<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 12 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 [X]
(Check appropriate box or boxes)
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION 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)
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 (1996) on February 27, 1997.
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b)
On pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X On May 1, 1997 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
On pursuant to paragraph (a)(2) of rule 485.
<PAGE>
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 12 AND
AMENDMENT NO. 14
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
<PAGE>
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
Item Number - Part A Location in Prospectus
- -------------------- ----------------------
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 Fund Description of the Fund; Investment
Policies and Techniques; Management of the
funds (Appendix)
5A. Management's Discussion Management's 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; Distribution and Federal
Income Tax Considerations (All in Appendix)
7. Purchase of Securities Net Asset Value; Purchase of Securities
Being Offered Being Offered; Sale and Redemption of
Shares (All in Appendix)
8. Redemption Sale and Redemption of Shares
or Repurchase (Appendix)
9. Legal Proceedings Not Applicable
<PAGE>
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 General Information and History
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
14. Management of the
Fund Directors and Officers (Appendix)
15. Control Persons and See "Management of the Funds" and
Principal Holders of "Description of Shares" in the Prospectus
Securities 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; Sale
and Pricing of and Redemption of Shares; and Net Asset
Securities Being Offered 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
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
PAGES 21 AND 22 ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (AG)
Lincoln National Bond Fund, Inc. (B)
Lincoln National Capital Appreciation Fund, Inc. (CA)
Lincoln National Equity-Income Fund, Inc. (E-I)
Lincoln National Global Asset Allocation Fund, Inc. (GAA)
Lincoln National Growth and Income Fund, Inc. (GI)
Lincoln National International Fund, Inc. (I)
Lincoln National Managed Fund, Inc. (M)
Lincoln National Money Market Fund, Inc. (MM)
Lincoln National Social Awareness Fund, Inc. (SA)
Lincoln National Special Opportunities Fund, Inc. (SO)
Preface/Directory
Shares of all the funds are sold to Lincoln National Life Insurance Co.
(Lincoln Life) for allocation to its Variable Annuity Account C (the variable
annuity account [VAA]) to fund variable annuity contracts and for allocation to
its Variable Life Account K to fund variable life insurance contracts.
To fund its variable life contracts, Variable Life Account D buys shares of the
Bond, Growth and Income, Managed, Money Market and Special Opportunities Funds.
To fund its variable life contracts, variable life Account G buys shares of the
Growth and Income and Special Opportunities Funds.
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. Each of
these funds is referred to individually as a fund; collectively, as 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 May 1, 1997, is
incorporated into the Prospectus of the fund with which it is registered. A
free copy will be provided upon request. Either write Lincoln National Life
Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN
(454-6265).
The Financial Highlights table of each fund contains per-share data calculated
on the basis of a share outstanding throughout the period, together with
financial ratios and other supplemental data. The Financial Highlights table is
incorporated by reference to the fund's 1996 Annual Report. A copy of the
Annual Report will be provided on request and without charge. Either write
Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or
call: 1-800-4LINCOLN (454-6265).
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 May 1, 1997
F-1
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
Preface/Directory
<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 47
International Fund 49
Managed Fund 53
Money Market Fund 57
Social Awareness Fund 59
Special Opportunities Fund 61
- ----------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 47
International Fund 49
Managed Fund 53
Money Market Fund 57
Social Awareness Fund 59
Special Opportunities Fund 61
- ----------------------------------------
INVESTMENT RESTRICTIONS
Aggressive Growth Fund 26
Bond Fund 30
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 44
Growth and Income Fund 47
International Fund 51
Managed Fund 54
Money Market Fund 58
Social Awareness Fund 60
Special Opportunities Fund 62
</TABLE>
<TABLE>
<CAPTION>
Subject Page
- -------------------------------------------------------------
<S> <C>
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth Fund 26
Bond Fund 31
Capital Appreciation Fund 36
Equity-Income Fund 39
Global Asset Allocation Fund 45
Growth and Income Fund 48
International Fund 51
Managed Fund 55
Money Market Fund 58
Social Awareness Fund 60
Special Opportunities Fund 63
- -------------------------------------------------------------
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
Net asset value 65
Management of the funds 65
Purchase of securities being offered 67
Sale and redemption of shares 68
Distributions and federal income tax considerations 68
Management discussion of fund performance 68
Description of shares 68
Strategic portfolio transactions-Additional information 69
Foreign investments 71
General information 72
Statement of Additional Information
Table of contents - 11 underlying funds 73
</TABLE>
F-2
<PAGE>
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
Global Asset
Allocation
DESCRIPTION OF THE FUND
The Global Asset Allocation Fund (fund) was incorporated in Maryland in 1987.
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 invest-
ment 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 informa-
tion 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 pro-
vided by nine 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. Landes 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 Eq-
uity Securities segment of the fund's portfolio. Kreisel has managed this seg-
ment of the fund since November, 1992, and has been with Putnam since 1986.
Kenneth J. Taubes, Senior Vice President, is responsible for the U.S. Fixed In-
come Securities segment of the fund's portfolio. Taubes has managed this seg-
ment of the fund since December, 1996, and has been with Putnam since 1991.
D. William Kohli, Managing Director, is responsible for the International Fixed
Income Securities segment of the fund's portfolio. Kohli has managed this seg-
ment of the fund since September, 1994, and has been with Putnam since 1994.
Before that, Kohli was with Franklin Advisory/Templeton Investment Counsel be-
tween 1988 and 1994.
Richard M. Frucci, Senior Vice President, is responsible for the Aggressive Eq-
uity Securities segment of the fund's portfolio. Frucci has managed this seg-
ment of the fund since March, 1994, and has been with Putnam since 1984.
Justin M. Scott, Managing Director, is responsible for the International Equity
Securities segment of the fund's portfolio. Scott has managed this segment of
the fund since January 1997, and has been with Putnam since 1988.
Lindsey C. Strong, Vice President, is responsible for the Money Market Instru-
ments segment of the fund's portfolio. Strong has managed this segment of the
fund since February, 1992, and has been with Putnam since 1984.
Robert M. Paine, Senior Vice President, is responsible for the lower-rated
fixed-income securities ("junk bond") segment of the fund's portfolio. Paine
has managed this segment of the fund since September 1996 and has been with
Putnam since 1987.
INVESTMENT POLICIES AND TECHNIQUES.
The fund's investment strategy is based on two principles:
1. Greater diversification among different types of securities may reduce fluc-
tuations in the value of a portfolio and therefore may reduce the risk of
loss in unfavorable market conditions and/or
2. The relative market opportunities and risks in the major securities catego-
ries 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
F-21
<PAGE>
Global Asset
Allocation
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 objec-
tive.
In regard to the asset allocation method, the fund's portfolio may include in-
vestments in each of the following categories:
Aggressive Equity Securities
Growth Equity Securities
Conservative Equity Securities
International Equity Securities
Convertible Securities (including Common Stock Equivalents)
U.S. Fixed-Income Securities
International Fixed-Income Securities
Lower-Rated 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 its assessment of relative mar-
ket 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 signifi-
cantly 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 mar-
ket 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 compa-
nies. The fund will also invest in securities of larger companies where oppor-
tunities 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 com-
panies 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 of companies domi-
ciled in foreign countries, which securities are traded on a U.S. or foreign
market. The securities will primarily be in common stocks or securities con-
vertible into common stock. Investments will be made in small or large compa-
nies (including relatively less well-known companies) whose earnings are be-
lieved 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 as-
sets 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, primarily with maturities
of 1 to 40 years; however, a maximum of 5% of assets allocated to this cate-
gory may have maturities greater than 40 years. Investment grade bonds include
high grade bonds which are in the top three credit rating categories of
Moody's Investors Service and Standard & Poor's Corp. 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, con-
cerns 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 investment grade debt
securities denominated in foreign currencies which are issued by foreign gov-
ernments and governmental or supranational agencies. The fund will invest only
in securities which, at time of purchase, are rated at least Baa or higher by
Moody's Investors Service or BBB or higher by Standard & Poor's Corp. (medium
grade), or in unrated securities judged by Putnam to be of comparable quality.
The fund may also invest in other debt securities, convertible securities, and
preferred stocks principally traded in foreign securities markets. With re-
spect to 65% of the assets allocated to this category, the fund will hold se-
curities in at least three countries outside the United States, at all times.
F-22
<PAGE>
Global Asset
Allocation
LOWER-RATED FIXED-INCOME SECURITIES ("JUNK BONDS")
This category will include investments in U. S. and Emerging Markets fixed-in-
come securities rated at the time of purchase below Baa by Moody's, or BBB by
S&P, or if unrated, determined by the subadvisor to be of comparable quality,
as long as, after the purchase, 15% or less of the fund's total assets would
be invested in Securities of that quality. (Securities rated Baa or BBB, while
still considered investment-grade, are more vulnerable to adverse economic
conditions than securities in the higher-rated categories and have speculative
elements.)
The values of junk bonds (i.e., those below Baa or BBB) generally fluctuate
more than those of higher-rated fixed-income securities. In addition, the
lower rating reflects a greater possibility that the financial condition of
the issuer, or adverse changes in general economic conditions, or both, may
impair the ability of the issuer to make payments of interest and repayments
of principal. The rating services' descriptions of debt securities are in-
cluded in the Appendix to the SAI. The fund will not necessarily dispose of a
security when its rating is reduced below its rating at time of purchase, al-
though the subadvisor will monitor the investment to determine whether contin-
ued investment in the security will assist in meeting the fund's investment
objective.
The fund may take full advantage of the entire range of U. S. and Emerging
Markets junk bonds, (except that no more than 10% of fund assets may be in
Emerging Markets issues). The fund and may adjust the average maturity of the
fund's portfolio from time to time, depending on its assessment of relative
yields on securities of different maturities and its expectation of future
changes in interest rates.
Through investment analysis and attention to current developments in interest
rates and economic conditions, the subadvisor seeks to minimize the risks of
investing in lower-rated securities. The lower ratings of certain fixed- in-
come securities held by the fund reflect a greater possibility that declines
in the financial conditions of the issuers, or in general economic conditions,
or both, or an unanticipated rise in interest rates, may make it harder for
their issuers to make payments of interest and principal. In addition, under
these circumstances, the values of these securities may be more volatile, and
the markets for them may be less liquid than those for higher-rated securi-
ties. As a result, the fund may find it more difficult to determine the fair
value of these securities. When the fund invests in fixed-income securities in
these lower rating categories, the achievement of the fund's goals is more de-
pendent on the subadvisor's investment analysis than would be the case if the
fund were investing in fixed-income securities in the higher-rating catego-
ries.
In any event, the fund will not purchase securities rated at the time of pur-
chase lower than Caa by Moody's or CCC by S&P or, if unrated, determined by
the subadvisor to be of comparable quality, if as a result of the purchase
more than 5% of the fund's total assets would be invested in securities of
that quality. (Securities rated this low may be in default and are generally
regarded by the rating agencies as having extremely poor prospects of ever be-
coming investment-grade.)
For additional information concerning the risks associated with investments by
each fund in securities in the lower-rating categories, see the SAI.
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 re-
lated repurchase agreements, high grade commercial paper and other corporate
obligations.
ASSET ALLOCATION POLICY
Under normal circumstances, not more than 50% of the fund's total assets will
be invested in the Conservative Equity Category; not more than 15% in the Low-
er-Rated Fixed-Income Category; and not more than 35% in any other category.
(In addition, see individual categories for additional restrictions.) The fol-
lowing limits apply in aggregate across all investment categories: 1) invest-
ment in Emerging Market securities is limited to a maximum of 10% of the
fund's total assets; and 2) investment in "intermediate grade bonds" (i.e.,
those rated Baa by Moody's Investors Service or BBB by Standard & Poor's
Corp.) or, if unrated, are judged by Putnam to be of comparable quality, is
limited to a maximum of 35% of the fund's total assets. When conditions dic-
tate a defensive position or during periods of portfolio restructuring, Putnam
may invest up to 50% of the fund's total assets in each of the U.S. Fixed In-
come Securities and Money Market instruments categories. Within these limita-
tions, Putnam will adjust the percentage of the fund assets in each category
based upon its market outlook and its analysis of long-term trends. For exam-
ple, if Putnam believes that conditions will be favorable for equity securi-
ties, a greater proportion may be invested in Aggressive Equity Securities.
Similarly, a greater proportion will be invested in International Equity Secu-
rities if foreign equity markets are viewed favorably. Since the fund's objec-
tive of total return consistent with preservation of capital may be achieved
by receipt of income, as well as by capital gains, Putnam 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, Putnam expects generally to employ a rela-
tively conservative strategy for seeking total return. Accordingly, its asset
allocation de-
F-23
<PAGE>
Global Asset
Allocation
cisions will seek to have the fund's assets decline significantly less in
value than the Standard and Poor's 500 Index (S&P 500) in unfavorable securi-
ties 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 approv-
al, although the shareholders will be notified of any material changes, addi-
tions 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%. (Eurodol-
lar 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 de-
tailed 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. dol-
lar-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 annual portfolio turnover rate is expected to average approximately
150%. (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 turn-
over rate will vary, depending upon the turnover rate in each investment cate-
gory, 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 Trans-
actions and Brokerage in the SAI. During 1996 the fund's portfolio turnover
was 167.33% and in 1995 it was 146.49%.
INVESTMENT RESTRICTIONS
There are some specific investment restrictions that help the fund limit in-
vestment risks for its shareholder. The restrictions in this section are fun-
damental. 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 re-
sale; 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 re-
strictions can be found in the SAI.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio managers for the fund have considerable discretion in the selec-
tion of appropriate fund investments. In the exercise of that discretion, the
portfolio managers may, at any given time, invest a portion of the fund's as-
sets in one or more strategic portfolio transactions which we define as deriv-
ative 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 associ-
ated with them. Note also that the SAI booklet for the 11 funds contains defi-
nitions of the more commonly used derivative transactions, technical explana-
tions 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 transac-
tions, to: buy and sell foreign currency forward contracts; buy and sell for-
eign currency futures contracts; and buy exchange-listed and over-the-counter
put and call options on foreign currency futures contracts and on foreign cur-
rencies. For hedging purposes, the fund may sell covered call options on for-
eign currencies. All of the foregoing may also be done as cross-hedging that
is, using a currency different from the one in which the portfolio securities
are denominated. (See Foreign currency exchange transactions in the SAI.)
F-24
<PAGE>
Global Asset
Allocation
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 op-
tions 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 con-
tracts 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 if such
loans of securities do not exceed 25% of the fund's assets, and engage in re-
purchase 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.
F-25
<PAGE>
Appendix
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National Aggres-
sive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond Fund,
Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc. (Capital Ap-
preciation Fund), Lincoln National Equity-Income Fund, Inc. (Equity-Income
Fund), Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allo-
cation 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 ap-
plies 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 securi-
ties and other assets, subtracting liabilities (including dividends payable)
and dividing by the number of shares outstanding. Debt securities and other as-
sets 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 as-
sets are valued at their fair value as determined in good faith. This valuation
is made by or under the authority of each 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 secu-
rities is based on the last sale prices of those securities on national securi-
ties exchanges or over-the-counter, 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.
MONEY MARKET FUND. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, under Rule 2a-7, as
amended (the Rule) under the Investment Company Act of 1940 (1940 Act). Under
the Rule, the fund's net asset value using the amortized cost method must
fairly reflect market value. The Board of Directors of the fund has established
procedures to assist fund management and the investment advisor in complying
with the requirements of the Rule, which imposes specific standards for the ma-
turity, quality and diversification of portfolio securities. The Rule also as-
signs certain specific duties to fund management and the Board.
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.
INVESTMENT ADVISOR. Lincoln Investment is the investment advisor to the funds
and is headquartered at 200 East Berry Street, Fort Wayne, Indiana 46802. Lin-
coln Investment (the advisor) is registered with the Securities and Exchange
Commission (the Commission or 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, and also
acts as sub-adviser to two of the series of Delaware Group Adviser Funds, Inc.,
an open-end series investment company.
The advisor is a wholly-owned subsidiary of Lincoln National Corp. (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. Directors, officers and employ-
ees of the advisor and each fund are permitted to engage in personal securities
transactions subject to restrictions and procedures set forth in the Code of
Ethics adopted by the advisor and each fund. Such restrictions and procedures
include substantially all of the recommendations of the Advisory Group of the
Investment Company Institute and comply with SEC rules and regulations.
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 a monthly
investment advisory fee at an annual rate based on the average daily net asset
value of each fund, as shown in the following chart:
F-45
<PAGE>
Appendix
<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, Equi-
ty-Income, and International
funds reflect the more ex-
tensive services and in-
creased expense associated
with portfolios of securi-
ties issued outside the
United States.
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1996 ratio of the advisor's
compensation to average 1996 ratio of total expenses
Fund net assets to average net assets
- ---------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth .75% .82%
Bond .46 .51
Capital Appreciation .80 .93
Equity-Income .95 1.08
Global Asset Allocation .73 1.00
Growth and Income .33 .36
International .82 1.19
Managed .39 .43
Money Market .48 .57
Social Awareness .42 .46
Special Opportunities .40 .44
</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, printing, and other fees in connection
with filings with regulatory authorities, including the costs of printing and
mailing updated Prospectuses and SAIs provided to current contract owners; fees
and expenses of independent auditors; the expenses of printing and mailing
proxy statements and shareholder 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 ad-
visor or its affiliated companies); the fees of any trade association of which
the fund is a member; and expenses of shareholder and Director meetings.
SUB-ADVISORS. As advisor, Lincoln Investment is primarily responsible for in-
vestment decisions affecting each of the funds. However, Lincoln Investment has
entered into sub-advisory agreements with several professional investment man-
agement firms. These firms provide some or substantially all of the investment
advisory services required by a number of the funds, including day-to-day in-
vestment management of those funds' portfolios. Each sub-advisor makes invest-
ment decisions for its respective fund in accordance with that fund's invest-
ment objectives and places orders on behalf of that fund to effect those deci-
sions. See the following tables for more information about the sub-advisors and
their fees:
F-46
<PAGE>
Appendix
<TABLE>
<CAPTION>
Date of
Fund Sub-advisor agreement Annual fee rate based on average daily net asset value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Lynch & Mayer 12/20/93 .50 of 1% of the first $150 million .35 of 1% of the
Growth 520 Madison Avenue excess over $150 million
New York, NY 10022
Capital Janus 1/1/94 .60 of 1% of the first $100 million .55 of 1% of the
Appreciation 100 Fillmore Street excess over $100 million
Denver, CO 80206
Equity- Fidelity 12/20/93 .75 of 1%
Income 82 Devonshire Street
Boston, MA 02108
Global Asset Putnam 6/8/87 the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation One Post Office Square first $200 million; .42 of 1% of the next $200 million;
Boston, MA 02104 and .40 of 1% of any excess over $400 million
International Clay Finlay 8/29/96 .665 of 1% of the first $50 million; .475 of 1% of the
200 Park Avenue next $50 million; and .250 of 1% of any
New York, NY 10166 excess over $100 million
- --------------------------------------------------------------------------------
<CAPTION>
Annual fee rate based on market value of securities
held in the portfolio of each respective client fund at
Date of the close of business on the last trading day of each
Fund Sub-advisor agreement calendar quarter
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Vantage 8/21/85 .20 of 1%
Income 630 5th Avenue
New York, NY 10111
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 Lincoln In-
vestment. (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 permis-
sion in the event it ceases to be the sub-advisor to the particular fund it ad-
vises.
PURCHASE OF SECURITIES BEING OFFERED
Shares of the funds' common stock ($0.01 par value) will be sold to Lincoln
Life for allocation to the variable annuity account (VAA), which has been es-
tablished 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 per share 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.
F-47
<PAGE>
Appendix
SALE AND REDEMPTION OF SHARES
The shares of each fund are sold and redeemed by the fund at their net asset
value per share next determined after receipt by Lincoln Life of a purchase or
redemption order in acceptable form. Redemption of fund shares held by Lincoln
Life for its own account will be effected at the fund's net asset value per
share next determined after receipt of the redemption request by the fund. 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 funds. 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 de-
termined 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 reasona-
bly practicable for each fund to determine fairly the value of its net assets;
or (3) the Commission by order so permits for the protection 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 distributed
annually. These distributions, when paid to Lincoln Life for the variable ac-
counts, will be reinvested automatically in additional shares of that fund, at
its net asset value per share.
Each fund intends to qualify and has elected to be taxed as a regulated invest-
ment 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
company and complies with the provisions of the code relieving regulated in-
vestment companies which distribute substantially all of their net income (both
ordinary income and capital gain) from Federal income tax and the 4% nondeduct-
ible Federal excise tax, the funds will be relieved of those taxes on the
amounts distributed. See the SAI for a 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 annu-
ity or life insurance contracts, see the Prospectus for the variable account at
the front of this booklet.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
In the Annual Report for the funds, the portfolio manager for each fund dis-
cusses 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 com-
mon stock (150 million for the Growth and Income Fund and 100 million each for
the Equity-Income Fund, International Fund and Managed Fund), $0.01 par value.
As of April 1, 1997, each fund had the following number of shares issued and
outstanding:
<TABLE>
<S> <C>
Aggressive Growth xx,xxx,xxx
Bond xx,xxx,xxx
Capital Appreciation xx,xxx,xxx
Equity-Income xx,xxx,xxx
Global Asset Allocation xx,xxx,xxx
Growth and Income xx,xxx,xxx
International xx,xxx,xxx
Managed xx,xxx,xxx
Money Market x,xxx,xxx
Social Awareness xx,xxx,xxx
Special Opportunities xx,xxx,xxx
</TABLE>
Fund shares will be owned by Lincoln Life and will be held by it in the vari-
able accounts. As sole shareholder of each fund, Lincoln Life may be deemed to
be a control person as that term is defined under the 1940 Act. However, as
stated in the Prospectuses for the variable accounts, Lincoln Life provides to
contractowners of the variable accounts the right to direct the voting of fund
shares at shareholder meetings, to the extent provided by law. Lincoln Life
will vote for or against any proposition, or will abstain from voting, any fund
shares attributable to a contract for which no timely voting instructions are
received, and any fund shares held by Lincoln Life for its own account, in pro-
portion to the voting instructions that it received with respect to all con-
tracts participating in that fund. 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.
F-48
<PAGE>
Appendix
All the shares of each fund are of the same class with equal rights and privi-
leges. Each full share is entitled to one vote and each fractional share is en-
titled to a proportionate fractional vote, on all matters subjected to a vote
of the shareholder. All shares, full and fractional, participate proportion-
ately in any dividends and capital gains distributions and, in the event of
liquidation, in that fund's net assets remaining after satisfaction of out-
standing liabilities.
When issued, each share is fully-paid and non-assessable and the shareholder
has no preemptive or conversion 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 redemp-
tion of shares.
The Bylaws of the funds allow them, in proper cases, to dispense with their an-
nual 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 the
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 inde-
pendent auditor of the funds; (3) there is no material change to the investment
advisory and/or sub-advisory agreements and/or fundamental policies; 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 formali-
ty, the Directors of the funds have undertaken to comply with the requirements
of Section 16(c) of the 1940 Act. That Section protects contract owners by pro-
viding 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 avail-
able from fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management phi-
losophies 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 enhance-
ment transactions. Derivative transactions are recognized by the investment
community as an acceptable way to seek to increase the 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 to help the 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 de-
pendent upon the values of one or more underlying assets or upon the values
of one or more indices of asset values. The following types are currently in
fairly common use in the investment 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; for-
ward rate agreements (FRAs); interest rate swaps and their related trans-
actions (e.g., caps, floors, collars and corridors); and/or
3. Currency derivative contracts: currency forward contracts; currency op-
tions; 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 transac-
tions in which the funds engage generally fall into two broad categories: op-
tions contracts or forward contracts. The combined forms are constantly evolv-
ing. In fact, variations on the types listed previously may come into use after
the date of these Prospectuses. Therefore, where the Prospectus for a particu-
lar fund discloses the intent of that fund to engage in any of the types list-
ed, that fund hereby reserves the right to engage in related variations on
those transactions.
The funds intend to engage in derivative transactions only defensively. Exam-
ples 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-
F-49
<PAGE>
Appendix
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.
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 settle-
ment 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 has received payment in one
indicated currency and the time the other 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 regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will be unable to control its
losses if a liquid secondary market for a financial instrument does not ex-
ist. 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 fun-
damental 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 asset.
OPERATING RISK is the potential of unexpected loss from inadequate internal
controls or procedures; human error; system (including data processing sys-
tem) 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 tech-
nical 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 op-
tions 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 movements 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 transac-
tions 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 brief-
ly. 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 lim-
its, 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 re-
strictive requirements for derivative transactions, Lincoln Life and the
funds reserve the right to make all necessary changes in the contracts and
the Registration Statements for the funds, respectively, to comply with
those requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the fund. They
are discussed more fully in the SAI.
A. Lending of portfolio securities
Any fund authorized to do so may make secured loans of its portfolio securi-
ties, in order to realize additional income. The loans are limited to a max-
imum of a stipulated amount of the fund's total assets. As a matter of poli-
cy, securities loans are made to broker/dealers under agreements requir-
F-50
<PAGE>
Appendix
ing 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 securities lent.
The borrower pays the fund an amount equal to any dividends or interest re-
ceived 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.
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 Lincoln Investment, 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 re-
purchase those same securities from 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 se-
curities, 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 increas-
ing 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 imposi-
tion of currency exchange blockages or other foreign governmental laws or re-
strictions; reduced availability of public information concerning issuers; and
the fact that foreign companies are not generally subject to uniform account-
ing, auditing, and financial reporting standards or to other regulatory prac-
tices and requirements comparable to those applicable to domestic companies.
With respect to certain foreign countries, there is also the possibility of ex-
propriation, nationalization, confiscatory taxation, and limitations on the use
or removal of cash or other assets of a fund, including the withholding of in-
terest payments or dividends. These risks may be particularly great in so-
called developing or undeveloped countries, sometimes referred to as Emerging
Markets.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably be-
low 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 se-
curities of U.S. companies. Moreover, the settlement periods for foreign secu-
rities, 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 nor-
mally pays fixed commissions that are generally higher than the negotiated com-
missions 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 impos-
sible for the fund to obtain 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 ex-
tent to which a fund may invest in foreign securities. See the SAI.
F-51
<PAGE>
Appendix
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 in-
vestments 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 impor-
tant factor in the performance of the fund.
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 port-
folio securities denominated in that foreign currency.
Because foreign securities generally are denominated and pay dividends or in-
terest 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, cur-
rency 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 of-
fer spot rate of the currency being purchased or sold. Some foreign currency
values may be volatile, and there is the possibility of government controls on
currency exchange or governmental intervention in currency markets which could
adversely affect the fund.
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 man-
agement, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a for-
eign 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. dol-
lars (not exceeding the value of the fund's assets denominated in that curren-
cy), 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 ex-
pects to remain stable or to appreciate relative to the U.S. dollar. This tech-
nique is known as currency cross-hedging. Refer to the Prospectus for each fund
to determine which funds may engage in these transactions.
These strategies are intended to 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 elim-
inate 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 2340, Fort Wayne, Indiana 46801; or, you may call 1-800-4LINCOLN (454-
6265).
The funds will issue unaudited semiannual 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 outstand-
ing shares, whichever is less.
These Prospectuses do not contain all the information included in their Regis-
tration Statements filed with the Commission. The Registration Statements, in-
cluding the exhibits filed with them, may be examined at the office of the Com-
mission in Washington, D.C. Statements contained in the Prospectuses about the
contents of any contract or other document referred to in them are not neces-
sarily complete. In each instance, reference is made to the copy of that con-
tract 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.
F-52
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Appendix
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.
F-53
<PAGE>
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should read in conjunction with the Prospectus
of Lincoln National Global Asset Allocation Fund, Inc.
(fund) dated May 1, 1997. You may obtain a copy of the
fund's Prospectus on request and without charge. Please
write Lincoln National Life Insurance Co., P.O. Box 2340,
Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN
(454-6265).
TABLE OF CONTENTS
Global Asset
Allocation
<TABLE>
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GENERAL INFORMATION AND HISTORY GAA- 2
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INVESTMENT OBJECTIVE AND POLICIES OF THE FUND GAA- 2
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INVESTMENT RESTRICTIONS GAA- 9
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PORTFOLIO TRANSACTIONS AND BROKERAGE GAA-10
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DETERMINATION OF NET ASSET VALUE GAA-11
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APPENDIX
Investment advisor and sub-advisor A- 1
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Directors and officers A- 3
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Investment policies and techniques (continued): options, futures,
securities valuation, securities lending, repurchase and reverse
repurchase agreements A- 4
</TABLE>
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THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1997
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Custodian A- 9
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Independent auditors A- 9
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Financial statements A- 9
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Bond and commercial paper ratings A- 9
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U.S. Government obligations A-11
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Taxes A-11
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State requirements A-12
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Derivative transactions-definitions A-13
</TABLE>
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Global Asset
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GENERAL INFORMATION AND HISTORY
Lincoln National Global Asset Allocation Fund, Inc., was incorporated in Mary-
land in 1987 as Lincoln National Putnam Master Fund, Inc. It operated under
that name until 1994, when the present name was adopted in order to more ade-
quately project the fund's global investment orientation.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Prospectus describes the fund's investment objective and its general in-
vestment policies. This SAI includes additional information about engaging in
options and futures trading and the various investment restrictions of the
fund. References to advisor in this SAI include both Lincoln Investment Man-
agement, Inc. (Lincoln Investment) and The Putnam Management Co., Inc.
The investment policies described in the Prospectus and in this SAI are not
fundamental, and the Board of Directors may change such policies without
shareholder approval.
DEPOSITARY RECEIPTS
As discussed in the Prospectus, the fund may invest in American Depositary Re-
ceipts (ADRs) and European Depositary Receipts (EDRs). Generally, ADRs in reg-
istered form are U.S. dollar denominated securities designed for use in the
U.S. securities markets, which represent and may be converted into the under-
lying foreign security. EDRs are typically issued in bearer form and are de-
signed 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 correla-
tion 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 is-
suers in the United States (U.S. securities) held in its portfolio. In addi-
tion, by writing options and purchasing put options on U.S. securities, and
purchasing and selling futures contracts and related options with respect to
(1) securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and (2) 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 either a decline or an increase in the value of
U.S. securities or other securities owned by the fund. The fund, however, an-
ticipates that net asset value will fluctuate to some degree. Expense and any
losses resulting from these 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 op-
tions or futures contracts. Therefore no assurance can be given that the fund
will be able to utilize these instruments effectively for the purposes stated
previously. Furthermore the fund's ability to engage in option is 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 under Risk factors in
options and futures transactions.
In connection with transactions in futures contracts, including foreign cur-
rency futures contracts and related options, the fund will be required to de-
posit as initial margin an amount of cash and short-term U.S. Government secu-
rities 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 op-
tions 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 which
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 its portfolio when, in the opinion of the advisor, the in-
vestment 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, posi-
tion 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 previously, the fund may en-
gage in spread transactions in which it purchases and writes a put or call op-
tion on the same underlying security or currency, with the options having dif-
ferent exercise prices and/or expiration dates. The fund may also engage in
so-called straddles, in which it purchases or sells combinations of put and
call options on the same security or currency. When it engages in spread and
straddle transactions, the fund
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Global Asset
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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 lev-
erage, the fund will not enter into any spreads or straddles or otherwise pur-
chase 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 transac-
tions require the fund to purchase and/or write more than one option simulta-
neously. Accordingly, the fund's ability to enter into such transactions and
to liquidate its positions when necessary or deemed advisable may be more lim-
ited 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 by 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 in
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 exercise
price is greater than that of the option written by the fund, if the fund seg-
regates cash or high-grade, short-term debt obligations equal to the differ-
ence). 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 exercise price is less than that of the option written
by the fund, if the fund segregates cash or high-grade short-term debit obli-
gations 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. Op-
tions 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 advisor 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 advisor deems it desirable to do so. Although the fund will en-
ter into an option or futures contract position only if the advisor 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 op-
tions 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 ex-
change-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
fund. However, the fund will engage in these transactions only if, in the
opinion of the advisor, 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 abil-
ity of the advisor 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 advi-
sor 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 opin-
ion of the advisor 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 securi-
ties to the fund at a stated 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 secu-
rities 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 offset some or all of the risk of the option it has writ-
ten. The fund may write combinations of covered puts and calls on the same un-
derlying security.
The fund will receive a premium from writing a put or call option, which in-
creases the fund's return on the underlying security in the event the option
expires unex-
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<PAGE>
Global Asset
Allocation
ercised or is closed out at a profit to the fund. 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 un-
derlying security, the amount of time remaining until expiration, current in-
terest 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 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 subse-
quently appreciates in value.
The fund may terminate an option that it has written before the option's expi-
ration by entering into a closing purchase transaction, in which it purchases
an offsetting option. The fund realizes a profit or loss from a closing trans-
action if the cost of the transaction (option Premium plus transaction cost)
is less or more than the premium received from writing the option. Because in-
creases 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 secu-
rities 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 re-
quirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock ex-
changes and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The fund may purchase put options to protect its port-
folio 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 un-
derlying 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.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the fund's options strategies depends on the ability of
the advisor to forecast correctly interest rate and market movements. For ex-
ample, if the fund were to write a call option based on the advisor's expecta-
tion 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 advisor'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 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 op-
tions 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 advisor deems it desirable to do so. Al-
though the fund will take an option position only if the advisor 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 adver-
sely affect the liquidity of the market for particular options or series of
option. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unu-
sual events--such as volume in excess of trading or clearing capability--were
to interrupt its normal operations.
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Global Asset
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A market may at times find it necessary to impose restriction on particular
types of options transactions, such as opening transactions. For example, if
an underlying security ceases to meet qualification imposed by the market or
the Options Clearing Corp. (OCC), 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 un-
available, 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.
Disruption in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the option. If trading is inter-
rupted 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 re-
sumes, and it may be faced with considerable losses if trading in the security
reopens at a substantially different price. In addition, the OCC or other op-
tions 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 un-
til one of the two restrictions has been lifted. If the OCC 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 exer-
cise, it may prohibit indefinitely the exercise of put options. The fund, a
holder of such a put option could lose its entire investment in the prohibi-
tion remained in effect until the put option's expiration and the fund was un-
able 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 holidays are observe in
different countries, foreign options markets may be open for trading during
hours or on days when U.S. markets ware 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 de-
liver the type of financial instrument called for in the contract in a speci-
fied delivery month for stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial instru-
ment called for in the contract in 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 (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 accept-
ance 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 instrument or com-
modity 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 off-
setting 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 future 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 re-
ceived by the fund upon the purchase or sale of a futures contract. Upon en-
tering 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 in-
volve the borrowing of funds to finance the transactions. Rather, initial mar-
gin 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 se-
curity futures contract and the
GAA-5
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Global Asset
Allocation
price of the underlying security has declined, the position would be less val-
uable 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
before 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 oppo-
site positions which will operate to terminate the fund's position in the
futures contracts. Final determinations of variation margin are then made, ad-
ditional 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 com-
mission costs.
OPTIONS ON FUTURES CONTRACTS. The fund may purchase and write call and put op-
tions 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 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 call options or write call op-
tions on futures contracts rather than selling futures contract. Similarly,
the fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a pos-
sible 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
the position by selling or purchasing an offsetting option. There is no guar-
antee 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 option on futures contracts written by it pursu-
ant 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 lever-
age the futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the fund is subject to the advisor's ability to pre-
dict movements in the direction of interest rates and other factors affecting
securities markets. For example, if the fund has hedged against possibility of
decline in the values of its investments and the values of its investments in-
creased 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 in-
vestments at a time when it may not be advantageous 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 be-
cause 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 re-
lating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen event might not, at times, render certain market clearing facili-
ties inadequate, and thereby result 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 a position. The
ability to establish an close out position will be subject to 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:
1. there may be insufficient trading interest in certain contracts or options;
2. restrictions may be imposed by an exchange on opening transactions or clos-
ing transactions or both;
3. trading halts, suspensions or other restrictions may be imposed with re-
spect to particular classes or series of contracts or options, or under-
lying securities;
4. unusual or unforeseen circumstances may interrupt normal operations on an
exchange;
5. the facilities of an exchange or a clearing corporation may not at all
times be adequate to handle current trading volume; or
6. 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 in the class or series of contracts or options) would cease to exist,
although outstanding contracts or options on the exchange that had been is-
sued by a clearing corporation as a result of trades on that ex-
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Global Asset
Allocation
change 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 advisor, price movements in treasury security
futures and related options will corelate closely with price movements in the
tax-exempt securities which are the subject to the hedge. U.S. Treasury secu-
rity 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 posi-
tion in a U.S. Treasury security futures contract at the specified option exer-
cise price at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund is sub-
ject to the advisor'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 portfolio, and the prices of the
fund's tax-exempt securities increase instead as a result of a decline in in-
terest rates, the fund will lose part or all of the benefit of the increased
value of its securities which it has hedge 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 en-
gage in foreign currency exchange transactions to protect against uncertainty
in the level of future exchange rates. The advisor may engage in foreign cur-
rency exchange transactions in connection with the purchase and sale of portfo-
lio 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 contracts 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 con-
tracts 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 se-
curities 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 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 previously using a currency different from that in which the portfo-
lio securities are denominated (cross-hedging) if the advisor 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 denomi-
nated.
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 hedg-
ing those currencies, as well as to increase current return. The fund will en-
gage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the advisor, the pric-
ing mechanism and liquidity are satisfactory and the participants are responsi-
ble parties likely to meet their contractual obligations. The fund's ability to
engage in hedging and related option transactions may be limited by tax consid-
erations.
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
GAA-7
<PAGE>
Global Asset
Allocation
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, secu-
rities loans are made to broker-dealers pursuant to agreements requiring that
loans be continuously secured by collateral in cash or short-term debt obliga-
tions 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 re-
ceived 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 bor-
rower. 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 loan its portfolio securities to the advisor, the sub-advi-
sor or an affiliate thereof.
FORWARD COMMITMENTS
The fund may make contracts to purchase securities for a fixed price at a fu-
ture 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 before the settlement date, the risk of
which is in addition to the risk of decline in value of the fund's other as-
sets. 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 before set-
tlement if the advisor 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 re-
purchase 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 ob-
ligation 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 commer-
cial banks and registered broker-dealers and only with respect to obligations
of the U.S. Government or its agencies or instrumentalities. The Board of Di-
rectors or its delegate 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 collateral-
ized by the securities subject to the repurchase. The advisor 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 obliga-
tion, 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 re-
quired to return the underlying collateral to the seller's estate.
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 lever-
age) 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 se-
cure borrowings permitted by restriction 1. (The deposit of underlying se-
curities and other assets in escrow and other collateral arrangements in
connection with the writing of put or call options and collateral arrange-
ments 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 ex-
cept that it may make margin payments in connection with options on finan-
cial futures contracts.
4. Make short sales of securities or maintain a short sale position fro 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 considera-
GAA-8
<PAGE>
Global Asset
Allocation
tion, 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 repur-
chase agreements with respect to not more than 25% of its total assets
(taken at current value), or through the lending of its portfolio securi-
ties with respect to not more than 25% of its assets.
9. Invest in securities of any issuer, if, to the knowledge of the fund, of-
ficers and directors of the fund and officers and directors of the advisor
or the sub-advisor 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 re-
sale.
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 manage-
ment.
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 securi-
ty).
The following three restrictions are not fundamental, and the fund does not
presently intend:
1. To invest in (a) securities which at the time of such investment are not
readily marketable, (b) restricted securities and (c) 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 (a), (b) and (c).
2. 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).
3. To invest in securities of any issuer, which together with any predecessors
or controlling persons, has been in operation for less than three consecu-
tive years and in equity securities 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 se-
curities having equity features are not considered equity securities for
purposes of this restriction.)
Although the provisions of fundamental investment restrictions 1, 2 and 4 per-
mit 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 de-
ficiency occurs or exists immediately after and as a result of such invest-
ment.
The Investment Company Act of 1940 (1940 Act) provides that a vote of a major-
ity 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 advisor 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 securi-
ties on an exchange are effected through brokers who charge a commission for
their services. Transactions in foreign securities generally involve the pay-
ment of fixed brokerage commissions, which are generally higher than those in
the United States. There is generally no stated commission in the case of se-
curities traded in the over-the-counter markets, but the price
GAA-9
<PAGE>
Global Asset
Allocation
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, gen-
erally 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 commission or discounts are paid.
The advisor currently provides investment advice to a number of other clients.
See Investment advisor. It will be the practice of the advisor to allocate
purchase and sale transactions among the fund and others whose assets are man-
aged in such manner as is deemed equitable. In making such allocations, major
factors to be considered are investment objectives, the relative size of port-
folio holdings of the same or comparable securities, the availability of cash
for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the fund
and other client accounts. Securities of the same issuer may be purchased,
held, or sold at the same time by the fund or other accounts or companies for
which the advisor provides investment advice (including affiliates of the ad-
visor). On occasions when the advisor deems the purchase or sale of a security
to be in the best interest of the fund, as well as the other clients of the
advisor, the advisor, to the extent permitted by applicable laws and regula-
tions, may aggregate such securities to be sold or purchased for the fund with
those to be sold or purchased for other clients in order to obtain best execu-
tion and lower brokerage commissions, if any. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to all such clients,
including the fund. In some instances, the procedures may impact the price and
size of the position obtainable for the fund. Portfolio securities are not
purchased from or sold to the advisor or any affiliated person (as defined in
the 1940 Act) of the advisor.
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 consid-
ered together with other relevant factors, including financial responsibility,
research and investment information and other services provided by such bro-
kers. 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 advisor 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 in-
curred from time to time, and, in that connection, will receive reports from
the advisor and published data concerning transaction costs incurred by insti-
tutional investors generally. The nature of the research services provided to
the advisors by brokerage firms varies from time to time but generally in-
cludes 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; and risks and trends, all
of which the advisor regards as a useful supplement of its own internal re-
search capabilities. The advisor may from time to time direct trades to bro-
kers which have provided specific brokerage or research services for the bene-
fit of the advisor's clients; in addition, the advisor may allocate trades
among brokers that generally provide superior brokerage and research services.
During 1996, the advisor directed transactions totaling approximately $156.7
million to these brokers and paid commissions of approximately $239,000 in
connection with these transactions. Research services furnished by brokers are
used for the benefit of all the advisor's clients and not solely or necessar-
ily for the benefit of the fund. The advisor believes that the value of re-
search services received is not determinable and does not significantly reduce
its expenses. The fund does not reduce its fee to the advisor by any amount
that might be attributable to the value of such services. The aggregate amount
of brokerage commissions paid by the fund during 1996 was $370,923, for 1995
it was $337,343, and for 1994 it was $309,000.
Under the sub-advisory agreement between the advisor and the sub-advisor, the
sub-advisor may perform some, or substantially all, of the investment advisory
services required by the fund, even though the advisor remains primarily re-
sponsible for investment decisions affecting the fund. The sub-advisor will
follow the same procedures and policies which are followed by the advisor as
described previously. The sub-advisor currently provides investment advice to
a number of other clients. See Sub-advisor.
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 1997 it will
be closed on New Year's Day, President's Day, Good Friday, Memorial Day, Inde-
pendence Day,
GAA-10
<PAGE>
Global Asset
Allocation
Labor Day, Thanksgiving Day, and Christmas Day. 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.
GAA-11
<PAGE>
Appendix
APPENDIX
(Note: This is uniform information for the 11 Funds. See each Fund's SAI for
information specific to that Fund.)
THIS APPENDIX CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL AGGRESSIVE
GROWTH FUND, INC. (AGGRESSIVE GROWTH FUND), LINCOLN NATIONAL BOND FUND, INC.
(BOND FUND), LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL APPRECI-
ATION 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 NA-
TIONAL 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 AP-
PLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment) is the investment ad-
visor to the funds and is headquartered at 200 E. Berry Street, Fort Wayne, In-
diana 46802. Lincoln Investment (the advisor) is a subsidiary of Lincoln Na-
tional Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis, in-
surance and financial services. Lincoln Investment is registered with the Secu-
rities and Exchange 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 Income Fund, Inc. (a closed-end in-
vestment company whose investment objective is to provide a high level of cur-
rent income from interest on fixed-income securities) and Lincoln National Con-
vertible Securities Fund, Inc. (a closed-end investment company whose invest-
ment objective is a high level of total return on its assets through a combina-
tion of capital appreciation and current income) and to other clients, and also
acts as sub-adviser to two of the series of Delaware Group Adviser Funds, Inc.
(the Corporate Income Fund and the Federal Bond Fund of that retail mutual fund
complex).
Under Advisory Agreements with the funds, the advisor provides portfolio man-
agement 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 as-
sumed by the funds, as described later. Lincoln Life has paid the organiza-
tional expenses of all the funds. The rates of compensation to the advisor and
the sub-advisors are set forth in the Appendix to the Prospectus.
During the last three years, the advisor received the following amounts for in-
vestment advisory services:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund $1,428,803 $ 725,544 $ 232,000
Bond Fund 1,188,030 1,061,701 999,397
Capital Appreciation Fund 1,549,656 726,011 211,773
Equity-Income Fund 3,303,336 1,457,623 348,255
Global Asset Allocation Fund 2,072,722 1,570,876 1,381,059
Growth and Income Fund 7,063,276 5,077,981 3,896,902
International Fund 3,319,701 2,770,197 2,262,664
Managed Fund 2,480,524 2,120,656 1,919,150
Money Market Fund 417,468 385,019 404,441
Social Awareness Fund 1,877,030 1,048,366 736,602
Special Opportunities Fund 2,274,229 1,809,514 1,351,374
</TABLE>
A-1
<PAGE>
Appendix
If total expenses of the funds (excluding taxes, interest, portfolio brokerage
commissions and fees, and expenses of an extraordinary and non-recurring na-
ture, 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 ad-
visor 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 inter-
ested 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 ter-
minated without penalty at any time, on 60 days' written notice by: (1) the
Board of Directors of each fund, (2) vote of a majority of the outstanding vot-
ing securities of each fund or (3) the advisor. The advisory agreement termi-
nates automatically in the event of assignment.
In like manner, the current sub-advisory agreement 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 ap-
plicable 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.
A-2
<PAGE>
Appendix
DIRECTORS AND OFFICERS
The directors and executive officers of each fund, their business addresses,
positions with fund, age and their principal occupations during the past five
years are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
* KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
Chairman of the Board,
President and
Director, age 44
1300 S. Clinton Street
Fort Wayne, IN 46802
- -------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--
Director, age 63 Investments, Northwestern University
1776 Sherwood Road
Des Plaines, IL 60016
- -------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Regional Vice President/Chief Financial Officer
Director, age 55 (formerly Vice President--Finance; Regional
700 Broadway Controller of Finance), St. Joseph Medical Center,
Fort Wayne, IN 46802 Fort Wayne, Indiana
- -------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director Corporate Planning
Director, age 45 and Development, Lincoln National Corporation;
1300 S. Clinton St. Director, Lincoln Life and Annuity Company of New
Fort Wayne, IN 46802 York (formerly Executive Vice President, Lincoln
Investment Management, Inc.)
- -------------------------------------------------------------------------------
STANLEY R. NELSON Executive in Residence Program in Health Services
Director, age 70 Administration, University of Minnesota, Minneapolis,
420 Delaware St., S.E. Minnesota (formerly President, Henry Ford Health Care
Minneapolis, MN 55455 Corp., Detroit, Michigan)
- -------------------------------------------------------------------------------
* JANET C. WHITNEY Vice President and Treasurer, Lincoln National Corp.
Treasurer, age 48 (formerly Vice President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
- -------------------------------------------------------------------------------
* CYNTHIA A. ROSE Assistant Secretary, Lincoln National Life Insurance
Secretary, age 42 Co.
200 East Berry Street
Fort Wayne, IN 46802
</TABLE>
- --------------------------------------------------------------------------------
* Interested persons of the funds, as defined in the 1940 Act. Directors' fees
of $250 per meeting are paid by each fund to each director who is not an inter-
ested person of the fund. During 1996, each fund paid $1,000 in director's fees
to each such director, plus out of pocket expenses to attend meetings. During
1996, the fund complex paid each of these directors aggregate fees of $11,000.
A-3
<PAGE>
Appendix
INVESTMENT POLICIES AND TECHNIQUES
OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to the Bond, Growth and Income, Managed, Social Aware-
ness 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 port-
folio. The fund may not purchase or write put or covered call options in an
aggregate cost 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 secu-
rities and indices including, without limitation, the Standard and Poor's 100
Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), 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 may be a useful portfolio investment strategy when the
fund has cash or other reserves and it intends to purchase securities but
expects prices to increase.
Generally, the risk to the fund in writing options is that the investment ad-
visor's assumption about the price trend of the underlying security may prove
inaccurate. If the fund wrote a put, expecting the price of a security to in-
crease, and it decreases, or if the fund wrote a call, expecting the price to
decrease but it increased, the fund could suffer a loss if the premium re-
ceived 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 abso-
lute 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, before the expira-
tion 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 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 Op-
tions Clearing Corp. (OCC) and the various exchanges. The fund may not pur-
chase 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 cov-
ered calls during periods when it anticipates declines in the market values of
portfolio securities and the premiums received (net 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 portfo-
lio security would be overvalued and should be sold, the fund may write a call
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 in-
creased 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 course,
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 con-
nection with sales of portfolio securities. If, in the judgment of the advi-
sor, 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 ex-
ercised, 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
A-4
<PAGE>
Appendix
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 the 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 se-
curity 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 pur-
chase 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 re-
spect to call options.
Writing put options may be 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 in-
vested 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 secu-
rity at a lower price, or the option might never be exercised.
If, before the exercise of a put, the advisor determines that it no longer
wishes to invest in the security on which the put has been written, the fund
may be able to effect a closing purchase transaction on an exchange by purchas-
ing 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 pre-
mium received on writing the put option, and there is no guarantee that a clos-
ing 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 the 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 establish,
and will maintain until the put is exercised or has expired, a segregated ac-
count with its custodian consisting of cash or short-term U.S. Government secu-
rities 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 at
market risk on the security. If a substantial number of covered options written
by the fund are exercised, the fund's rate of portfolio turnover could exceed
historic levels. This could result in higher transaction costs, including bro-
kerage commissions. The fund will pay brokerage commissions in connection with
the writing and purchasing of options to close out previously written options.
Such brokerage commissions are normally higher than those applicable to pur-
chases and sales of portfolio securities.
FUTURES CONTRACTS AND OPTIONS THEREON
A. In General. 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 con-
tract to protect the value of the fund's portfolio in the event the invest-
ment 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 later, 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 immedi-
ately 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 1/3 of its net assets.
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<PAGE>
Appendix
B. Futures contracts. The fund may purchase and sell financial futures con-
tracts (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 as well as interest-rate and stock market
indexes.
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 liq-
uid than the corresponding cash markets on the underlying securities. Such en-
hanced 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 transac-
tion 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 security price changes. Selling
a futures contract has an effect similar to selling a portion of the fund's
portfolio securities. If security 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, sell-
ing futures contracts acts as a hedge against the effects of declining 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 security prices are expected to rise, futures contracts may be
purchased to hedge against anticipated subsequent purchases of portfolio secu-
rities at higher prices. By buying futures, the fund could 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 that time, the futures contracts could be liquidated at a profit if prices
had increased as expected, and the fund's cash position could be used to pur-
chase securities.
When a purchase or sale of a futures contract occurs, a deposit of high-quali-
ty, 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-mar-
ket 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 re-
flect daily changes in the contract values.
Most futures contracts are typically canceled or closed out before the sched-
uled settlement date. The closing is accomplished by purchasing (or selling) an
identical futures contract to offset a short (or long) position. Such an off-
setting 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 corre-
sponding to the difference. That gain or loss will tend to offset the realized
loss or gain on the hedged securities position, but may not always or com-
pletely 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 if immediately thereafter more than 1/3 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 con-
tract 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 secu-
rities 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 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 and, in the event of adverse
price movements, the fund would continue to be required to make daily cash pay-
ments 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.
A-6
<PAGE>
Appendix
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 ben-
efit 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 mar-
ket. 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 or-
derly 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.
The selling of futures contracts by the fund and use of related transactions in
options on futures contracts (discussed later) 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 securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the 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 1940 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 in-
vestment company's commodity futures transactions constitute bona fide hedging
transactions (except on an unleveraged basis, as described in (F.) With respect
to long positions assumed by the fund, the fund will segregate with its custo-
dian an amount of cash and other assets permitted by Commodity Futures Trading
Commission (CFTC) regulations equal to the market value of the futures con-
tracts 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 obligation, 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 re-
quired upon exercise to assume an offsetting futures position (which posi-
tion may be a long or short position). Upon exercise of the option, the as-
sumption of offsetting futures positions by the writer and holder of the op-
tion will be accompanied by delivery of the accumulated balance in the writ-
er'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 pur-
chasing 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 previously.
E. Risks of futures transactions. The fund's successful use of futures con-
tracts and options thereon depends upon the ability of its investment advi-
sor to predict movements in the securities markets and other factors affect-
ing 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 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 prices which would adversely affect
the price of securities in its portfolio and prices of such securities in-
crease instead, the fund will lose part or all of the benefit of the in-
creased 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 Pro-
spectus, to purchase futures contracts on an unleveraged basis, when not in-
tended 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 mar-
gin on deposit). As with
A-7
<PAGE>
Appendix
other futures trading, these purchases must not be for speculative purposes.
The ability to engage in these purchases on an unleveraged basis can signifi-
cantly decrease transaction costs to the funds in certain instances. For exam-
ple, 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 addi-
tion, if this deposit had involved market-timing' and as a result there subse-
quently were an oversized withdrawal, the fund could again suffer market disad-
vantage, this time because the volume of sales could, for the same reason,
force prices of particular securities to decrease. The fund, by buying a
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 (C.), price
changes in a futures contract generally parallel price changes in the securi-
ties 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.
VALUATION OF PORTFOLIO SECURITIES
SHORT-TERM INVESTMENTS. For funds (other than the Money Market Fund) that own
short-term investments which mature in less than 60 days, these instruments are
valued at amortized cost. Such securities acquired with a remaining maturity of
61 days or more are valued at their fair value until the sixty-first day prior
to maturity; thereafter, their cost for valuation purposes is deemed to be
their fair value on such sixty-first day.
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.
FUTURES CONTRACTS AND OPTIONS THEREON. For those funds buying and selling
futures contracts and related options thereon, the futures contracts and op-
tions are valued at their daily settlement price.
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 ex-
change 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 circum-
stances in the SAI for the various funds. See the Preface to this Prospectus
booklet for information about how to obtain a copy of the SAI booklet.
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 re-
ceive collateral from the borrower, in the form of cash (which may be invested
in short-term securities), U.S. Government obligations or certificates of de-
posit. Such collateral will be maintained at all times in an amount equal to at
least 102% of the current market value of the loaned securities, 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 secu-
rities 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 advisor. 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 to firms deemed by the advisor to be creditworthy.
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<PAGE>
Appendix
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. A repur-
chase 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-dealer or savings and loan association, coupled with an
agreement by the seller to repurchase the same securities from the fund at the
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The difference between the purchase price to
the fund and the resale price to the seller represents the interest earned by
the fund which is unrelated to the coupon rate or maturity of the purchased se-
curity. 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 col-
lateral 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 bank-
ruptcy proceedings. The Board of Directors of the funds or its delegate will
evaluate the creditworthiness of all entities, including banks and broker-deal-
ers, with which they propose to enter into repurchase agreements. These trans-
actions 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 re-
verse repurchase agreement is outstanding, the funds will maintain cash and ap-
propriate liquid assets in a segregated custodial account to cover its obliga-
tion under the agreement. The fund will enter into reverse repurchase agree-
ments only with parties that the advisor or sub-advisor deems creditworthy. Re-
verse repurchase agreements are considered to be borrowing transactions, and
thus are subject to the fund's limitation on borrowing. Not every fund is au-
thorized 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 Co., 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).
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation and International Funds
are held in custody by State Street Bank and Trust Co., 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 dis-
burse money; (2) receive and hold securities; (3) transfer, exchange, or de-
liver securities; (4) present for payment coupons and other income items, col-
lect interest and cash dividends received, hold stock dividends, etc.; (5)
cause escrow and deposit 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 audi-
tors for the fund. In addition to the audit of the 1996 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 (SEC); consultation on financial accounting and report-
ing matters; and meetings with the Audit Committee.
FINANCIAL STATEMENTS
The financial statements for the funds are incorporated by reference to the
funds' 1996 Annual Report. We will provide a copy of the Annual Report on re-
quest and without charge. Either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call: 1-800-4LINCOLN (452-6265).
BOND AND COMMERCIAL PAPER RATINGS
Certain of the funds' investment policies and restrictions include references
to bond and commercial paper ratings. The following is a discussion of the rat-
ing categories of Moody's Investors Service, Inc. and Standard & Poor's Corp.
A-9
<PAGE>
Appendix
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 visu-
alized 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 stan-
dards. 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 protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long-term risks appear somewhat larger than in Aaa securi-
ties.
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
and 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 charac-
terizes 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 shortcom-
ings.
STANDARD & POOR'S CORP.
AAA -- This is the highest rating assigned by Standard & Poor's Corp. to a debt
obligation and indicates an extremely strong capacity to pay principal and in-
terest.
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, al-
though 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 prin-
cipal 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 pre-
dominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indi-
cates 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.
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to re-
pay 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 is-
suers:
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 CORP.
A Standard & Poor's Corp. 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 Catego-
ries, 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-10
<PAGE>
Appendix
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. Gov-
ernment include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a matu-
rity 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 secu-
rities are supported by the full faith and credit of the U.S. Treasury (for ex-
ample those issued by Export-Import Bank of the United States, Farmers Home Ad-
ministration, Federal Housing Administration, Government National Mortgage As-
sociation, Maritime Administration, Small Business Administration and The Ten-
nessee 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
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). 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). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk
than other government obligations.
TAXES
Each fund intends to qualify and has elected to be taxed as a regulated invest-
ment 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 compa-
nies 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 regu-
lated investment company, each fund must, among other things, derive in each
taxable year at least 90% of its gross income from dividends, interest, pay-
ments with respect to securities loans and gains from the sale or other dispo-
sition 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 for-
ward contracts) derived with respect to its investing in such stocks, securi-
ties, 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 oth-
erwise 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) ef-
fect 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 4% nondeductible excise tax on each regulated in-
vestment 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 require-
ments or qualify under one or more exceptions, and thus does not expect to in-
cur the 4% nondeductible excise tax.
Since the sole shareholder of each fund will be Lincoln Life, no discussion is
stated herein as to the Federal income tax consequences at the shareholder lev-
el.
The discussion of Federal income tax considerations in the Prospectus, in con-
junction with the foregoing, is a general and abbreviated summary of the appli-
cable provisions of the code and Treasury Regulations currently in effect as
interpreted by the Courts and the Internal Revenue Service (IRS). These inter-
pretations can be changed at any time. The above discussion covers only Federal
tax considerations with respect to the fund. State and local taxes vary.
A-11
<PAGE>
Appendix
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 redemp-
tions.
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 coun-
tries at all times. However, this 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, 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, Cana-
da, 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 book-
let 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 fu-
ture date. If the contract allows the fund to buy securities, it is a call op-
tion; 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 discussed below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX 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 compa-
ny.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the fund and another party agree to ex-
change 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 in-
dex 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 pro-
tection 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 differ-
ential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in re-
turn for the 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
A-12
<PAGE>
Appendix
level (the floor). A floor contract has the effect of a string of interest
rate guarantees.
c. Collar. An arrangement 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 fu-
ture. 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 matu-
rity 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 elim-
inating 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).
FORWARD CURRENCY CONTRACT. A contract to lock in a currency exchange rate at a
future date, to eliminate risk of currency fluctuation when the time comes to
convert from one currency to another.
A-13
<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
Fund (the Fund) for the years ended December 31, 1996, 1995, 1994, 1993, 1992,
1991, 1990, 1989, and 1988 and for the period from August 3, 1987 to December 3,
1987, is incorporated by reference to Pages 53-54 of the Fund's 1996 Annual
Report.
Part B.
------
The following financial statements of the Fund are incorporated by
reference to Pages 20-30 and 42-52 and 55 of the Fund's 1996 Annual
Report:
- Statement of Net Assets -- December 31, 1996
- Statement of Operations -- Year Ended December 31, 1996
- Statements of Changes in Net Assets -- Years Ended December 31, 1996
and 1995
- Notes to Financial Statements -- December 31, 1996
In total, only pages 20-30 and 42-55 of the Fund's 1996 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.
<PAGE>
b) Exhibits:
8 - Custody Fee Schedule
9(d)- Services Agreement between Delaware Management Holdings,
Delaware Service Company, Inc. and Lincoln National Life
Insurance Company, dated August 29, 1996
11 - Consent of Ernst & Young LLP, Independent Auditors
17(a)- Financial Data Schedule
17(b)- Memorandum Concerning Books and Records
We have no changes to report to Exhibits 1-7,10 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 Advisor 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 (Lincoln Life), for its Variable Annuity
Account C and its Variable Life Account K, is the sole shareholder in the
Fund.
No persons are controlled by the Registrant. A diagram of all persons under
common control with the Registrant is filed as Exhibit 15(a) to the Form
N-4 Registrant Statement filed by Lincoln National Variable Annuity Account
C (File No. 33-25990), and is incorporated by reference into this
Registration Statement.
Item 26. Number of Holders of Securities
As of February 1, 1997, there was one record holder of common stock, $.01
par value per share.
Item 27. Indemnification
See prior filings.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to any business and other connections of
Registrant's investment adviser, Lincoln Investment, is hereby incorporated
by reference from the section captioned "Management of the Fund" in the
Prospectus forming Part A of this Registration Statement, the section
captioned "Investment Adviser and Sub-Adviser" in the Statement of
Additional Information forming Part B of this Registration Statement, and
Item 7 of Part II of Lincoln Investment's Form ADV filed separately with
the Commission (File No. 801-5098). Information pertaining to any business
and other connections of Registrant's sub-investment adviser, Putnam
Management, Inc. ("Putnam") is incorporated by reference from the section
of the Prospectus captioned "Management of the Fund," the section of the
Statement of Additional Information captioned "Investment Adviser and Sub-
Adviser," and Item 7 of Part II of Putnam's Form ADV filed separately with
the Commission (File No. 801-5097).
The other businesses, professions, vocations, and employment of a
substantial nature, during the past two years, of the directors and
officers of Lincoln Investment and Putnam are hereby incorporated by
reference, respectively, from Schedules A and D of Lincoln Investment's
Form ADV and from Schedules A and D of Putnam's Form ADV.
As of February 1, 1997, the officers and/or directors of the Investment
Adviser held the following positions:
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 17(b): Books and Records -- Lincoln National Global Asset
Allocation Fund, Inc. -- Rules Under Section 31 of the Investment Company
Act of 1940.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
See prior filings.
<PAGE>
<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 National
Income Fund, Inc. and Lincoln
National Convertible Securities
Fund, Inc., Second Vice
President, Lincoln Life & Annuity
Company of New York, 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 200 East Berry Street,
(formerly Executive Fort Wayne, Indiana 46802
Vice President) and
Director
Anne E. Bookwalter Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Philip C. Byrde Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Steven R. Brody Senior Vice President President and Director, Lincoln
and Director (formerly National Realty Corporation;
Executive Vice Vice President, The Lincoln
President) 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 Vice President, Lincoln National
Income Fund, Inc.,
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 Vice President and Director,
Lincoln National Mezzanine Corporation,
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 Vice President Vice President and Director,
(Formerly Senior Lincoln National Realty
Vice President) 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,
Vice President) 200 East Berry Street,
Fort Wayne, Indiana, 46802
Harold F. McElraft Jr. Vice President Vice President and Chief
Financial Officer, Lincoln
National Investment Companies,
Inc; Vice President and
Treasurer, Lincoln National
Income Fund, Inc., Lincoln
National Convertible Securities
Fund, Inc.,
200 East Berry Street,
Fort Wayne Indiana 46802
H. Thomas McMeekin President and President and Director, Lincoln National
Director (formerly Convertible Securities Fund, Inc., Lincoln
Executive Vice National Income Fund, Inc.; President,
President, and Senior Chief Executive Officer and Director,
Vice President) Lincoln National Mezzanine Corporation;
Executive Vice President and Chief
Investment Officer, Lincoln National
Corporation; Director, Delaware Management
Holdings, Inc., Lincoln National (China) Inc.,
Lincoln National (India) Inc., Lincoln National
Investment Companies, Inc., Lincoln National
Realty Corporation, Lynch & Mayer, Inc., Vantage
Global Advisors, Lincoln National Life Insurance
Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
Marybeth Montgomery Vice President Second Vice President,
Lincoln National Realty
Corporation,
200 East Berry Street,
Fort Wayne, Indiana 46802
John David Moore Vice President 200 East Berry Street,
Fort Wayne, Indiana, 46802
Oliver H. G. Nichols Senior Vice President Vice President, Lincoln
National Realty Corporation,
Lincoln National Life Insurance Company
1300 South Clinton 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 Second Vice President,
Lincoln Life & Annuity Company of
New York,
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>
Bill L. Sanders Vice President
Roy D. Shimer Assistant Vice President 200 East Berry Street, Fort
(formerly Vice President) Wayne, Indiana 46802
Milton W. Shuey Vice President Vice President, Lincoln
Investment Management, Inc.,
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)
Janet C. Whitney Vice President and Vice President and Treasurer,
Treasurer The Financial Alternative, Inc.
Financial Alternative Resources, Inc.
Financial Choices, Inc.
Financial Investment Services, Inc.
Financial Investment Inc.
The Financial Resources Department
Investment Alternatives, Inc.
The Investment Center, Inc.
The Investment Group, Inc.
The Richard Leahy Corporation
Lincoln Financial Group, Inc.
Lincoln Life Improved Housing, Inc.
LNC Administrative Services Corporation
LNC Equity Sales Corporation
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National (China) Inc.
Lincoln National Corporation
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National Health & Casualty Insurance Company
Lincoln National (India) Inc.
Lincoln National Intermediaries, Inc.
Lincoln National International Fund, Inc.
The Lincoln National Life Insurance Company
Lincoln National Managed Fund, Inc.
Lincoln National Management Services, Inc.
Lincoln National Mezzanine Corporation
Lincoln National Money Market Fund, Inc.
Lincoln National Realty Corporation
Lincoln National Reassurance Company
Lincoln National Reinsurance Company (Barbados) Limited
Lincoln National Reinsurance Company Limited
Lincoln National Risk Management, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Lincoln National Structured Settlement, Inc.
Lincoln National Variable Annuity Fund A
Old Fort Insurance Company, Ltd.
Personal Financial Resources, Inc.
Special Pooled Risk Administrators, Inc.
Underwriters & Management Services, Inc.
Treasurer and Assistant Secretary,
Lincoln National Foundation, Inc.
Treasurer,
Lincoln National Investment Companies, Inc.
Lincoln National Underwriting Services, Ltd.
Professional Financial Planning, Inc.; Assistant Treasurer,
First Penn-Pacific Life Insurance Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
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>
SIGNATURES
(a) Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement 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
February, 1997.
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
By /s/ Kelly D. Clevenger
----------------------
Kelly D. Clevenger
President
(b) Pursuant to the requirements of the Securities Act of 1933, this
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>
February 28, 1997
/s/ Kelly D. Clevenger Chairman of the Board ____________________
- ---------------------- President and Director
Kelly D. Clevenger (Principal Executive
Officer)
February 28, 1997
*/s/ John B. Borsch, Jr. Director ____________________
- ------------------------
John B. Borsch, Jr.
February 28, 1997
*/s/ Stanley R. Nelson Director ____________________
- ----------------------
Stanley R. Nelson
February 28, 1997
*/s/ Barbara S. Kowalczyk Director ____________________
- -------------------------
Barbara S. Kowalczyk
February 28, 1997
*/s/ Nancy L. Frisby Director ____________________
- --------------------
Nancy L. Frisby
February 28, 1997
/s/ Lantz M. Mintch Chief Accounting Officer ____________________
- ------------------- (Principal Accounting
Lantz M. Mintch Officer)
February 28, 1997
/s/ Janet C. Whitney Vice President and ____________________
- -------------------- Treasurer (Principal
Janet C. Whitney Financial Officer)
*By /s/ Jeremy Sachs pursuant to a Power of Attorney granted in the original
- -------------------- Registration Statement on Form N-1A.
Jeremy Sachs
</TABLE>
<PAGE>
Exhibit Index to Form N-1A
- --------------------------
Exhibit No. Description
8 Custody Fee Schedule
9(d) Services Agreement between Delaware Management Holdings,
Delaware Service Company, Inc. and Lincoln National Life
Insurance Company, dated August 29, 1996
11 Consent of Ernst & Young LLP, Independent Auditors
17(a) Financial Data Schedule
17(b) Memorandum Concerning Books and Records
<PAGE>
Exhibit 8
STATE STREET BANK AND TRUST COMPANY
CUSTODY FEE SCHEDULE
FOR
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
I. PORTFOLIO CUSTODY
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions in local and base currency.
Monitor corporate actions. Report portfolio positions. Withhold foreign
taxes. File foreign tax reclaims.
The fee shown below is an annual charge, billed and payable monthly, based
on month end assets of the funds.
A. INTERNATIONAL ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Group A Group B Group C Group D Group E
Germany Australia Austria Botswana Argentina
Euroclear Canada Belgium Brazil Bangladesh
Japan Denmark Finland China Bolivia*
Italy Indonesia Czech Republic Chile
New Zealand Ireland Ecuador Colombia
South Africa Malaysia Egypt Cyprus
Switzerland Mexico Ghana Greece
U.K. Netherlands Israel Hungary
France Norway Kenya India
Hong Kong Philippines Luxembourg Jamaica*
Portugal Morocco Jordan
Singapore Sri Lanka Mauritius
Spain Taiwan Namibia
Sweden Trinidad & Tobago* Pakistan
Thailand Turkey Peru
Zambia Poland
Zimbabwe Slovakia*
South Korea
Tunisia*
Uruguay
Venezuela
</TABLE>
*Not 17F-5 at this time
<PAGE>
Holding Charges in Basis Points (Annual Fee)
--------------------------------------------
GROUP A GROUP B GROUP C GROUP D GROUP E
2.25 5.0 10.0 35.0 45.0
Transaction Charges
-------------------
GROUP A GROUP B GROUP C GROUP D GROUP E
$25 $25 $35 $100 $125
B. DOMESTIC ASSETS
Holding Charge in Basis Points (Annual Fee
------------------------------------------
Group Net Assets .25
Transaction Charges Standard
------------------- --------
State Street Bank Repos or FX No Charge
DTC or Fed Book Entry $ 5.00
New York Physical Settlements $20.00
Physical Maturity Collections $ 8.00
PTC Purchase, Sale, Deposit or Withdrawal $ 9.00
Third Party FX $50.00
Option charge for each option written or closing
contract, per issue, per broker $25.00
Option expiration or exercised charge, per issue, per broker $15.00
Futures transaction -- no security movement $ 8.00
Other $20.00
II. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation. Fees for Interchange
technology and applications specialized training, communication lines,
computer hardware and software, and other special items will be negotiated
separately.
<PAGE>
III. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
- Telephone - Transfer Fees
- Wire Charges ($5.25 in and $5 out) - Sub-custodian Charges
- Postage and Insurance - Price Waterhouse Audit Letter
- Courier Service - Federal Reserve Fee for Return
- Duplicating Check items over $2,500 (4.25
- Legal Fees each)
- Supplies Related to Fund Records
IV. EARNINGS CREDIT
A balance credit equal to 75% of the 90-day Treasury Bill rate in effect
the last business day of each month will be applied to the Demand Deposit
Account balance, net of check redemption service overdrafts, on a prorated
basis against each fund's Custodian fees, excluding out-of-pocket expenses.
The balance credit will be cumulative and carried forward each month. Any
excess credit remaining at year-end (December 31) will not be carried
forward.
V. PAYMENT
The above fees will be charged against the fund's custodian checking
account five (5) days after the invoice is mailed to the fund's office.
-----------------------------------------------------------------------
LINCOLN NATIONAL AGGRESSIVE STATE STREET BANK
GROWTH FUND, INC. & TRUST COMPANY
By: /S/Walter W. Bonham, Jr. By: /S/Nancy Grady
---------------------------- -------------------------
Title: Assistant Treasurer Title: Vice President
------------------------- ----------------------
Date 1/28/97 Date 1/16/97
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<PAGE>
SERVICES AGREEMENT
------------------
(Exhibit B and Schedules Omitted)
THIS SERVICES AGREEMENT (the "Agreement") is made as of August 15, 1996, by
and among Delaware Management Holdings, Inc., a Delaware corporation
("Holdings"), Delaware Service Company, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings ("Delaware"), Lincoln National Life
Insurance Company, an Indiana insurance corporation ("Lincoln Life"), and each
of the investment companies listed in Exhibit A hereto, each a Maryland
corporation (together with any other investment company designated in accordance
with Section 5.1, the "Funds," or individually, a "Fund").
The parties hereto, in consideration of the mutual covenants hereinafter
expressed, agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.1 Definitions. The following terms shall have the respective
meanings set forth in this Section 1.1 for all purposes of this Agreement except
where the application of such definitions is limited by reference in this
Section 1.1 to a specific Article of this Agreement (such definitions to be
equally applicable to both the singular and plural forms of the terms herein
defined):
"Acceptance Test" means a test, reasonably acceptable to Lincoln Life,
Delaware and the Funds, of the performance of the Value Calculation Services for
the Accounts included in the respective Phases, to be conducted in accordance
with Article 4.
"Accounting Services" means the services listed in the Cutover Schedule
with respect to the Accounts.
"Accounts" means the Funds and the Separate Accounts, collectively.
"Affiliate" means, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity.
"Business Day" means a day on which the New York Stock Exchange is open for
trading.
"Calculation Losses" means any losses suffered by a Contractowner, Third
Party Administrator, Fund or Separate Account directly caused by an error in a
Net Asset Value or Unit Value, or by the delivery to Lincoln Life or any Fund of
a Net Asset Value or Unit Value after the applicable deadline provided for in
Section 2.1; provided, however, that such losses shall not include any
consequential damages.
<PAGE>
"Contractowner" means the present or former owner of an insurance or
annuity contract supported by a Separate Account, or any beneficiary or
annuitant thereof.
"Cutover Date," with respect to any Phase, means the date, which shall be a
Business Day, on which Delaware actually commences providing the Accounting
Services with respect to such Phase in accordance with Section 4.2. The planned
Cutover Date for each Phase is set forth in the Cutover Schedule.
"Cutover Schedule" means Schedule 1.1(a) hereto, which sets forth the
accounting services to be rendered pursuant to this Agreement and the planned
Cutover Dates, as such Schedule may be amended from time to time pursuant to
Section 16.1.
"Delaware" has the meaning set forth in the preamble to this Agreement.
"Delaware Affiliate" means Holdings and any entity that is directly or
indirectly controlled by Holdings.
"Fee Schedule" means Schedule 6.1 hereto, as such Schedule may be amended
from time to time pursuant to Section 16.1.
"Fund" has the meaning set forth in the preamble to this Agreement.
"Holdings" has the meaning set forth in the preamble to this Agreement.
"Lincoln Affiliate" means any Affiliate of Lincoln Life other than a
Delaware Affiliate.
"Lincoln Life" has the meaning set forth in the preamble to this Agreement.
"Net Asset Value" means the daily net asset value per share of the
respective Funds for each Business Day, all determined in accordance with the
terms of the Cutover Schedule and with any applicable prospectus or regulatory
requirement.
"Phase" means a set of Accounts comprising the Phase I Accounts, the Phase
II Accounts or the Phase III Accounts.
"Phase I Account" means an Account designated as such on the Cutover
Schedule.
"Phase II Account" means an Account designated as such on the Cutover
Schedule.
"Phase III Account" means an Account designated as such on the Cutover
Schedule.
"Renewal Term" means each successive one-year term occurring
<PAGE>
after the expiration of the initial term of this Agreement as described in
Section 11.1.
"Separate Account" means a separate account of Lincoln Life identified as
such on the Cutover Schedule, and any additional separate account or sub-account
of Lincoln Life or any Lincoln Affiliate (or of any other person if Lincoln Life
or any Lincoln Affiliate has administrative responsibilities with respect to
such separate account or sub-account pursuant to any reinsurance agreement or
otherwise) designated in accordance with Section 5.1.
"Test Period" means, with respect to each Phase, a period of time prior to
the Cutover Date for such Phase, commencing on the date specified by Delaware
pursuant to Section 4.1 and having a duration of three weeks or such longer
period as may be determined pursuant to Section 4.1.
"Third Party Administrator" means an administrator of insurance or annuity
contracts acting on behalf of Contractowners.
"Unit Value" means the daily unit value per unit of the respective Separate
Accounts or sub-accounts thereof for each Business Day, all determined in
accordance with the terms of the Cutover Schedule and with any applicable
prospectus or regulatory requirement.
"Value Calculation Services" means those Accounting Services consisting of
or incidental to the calculation and communication of Unit Values and Net Asset
Values in accordance with the terms of this Agreement.
ARTICLE 2
SCOPE OF SERVICES; CUTOVER
--------------------------
Section 2.1 Scope of Services. Delaware shall provide the Accounting
Services to each of the Funds and to Lincoln Life with respect to each of the
Separate Accounts, all in accordance with the terms of this Agreement. Without
limiting the generality of the foregoing, from and after the Cutover Date for
each respective Phase, Delaware, no later than 6:00 p.m. (New York City time) on
each Business Day, shall in accordance with the terms of this Agreement provide
to Lincoln Life and to the Funds the Value Calculation Services for each of the
Accounts included in such Phase. In the event of any error in the Value
Calculation Services, the parties hereto will follow the procedures set forth in
Schedule 2.1, without prejudice to any other rights described in this Agreement.
Section 2.2 Cutover Schedule. Delaware, Lincoln Life and the Funds shall
use their respective best efforts to cause the Cutover Date to occur no later
than (a) August 15, 1996, with respect to the Phase I Accounts, (b) October 31,
1996, with
<PAGE>
respect to the Phase II Accounts and (c) January 1, 1997 with respect to the
Phase III Accounts.
ARTICLE 3
LINCOLN LIFE'S SUPPORT OBLIGATIONS
----------------------------------
Section 3.1 Provision of Data. Lincoln Life shall use its best efforts to
provide or cause to be provided to Delaware the data identified in Schedule 3.1
during the periods and in accordance with the procedures identified in such
Schedule, it being understood that Delaware shall not be responsible for any
Calculation Losses or other claims, suits, hearings, actions, damages,
liabilities, fines, penalties, costs, losses or expenses, including reasonable
attorney's fees, which any party may sustain or incur, directly or indirectly,
in each case to the extent caused by or arising from Lincoln Life's failure to
provide such data in accordance with such Schedule 3.1.
Section 3.2 Data to Be Provided by Third Parties. With respect to each of
the mutual funds identified in Schedule 3.2 as an available investment of one or
more of the Separate Accounts (other than mutual funds managed by Lincoln Life
or Delaware or their respective Affiliates) and each third party service
provider identified in such Schedule, Lincoln Life shall direct each of the
managers of such funds or such service provider, as the case may be, to provide
or cause to be provided to Delaware the data identified in Schedule 3.2 in
accordance with the procedures and time deadlines identified in such Schedule.
Section 3.3 Information for Periods Prior to Cutover Date. Lincoln Life
will provide appropriate financial and other information with respect to the
Accounts to Delaware, and will cooperate with Delaware, in connection with the
preparation of data for 1996 annual reports to Contractowner and other elements
of the Accounting Services that relate to periods prior to the Cutover Dates for
the respective Accounts. In addition, Lincoln Life will provide to Delaware
appropriate financial and other information regarding the Accounts for periods
prior to 1996 to the extent relevant to the performance of the Accounting
Services for 1996 and subsequent periods.
ARTICLE 4
ACCEPTANCE TEST; CUTOVER DATE
-----------------------------
Section 4.1 Acceptance Testing. Delaware shall notify Lincoln Life of the
date, which shall be a Business Day, on which the Value Calculation Services for
each respective Phase will be ready for the commencement of the Acceptance Test
for such Phase. During the Test Period for each Phase, Delaware, Lincoln Life
and the Funds shall cooperate in performing the Acceptance Test for such Phase,
and Delaware and Lincoln Life, respectively, shall use its best efforts to
remedy any failure in the performance of the Value Calculation Services caused
by such party. In the event that, during the Test Period with respect to any
Phase,
<PAGE>
performance of the Value Calculation Services is suspended for such Phase in
order to effect such remedy or for any other reason, the Test Period for such
Phase shall be extended by the number of days of such suspension. Further, if
at the date that would otherwise be the end of the Test Period for any Phase
Delaware is not performing the Value Calculation Services with respect to such
Phase to the reasonable satisfaction of Lincoln Life, and Lincoln Life shall so
notify Delaware, the Test Period shall be extended until the date on which
Lincoln Life notifies Delaware that the Value Calculation Services are being
performed to the reasonable satisfaction of Lincoln Life. All references in this
Section 4.1 to the performance of the Value Calculation Services shall refer to
the performance thereof in a test mode.
Section 4.2 Cutover Date. With respect to each Phase, upon the
termination of the Test Period, Lincoln Life, the Funds and Delaware shall
execute a written acknowledgment in the form of Exhibit B hereto confirming such
termination and specifying the Cutover Date, which shall be the Business Day
immediately following the date of such termination unless Lincoln Life, the
Funds and Delaware shall agree upon a different date.
ARTICLE 5
NEW ACCOUNTS; NEW INVESTMENT MANAGERS
-------------------------------------
Section 5.1 Additional Accounts. Lincoln Life may from time to time
designate (i) one or more additional investment companies or separate accounts
to constitute Funds or Separate Accounts, as the case may be, for all purposes
of this Agreement, or (ii) one or more newly established sub-accounts of any
Separate Account. Such designation shall be:
(a) subject to Delaware's consent, which shall not be unreasonably
withheld; provided, that such consent shall be considered to be
unreasonably withheld if Delaware does not make reasonable
efforts to accept such new investment companies, separate
accounts and sub-accounts, which efforts shall include, but not
be limited to, reasonable consideration of the expansion of
Delaware's infrastructure to handle such new investment
companies, separate accounts and sub-accounts; and
(b) evidenced by a writing executed by Lincoln Life, Delaware and, if
applicable, each such investment company, setting forth the name
of such investment company, separate account or new sub-account,
the applicable rate under the Fee Schedule that shall apply to
the Accounting Services for such investment company, separate
account or new sub-account, the effective date of the designation
thereof as a Fund, Separate Account or new sub-account, and any
other matters the parties wish to include.
<PAGE>
Notwithstanding clause (b) of the preceding sentence, if Delaware's performance
of the Accounting Services for such additional Funds, Separate Accounts, or sub-
accounts of such Separate Accounts would, in Delaware's reasonable opinion,
result in higher costs than the costs Delaware incurs for providing the
Accounting Services to the current Accounts, then the affected parties hereto
shall negotiate in good faith an addendum to the Fee Schedule for such
additional Funds, Separate Accounts and sub-accounts and Delaware shall not be
deemed to have unreason ably withheld its consent under clause (b) of this
Section 5.1 until such addendum has been agreed to. Except as otherwise
specified in such writing, from and after such effective date, Delaware shall
provide to such Fund, or to Lincoln Life with respect to a Separate Account or
new sub-account, the same Accounting Services as are specified in the Cutover
Schedule with respect to the other Funds, Separate Accounts or sub-account of a
Separate Account, as the case may be.
Section 5.2 New Investment Managers. If new investment managers are added
to provide investment advisory services to any of the Accounts, and Delaware's
performance of the Accounting Services is, as a result thereof, significantly
more costly to Delaware, the affected parties shall negotiate in good faith an
addendum to the Fee Schedule for such Accounts.
ARTICLE 6
FEES
----
Section 6.1 Accrual of Fees. From and after the Cutover Date with respect
to each Phase, Lincoln Life shall pay fees for the Accounting Services for each
of the Separate Accounts included in such Phase, and each Fund included in such
Phase shall pay fees for the Accounting Services for such Fund, in each case at
the respective rates per annum determined in accordance with the Fee Schedule.
Fees accrued pursuant to this Section 6.1 shall be payable in arrears on a
monthly basis.
Section 6.2 Payment of Fees by Lincoln Life. Delaware shall submit to
Lincoln Life an invoice for each month for all of the fees payable pursuant to
Section 6.1 with respect to each of the Separate Accounts, which invoice shall
be itemized to show the portion of such fees allocable to each of the Separate
Accounts in accordance with the Fee Schedule. Subject to the terms of this
Agreement, invoices for such fees shall be payable within 30 days of receipt.
Section 6.3 Payment of Fees by the Funds. Delaware shall submit to
each Fund, with a copy to Lincoln Life, an invoice for each month for all of the
fees payable pursuant to Section 6.1 with respect to such Fund. Subject to the
terms of this Agreement, invoices for such fees shall be payable within 30 days
of receipt.
<PAGE>
ARTICLE 7
STANDARD OF CARE; INDEMNIFICATION
---------------------------------
Section 7.1 Standard of Care. Delaware shall provide the Accounting
Services with a level of care equal to or greater than the level of care at
which it performs similar functions for mutual funds that are sponsored or
managed by any Delaware Affiliate, and in any event, Delaware shall always
exercise reasonable care in performing the Accounting Services.
Section 7.2 Indemnification
(a) Indemnification by Lincoln Life. Lincoln Life shall indemnify,
defend and hold harmless Delaware and any Delaware Affiliate, and the directors,
officers and employees of the fore going (each individually, a "Delaware
Indemnified Party"), against any and all claims, suits, hearings, actions,
damages, liabilities, fines, penalties, costs, losses or expenses, including
reasonable attorney's fees, which any Delaware Indemnified Party may sustain or
incur, directly or indirectly, in each case to the extent caused by or arising
from (i) the negligence, recklessness or intentional misconduct of Lincoln Life
or any Lincoln Affiliate, or any director, officer or employee thereof, in the
performance of this Agreement; or (ii) the failure of Lincoln Life to comply
with the terms of this Agreement.
(b) Indemnification by Delaware. Subject to Section 3.1, Delaware
shall indemnify, defend and hold harmless Lincoln Life, the Lincoln Affiliates
and the Funds, and the directors, officers and employees of the foregoing (each
individually, a "Lincoln Indemnified Party") against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs, losses
(including but not limited to (a) Calculation Losses reimbursed by Lincoln Life
and (b) any market fluctuation losses incurred by Lincoln Life in effecting such
reimbursement) or expenses, including reasonable attorney's fees, which any
Lincoln Indemnified Party may sustain or incur, directly or indirectly, in each
case to the extent caused by or arising from (i) the negligence, recklessness or
intentional misconduct of Delaware or any Delaware Affiliate, or any director,
officer or employee thereof, in the performance of this Agreement; or (ii) the
failure of Delaware to comply with the terms of this Agreement.
(c) Procedures. Subject to the provisions of Section 7.2(d), promptly
after receipt by a Delaware Indemnified Party or a Lincoln Indemnified Party
(each, an "Indemnified Party") of notice of the commencement of any action,
proceeding, investigation or claim by any Contractowner or other third party (a
"Proceeding"), the Indemnified Party shall, if a claim in respect thereof is to
be made pursuant to this Section 7.2 against another party to this Agreement
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
commencement thereof; but the failure so to notify the Indemnifying Party
<PAGE>
shall not relieve the Indemnifying Party from any liability under this Section
7.2, except to the extent that such failure to notify actually prejudices the
Indemnifying Party. In case any such Proceeding shall be brought against an
Indemnified Party, the Indemnifying Party shall be entitled to participate in
and to assume the defense thereof, with counsel satisfactory to the Indemnified
Party, and after notice from the Indemnifying Party to the Indemnified Party of
the Indemnifying Party's election to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if, in the reasonable judgment of the Indemnified Party, it is
advisable for the Indemnified Party to be represented by separate counsel other
than counsel for the Indemnifying Party, the Indemnified Party shall have the
right to employ a single counsel to represent the Indemnified Party, in which
event the reasonable fees and expenses of such separate single counsel shall be
borne by the Indemnifying Party, and (ii) in the case of any Proceeding brought
by any governmental authority, the Indemnifying Party shall have the right to
participate in, but not to assume the defense of, such Proceeding. The
Indemnifying Party shall not be obligated under any settlement agreement
relating to any Proceeding under this Section 7.2 to which it has not consented
in writing, which consent shall not be unreasonably withheld.
(d) Preserving Rights with Respect to Calculation Losses. Notwithstanding
Section 7.2(c), Lincoln Life may in its sole discretion elect to reimburse a
Contractowner, Third Party Administrator, Separate Account or Fund for
Calculation Losses out of Lincoln Life's own funds and such reimbursement shall
have no effect on the respective indemnification obligations of the parties
pursuant to Section 7.2(a) and (b).
(e) Overpayments. The parties agree that there may be circumstances in
which it would not be commercially reasonable for Lincoln Life and the Funds to
seek reimbursement from one or more Contractowners of overpayments made them,
taking into account relevant factors such as industry practice; the amount of
such overpayments; the number of Contractowners overpaid; the cost of seeking
reimbursement; and the implications for customer relations of seeking
reimbursement. In the event of any overpayment to a Contractowner for which
Lincoln Life or any Fund intends to seek indemnification from Delaware pursuant
to Section 7.2(b) without seeking reimbursement from the Contractowner, the
parties shall negotiate in good faith as to what effect, if any, the
determination not to seek such reimbursement should have under the circumstances
on the rights of Lincoln Life or the Funds to indemnification for the amounts
overpaid.
<PAGE>
ARTICLE 8
INSURANCE COVERAGE
------------------
Section 8.1 Insurance. Delaware and Holdings shall maintain
insurance coverage at a level at least equal to the insurance coverage held by
each of them at the time this Agreement becomes effective.
ARTICLE 9
FORCE MAJEURE AND DISASTER RECOVERY PLAN
----------------------------------------
Section 9.1 Force Majeure; Disaster Recovery Plan. No party shall be
liable to any other party for any damages caused by delays beyond its reasonable
control, including, without limitation, those delays occasioned by fire, strike,
labor dispute, acts of the other party, acts of any common carrier, pricing
service, corporate action service, or telephone network, acts of the power
supply company or its networks, restrictions by civil or military authorities,
acts of nature, or unforeseen transportation failures. In the event of any such
delay, the hindered party shall promptly notify the other parties and, upon the
giving of such notice, the period of time for performance of obligations
hereunder affected by such delays will be extended by the same number of days as
the delay. Notwithstanding the foregoing, Delaware shall maintain and implement
a customary disaster recovery plan and such plan shall be reasonably acceptable
to Lincoln Life and the Funds. This Article 9 shall not excuse any failure to
perform, or extend the time for performance of, any obligation of Delaware under
this Agreement to the extent that such failure or delay would have been avoided
by compliance with such disaster recovery plan, or by the use of reasonable,
readily available alternatives.
ARTICLE 10
EFFECTIVENESS
-------------
Section 10.1 Effectiveness.
(a) This Agreement shall become effective upon the later of:
(i) the date first set forth above; or
(ii) the date as of which Lincoln Life has complied with the
requirements of the Indiana insurance holding company laws
at Section 27-1-23-4 of the Indiana Code.
(b) Lincoln Life shall diligently and reasonably pursue the satisfaction
of the requirements of the Indiana insurance holding company laws at
Section 27-1-23-4 of the Indiana Code.
<PAGE>
ARTICLE 11
TERM AND TERMINATION
--------------------
Section 11.1 Term. The initial term of this Agreement shall end on
the fourth anniversary of the Cutover Date of Phase III, and this Agreement
shall be automatically renewed for subsequent Renewal Terms thereafter unless
sooner terminated under Section 11.2.
Section 11.2 Termination. Subject to the procedures set forth in
Article 12 and to Section 11.3, this Agreement may be terminated as follows:
(a) by Lincoln Life, Delaware, or any Fund, in each case upon notice
to each of the other parties at least 180 days prior to the
expiration of the initial term or any Renewal Term, with such
termination to become effective upon such expiration; and
(b) by Lincoln Life, Delaware or any Fund upon 30 days notice to each
of the other parties, for any material breach of this Agreement
unless such breach is cured within such notice period.
For the purpose of this Section 11.2(b) only, a "material breach" shall include,
but not be limited to, the failure by Delaware to provide Accounting Services
hereunder of a quality reasonably determined by Lincoln Life or any Fund to be
consistent with a superior level of service in the industry.
Section 11.3 Effect of Termination by a Fund. In the event one or
more Funds shall terminate this Agreement, this Agreement shall nonetheless
continue in full force and effect between and among those parties who have not
terminated this Agreement.
ARTICLE 12
PROCEDURES UPON TERMINATION
---------------------------
Section 12.1 Obligations Upon Termination. Upon termination of this
Agreement by any party under Article 11, each party shall be obligated to
cooperate with each other party to provide for the transfer of all
responsibilities, duties and obligations of this Agreement as may be necessary
to ensure the orderly, undisrupted business of each party. Such cooperation
shall include, but not be limited to, returning all papers, documents, materials
or equipment to the party owning such materials. In the event that this
Agreement is terminated by Lincoln Life or any Fund under Section 11.2(b),
Lincoln Life and the Funds shall have the right to require Delaware to continue
performing all or any part of its responsibilities, duties and obligations under
this Agreement until the earlier of (a) 210 days following the date notice of
such termination was given, or (b) the date that is 30 days after notice from
Lincoln Life or the Funds that
<PAGE>
Delaware shall cease such performance. For this purpose, (a) the terms of this
Agreement (including without limitation the obligation of Lincoln Life and the
Funds to pay Delaware's fees under Article 6, and the obligation of Delaware to
continue to exercise the standard of care required under Section 7.1 shall
remain in effect with respect to the period in which Delaware is obligated to
continue such performance, and (b) if any portion of Delaware's
responsibilities, duties and obligations during such period are not so extended
as required by Lincoln Life, the parties shall mutually agree in good faith on a
reduction of fees which reflects the termination of such responsibilities,
duties and obligations.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
------------------------------
Each party represents and warrants to the other parties as follows:
Section 13.1 Organization and Authority. Such party is duly organized,
validly existing and in good standing as a corporation under the laws of the
state indicated on the first page of this Agreement, with the requisite
authority and power, in conformity with applicable laws, rules and regulations,
to execute and deliver this Agreement and to perform its obligations hereunder.
Such party has taken all necessary action to authorize such execution, delivery
and performance.
Section 13.2 No Conflict with Laws. The execution, delivery and
performance of this Agreement by such party do not conflict with or violate any
laws applicable to such party, any provision of its constituent documents, any
order or judgment of any court or governmental agency applicable to it or any of
its assets or any contractual restriction binding on it or its assets.
Section 13.3 Obligation. This Agreement constitutes a legal, valid and
binding obligation of such party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to the enforcement of creditors' rights generally and
subject to principles of equity.
ARTICLE 14
PARENT GUARANTY
---------------
Section 14.1 Parent Guaranty. Holdings hereby unconditionally guarantees
the full and punctual performance of the covenants, agreements and obligations
of Delaware under this Agreement, including but not limited to the payment when
due of all amounts that may from time to time be payable by Delaware pursuant to
Section 7.2(b) (the "Guaranteed Obligations").
Section 14.2 Guaranty Unconditional. The obligations of
<PAGE>
Holdings hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released or discharged by:
(a) any extension, settlement, compromise, waiver or release in
respect of any obligation of Delaware under this Agreement;
(b) any modification or amendment of or supplement to this
Agreement;
(c) any change in the corporate existence, structure or ownership of
Delaware, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting Delaware or its assets; or
(d) any other act or omission to act or delay of any kind by
Delaware, Lincoln Life, any Fund or any other person which would, but for
the provisions of this paragraph (d), constitute a legal or equitable
discharge of Holding's obligations hereunder;
provided, however, that in the event of any extension, settlement, compromise,
waiver or release of any obligation of Delaware under this Agreement, or any
modification or amendment of or supplement to this Agreement, the guaranty
provided for in this Article 14 shall apply to the obligations of Delaware as so
extended, settled, compromised, waived, released, modified, amended or
supplemented.
Section 14.3 Discharge Only Upon Payment or Performance in Full;
Reinstatement in Certain Circumstances. Holding's obligations hereunder shall
remain in full force and effect until the Guaranteed Obligations shall have been
paid or performed in full. If at any time any payment of Guaranteed Obligations
by Delaware under this Agreement is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of Delaware or
otherwise, Holding's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
Section 14.4 Waiver by Holdings. Holdings irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any person
against Delaware or any other person.
Section 14.5 Subrogation. Upon making any payment with respect to
Delaware hereunder, Holdings shall be subrogated to the rights of the payee
against Delaware with respect to such payment; provided that Holdings shall not
enforce payment by way of subrogation until all Guaranteed Obligations have been
paid or performed in full.
<PAGE>
ARTICLE 15
DISPUTE RESOLUTION
------------------
Before commencing litigation of any dispute arising out of or relating to
this Agreement, the parties shall attempt in good faith to resolve the dispute
by the following means:
Section 15.1 Negotiation. The parties shall in good faith attempt to
resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy. A
party may give the other parties written notice of any dispute not resolved in
the normal course of business. Within 20 days after delivery of that notice,
executives of the affected parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claim as provided in Section 15.2. If a negotiator intends to be
accompanied at a meeting by an attorney, the other negotiator shall be given at
least 3 Business Days' notice of that intention and may also be accompanied by
an attorney.
Section 15.2 Mediation. If the dispute has not been resolved by
negotiation as provided in Section 15.1, the parties shall endeavor for an
additional period of 60 days to settle the dispute by mediation under the then-
current Center for Public Resources (CPR) Model Procedure for Mediation of
Business Disputes. The neutral third party will be selected from the CPR Panel
of Neutrals. If the parties encounter difficulty in agreeing on a neutral, they
will seek the assistance of CPR in the selection process.
Section 15.3 Confidentiality. All activities under this Article 15 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
ARTICLE 16
MISCELLANEOUS
-------------
Section 16.1 Amendment. This Agreement, including any Exhibits or
Schedules, may be amended, modified or supplemented only in writing signed by
Delaware, Lincoln Life and any Fund affected thereby. This Agreement shall be
binding upon all successors, assigns or transferees of the parties to this
Agreement.
Section 16.2 Assignment. This Agreement and the rights, duties and
obligations of the parties hereto shall not be assign able by any party, except
assignment to successors in the case of mergers, sales of all or substantially
all of the assets of such
<PAGE>
party or transfer of ownership by reorganization or similar restructuring to a
successor in interest to the business of such party, without the prior written
consent of the other parties, and any purported assignment in the absence of
such consent shall be void.
Section 16.3 Notices. All notices given or submitted pursuant to this
Agreement shall be made in writing and shall be deemed given when (a) deposited
with the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested; (b) deposited with a nationally recognized
overnight mail delivery service; (c) sent by facsimile with electronic
confirmation of delivery or with a copy sent by mail as described in (a) or (b)
above; or (d) delivered in person; all to the last address of record of each
party being notified.
Any notice under this Agreement to Lincoln Life shall be given to:
ATTN: O. Douglas Worthington
Vice President and Controller
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-3669
Facsimile: (219) 455-1939
Any notice under this Agreement to Delaware or Holdings
shall be given to:
ATTN: Michael J. Bishof
Vice President and Treasurer
Delaware Management Company
1818 Market Street; 7th Floor
Philadelphia, PA 19103
Phone: (215) 255-2852
Facsimile: (215) 255-1645
With a copy to:
Richard J. Flannery
Managing Director, Corporate
& Tax Affairs
Delaware Management Company
2005 Market Street
Philadelphia, PA 19103
Phone: (215) 255-1244
Facsimile: (215) 255-2822
<PAGE>
Any notice under this Agreement to any Fund shall be given
to:
ATTN: Kelly D. Clevenger
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-5119
Facsimile: (219) 455-1773
Any party may, by means of written notice in compliance with this Section
16.3, change the address or the identity of the person to whom any notice, or
copy thereof, is to be sent.
Section 16.4 Severability. If any provision of this Agreement, as applied
to any party or to any circumstances, shall be found by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall in no way
affect any other provision of this Agreement, the application of any such provi
sion in any other circumstances, or the validity or enforce ability of this
Agreement; provided, however, that nothing in this Section 16.4 shall adversely
affect the fundamental benefits received by the parties under this Agreement.
Section 16.5 Waiver. A waiver by any party of any of the terms and
conditions of this Agreement in any one instance shall not be deemed or
construed to be waiver of any such term or condition for the future, or of any
subsequent breach thereof, nor shall it be deemed a waiver of performance of any
other obligation hereunder. No waiver of any provision of this Agreement shall
be valid unless agreed to in writing by the party or parties against whom such
waiver is sought to be enforced.
Section 16.6 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter of this
Agreement and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties.
Section 16.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving
effect to the conflict of law provisions thereof.
Section 16.8 Section and Paragraph Headings. The titles of the sections
and paragraphs of this Agreement are for convenience only and shall not in any
way affect the interpretation of any provision or condition of this Agreement.
Section 16.9 Counterparts. This Agreement may be executed in counterparts
which, taken together, shall constitute the whole of the Agreement as between
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
LINCOLN LIFE:
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: ____________________________
O. Douglas Worthington
Title: Vice President and
Controller
Date: __________________________
HOLDINGS:
DELAWARE MANAGEMENT HOLDINGS, INC.
By: ____________________________
Title: _________________________
Date: __________________________
DELAWARE:
DELAWARE SERVICE COMPANY, INC.
By: ____________________________
Title: _________________________
Date: __________________________
<PAGE>
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.
By: ____________________________
Kelly D. Clevenger
In his capacity as President of each of
the above-named Funds.
Date: __________________________
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
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.
<PAGE>
EXHIBIT B
---------
FORM OF WRITTEN ACKNOWLEDGEMENT OF CUTOVER DATE
<PAGE>
SCHEDULE 1.1(a)
---------------
CUTOVER SCHEDULE
<PAGE>
SCHEDULE 2.1
------------
PROCEDURES FOR CORRECTING ERRORS
<PAGE>
SCHEDULE 3.1
------------
DATA PROVIDED BY LINCOLN LIFE
<PAGE>
SCHEDULE 3.2
------------
UNAFFILIATED MUTUAL FUNDS
AND
SERVICE PROVIDERS
<PAGE>
SCHEDULE 6.1
------------
FEE SCHEDULE
<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 Post-Effective Amendment No. 12 to the Registration Statement (Form
N-1A No. 33-13530) and related Statement of Additional Information of Lincoln
National Global Asset Allocation Fund, Inc. dated May 1, 1997 and to the
incorporation by reference therein of our report dated January 27, 1997, with
respect to the financial statements of Lincoln National Global Asset Allocation
Fund, Inc. included in its Annual Report for the year ended December 31, 1996,
included as Item 24(a) to this Registration Statement.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
the Annual Report for Lincoln National Multi Funds and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 289,612
<INVESTMENTS-AT-VALUE> 321,869
<RECEIVABLES> 7,738
<ASSETS-OTHER> 4,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 334,062
<PAYABLE-FOR-SECURITIES> 9,532
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,479
<TOTAL-LIABILITIES> 18,011
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,505
<SHARES-COMMON-STOCK> 22,217
<SHARES-COMMON-PRIOR> 18,578
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,677
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,869
<NET-ASSETS> 316,051
<DIVIDEND-INCOME> 3,518
<INTEREST-INCOME> 7,594
<OTHER-INCOME> 0
<EXPENSES-NET> 2,827
<NET-INVESTMENT-INCOME> 8,285
<REALIZED-GAINS-CURRENT> 26,677
<APPREC-INCREASE-CURRENT> 7,148
<NET-CHANGE-FROM-OPS> 42,110
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,285
<DISTRIBUTIONS-OF-GAINS> 14,517
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,500
<NUMBER-OF-SHARES-REDEEMED> 493
<SHARES-REINVESTED> 1,633
<NET-CHANGE-IN-ASSETS> 67,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,073
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,827
<AVERAGE-NET-ASSETS> 282,324
<PER-SHARE-NAV-BEGIN> 13.391
<PER-SHARE-NII> 0.392
<PER-SHARE-GAIN-APPREC> 1.522
<PER-SHARE-DIVIDEND> 1.079
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.226
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 17(b)
BOOKS AND RECORDS
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION 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.
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
Annual Reports F & RM Eric Jones Permanently, the first
To Shareholders two years in an easily
accessible place
Semi-Annual F & RM Eric Jones Permanently, the first
Reports two years in an easily
accessible place
Form N-SAR F & RM Eric Jones Permanently, the first
two years in an easily
accessible place
</TABLE>
(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.
<PAGE>
Purchases and Sales Journals
<TABLE>
<C> <C> <C> <S>
Daily reports Delaware Management Fund Accounting Permanently, the first
of securities Holding Company two years in an easily
transactions accessible place
</TABLE>
Portfolio Securities
<TABLE>
<C> <C> <C> <S>
Equity Delaware Management Fund Accounting Permanently, the first
Notifications Holding Company two years in an easily
accessible place
LN-Record Location Person to Contact Retention
</TABLE>
Receipts and Deliveries of Securities (shares)
Not Applicable.
Portfolio Securities
<TABLE>
<C> <C> <C> <S>
Debit and Delaware Management Fund Accounting Permanently, the first
Credit Advices Management Company two years in an easily
from Bankers accessible place
Trust Company
Bank Statements
</TABLE>
Receipts and Disbursements of Cash and other Debits and Credits
<TABLE>
<C> <C> <C> <S>
Investment Delaware Management Fund Accounting Permanently, the first
Journal Holding Company two years in an easily
accessible place
Daily Journals Delaware Management Fund Accounting Permanently, the first
Holding Company two years in an easily
accessible place
</TABLE>
(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;
<PAGE>
(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
<TABLE>
<C> <C> <C> <S>
General Ledger Delaware Management Fund Accounting Permanently, the first
Holding Company two years in an easily
accessible place
</TABLE>
Securities in Transfer
<TABLE>
<C> <C> <C> <S>
File consisting of Delaware Management Fund Accounting Permanently, the first
bank advices, con- Holding Company two years in an easily
firmations, and accessible place
Notification of
Securities
Transaction
</TABLE>
<PAGE>
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
</TABLE>
Securities in Physical Possession
<TABLE>
<C> <C> <C> <S>
Securities Delaware Management Fund Accounting Permanently, the first
Ledger Holding Company two years in an easily
accessible place
Portfolio Delaware Management Fund Accounting Permanently, the first
Listings Holding Company two years in an easily
accessible place
</TABLE>
Securities Borrowed and Loaned
<TABLE>
<C> <C> <C> <S>
Their files Delaware Management Fund Accounting Permanently, the first
Holding Company two years in an easily
accessible place
</TABLE>
Monies Borrowed and Loaned
Not Applicable.
Dividends and Interest Received
<TABLE>
<C> <C> <C> <S>
Interest File Delaware Management Fund Accounting Permanently, the first
Accrual Holding Company two years in an easily
Activity accessible place
Journal
Dividend Delaware Management Fund Accounting Permanently, the first
Master File Holding Company two years in an easily
Display accessible place
</TABLE>
Dividends Receivable and Interest Accrued
<TABLE>
<C> <C> <C> <S>
Investment Delaware Management Fund Accounting Permanently, the first
Journal Holding Company two years in an easily
accessible place
</TABLE>
<PAGE>
<TABLE>
<C> <C> <C> <S>
Dividend Delaware Management Fund Accounting Permanently, the first
Master Holding Company two years in an easily
File Display accessible place
Interest File Delaware Management Fund Accounting Permanently, the first
Accrual Holding Company two years in an easily
Activity accessible place
Journal
</TABLE>
(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.
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.
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
</TABLE>
Ledger Account for each portfolio Security
<TABLE>
<C> <C> <C> <S>
Inventory Delaware Management Fund Accounting Permanently, the first
(on line) Holding Company two years in an easily
accessible place
</TABLE>
(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.
<PAGE>
<TABLE>
<C> <C> <C> <S>
Broker-Dealer Delaware Management Fund Accounting Permanently, the first
Ledger Holding Company two years in an easily
accessible place
</TABLE>
(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
<TABLE>
<C> <C> <C> <S>
LNL - only F & RM Eric Jones Permanently, the first
shareholder two years in an easily
accessible place
</TABLE>
(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 to 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
<TABLE>
<C> <C> <C> <S>
Maintained by Delaware Management Fund Accounting Permanently, the first
Custodian of Holding Company two year in an easily
Bank and accessible place
Securities
</TABLE>
(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.
<PAGE>
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
</TABLE>
Corporate Documents
<TABLE>
<C> <C> <C> <S>
Corporate charter, Executive- Sue Womack Permanently, the first
certificate of Corp. Secy two years in an easily
incorporation. accessible place
Bylaws and Corp. Secy. Sue Womack
minute books.
</TABLE>
(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
<TABLE>
<C> <C> <C> <S>
Sales Order Putnam Robert Ferrini Six years, the first
or Purchase two years in an easily
Order accessible place
Notification Delaware Management Fund Accounting Six years, the first two
Form (From Holding Company years in an easily
AOS Trading accessible place
System)
</TABLE>
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
Short-Term Investments
<TABLE>
<C> <C> <C> <S>
Notification Form Delaware Management Fund Accounting Six years, the first two
(From AOS S-T Holding Company years in an easily
System) accessible place
Bank Advice Delaware Management Fund Accounting Six years, the first two
and Issuer Holding Company years in an easily
Confirmation accessible place
</TABLE>
(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>
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
Record of Delaware Management Fund Accounting Six years, the first two
Puts, Calls, Holding Company years in an easily
Spreads, Etc. accessible place
</TABLE>
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
<TABLE>
<C> <C> <C> <S>
General Delaware Management Fund Accounting Permanently, the first
Ledger Holding Company two years in an easily
accessible place
</TABLE>
(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 identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
<TABLE>
<C> <C> <C> <S>
Brokerage Putnam Robert Ferrini Six Years, the first
Allocation two years in an easily
Listing accessible place
</TABLE>
<PAGE>
(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).
<TABLE>
<C> <C> <C> <S>
Trading Putnam Fund Accounting Six years, the first two
Authorization years in an easily
accessible place
Advisory Law Division Janet Lindenberg/ Six years, the first
Agreements Jeremy Sachs two years in an easily
accessible place
</TABLE>
(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.
<TABLE>
<C> <C> <C> <S>
LN-Record Location Person to Contact Retention
</TABLE>
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.
<TABLE>
<C> <C> <C> <S>
Correspondence Product Administration Nancy Alford Six years, the first
Product Management Pat Wiltshire two years in an easily
accessible place
Pricing Delaware Management Fund Accounting Permanently, the first
Sheets Holding Company two years in an easily
accessible place
Bank Statements, Delaware Management Fund Accounting Six years, the first
Cancelled Checks Holding Company two years in an easily
and Cash accessible place
Reconciliations
</TABLE>
February 18, 1997
