fee, or premium, to
obtain protection against a rise in a particular interest rate
above a certain level. For example, an interest rate cap may cover
a specified principal amount of a loan over a designated time
period, such as a calendar quarter. If the covered interest rate
rises above the rate ceiling, the seller of the rate cap pays the
purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. FLOOR: a contract in which the seller agrees to pay to the
purchaser, in return for the
<PAGE>
payment of a premium, the difference between current interest rates
and an agreed (strike) rate times the notional amount, should
interest rates fall below the agreed level (the 'floor'). A floor
contract has the effect of a string of interest rate guarantees.
c. COLLAR: an agreement to simultaneously purchase a cap and sell
a floor, in order to maintain interest rates within a defined range.
The premium income from the sale of the floor reduces or offsets the
cost of buying the cap.
d. CORRIDOR: an agreement to buy a cap at one interest rate and
sell a cap at a higher rate.
SWAPTION: an option to enter into, extend, or cancel a swap.
FUTURES CONTRACT: a contract which commits the Fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM): futures contracts pegged to
U.S. and foreign fixed-income securities, debt indices and reference
rates.
STOCK INDEX FUTURES. futures contracts based on an index of pre-selected
stocks, with prices based on a composite of the changes to the prices of
the individual securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT: an option taken on a futures position.
FORWARD CONTRACT: an over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA): a contract in which the Fund and another
party agree on the interest rate to be paid on a notional deposit of
specified maturity at a specific future time. Normally, no exchange of
principal is involved; the difference between the contracted rate and the
prevailing rate is settled in cash.
CURRENCY CONTRACT: a contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES: futures contracts on foreign currencies. Used to hedge
the purchase or sale of foreign securities.
CURRENCY OPTION: an option taken on foreign currency.
CURRENCY SWAP; a swap involving the exchange of cash flows and principal
in one currency for those in another, with an agreement to reverse the
principal swap at a future date.
CROSS-CURRENCY INTEREST RATE SWAP: a swap involving the exchange of
streams of interest rate payments (but not necessarily principal payments)
in different currencies and often on different interest bases (e.g., fixed
Deutsche Mark against floating dollar, but also fixed Deutsche Mark
against fixed dollar).
CURRENCY FORWARD CONTRACT: a contract to 'lock in' a currency rate at a
future date, to eliminate risk of currency fluctuation when the time comes
to convert from one currency to another.
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) Financial Statements:
(1) Part A.
------
The financial highlights of Lincoln National Global Asset Allocation
(formerly Lincoln National Putnam Master Fund, Inc.) (the Fund) for the
years ended December 31, 1994, 1993, 1992, 1991, 1990, 1989, and 1988, and
for the period from August 3, 1987 to December 31, 1987, is incorporated by
reference to Pages 45-47 of the Fund's 1994 Annual Report.
Part B.
------
The following financial statements of the Fund are incorporated by
reference to Pages 24-30 and 34-44 and 47 of the Fund's 1994 Annual Report:
- Statement of Net Assets -- December 31, 1994
- Statement of Operations -- Year Ended December 31, 1994
- Statements of Changes in Net Assets -- Years Ended December
31, 1994 and 1993
- Notes to Financial Statements -- December 31, 1994
In total, only pages 24-30 and 34-47 of the Fund's 1994 Annual Report
are incorporated by reference into this Registration Statement. No other
pages of that Report are incorporated by reference.
(2) Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the required
information is included in the financial statements, and therefore have
been omitted.
b) Exhibits:
11 - Consent of Ernst & Young LLP, Independent Auditors
17 - Memorandum Concerning Books and Records
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
We have no changes to report to Exhibits 1-10 and 12-16. These exhibits
are incorporated by reference to the Registration Statement (File No. 33-
13530) including all amendments and/or post-effective amendments.
Item 25. Persons Controlled by or Under Common Control with
Registrant
See "Management of the Fund", "Purchase of Securities Being Offered", and
"Description of Shares" in the Prospectus forming Part A of this
Registration Statement and "Investment Adviser and Sub Adviser" in the
Statement of Additional Information forming Part B of this Registration
Statement. As of the date of this Post-Effective Amendment, The Lincoln
National Life Insurance Company (LNL), for its Variable Annuity Account C
and its Variable Life Account K, is the sole shareholder in the Fund.
Item 26. Number of Holders of Securities
As of April 1, 1995, there was one record holder of common stock, $.01 par
value per share.
Item 27. Indemnification
See prior filings.
Item 28. Business and Other Connections of Investment Adviser
See "Management of the Fund" in the Prospectus and "Investment Adviser and
Sub-Adviser" in the Statement of Additional Information.
As of April 4, 1994, the officers and/or directors of the Investment
Adviser held the following positions:
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- --------- --------------------------
<S> <C> <C>
David A. Berry Vice President Vice President, Lincoln Advisor
Funds, Inc., Lincoln National
Income Fund, Inc. and Lincoln
National Convertible Securities
Fund, Inc., 200 East Berry
Street, Fort Wayne, Indiana,
46802
JoAnn E. Becker Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Dennis A. Blume Senior Vice President Senior Vice President and
(formerly Executive Director, Lincoln National
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Vice President) Realty Corporation; Vice
and Director President, Lincoln Advisor
Funds, Inc., 200 East Berry
Street, Fort Wayne, Indiana,
46802
Anne E. Bookwalter Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46805
Philip C. Byrde Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Steven R. Brody Executive Vice Director, Lincoln National
President (formerly Realty Corporation; Vice
Senior Vice President) President, The Lincoln
and Assistant Treasurer National Life Insurance Company,
and Lincoln Advisor Funds, Inc.,
200 East Berry Street, Fort
Wayne, Indiana, 46802
Patrick R. Chasey Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Garrett W. Cooper Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
David C. Fischer Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Luc N. Girard Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Donald P. Groover Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
William N. Holm, Jr. Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Jennifer C. Hom Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
John A. Kellogg Vice President Vice President, Lincoln National
Realty Corporation, 200 East
Berry Street, Fort Wayne,
Indiana, 46802
Timothy H. Kilfoil Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Lawrence T. Kissko Senior Vice President Vice President and Director,
Lincoln National Realty
Corporation; Vice President, The
Lincoln National Life Insurance
Company, 200 East Berry Street,
Fort Wayne, Indiana, 46802
Walter M. Korinke Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Lawrence M. Lee Vice President Vice President, Lincoln National
(formerly Second Realty Corporation, 200 East
Vice President) Berry Street, Fort Wayne,
Indiana, 46802
Thomas A. McAvity, Jr. Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
H. Thomas McMeekin President and Senior Vice President, Lincoln
Director (formerly National Corporation, 200 East
Executive Vice Berry Street, Fort Wayne,
President, and Senior Indiana 46802
Vice President)
John David Moore Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Oliver H. G. Nichols Senior Vice President Senior Vice President, Lincoln
National Realty Corporation, 200
East Berry Street, Fort Wayne,
Indiana, 46802
David C. Patch Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Joseph T. Pusateri Vice President Vice President, Lincoln National
Realty Corporation, 200 East
Berry Street, Fort Wayne,
Indiana, 46802
Gregory E. Reed Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
Max A. Roesler Executive Vice Vice President and Treasurer,
President and Treasurer Lincoln National Aggressive
Growth Fund, Inc., Lincoln
National Bond Fund, Inc.;
Lincoln National Capital
Appreciation Fund, Inc.; Lincoln
National Corporation; Lincoln
National Equity-Income Fund,
Inc.; Lincoln National Growth
Fund, Inc.; Lincoln National
International Fund, Inc.; The
Lincoln National Life Insurance
Company; Lincoln National
Managed Fund, Inc.; Lincoln
National Money Market
Fund, Inc.; Lincoln National
Special Opportunities Fund,
Inc.; Lincoln National Variable
Annuity Funds A and B; Lincoln
National Putnam Master Fund,
Inc.; and Lincoln National
Social Awareness Fund, Inc.,
1300 South Clinton Street, Fort
Wayne, Indiana 46802
Bill L. Sanders Vice President Vice President, The Lincoln
National Life Insurance Company,
200 East Berry Street, Fort
Wayne, Indiana, 46802
Roy D. Shimer Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Gerald M. Weiss Vice President 200 East Berry Street, Fort
(formerly Second Wayne, Indiana, 46802
Vice President)
C. Suzanne Womack Secretary Vice President and Assistant
Secretary, Lincoln National
Corporation and The Lincoln
National Life Insurance Company;
Secretary, Lincoln Advisor
Funds, Inc.; Lincoln National
Aggressive Growth Fund, Inc.;
Lincoln National Capital
Appreciation Fund, Inc; Lincoln
National Equity-Income Fund,
Inc.; Lincoln National Growth
Fund, Inc.; Lincoln National
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- --------- --------------------------
<S> <C> <C>
C. Suzanne Womack (Con't) International Fund, Inc.;
Lincoln National Managed Fund,
Inc.; Lincoln National Money
Market Fund, Inc.; Lincoln
National Putnam Master Fund;
Lincoln National Social
Awareness Fund, Inc.; Lincoln
National Special Opportunities
Fund, Inc.; Lincoln National
Variable Annuity Fund A; Lincoln
National Variable Annuity Fund
B, 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 17(a).
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a)-(d) See prior filings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement, pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Wayne, and State of Indiana, on the 28th
day of April, 1995.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC. (Formerly:
PUTNAM MASTER FUND, INC.)
By: /s/KELLY D. CLEVENGER
-----------------------------
Kelly D. Clevenger,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/Kelly D. Clevenger Chairman of the Board, 4/28/95
- -------------------------- President and Director -----------
Kelly D. Clevenger (Principal Executive
Officer)
*/S/JOHN B. BORSCH, JR. Director 4/28/95
- -------------------------- -----------
John B. Borsch, Jr.
***/S/BARBARA S. KOWALCZYK Director 4/28/95
- -------------------------- -----------
Barbara S. Kowalczyk
**/S/NANCY L. FRISBY Director 4/28/95
- -------------------------- -----------
Nancy L. Frisby
*/S/STANLEY R. NELSON Director 4/28/95
- -------------------------- -----------
Stanley R. Nelson
/S/LANTZ M. MINTCH Chief Accounting 4/28/95
- -------------------------- Officer -----------
Lantz M. Mintch
/S/MAX A. ROESLER Vice President and 4/28/95
- -------------------------- Treasurer (Principal) -----------
Max A. Roesler Financial Officer)
*By /S/JEREMY SACHS pursuant to a Power of Attorney filed with the
----------------------- originl Registration Statement on Form N-1A.
Jeremy Sachs
**By /S/JEREMY SACHS pursuant to a Power of Attorney filed with
--------------------- Post-Effective Amendment No. 8 to this
Jeremy Sachs Registration Statement.
***By /S/JEREMY SACHS pursuant to a Power of Attorney filed with
--------------------- Post-Effective Amendment No. 9 to the Registration
Jeremy Sachs Statement.
</TABLE>
<PAGE>
Exhibit Index to Form N-1A
--------------------------
Exhibit No. Description
- ----------- -----------
11 Consent of Ernst & Young LLP,
Independent Auditors
17 Memorandum Concerning
Books and Records
<PAGE>
EXHIBIT 11
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Registration Statement (Form N-1A No. 33-13530) and related Statement of
Additional Information of Lincoln National Global Asset Allocation Fund, Inc.
(formerly Lincoln National Putnam Master Fund, Inc.) dated April 29, 1995 and to
the incorporation by reference therein of our report dated January 24, 1995,
with respect to the financial statements of Lincoln National Putnam Master Fund,
Inc. included in its Annual Report for the year ended December 31, 1994,
included as Item 24(a) to this Registration Statement.
/S/ Ernst & Young LLP
Fort Wayne, Indiana
April 24, 1995
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
(Formerly: LINCOLN NATIONAL PUTNAM MASTER FUND, INC.)
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having
Transactions with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's
certificates relating thereto.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Annual Reports Controllers Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Controllers Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------
Daily reports State Street Mutual Funds Permanently, the first two
of securities Bank and Division years in an easily accessible
transactions Trust place
Company
Portfolio Securities
- --------------------
Equity State Street Mutual Funds Permanently, the first two
Notifications Bank and Division years in an easily accessible
Trust place
Company
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Receipts and Deliveries of Securities (shares)
- ----------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Debit and State Street Mutual Funds Permanently, the first two
Credit Advices Bank and Division years in an easily accessible
from Bankers Trust place
Trust Company Company
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
Investment State Street Mutual Funds Permanently, the first two
Journal Bank and Division years in an easily accessible
Trust place
Company
Daily Journals State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
Trust place
Company
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a
record of the collateral therefore and substitutions in
such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
- --------------
General Ledger State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
Trust place
Company
Securities in Transfer
- ----------------------
Filing consisting State Street Mutual Funds Permanently, the first two
of bank Bank and Division years in an easily accessible
advices, con- Trust place
firmations, and Company
Notification of
Securities
Transaction
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Securities in Physical Possession
- ---------------------------------
Securities State Street Mutual Funds Permanently, the first two
Ledger Bank and Division years in an easily accessible
Trust place
Company
Portfolio State Street Mutual Funds Permanently, the first two
Listings Bank and Division years in an easily accessible
Trust place
Company
Securities Borrowed and Loaned
- ------------------------------
Their files State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
Trust place
Company
Monies Borrowed and Loaned
- --------------------------
Not Applicable.
Dividends and Interest Received
- -------------------------------
Interest File State Street Mutual Funds Permanently, the first two
Accrual Bank and Division years in an easily accessible
Activity Trust place
Journal Company
Dividend Master State Street Mutual Funds Permanently, the first two
File Display Bank and Division years in an easily accessible
Trust place
Company
Dividends Receivable and Interest Accrued
- -----------------------------------------
Investment State Street Mutual Funds Permanently, the first two
Journal Bank and Division years in an easily accessible
Trust place
Company
Dividend Master State Street Mutual Funds Permanently, the first two
File Display Bank and Division years in an easily accessible
Trust place
Company
Interest File State Street Mutual Funds Permanently, the first two
Accrual Bank and Division years in an easily accessible
Activity Trust place
Journal Company
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
<PAGE>
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Ledger Account for each portfolio Security
- ------------------------------------------
Inventory State Street Mutual Funds Permanently, the first two
(on line) Bank and Division years in an easily accessible
Trust place
Company
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Broker-Dealer State Street Mutual Funds Permanently, the first two
Ledger Bank and Division years in an easily accessible
Trust place
Company
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held,
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
Shareholder Accounts
- --------------------
LNL - only State Street Mutual Funds Permanently, the first two
shareholder Bank and Division years in an easily accessible
Trust place
Company
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position of all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
Securities Position Record
- --------------------------
Maintained by State Street Mutual Funds Permanently, the first two
Custodian of Bank and Division years in an easily accessible
Securities Trust place
Company
<PAGE>
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Corporate Documents
- -------------------
Corporate Executive- Sue Womack Permanently, the first two
charter, cer- Corp. Secy. years in an easily accessible
tificate of place
incorporation.
Bylaws and Corp. Secy. Sue Womack
minute books.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
Order Tickets
- -------------
Sales Order or State Street Mutual Funds Six years, the first two
Purchase Order Bank and Division years in an easily accessible
Trust place
Company
Notification State Street Mutual Funds Six years, the first two
Form (From Bank and Division years in an easily accessible
AOS Trading Trust place
System) Company
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
Short-Term Investments
- ----------------------
Notification State Street Mutual Funds Six years, the first two
Form (From Bank and Division years in an easily accessible
AOS S-T Trust place
System) Company
Bank Advice State Street Mutual Funds Six years, the first two
and Issuer Bank and Division years in an easily accessible
Confirmation Trust place
Company
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
Trial Balance
- -------------
General Ledger State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
Trust place
Company
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identity of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Brokerage State Street Mutual Funds Six years, the first two
Allocation Bank and Division/Nate years in an easily accessible
Listing Trust Wagley place
Company/Sec.
Compliance
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Trading State Street Mutual Funds Six years, the first two
Authorization Bank and Division years in an easily accessible
Trust place
Company
Advisory Law Division Diane Mierau Six years, the first two
Agreements years in an easily accessible
place
<PAGE>
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence State Street Mutual Funds Six years, the first two
Bank and Division years in an easily accessible
Trust place
Company
Pricing Sheets State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
Trust place
Company
Bank State- State Street Mutual Funds Six years, the first two
ments, Bank and Division years in an easily accessible
Cancelled Trust place
Checks and Company
Cash Recon-
ciliations
February 15, 1995
