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As filed with the Securities and Exchange Commission on January 28, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 [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
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b)
On May 1, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X On April 19, 1999 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
On pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
PREFACE TO THE MULTI FUND-REGISTERED TRADEMARK- PROSPECTUSES
THE PREFACE AND DIRECTORY ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING
FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc. (Capital Appreciation)
Lincoln National Equity-Income Fund, Inc. (Equity Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc. (Money Market)
Lincoln National Social Awareness Fund, Inc. (Social Awareness)
Lincoln National Special Opportunities Fund, Inc. (Special Opportunities)
Each FUND has its own Prospectus that describes the FUND and its investment
objective. We refer to each of the FUNDS as a FUND and to all of the FUNDS
together as the FUNDS.
Each FUND sells its shares only to Lincoln National Life Insurance Co. and its
affiliates (LINCOLN LIFE). LINCOLN LIFE holds the shares in its separate
accounts to support variable annuity contracts and variable life insurance
contracts (CONTRACTS). We refer to a separate account as a VARIABLE ACCOUNT.
Each VARIABLE ACCOUNT has its own prospectus that describes the ACCOUNT and the
CONTRACTS it supports. You choose the FUND or FUNDS in which a VARIABLE ACCOUNT
invests your CONTRACT assets. In effect, you invest indirectly in the FUND(S)
that you choose under your CONTRACT.
Each FUND Prospectus discusses the information about the FUND that you ought to
know before choosing to invest your CONTRACT assets in one or more of the FUNDS.
You can find information unique to each FUND in that FUND'S Prospectus. You can
find information common to all FUNDS in the APPENDIX following the individual
FUND Prospectuses.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if these prospectuses are truthful or complete.
Any representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson, or any other person to give any
information, or to make any representation, other than what these Prospectuses
state. These Prospectuses do not offer to sell FUND shares, or seek offers to
buy FUND shares, where it would be unlawful.
Prospectuses dated May 1, 1999
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE
SUMMARY DESCRIPTION OF THE FUND
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
FEE TABLE
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
INVESTMENT STRATEGIES
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
RISKS OF INVESTMENT STRATEGIES
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
INVESTMENT ADVISER AND PORTFOLIO MANAGER
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
APPENDIX -- CONTAINS IMPORTANT INFORMATION
FOR ALL FUNDS
Net asset value
Management of the funds
Purchase and redemption of fund shares
Distribution and federal income tax
considerations
Management discussion of fund performance
General Information
Financial highlights
Preparing for the year 2000
</TABLE>
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LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
SUMMARY DESCRIPTION OF THE FUND
The investment objective of the Global Asset Allocation Fund (FUND) is long-term
total return (capital appreciation plus current income) consistent with
preservation of capital.
The FUND pursues its investment objective by buying and holding (investing in)
three categories of securities: equity securities (stocks), fixed-income
securities (debt obligations) and money market securities. The FUND invests in
securities of both U.S. and foreign issuers. The FUND'S investment strategy is
to vary the amount invested (1) in each category and (2) in specific types
(sectors) of securities within each category, based on ongoing evaluations of
which category and sectors world-wide provide the best opportunity to meet the
FUND'S investment objective.
The FUND generally invests primarily in the stock and debt obligations
categories. The stock category consists of stocks of (1) large-, medium-, and
small-sized U.S. companies, (2) foreign companies whose primary location and
business is outside the U.S., and (3) rapidly-growing companies in developing
and less developed foreign countries (emerging markets).
The debt obligations category primarily consists of a diverse group of U.S. debt
obligations. These securities include high-quality investment-grade bonds issued
by U.S. companies and obligations issued or guaranteed by the U.S. Government.
The FUND also invests in investment-grade debt obligations issued by non-U.S.
companies and foreign governments and governmental or supranational agencies.
The FUND also invests a small percentage of its assets in debt obligations rated
below investment grade (junk bonds, including emerging markets bonds).
The money market category consists of a diversified group of high-quality
short-term money market securities of both U.S. and foreign issuers that mature
within one year from date of purchase.
The main investment risks of choosing to invest your CONTRACT assets in the FUND
are as follows:
- - the value of the FUND'S shares will fluctuate, and you could lose money;
- - the value of the FUND'S shares will depend on the categories and sectors of
investment in which the FUND invests, and poor timing when selecting the size,
categories and sectors of investment could cause the value of the FUND'S
shares to fall;
- - investing in the stocks of small- and medium-sized, less mature, lesser-known
companies involves greater risks than those normally associated with investing
in the stocks of larger, more mature, well-known companies including greater
and more rapid fluctuations in the value of these stocks, and, therefore, the
fund's shares;
- - the value of the debt obligations held by the FUND -- and therefore, the value
of the FUND'S shares -- will fluctuate with changes in interest rates
(interest rate risk) and the perceived ability of the issuer to make interest
or principal payments on time (credit risk), and you could lose money;
- - because the FUND invests in a small amount of junk bonds, the FUND involves
more interest rate risk and credit risk -- and, therefore, more risk of loss
-- than that normally associated with a fund that invests only in
investment-grade debt obligations;
- - investing in securities of foreign issuers involves additional risks,
including risk of loss from foreign currency fluctuations, international
economic or financial instability, and foreign government or political
actions;
- - because the FUND invests a small amount in securities of issuers in emerging
markets, the FUND involves greater risk of loss from foreign currency
fluctuations, international economic or financial instability, and foreign
government or political actions; and
- - the FUND'S investment in money market securities is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The following information provides some indication of the risks of choosing to
invest your CONTRACT assets in the FUND. The information shows:
- - changes in the FUND'S performance from year to year and
- - how the FUND'S average annual returns for one year and the FUND'S lifetime
compare with those of a broad measure of market performance
Please note that the past performance of the FUND is not necessarily an
indication of how the FUND will perform in the future.
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
Year Annual Total Return (%)
1994 WAITING FOR DATA
1995
1996
1997
</TABLE>
The FUND'S highest return for a quarter
Occurred in the quarter of 19 at: %
The FUND'S lowest return for a quarter
Occurred in the quarter of 19 at: %
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED 12/31/98)
<TABLE>
<CAPTION>
LEHMAN SSB WORLD
BROTHERS GOVERNMENT
GLOBAL AGGREGATE NON-U.S.
ASSET BOND MSCI (UNHEDGED)
PERIOD BACK ALLOCATION S&P 500* INDEX* EAFE* BOND INDEX
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
1 year
5 year
10 year
Lifetime**
</TABLE>
* The S&P 500 is the Standard & Poor's Composite Index of 500 stocks. The
Lehman Brothers Aggregate Bond Index is Lehman Brothers' index of U.S.
government, government agency, and corporate bonds, and also includes mortgages.
The MSCI EAFE is Morgan Stanley Capital International's aggregate index produced
from the national stock market indices from Europe, Australia and the Far East.
Solomon Smith Barney, Inc. produces the SSB World Government non-U.S. (unhedged)
Bond Index. All four are widely-recognized unmanaged indexes reflecting the
prices of the types of securities included in the index.
** The FUND'S lifetime began
INVESTMENT STRATEGIES
The investment objective of the FUND is long-term total return (capital gains
plus current income) consistent with preservation of capital.
The FUND pursues its objective by buying and holding (investing in) three
categories of securities: equity securities (stocks), fixed-income securities
(debt obligations) and money market securities. The FUND invests in securities
of both U.S. and foreign issuers. The FUND'S investment strategy is to vary the
amount invested (1) in each category and (2) in specific types of securities
(sectors) within each category, based on ongoing evaluations of which category
and securities world-wide provide the best opportunity to meet the FUND'S
investment objective.
The FUND continuously adjusts the mix of investments among and within the three
categories in an effort to:
- - reduce fluctuations in the value of the FUND'S shares and control the level of
risk during unfavorable market conditions, and
- - take advantage of the potential for greater returns in one category or sector
versus another.
The FUND uses a computer-based analysis of critically important global economic
and market factors, including corporate earnings growth, interest rates,
inflation and political trends and developments, to help decide how much will be
invested in each the three categories of investment and which specific types of
securities will be bought or sold within each category.
One of the ways the FUND evaluates the success of its investment strategy is by
comparing the FUND'S annual performance to the return generated by a
hypothetical benchmark portfolio. The hypothetical benchmark portfolio is
constructed in the following manner: 50% - S&P 500 Index; 30% - Lehman Brothers
Aggregate Bond Index; 10% - MSCI EAFE; 10% - SSB World Government ex-U.S.
(unhedged) Bond Index.
STOCK CATEGORY
The Stock category primarily holds stocks in the following five sectors:
Conservative -- primarily stocks of large-sized U.S. companies with market
capitalizations of more than $5 billion. (A company's market capitalization is
calculated by multiplying the total number of shares of its common stock
outstanding by the market price of the stock. As a point of reference, as of the
date of this prospectus, the average market capitalization of the S&P 500, a
broad based market index representative of larger, typically more financially
stable companies, was [$60 billion.]) The FUND seeks stocks of companies
considered to be undervalued or with high dividend yields, and that are
undergoing significant positive changes either organizationally, operationally,
financially or for external reasons. The FUND sells Conservative stocks when the
positive changes diminish or when the stock is no longer undervalued.
Growth -- primarily stocks of large-sized U.S. companies with market
capitalizations of $5 billion and
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higher. This sector also includes companies with market capitalizations greater
than $2 billion. Stocks sought include those with above-average earnings growth,
that, at a minimum, have a 10% expected earnings growth rate. The FUND assesses
a company's earnings growth prospects through examination of the company's
business trends and discussions with the company's management. The FUND sells
Growth stocks when the fundamental factors supporting the expected earnings
growth no longer are present or if the FUND can no longer justify the current
price of the stock based on the company's expected earnings. Additionally, the
FUND sells some or all of a Growth stock if the size of the FUND'S holding
becomes too large relative to other FUND holdings or if the price of a Growth
stock rises too fast in a short period.
Aggressive Growth -- stocks of smaller-sized U.S. companies with market
capitalizations of more than $50 million but less than $750 million at the time
of purchase. Stocks sought include those with above average earnings growth. The
FUND assesses a company's earnings growth prospects through examination of the
company's profitability, financial strength, management strength and prospects
for growth. The FUND sells Aggressive Growth stocks when the fundamental factors
supporting the expected earnings growth no longer are present or if the FUND is
unable to justify the high price of the stock.
International -- stocks of companies organized, or having a majority of their
assets, or earning a majority of their operating income, in a country outside of
the U.S. International stocks may be traded on a U.S. or foreign stock market.
The FUND selects International stocks through a two-step process: (1)
identifying those countries where stock market valuations and the economic
outlook are attractive as compared to other countries, and (2) within the
countries identified, selecting individual high-quality stocks that appear to be
undervalued as compared to other stocks in that market.
Emerging Markets -- stocks of rapidly growing foreign companies in developing
and less developed countries. An emerging market country is generally considered
to be one that (1) is in the initial stages of its industrialization cycle and
(2) has a low per capita gross national product. The FUND selects Emerging
Markets stocks using the same approach used to select International stocks.
As a general matter, the FUND compares its current stock investments to possible
new investments on an ongoing basis. The FUND replaces a current investment if a
possible new investment appears significantly more attractive under the FUND'S
investment criteria.
DEBT OBLIGATIONS CATEGORY
The debt obligations category primarily holds debt obligations in the following
three sectors:
U.S. Fixed-Income -- primarily includes high-quality investment-grade corporate
bonds, and obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Investment-grade corporate bonds are debt obligations rated at the time of
purchase in the top four credit rating categories of a nationally recognized
statistical rating organization, or, if unrated, are judged by the FUND to be of
comparable quality. (SEE the SAI APPENDIX for the 11 FUNDS for a description of
the credit rating categories of two of these entities, Moody's Investor Service,
Inc. and Standard & Poor's Corp., and a description of U.S. government
obligations.) Investment-grade corporate bonds include high-quality corporate
bonds (top three credit-rating categories) or medium-grade corporate bonds
(fourth credit-rating category). All debt obligations in this category are
denominated in U.S. dollars at the time of purchase. U.S. Fixed-Income
securities primarily include debt obligations with maturities of less than 40
years. (A debt obligation's "maturity" refers to the time period remaining until
the debt obligation's issuer must repay the principal amount of the debt
obligation.)
The FUND selects U.S. Fixed-Income debt obligations using three techniques: (1)
selecting individual securities with valuations that are attractive relative to
the securities' underlying characteristics, including credit quality,
call/prepayment features and covenant protection; (2) changing the category's
exposure to different parts of the U.S. investment-grade debt obligations market
(such as investing in government bonds versus corporate bonds or AA-rated issues
versus A-rated issues) based on relative valuation across parts of this market;
and (3) seeking debt obligations with maturities likely to benefit from expected
changes in interest rates.
International Fixed-Income -- primarily includes non-U.S. investment-grade debt
obligations issued by foreign governments and governmental and supranational
agencies, as well as those issued by non-U.S. corporations. All debt obligations
in this category are denominated in currencies other than U.S. dollars at the
time of purchase and are principally traded in foreign markets.
The FUND selects International Fixed-Income debt obligations using three
techniques: (1) seeking debt obligations likely to benefit from expected changes
in foreign currency exchange rates; (2) changing the category's exposure to the
debt obligations markets of different countries based on relative valuation
across these markets; and (3) seeking debt obligations with maturities likely to
benefit from expected changes in interest rates in the country where the
securities trade.
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Lower-rated Fixed-Income -- includes debt obligations rated below
investment-grade (junk bonds) issued by:
- - U.S. corporations,
- - Non-U.S. corporations domiciled in developed countries, and
- - governments, government agencies, and corporations domiciled in developing and
less developed countries (emerging market securities).
The FUND selects Lower-Rated Fixed-Income debt obligations by (1) seeking
securities with valuations that are attractive relative to their underlying
credit quality; and (2) selecting a wide-variety of debt obligations based on
the issuer's country, industry, and type of security. The FUND, however, may
emphasize certain market sectors believed to represent good value.
MONEY MARKET CATEGORY
The money market category includes money market instruments issued by U.S. and
foreign issuers, consisting of certificates of deposit and bankers' acceptances
of major banks, high-grade, short-term municipal obligations, U.S. Government
securities and related repurchase agreements, high-grade commercial paper and
other corporate obligations.
SECTOR LIMITS
As a general matter and under normal circumstances, the FUND will not invest
- - more than 50% of its total assets in the Conservative stock sector;
- - more than 15% of its assets in the Lower-Rated Fixed-Income debt obligations
sector; and
- - more than 35% of its assets in any other sector of any category.
Additionally, the FUND will not invest more than 10% of its assets in emerging
market securities (stock or debt obligations or more than 35% of its assets in
medium-grade debt obligations.
The FUND expects its annual portfolio turnover rate to average approximately
150% in any year. (For example, the FUND would have a rate of portfolio turnover
of 100%, if the FUND replaced all of its investments in one year.) Market
conditions could result in a greater or lesser degree of market activity and a
higher or lower portfolio turnover rate. High turnover could increase FUND
expenses. The FUND'S portfolio turnover rate was % in 1998 and 178.40% in
1997.
OTHER STRATEGIES
When conditions indicate a temporary defensive strategy may be appropriate, or
during periods when the FUND is re-assessing its investment strategy, the FUND
may invest up to 50% of its assets in both the money market category and the
U.S. Fixed-Income sector of the debt obligations category. The FUND, in so
doing, would not be pursuing its investment objective.
The FUND also uses other investment strategies, to a lesser degree, to pursue
its investment objective. The FUND'S SAI describes these other investment
strategies and the risks they involve.
RISKS OF INVESTMENT STRATEGIES
The FUND'S investment strategy is to vary the amount invested among the various
sectors of the three categories of securities. Therefore, the value of the
FUND'S shares held under your CONTRACT depends on:
- - the performance of each category, and the sectors within a category; and
- - the amount of the FUND'S total assets invested in each category and sector.
Accordingly, the value of the FUND'S shares may be negatively affected if:
- - the securities in one of the categories or sectors do not perform as well as
securities in the other categories or sectors;
- - the FUND invests large amounts in a category or sector that does not perform
as well as the other categories or sectors; and
- - when selecting categories and sectors of investment, poor timing causes the
FUND to suffer losses or miss gains generated in a specific category or
sector.
Additionally, each category of investment involves specific risks. As a general
matter, the stock category involves more risk than the debt obligations
category, and the money market category involves the least risk. Because the
FUND normally invests amounts in all three categories, the overall risk of the
FUND is lower than that of a FUND that invests only in stocks.
Investing in stocks involves the risk that the value of the stocks purchased
will fluctuate. These fluctuations could occur for a single company, an
industry, a sector of the economy, or the stock market as a whole. These
fluctuations could cause the value of the FUND'S stock investments -- and,
therefore, the value of the FUND'S shares -- to fluctuate, and you could lose
money.
4
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Moreover, the FUND'S stock category holds stocks in five different sectors. The
FUND'S performance may be affected if stocks in one of these five sectors do not
perform as well as stocks in the other sectors.
Further, investing in stocks of small- and medium-sized, less mature,
lesser-known companies involves greater risks than those normally associated
with larger, more mature, well-known companies. The FUND runs a risk of
increased and more rapid fluctuations in the value of its stock investments.
This is due to the greater business risks of small size and limited product
lines, markets, distribution channels, and financial and managerial resources.
Historically, the price of small and medium capitalization stocks and stocks of
recently organized companies have fluctuated more than the larger capitalization
stocks included in the S&P 500. One reason is that small- and medium-sized
companies have less certain prospects for growth, a lower degree of liquidity in
the markets for their stocks, and greater sensitivity to changing economic
conditions.
Investing in debt obligations primarily involves interest rate risk and credit
risk.
Interest rate risk is the risk that the value of the debt obligations held by
the FUND -- and therefore, the value of the FUND'S shares -- will fluctuate with
changes in interest rates. As a general matter, the value of debt obligations
will fluctuate with changes in interest rates. These fluctuations can be greater
for debt obligations with longer maturities. When interest rates rise, debt
obligations decline in value, and when interest rates fall, debt obligations
increase in value. Accordingly, during periods when interest rates are
fluctuating, you could lose money investing in the FUND.
Credit risk is the risk that the issuer of the debt obligation will be unable to
make interest or principal payments on time. A debt obligation's credit rating
reflects the credit risk associated with that debt obligation. Higher-rated debt
obligations involve lower credit risks than lower-rated debt obligations.
Generally, credit risk is higher for corporate and foreign government debt
obligations than for U.S. government securities, and higher still for debt rated
below investment grade (junk bonds). The value of the debt obligations held by
the FUND -- and, therefore, the value of the FUND'S shares -- will fluctuate
with the changes in the credit ratings of the debt obligations held. Generally,
a decrease in an issuer's credit rating will cause the value of that issuer's
outstanding debt obligations to fall. The issuer may also have increased
interest payments, as issuers with lower credit ratings generally have to pay
higher interest rates to borrow money. As a result, the issuer's future earnings
and profitability could also be negatively affected. This could further increase
the credit risks associated with that debt obligation.
If debt obligations held by the FUND are assigned a lower credit rating, the
value of these debt obligations and, therefore, the value of the FUND'S shares
could fall, and you could lose money. Because the FUND also invests in
medium-grade U.S. Fixed-Income and International debt obligations, the FUND
involves more risk than that normally associated with a bond FUND that only
invests in high-quality corporate bonds. Additionally, because a small
percentage of the debt obligations held by the FUND are junk bonds issued by
U.S. and foreign issuers, investing in the FUND also involves additional risks.
Junk bonds are often considered speculative and involve significantly higher
credit risk. Junk bonds are also more likely to experience significant
fluctuation in value due to changes in the issuer's credit rating. The value of
junk bonds may fluctuate more than the value of higher-rated debt obligations,
and may decline significantly in periods of general economic difficulty or
periods of rising interest rates.
Further, the amount of current income generated by the FUND depends on the types
of debt obligations held and changes in current interest rates. During extended
periods of falling interest rates, the FUND will earn reduced income on new
investments, and the FUND'S income distributions could be lower. Conversely,
during extended periods of rising interest rates, the FUND will earn increased
income on new investments, and the FUND'S income distributions could be higher.
As discussed above, however, the value of the debt obligations held by the FUND
are also affected by changes in interest rates. Accordingly, while periods of
rising interest rates could produce increased income distributions, the value of
the FUND'S shares could also fall during such periods.
Investing in money market securities involves the risk that the amount of income
generated by the money market securities will vary with fluctuations in short-
term interest rates. In general, you should expect that (1) as short-term
interest rates fall, the level of income generated by the money market
securities will also fall and (2) similarly, as short term interest rates rise,
the level income generated by the money market securities will also rise. The
money market category attempts to keep the value of the FUND'S money market
portfolio stable. However, the value of the portfolio is neither insured nor
guaranteed by the U.S. Government. The FUND'S money market securities, however,
are considered to be a relatively low risk investments, because the FUND only
purchases high quality short-term money market securities, and the FUND'S
average portfolio maturity for the money market category is no greater than 90
days.
Finally, investing in International and Emerging Markets securities, whether
stocks, debt obligations, or money market securities, involves additional risks.
Foreign currency fluctuations or economic or financial instability could cause
the value of the FUND'S investments -- and, therefore, the value of the FUND'S
shares -- to fluctuate, and you could lose money.
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Investing in the securities of issuers with significant operations outside the
U.S., including foreign governments and their agencies, also involves the risk
of loss from foreign government or political actions. These actions could range
from changes in tax or trade statutes to governmental collapse and war. These
actions could include a foreign government's imposing a heavy tax on a company,
withholding the company's payment of interest or dividends, seizing assets of a
company, taking over a company, limiting currency convertibility, or barring the
FUND'S withdrawal of assets from the country. As a general matter, risk of loss
is typically higher for issuers in emerging markets located in less developed or
developing countries.
Investing in foreign issuers also involves risks resulting from the reduced
availability of public information concerning issuers and the fact that foreign
issuers generally are not subject to uniform accounting, auditing, and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to U.S. issuers. Further, the volume of securities
transactions effected on foreign markets in most cases remains appreciably below
that of the U.S. markets. Accordingly, the FUND'S foreign investments may be
less liquid and their prices may be more volatile than comparable investments in
securities of U.S. issuers. (SEE the SAI APPENDIX for the 11 FUNDS for a more
detailed discussion of the risks and costs involved in investing in securities
of foreign issuers.)
You may consider choosing this FUND for investing some portion of your CONTRACT
assets if (1) you are seeking to invest in stocks issued by companies located
around the world, including emerging markets, but want to lower the risks
involved by also investing in debt obligations and money market securities, and
(2) you are comfortable with a professional money manager determining the timing
and amount of the investment in each of the investment categories and sectors.
INVESTMENT ADVISER AND PORTFOLIO MANAGER
The FUND'S investment adviser is LINCOLN INVESTMENT MANAGEMENT (LINCOLN
INVESTMENT). You can find information about LINCOLN INVESTMENT in the APPENDIX
under "Management of the FUNDS -- Investment adviser." LINCOLN INVESTMENT is
responsible for overall management of the FUND'S securities investments. This
includes monitoring the FUND'S sub-adviser, Putnam Investment Management, Inc.
("Putnam"). Putnam's address is One Post Office Square, Boston, Massachusetts
02109.
Putnam, founded in 1937, is one of the oldest and largest investment management
firms in the U.S. Putnam's Global Asset Allocation Team has primary
responsibility for the day-to-day management of the FUND and all decisions
concerning the size and amount of the investment in each investment category.
Putnam investment teams responsible for specific investment categories and
sectors make all recommendations and decisions regarding the purchase and sale
of individual securities.
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APPENDIX -- CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
This Appendix is part of the Prospectus of:
Lincoln National Aggressive Growth Fund, Inc.
(Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation)
Lincoln National Equity-Income Fund, Inc.
(Equity-Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc.
(Money Market)
Lincoln National Social Awareness Fund, Inc.
(Social Awareness)
Lincoln National Special Opportunities Fund, Inc.
(Special Opportunities)
The following information applies to each FUND, unless otherwise indicated.
NET ASSET VALUE
Each FUND determines its net asset value per share (NAV) as of close of business
(currently 4:00 p.m., New York time) on the New York Stock Exchange (NYSE) on
each day the NYSE is open for trading. Each FUND, except the Money Market Fund,
determines its NAV by:
- - adding the values of all securities investments and other assets,
- - subtracting liabilities (including dividends payable), and
- - dividing by the number of shares outstanding.
NYSE's most recent announcement states that, as of the date of this prospectus,
the NYSE will be closed on New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. NYSE may also be closed on other days. The NYSE may modify
its holiday schedule at any time.
A FUND'S securities investments may be traded in other markets on days when the
NYSE is closed. Therefore, the FUND'S NAV may fluctuate on days when you do not
have access to the FUND to purchase or redeem shares.
See the SAI Appendix for the methodology that a FUND (other than for the Money
Market Fund) uses to value short-term investments, options, futures and options
on futures, and foreign securities.
Each FUND values its securities investments as follows:
- - equity securities, at their last sale prices on national securities 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;
- - debt securities and other assets of a FUND, at their bid quotations; and
- - equity securities, debt securities and other assets for which market
quotations are not readily available, fair value as determined in good faith.
MONEY MARKET FUND. The Money Market Fund determines its NAV by the amortized
cost method of valuation provided by SEC Rule 2a-7 under the Investment Company
Act of 1940. Under the Rule, the FUND'S NAV must fairly reflect market value.
MANAGEMENT OF THE FUNDS
Each FUND'S business and affairs 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 shareholders.
INVESTMENT ADVISOR. LINCOLN INVESTMENT MANAGEMENT, INC. (LINCOLN INVESTMENT OR
ADVISOR) is the INVESTMENT ADVISOR to each FUND. Its headquarters are at 200
East Berry Street, Fort Wayne, Indiana 46802.
The ADVISOR has registered with the SEC as an INVESTMENT ADVISOR and acted as an
INVESTMENT ADVISOR to mutual FUNDS for over 40 years. The ADVISOR also acts as
(1) INVESTMENT ADVISOR to Lincoln National Convertible Securities Fund, Inc. and
Lincoln National Income Fund, Inc., closed-end investment companies, and (2)
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. LNC,
through its subsidiaries, provides life insurance and annuities,
property-casualty insurance, reinsurance and financial services.
Directors, officers and employees of the ADVISOR and each FUND may engage in
personal securities transactions, subject to restrictions and procedures of the
Code of
<PAGE>
Ethics adopted by the ADVISOR and each FUND. The 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.
The ADVISOR, either directly or through a SUB-ADVISER, provides portfolio
management and investment advice to each FUND and administers each FUND'S other
affairs, subject to the supervision of each FUND'S Board of Directors.
Each FUND pays the ADVISOR a monthly fee for the ADVISOR'S services. The annual
rate of the fee is based on the average daily net asset value of each FUND, as
shown in the following chart:
<TABLE>
<CAPTION>
FUND ...OF AVERAGE DAILY NET ASSET VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Aggressive Growth .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; .65 of 1% of the excess over $400 million
Capital Appreciation .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Equity-Income .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Global Asset Allocation .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; and .68 of 1% of the excess over $400 million
International .90 of 1% of the first $200 million; .75 of 1% of the next $200
million; and .60 of 1% in excess over $400 million
All other FUNDS .48 of 1% of the first $200 million; .40 of 1% of the next $200
million; and .30 of 1% in excess over $400 million
</TABLE>
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF FUND SHARES
Each FUND sells its shares of common stock only to LINCOLN LIFE. LINCOLN LIFE
holds the FUND shares in separate accounts (VARIABLE ACCOUNTS) that support
various LINCOLN LIFE variable annuity contracts and variable life insurance
contracts.
Each FUND sells and redeems its shares, without charge, at their NAV next
determined after LINCOLN LIFE receives a purchase or redemption request.
However, each FUND redeems its shares held by LINCOLN LIFE for its own account
at the NAV next determined after the FUND receives the redemption request. The
value of shares redeemed may be more or less than original cost, depending on
the market value of a FUND'S securities investments at the time of redemption.
The FUND normally pays for shares redeemed within seven days after LINCOLN LIFE
receives the redemption request. However, a FUND may suspend redemption or
postpone payment for any period when:
- - the NYSE closes for other than weekends and holidays;
- - the SEC restricts trading on the NYSE;
- - the SEC determines that an emergency exists, so that a FUND'S (1) disposal of
investment securities, or (2) determination of net asset value, is not
reasonably practicable; or
- - The SEC permits, by order, for the protection of FUND shareholders.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each FUND'S policy is to distribute substantially all of its net investment
income and net realized capital gains each year. A FUND may distribute net
realized capital gains only once a year. Each FUND pays these distributions to
LINCOLN LIFE for the VARIABLE ACCOUNTS. The VARIABLE ACCOUNTS automatically
reinvest the distributions in additional FUND shares at no charge.
Each FUND has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains. See the SAI for a more complete
discussion.
Each FUND must meet asset diversification requirements under Section 817(h) of
the Code and the related regulation of the United States Treasury Department.
Each FUND intends to comply with these diversification requirements.
The sole shareholder of the FUNDS is LINCOLN LIFE. Consequently, this Appendix
does not discuss the federal income tax consequences at the shareholder level.
For information concerning the federal income tax consequences to owners of
variable annuity contracts or variable life insurance contracts (CONTRACT
OWNERS), including the failure of a FUND to meet the diversification
requirements discussed above, see the Prospectus for the VARIABLE ACCOUNT.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Each FUND'S Annual Report includes the portfolio manager's discussion of the
FUND'S performance for the previous fiscal year and the factors affecting the
performance. Each FUND will send you a free copy of its Annual Report on
request.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the FUNDS for the past 5 years [or, if shorter, the period of the
FUND'S operations]. Certain information reflects financial results for a single
FUND share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the FUND (assuming reinvestment of
all dividends and distributions). This information has been audited by Ernst &
Young LLP, independent auditors, whose report, along with each FUND'S financial
statements, are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DIVIDENDS FROM:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REALIZED
AND
NET ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET REALIZED NET ASSET
BEGINNING OF INVESTMENT ON INVESTMENT INVESTMENT GAIN ON TOTAL VALUE END OF
PERIOD ENDED PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIO OF NET
RATIO OF INVESTMENT NET ASSETS
EXPENSES TO INCOME TO PORTFOLIO AT END OF
TOTAL AVERAGE NET AVERAGE NET TURNOVER PERIOD
PERIOD ENDED RETURN** ASSETS ASSETS RATE (0000'S)
- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
* The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on May 2,
1988 through December 31, 1988 for the Social Awareness Fund, May 1, 1991
through December 31, 1991 for the International Fund, May 1, 1994 through
December 31, 1994 for the Equity Income, Capital Appreciation and Aggressive
Growth Fund. Accordingly, the total return, ratios, and portfolio turnover
have NOT been calculated on an annualized basis.
** Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual FUND shares in which the VARIABLE ACCOUNTS
may invest.
GENERAL INFORMATION
You should direct any inquiry to Lincoln National Life Insurance Co., at P.O.
Box 2340, Fort Wayne, Indiana 46801, or, call 1-800-4LINCOLN (454-6265).
Each FUND will issue:
- - unaudited semiannual reports showing current investments and other
information; and
- - annual financial statements audited by the FUND'S independent auditors.
These Prospectuses do not contain all the information included in the
Registration Statements that the FUNDS have filed with the SEC. You may examine
the Registration Statements, including exhibits, at the SEC in Washington, D.C.
Statements made in the Prospectuses about any variable annuity contract,
variable life insurance contract, or other document referred to in a CONTRACT,
are not necessarily complete. In each instance, we refer you to the copy of that
CONTRACT or other document filed as an exhibit to the related Registration
Statement. We qualify each statement in all respects by that reference.
The use of a FUND by both annuity and life insurance VARIABLE ACCOUNTS is called
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
ACCOUNTS. Violation of the federal tax laws by one VARIABLE ACCOUNT investing in
a FUND could cause the CONTRACTS funded through another VARIABLE ACCOUNT to lose
their tax-deferred status, unless remedial action were taken. The Board of
Directors of each FUND will monitor for any material conflicts and determine
what action, if any, the FUND or a VARIABLE ACCOUNT should take.
A conflict could arise that requires a VARIABLE ACCOUNT to redeem a substantial
amount of assets from any of the FUNDS. The redemption could disrupt orderly
portfolio management to the detriment of those CONTRACT OWNERS still investing
in that FUND. Also, that FUND could determine that it has become so large that
its size materially impairs investment performance. The FUND would then examine
its options.
LINCOLN LIFE performs the dividend and transfer functions for each FUND.
PREPARING FOR YEAR 2000
[Revised disclosure to be provided at the time of annual update filing.]
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
<PAGE>
You can find additional information in each FUND'S STATEMENT OF ADDITIONAL
INFORMATION (SAI), which is on file with the SEC. Each FUND incorporates its
SAI, dated May 1, 1999, into its Prospectus. Each FUND will provide a free copy
of its SAI on request.
You can find still further information about each FUND'S investments in the
FUND'S annual and semi-annual reports to shareholders. The Annual Report
discusses the market conditions and investment strategies that significantly
affected that FUND'S performance (except the Money Market Fund) during its last
fiscal year. Each FUND will provide a free copy of its Annual and Semi-Annual
Report on request.
For an SAI or Report, either write Lincoln National Life Insurance Co., P.O. Box
2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). Also call
this number to request other information about a FUND, or to make inquiries.
You can review and copy information about the FUNDS (including the SAIS) at the
SEC's Public Reference Room in Washington, D.C. You can get information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
can also get reports and other information about the FUNDS on the SEC's Internet
site at http:// www.sec.gov. You can get copies of this information by writing
the SEC Public Reference Section, Washington, D.C. 20549-6009, and paying a
duplicating fee.
Fund Investment Company Act File Numbers:
<TABLE>
<S> <C> <C>
Lincoln National Aggressive Growth Fund, Inc.: 33-70742; 811-8090
Lincoln National Bond Fund, Inc.: 2-80746; 811-3010
Lincoln National Capital Appreciation Fund,
Inc.: 33-70272; 811-8074
Lincoln National Equity-Income Fund, Inc.: 33-71158; 811-8126
Lincoln National Global Asset Allocation Fund,
Inc.: 33-13530; 811-5115
Lincoln National Growth and Income Fund, Inc.: 2-80741; 811-3211
Lincoln National International Fund, Inc.: 33-38335; 811-6233
Lincoln National Managed Fund, Inc.: 2-82276; 811-3683
Lincoln National Money Market Fund, Inc.: 2-80743; 811-3121
Lincoln National Social Awareness Fund, Inc.: 33-19896; 811-5464
Lincoln National Special Opportunities Fund,
Inc.: 2-80731; 811-3291
</TABLE>
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
<PAGE>
PREFACE TO THE MULTI FUND-REGISTERED TRADEMARK- STATEMENTS OF ADDITIONAL
INFORMATION
THE PREFACE AND TABLE OF CONTENTS ARE PART OF THE STATEMENT OF ADDITIONAL
INFORMATION (SAI) FOR EACH OF THE FOLLOWING FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc. (Capital Appreciation)
Lincoln National Equity-Income Fund, Inc. (Equity Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc. (Money Market)
Lincoln National Social Awareness Fund, Inc. (Social Awareness)
Lincoln National Special Opportunities Fund, Inc. (Special Opportunities)
Each FUND has its own SAI that provides more information about that FUND. For
each FUND'S SAI, the FUND'S audited financial statements and the report of Ernst
& Young LLP, Independent Auditors, are incorporated by reference to the FUNDS'
1998 Annual Report. A FUND'S SAI should be read in conjunction with the
Prospectus of that FUND dated May 1, 1999. You may obtain a copy of any FUNDS'
Annual Report or 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).
A FUND'S SAI is not a Prospectus.
The date of each FUND'S SAI is May 1, 1999.
<PAGE>
TABLE OF CONTENTS FOR THE FUND SAIS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE
DESCRIPTION OF THE FUND
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
INVESTMENT RESTRICTIONS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
SAI APPENDIX -- CONTAINS IMPORTANT
INFORMATION FOR ALL FUNDS
Investment advisor and sub-advisor
Directors and officers
Fund expenses
Description of shares
Strategic portfolio transactions --
additional information
Foreign investments
Valuation of portfolio securities
Custodian
Independent auditors
Financial statements
Bond and commercial paper ratings
Taxes
Derivative transactions -- definitions
</TABLE>
<PAGE>
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
DESCRIPTION OF FUND
Lincoln National Global Asset Allocation Fund, Inc. (FUND), was incorporated in
Maryland 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
adequately project the FUND'S global investment orientation. The FUND is an
open-end diversified management investment company whose investment objective is
long-term total return consistent with preservation of capital. The FUND'S
investment objective and certain of its policies are fundamental and cannot be
changed without the affirmative vote of a majority of the outstanding voting
securities of the FUND. See "Investment restrictions." There can be no assurance
that the objective of the FUND will be achieved. References to ADVISOR in this
SAI may include both LINCOLN INVESTMENT MANAGEMENT, INC. (LINCOLN INVESTMENT)
and Putnam Investment Management, Inc.
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The Prospectus discusses the FUND'S principal investment strategies used to
pursue the FUND'S investment objective and the risks of those strategies. The
following discussion describes other investment strategies that the FUND may use
as market conditions warrant, and notes the risks associated with these other
investment strategies. (Italicized terms that are not defined herein are defined
in the FUND'S Prospectus.)
CONVERTIBLE SECURITIES
These securities include investments in corporate bonds, notes or preferred
stocks that can be converted into or exchanged for common stock.
FOREIGN INVESTMENTS; AMERICAN DEPOSITARY RECEIPTS (ADRS) AND EUROPEAN DEPOSITARY
RECEIPTS (EDRS)
The International Stock and International Fixed-Income sectors may each invest
100% of their respective assets in securities principally traded in foreign
markets. The other investment sectors may do so as well, but only up to the
following percentages of their total assets: the money market category, 50%; all
other sectors, 10%. (Eurodollar certificates of deposit are excluded for
purposes of these limitations.) As discussed in the FUND'S prospectus, foreign
investments can involve risks not present in domestic investments. With respect
to 65% of the assets allocated to each of the International Stock and
International Fixed-Income categories, the FUND will hold securities in at least
three countries outside the United States at all times.
As also discussed in the FUND'S prospectus, the FUND may invest in securities of
issuers located in countries considered to be emerging markets. While emerging
market countries may change over time depending on market and economic
conditions, at present the FUND believes that emerging market countries include
every country in the world except Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and
the United States.
For the domestic sectors, the FUND may invest in depositary receipts. These
consist of ADRs and EDRs, and involve investing indirectly in an underlying
foreign security. Generally ADRs, which are in registered form, are U.S.
dollar-denominated securities designed for use in the U.S. securities markets
and which may be converted into the underlying security. EDRs, which are in
bearer form, are designed for use in the European securities markets. No more
than 5% of the FUND'S assets will be invested in unsponsored ADRs or EDRs.
Issuers of the stock of such unsponsored ADRs and EDRs are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of such ADRs or
EDRs.
U.S. FIXED-INCOME DEBT OBLIGATIONS
This sector also includes investment-grade debt obligations, including both
government and corporate obligations, with maturities of greater than 40 years.
The FUND, however, may not invest more than 5% of this sector's assets in
securities with maturities greater than 40 years. As a general matter, the value
of debt obligations will fluctuate with changes in interest rates, and these
fluctuations can be greater for debt obligations with longer maturities.
Investment grade bonds are those rated at the time of purchase in the top four
credit rating categories of Moody's Investors Service (Moody's) or Standard &
Poor's Corp. (S&P), or their equivalents from other nationally recognized rating
agencies, or are unrated securities judged by the ADVISOR to be of comparable
value. (See the SAI APPENDIX for the 11 FUNDS for a description of the credit
rating categories of Moody's and S&P.)
GAA-1
<PAGE>
This sector also includes mortgage-backed securities, which are debt obligations
issued by government agencies and other non-government agency issuers.
Mortgage-backed securities include obligations backed by a mortgage or pool of
mortgages and direct interests in an underlying pool of mortgages.
Mortgage-backed securities also include collateralized mortgage obligations
(CMO's). The mortgages involved could be those on commercial or residential real
estate properties.
Because the FUND invests in mortgage-backed securities, the value of the FUND'S
shares may react more severely to changes in interest rates. In periods of
falling interest rates, mortgage-backed securities are subject to the
possibility that the underlying mortgages will be paid early (pre-payment risk),
lowering the potential total return and, therefore, the value of the
mortgage-backed securities. During periods of rising interest rates, the rate at
which the underlying mortgages are pre-paid may slow unexpectedly, causing the
maturity of the mortgage-backed securities to increase and their value to
decline (maturity extension risk). In either instance, the value of the
mortgage-backed securities may fluctuate more widely than the value of other
investment-grade debt obligations in response to changes in interest rates.
LOWER-RATED FIXED-INCOME SECURITIES. This category will include investments in
U.S. and foreign fixed-income securities rated at the time of purchase below Baa
by Moody's, or BBB by S&P, or their equivalents from other nationally recognized
rating agencies, or if unrated, are determined by the SUB-ADVISER 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. The FUND may take
full advantage of the entire range of U.S. and foreign junk bonds, (except that
no more than 10% of FUND assets may be in emerging market issues). In any event,
the FUND will not purchase securities rated at the time of purchase lower than
Ca by Moody's or CCC by S&P, or their equivalents from other nationally
recognized rating agencies, or, if unrated, determined by the SUB-ADVISOR 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.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the FUND may, at any given time, invest a portion of
the FUND'S assets in one or more strategic portfolio transactions which we
define as derivative transactions and cash enhancement transactions.
For your convenience, in the SAI APPENDIX for the 11 FUNDS, we have included a
basic discussion of these special financial arrangement transactions and some of
the risks associated with them. Note also that the SAI APPENDIX for the 11 FUNDS
contains definitions of the more commonly used derivative transactions,
technical explanations of how these transactions will be used and the limits on
their use. You should consult your financial counselor if you have specific
questions.
THE GLOBAL ASSET ALLOCATION FUND IS AUTHORIZED:
a) for derivative transactions, to: buy and sell foreign currency forward
contracts; buy and sell foreign currency futures contracts; and buy
exchange-listed and over-the-counter put and call options on foreign currency
futures contracts and on foreign currencies. For hedging purposes, the FUND may
sell covered call options on foreign currencies. All of the foregoing may also
be done as cross-hedging that is, using a currency different from the one in
which the portfolio securities are denominated.
In addition, the FUND may sell covered call and put options on equity and
fixed-income (debt) securities of U.S. issuers; sell put and call options and
buy put options on securities of U.S. issuers; buy and sell futures contracts
and options on futures contracts with respect to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; buy and sell
futures contracts and related options with respect to U.S. and foreign stock
indices, foreign fixed-income securities and foreign currencies and engage in
spread and straddle transactions.
b) for cash enhancement transactions, to: lend portfolio securities if such
loans of securities do not exceed 25% of the FUND'S assets, and engage in
repurchase transactions. Collateral will be continually maintained at no less
than 102% of the value of the loaned securities or of the repurchase price, as
applicable.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
The FUND may seek to increase its current return by writing covered call or put
options with respect to some or all of the debt or equity securities of issuers
in the United States (U.S. securities) held in its portfolio. In addition, 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, anticipates 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
GAA-2
<PAGE>
of trading interest that may exist in various types of options or futures
contracts. Therefore no assurance can be given that the FUND will be able to
utilize these instruments effectively for the purposes stated previously.
Furthermore the FUND'S ability to engage in options and futures contracts
transactions may be limited by tax considerations. Although the FUND will only
engage in options and futures contracts transactions for limited purposes, they
involve certain risks which are described under Risk factors in options and
futures transactions.
In connection with transactions in futures contracts, including foreign currency
futures contracts and related options, the FUND will be required to deposit as
initial margin an amount of cash and short-term U.S. Government securities of up
to 5% of the contract amount. Thereafter, subsequent payments are made to and
from the broker to reflect changes in the value of the futures contracts. The
FUND will not purchase or sell futures contracts or related options if, as a
result, the sum of the initial margin deposits on the FUND'S existing futures
and related options positions and premiums paid for options on futures contracts
would exceed 5% of the FUND'S assets. (For options 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
investment characteristics of such options and contracts are acceptable. It is
expected that risks related to those transactions will not differ materially
from risks related to options and futures on U.S. securities. However, position
limits and other rules of foreign exchanges may differ from those in the United
States. Also, options and futures markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the United States.
In addition to the options strategies described previously, the FUND may engage
in spread transactions in which it purchases and writes a put or call option on
the same underlying security or currency, with the options having different
exercise prices and/or expiration dates. The FUND may also engage in so-called
straddles, in which it purchases or sells combinations of put and call options
on the same security or currency. Spread and straddle transactions require the
FUND to purchase and/or write more than one option simultaneously. Accordingly,
the FUND'S ability to enter into such transactions and to liquidate its
positions when necessary or deemed advisable may be more limited than if the
FUND were to purchase or sell a single option. Similarly, costs incurred by the
FUND in connection with these transactions will in many cases 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 if
the FUND holds, on a security-for-security or currency-for-currency basis, an
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 segregates cash
or high-grade, short-term debt obligations equal to the difference). Similarly,
a put option included in a spread or straddle will be deemed to be covered if
the FUND holds, on a security-for-security or currency-for-currency basis, a put
option on the same security or currency with an exercise price equal to or
greater than the exercise price of the put option written by the FUND (or, where
the exercise price is less than that of the option written by the FUND, if the
FUND segregates cash or high-grade short-term debt obligations equal to the
difference).
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
The use of options and futures for hedging may involve certain special risks.
Options and futures transactions involve costs and may result in losses. Options
and futures transactions involve certain special risks, including the risk that
the FUND may be unable at times to close out such positions, that hedging
transactions may not accomplish their purpose because of imperfect market
correlations, or that the 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 enter 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 options in the
over-the-counter market. The FUND'S ability to terminate option positions in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in such
transactions would fail to 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
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further depends on the ability 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 ADVISOR
may be considered to be such a group. These position limits may restrict the
FUND'S ability to sell options on a particular security.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The FUND may write covered call options and covered put
options on optionable securities held in its portfolio, when in the opinion of
the 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 securities 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
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the FUND will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the FUND will be considered to
have covered a put or call option if and to the extent that it holds an option
that offset some or all of the risk of the option it has written. The FUND may
write combinations of covered puts and calls on the same underlying security.
The FUND will receive a premium from writing a put or call option, which
increases the FUND'S return on the underlying security in the event the option
expires unexercised 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 underlying security, the amount of time remaining until expiration, current
interest rates and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the FUND
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to bear
the risk of a decline in the value of the underlying security. By writing a put
option, the FUND assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The FUND may terminate an option that it has written before the option's
expiration by entering into a closing purchase transaction in which it purchases
an offsetting option. The FUND realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
cost) is less or more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect increases in
the market price of the security underlying the option, any loss resulting from
a closing purchase transaction may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the FUND.
If the FUND writes a call option but does not own the underlying security, and
when it writes a put option, the FUND may be required to deposit cash or
securities with its broker as margin, or collateral, for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the FUND may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The FUND may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such protection is provided during the life of the put option since the FUND as
holder of the option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the FUND
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The FUND may purchase call options to hedge against an
increase in the price of securities that the FUND wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the FUND,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs.
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
example, if the FUND were to write a call option based on the ADVISOR'S
expectation that the price of the underlying security would fall, but the price
were to rise instead, the FUND could be required to sell the security upon
exercise
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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
options 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. Although
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 adversely
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 unusual events --
such as volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose 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
unavailable, the FUND as a holder of an option would be able to realize profits
or limit losses only by exercising the option, and the FUND, as option writer,
would remain obligated under the option until expiration or exercise.
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 interrupted
in an underlying security, the trading of options on that security is normally
halted as well. As a result, the FUND as purchaser or writer of an option will
be unable to close out its positions until options trading resumes, and it may
be faced with considerable losses if trading in the security reopens at a
substantially different price. In addition, the OCC or other options markets may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, the FUND as purchaser or
writer of an option will be locked into its position until one of the two
restrictions has been lifted. If the 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 exercise, 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 prohibition remained in effect
until the put option's expiration and the FUND was unable either to acquire the
underlying security or to sell the put option in the market.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and the various foreign countries, and
because different holidays are observed in different 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 deliver
the type of financial instrument called for in the contract in a specified
delivery month for stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial instrument
called for in the contract in a specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at settlement date are
not determined until on or near that date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade -- known as contract markets -- approved
for such trading by the Commodity Futures Trading Commission (CFTC), and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price
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of the offsetting purchase, the seller is paid the difference and realizes a
gain. Conversely, if the price of the offsetting purchase exceeds the price of
the initial sale, the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering into a 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 received
by the FUND upon the purchase or sale of a futures contract. Upon entering into
a contract, the FUND is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash and/or U.S.
Government securities. This amount is known as initial margin. The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of FUNDS to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
FUND upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called variation margin, to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as marking to the market. For
example, when the FUND has purchased a futures contract on a security and the
price of the underlying security has risen, that position will have increased in
value and the FUND will receive from the broker a variation margin payment based
on that increase in value. Conversely, when the FUND has purchased a security
futures contract and the price of the underlying security has declined, the
position would be less valuable and the FUND would be required to make a
variation margin payment to the broker.
The FUND may elect to close some or all of its futures positions at any time
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 opposite
positions which will operate to terminate the FUND'S position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to the FUND, and the FUND realizes a
loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The FUND may purchase and write call and put
options 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 options
on futures contracts rather than selling futures contracts. 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 possible
increase in the price of securities which the FUND expects to purchase. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
the position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The FUND will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above. With respect to long
positions assumed by the FUND, the FUND will establish a segregated asset
account with its custodian, and will deposit into it an amount of cash and other
assets permitted by CFTC regulations. The FUND does not intend to leverage the
futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the FUND is subject to the ADVISOR'S ability to predict
movements in the direction of interest rates and other factors affecting
securities markets. For example, if the FUND has hedged against possibility of
decline in the values of its investments and the values of its investments
increased instead, the FUND will lose part or all of the benefit of the increase
through payments of daily maintenance margin. The FUND may have to sell
investments at a time when it may 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
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on the futures contract itself would result in a loss to the
FUND when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen event might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
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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
closing transactions or both;
3. trading halts, suspensions or other restrictions may be imposed with respect
to particular classes or series of contracts or options, or underlying
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
issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the FUND invests in
tax-exempt securities issued by a governmental entity, the FUND may purchase and
sell futures contracts and related options on U.S. Treasury securities when, in
the opinion of the ADVISOR, price movements in treasury security futures and
related options will correlate closely with price movements in the tax-exempt
securities which are the subject to the hedge. U.S. Treasury security futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of U.S. Treasury security called for in the contract at a specified
date and price. Options on U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
U.S. Treasury security futures contract at the specified option exercise price
at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the FUND is
subject to the 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
interest rates, the FUND will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the FUND
has insufficient cash, it may have to sell securities to meet daily maintenance
margin requirements at a time when it may be disadvantageous to do so.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
With respect to investments made for the International Fixed Income Securities
and the International Equity Securities investment categories, the FUND may
engage in foreign currency exchange transactions to protect against uncertainty
in the level of future exchange rates. The ADVISOR may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities (transaction hedging), and to protect the value of specific
portfolio positions (position hedging.)
The FUND may engage in transaction hedging to protect against a change in the
foreign currency exchange rate between the date on which the FUND contracts to
purchase or sell the security and the settlement date, or to lock in the U.S.
dollar equivalent of a dividend or interest payment in a foreign currency. For
this 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
contracts are standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes the FUND may also purchase exchange-listed and
over-the counter call and put options on foreign currency futures contracts and
on foreign currencies.
The FUND may engage in position hedging to protect against the decline in the
value relative to the U.S. dollar of the currencies in which its portfolio
securities are
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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 portfolio
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 denominated.
Hedging transactions involve costs and may result in losses. The FUND may write
covered call options on foreign currencies to offset some of the costs of
hedging those currencies, as well as to increase current return. The FUND will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the ADVISOR, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. The FUND'S
ability to engage in hedging and related option transactions may be limited by
tax considerations.
LENDING OF SECURITIES
The FUND may make secured loans of its portfolio securities amounting to not
more than 25% of its total assets, thereby realizing additional income. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities
lent. The borrower pays to the FUND an amount equal to any dividends or interest
received on securities lent. The FUND retains all or a portion of the interest
received on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with respect to the
loaned securities pass to the borrower, the FUND retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the FUND if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The FUND
may also call such loans in order to sell the securities involved. The FUND will
not loan its portfolio securities to the ADVISOR, the SUB-ADVISOR or an
affiliate thereof.
FORWARD COMMITMENTS
The FUND may make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time (forward commitments) if the FUND (a)
holds, and maintains until the settlement date in a segregated account, cash or
liquid securities in an amount sufficient to meet the purchase price or (b)
enters into offsetting contracts for the forward sale of other securities it
owns. In the case of to-be-announced purchase commitments, the exact price and
estimated principal amount are established when the FUND enters into a contract,
with the actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities, and include a risk of loss if
the value of the security to be purchased declines in value before the
settlement date. This risk is in addition to the risk of decline in value of the
FUND'S other assets. Where the FUND purchases forward commitments 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 or
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 settlement 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 repurchase
agreement is a contract under which the FUND acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the FUND to re-sell such security at
a fixed time and price (representing the FUND'S cost plus interest). It is the
FUND'S present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. Government or its agencies or instrumentalities. The
Board of Directors 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
collateralized 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
obligation, including the interest factor. If the seller defaults, the FUND
could realize a loss on the sale of the underlying security to the extent that
the proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, if the seller should
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be involved in bankruptcy or insolvency proceedings, the FUND may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the FUND is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
INVESTMENT RESTRICTIONS
The FUND has adopted policies and investment restrictions. The investment
restrictions may not be changed without a majority vote of its outstanding
shares, and are considered fundamental. Such majority is defined in the 1940 Act
as the vote of the lesser of (1) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (2) more
than 50% of the outstanding voting securities. For purposes of the following
restrictions: (1) all percentage limitations apply immediately after the making
of an investment; and (2) any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security
from the portfolio.
The FUND may not:
1. Borrow money in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at
the time the borrowing is made, and then only from banks as a temporary
measure to facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such borrowings will
be repaid before any additional investments are purchased.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
15% of its total assets (taken at current value) and then only to secure
borrowings permitted by restriction 1. (The deposit of underlying securities
and other assets in escrow and other collateral arrangements in connection
with the writing of put or call options and collateral arrangements with
respect to margin for options on financial futures contracts are not deemed
to be pledges or other encumbrances.)
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with options on financial
futures contracts.
4. Make short sales of securities or maintain a short sale position from the
account of the FUND unless at all times when a short position is open it
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable
for securities of the same issue as, and equal in amount to, the securities
sold short.
5. Underwrite securities issued by other persons except to the extent that, in
connection with disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws.
6. Purchase or sell real estate, although it may purchase securities which are
secured by or represent interests in real estate.
7. Purchase or sell commodities or commodity contracts, except that the FUND
may write and purchase options on financial futures contracts.
8. Make loans, except by purchase of debt obligations in which the FUND may
invest consistent with its investment policies, by entering into repurchase
agreements with respect to not more than 25% of its total assets (taken at
current value), or through the lending of its portfolio securities with
respect to not more than 25% of its assets.
9. 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).
10. Acquire more than 10% of the voting securities of any issuer.
11. Invest more than 25% of the value of its total assets in any one industry.
12. 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.
13. Invest more than 5% of its net assets in securities restricted as to resale.
14. Make investments for the purpose of gaining control of a company's
management.
15. Issue any class of securities which is senior to the FUND'S stock. (For
purposes of this restriction, collateral arrangements with respect to the
writing of options are not deemed to be the issuance of a senior security).
The following two 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
GAA-9
<PAGE>
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 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 securities
having equity features are not considered equity securities for purposes of
this restriction.)
Although the provisions of fundamental investment restrictions 1, 2 and 4 permit
the FUND to engage in certain practices to a limited extent, the FUND does not
have any present intention of engaging in such practices.
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 securities
on an exchange are effected through brokers who charge a commission for their
services. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the FUND usually includes
an undisclosed dealer commission or mark-up. In the U.S. Government securities
market, securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the securities usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no 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
managed in such manner as is deemed equitable. In making such allocations, major
factors to be considered are investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for 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 ADVISOR). 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 regulations, 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 execution 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
considered together with other relevant factors, including financial
responsibility, research and investment information and other services provided
by such brokers. It is expected that, as a result of such factors, transaction
costs charged by some brokers may be greater than the amounts other brokers
might charge. The 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 incurred
from time to time, and, in that connection, will receive reports from the
ADVISOR and published data concerning transaction costs incurred by
institutional investors generally. The nature of the research services provided
to the advisors by brokerage firms varies from time to time but generally
includes current and historical financial data concerning particular companies
and their securities; information and analysis concerning securities markets and
economic and industry matters; and technical and statistical studies and data
dealing with various investment opportunities; and risks and trends, all of
which the ADVISOR regards as a useful supplement of its own internal research
capabilities. The ADVISOR may from time to time direct trades to brokers which
have provided specific brokerage or research services for the benefit of the
ADVISOR'S clients; in addition, the ADVISOR may allocate trades among brokers
that generally provide superior
GAA-10
<PAGE>
brokerage and research services. During 1998, the ADVISOR directed transactions
totaling approximately $ million to these brokers and paid commissions of
approximately $ 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 necessarily for the benefit of the FUND. The ADVISOR believes that
the value of research services received is not determinable and does not
significantly reduce its expenses. The FUND does not reduce its fee to the
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 1998 was
, for 1997 it was $460,621, and for 1996 it was $370,923.
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
responsible 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."
GAA-11
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
GAA-12
<PAGE>
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), LINCOLN NATIONAL BOND FUND, INC. (BOND), LINCOLN
NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL APPRECIATION), LINCOLN
NATIONAL EQUITY-INCOME FUND, INC. (EQUITY-INCOME), LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC. (GLOBAL ASSET ALLOCATION), LINCOLN NATIONAL GROWTH AND
INCOME FUND, INC. (GROWTH AND INCOME), LINCOLN NATIONAL INTERNATIONAL FUND, INC.
(INTERNATIONAL), LINCOLN NATIONAL MANAGED FUND, INC. (MANAGED), LINCOLN NATIONAL
MONEY MARKET FUND, INC. (MONEY MARKET), LINCOLN NATIONAL SOCIAL AWARENESS FUND,
INC. (SOCIAL AWARENESS), AND LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.
(SPECIAL OPPORTUNITIES). UNLESS OTHERWISE INDICATED, THE FOLLOWING INFORMATION
APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
LINCOLN INVESTMENT MANAGEMENT, INC. (LINCOLN INVESTMENT) is the INVESTMENT
ADVISOR to the FUNDS and is headquartered at 200 E. Berry Street, Fort Wayne,
Indiana 46802. LINCOLN INVESTMENT (the ADVISOR) is a subsidiary of Lincoln
National Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis,
insurance and financial services. LINCOLN INVESTMENT is registered with the
Securities 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
investment company whose investment objective is to provide a high level of
current income from interest on fixed-income securities) and Lincoln National
Convertible Securities Fund, Inc. (a closed-end investment company whose
investment objective is a high level of total return on its assets through a
combination of capital appreciation and current income) 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
management and investment advice to the FUNDS and administers its other affairs,
subject to the supervision of the FUNDS' Board of Directors. The ADVISOR, at its
expense, will provide office space to the FUNDS and all necessary office
facilities, equipment and personnel and will make its officers and employees
available to the FUNDS as appropriate. In addition, the ADVISOR will pay all
expenses incurred by it or by the FUNDS in connection with the management of
each FUND'S assets or the administration of its affairs, other than those
assumed by the FUNDS, as described in the APPENDIX to the Prospectus. LINCOLN
LIFE has paid the organizational 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.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $2,109,952 $1,428,803
Bond Fund 1,221,295 1,188,030
Capital Appreciation Fund 2,940,632 1,549,656
Equity-Income Fund 6,053,404 3,303,336
Global Asset Allocation Fund 2,808,358 2,072,722
Growth and Income Fund 9,714,765 7,063,276
International Fund 3,741,563 3,319,701
Managed Fund 2,873,786 2,480,524
Money Market Fund 451,243 417,468
Social Awareness Fund 3,355,544 1,877,030
Special Opportunities Fund 2,824,015 2,274,229
</TABLE>
A-1
<PAGE>
During the last three years, the ADVISOR received the amounts, as mentioned
above, for investment ADVISORY services. If total expenses of the
FUNDS(excluding taxes, interest, portfolio brokerage commissions and fees, and
expenses of an extraordinary and non-recurring nature, but including the
investment advisory fee) exceed 1 1/2% per annum of the average daily net assets
of each FUND (2% for the International Fund), the ADVISOR will pay such excess
by offsetting it against the ADVISORY fee. If such offset is insufficient to
cover the excess, any balance remaining will be paid directly by the ADVISOR to
each FUND.
SUB-ADVISORS. As ADVISOR, LINCOLN INVESTMENT is primarily responsible for
investment decisions affecting each of the FUNDS. However, LINCOLN INVESTMENT
has entered into SUB-ADVISORY agreements with several professional investment
management firms. These firms provide some or substantially all of the
investment ADVISORY services required by a number of the FUNDS, including
day-to-day investment management of those FUNDS' portfolios. Each SUB-ADVISOR
makes investment decisions for its respective FUND in accordance with that
FUND'S investment objectives and places orders on behalf of that FUND to effect
those decisions. See the following tables for more information about the
SUB-ADVISORS and their fees:
<TABLE>
<CAPTION>
ANNUAL FEE RATE BASED ON
FUND SUB-ADVISOR AVERAGE DAILY NET ASSET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Lynch & Mayer .50 of 1% of the first $150 million .35 of 1% of
520 Madison Avenue the excess over $150 million
New York, NY 10022
Capital Appreciation Janus .55 of 1% of the first $100 million .50 of 1% of
100 Fillmore Street the next $400 million; and .45 of 1% of the
Denver, CO 80206 excess over $500 million
Equity Income Fidelity .48 of 1%
82 Devonshire Street
Boston, MA 02108
Global Asset Allocation Putnam The greater of (a) $40,000; or (b) .47 of 1% of
One Post Office Square the first $200 million; .42 of 1% of the next
Boston, MA 02109 $200 million; and .40 of 1% of any excess over
$400 million
International Delaware International .50 of 1% of the first $200 million; .40 of 1%
Advisers Ltd. of the next $200 million; and .35 of 1% of any
80 Cheapside, excess over $400 million
London, England
EC2V 6EE
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FEE RATE BASED ON MARKET
VALUE OF SECURITIES HELD IN THE
PORTFOLIO OF EACH RESPECTIVE CLIENT
FUND AT THE CLOSE OF BUSINESS ON THE
FUND SUB-ADVISOR LAST TRADING DAY OF EACH CALENDAR QUARTER
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Vantage .20 of 1%
630 5th Avenue
New York, NY 10111
Managed Vantage .20 of 1%
(STOCK PORTFOLIO ONLY)
Social Awareness Vantage .20 of 1%
Special Opportunities Vantage .20 of 1%
</TABLE>
A-2
<PAGE>
During the last three years each SUB-ADVISOR received the following amounts for
investment SUB-ADVISORY services. LINCOLN INVESTMENT, not the FUND, pays all
sub-advisory fees owed.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $1,229,800 $ 893,059
Bond Fund N/A N/A
Capital Appreciation Fund 2,072,388 1,117,383
Equity-Income Fund 4,781,931 2,612,405
Global Asset Allocation Fund 1,724,369 1,284,185
Growth and Income Fund 6,155,225 4,440,325
International Fund 1,503,294 1,326,484
Managed Fund 974,080 820,633
Money Market Fund N/A N/A
Social Awareness Fund 1,901,560 923,516
Special Opportunities Fund 1,519,961 1,168,134
</TABLE>
SERVICE MARKS. The service mark for the FUNDS and the name Lincoln National have
been adopted by the FUNDS with the permission of LNC, and their continued use is
subject to the right of LNC to withdraw this permission in the event the ADVISOR
should not be the INVESTMENT ADVISOR of the FUNDS.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund and
Putnam with the Global Asset Allocation Fund. The continued use of these names
is subject to the right of the respective SUB-ADVISOR to withdraw its permission
in the event it ceases to be the SUB-ADVISOR to the particular FUND it advises.
A-3
<PAGE>
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>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR, age
46
1300 S. Clinton Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--Investments, Northwestern
DIRECTOR, age 65 University
1776 Sherwood Road
Des Plaines, IL 60016
- ------------------------------------------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Regional Vice President/Chief Financial Officer (formerly Vice
DIRECTOR, age 57 President--Finance; Regional Controller of Finance), St. Joseph Medical
700 Broadway Center, Fort Wayne, Indiana
Fort Wayne, Indiana
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and Development,
DIRECTOR, age 47 Lincoln National Corporation; Director, Lincoln Life and Annuity Company
1300 S. Clinton St. of New York (formerly Executive Vice President, LINCOLN INVESTMENT
Fort Wayne, IN 46802 MANAGEMENT, INC.)
- ------------------------------------------------------------------------------------------------------------------
KENNETH G. STELLA President, Indiana Hospital and Health Association
DIRECTOR, age 55
One America Square
Indianapolis, IN 46282
- ------------------------------------------------------------------------------------------------------------------
* JANET C. CHRZAN Vice President and Treasurer, Lincoln National Corp. (formerly Vice
TREASURER, age 50 President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
* CYNTHIA A. ROSE Assistant Secretary, Lincoln National Life Insurance Co.
SECRETARY, age 44
200 East Berry Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested persons of the FUNDS, as defined in the 1940 Act.
A-4
<PAGE>
<TABLE>
<S> <C> <C>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND
NAME OF PERSON, POSITION FROM EACH FUND* AND FUND COMPLEX
- ----------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR.
DIRECTOR
- ----------------------------------------------------------------------------------------------------
NANCY L. FRISBY
DIRECTOR
- ----------------------------------------------------------------------------------------------------
KENNETH G. STELLA
DIRECTOR
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Directors fees of $250 per meeting, plus expenses to attend the meetings, are
paid by each FUND to each director who is not an interested person of the FUNDS.
FUND EXPENSES
Expenses other than investment ADVISORY fees 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; fees
for accounting, valuation and related services; legal fees incurred in
connection with the affairs of the FUND (other than legal services provided by
personnel of the ADVISOR or its affiliated companies); the fees of any trade
association of which the FUND is a member; and expenses of shareholder and
Director meetings.
DESCRIPTION OF SHARES
The authorized capital stock of each FUND consists of shares of common stock,
$0.01 par value. FUND shares will be owned by LINCOLN LIFE and will be held by
it in the VARIABLE 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 CONTRACT OWNERS 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 proportion to the voting instructions that it received with respect
to all CONTRACTS 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.
All the shares of each FUND are of the same class with equal rights and
privileges. Each full share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote, on all matters subjected to a vote
of the shareholder. All shares, full and fractional, participate proportionately
in any dividends and capital gains distributions and, in the event of
liquidation, in that FUND'S net assets remaining after satisfaction of
outstanding liabilities.
When issued, each share is fully-paid and non-assessable and 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
redemption of shares.
The Bylaws of the FUNDS allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as: (1)
a majority of the Directors then in office have at some point been elected by
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
independent 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
A-5
<PAGE>
adopting this procedure for dispensing with annual meetings that are a
formality, 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 providing a procedure by which they may require management to convene
a meeting of the shareholder to vote on removal of one or more Directors. The
Directors also have agreed to facilitate communication among CONTRACT OWNERS for
the purpose of calling those meetings. Further information about these
procedures is available from FUND management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management
philosophies many of the FUNDS engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to 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
dependent 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;
forward rate agreements (FRAs); interest rate swaps and their
related transactions (E.G., caps, floors, collars and corridors);
and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest
rate swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED AT THE END OF THIS
SAI APPENDIX.
Although they may be structured in complex combinations, derivative transactions
in which the FUNDS engage generally fall into two broad categories: options
contracts or forward contracts. The combined forms are constantly evolving. In
fact, variations on the types listed previously may come into use after the date
of these SAIs. Therefore, where a particular FUND discloses the intent of that
FUND to engage in any of the types listed, that FUND hereby reserves the right
to engage in related variations on those transactions.
The FUNDS intend to engage in derivative transactions only defensively. Examples
of this defensive use might be: to hedge against a perceived decrease in a
FUND'S asset value; to control transaction costs associated with market timing
(E.G., by using futures on an unleveraged basis); and to lock in returns,
spreads, or currency exchange rates in anticipation of future cash market
transactions.
There is no discussion here of asset-backed or mortgage-backed securities, or
securities such as collateralized mortgage obligations, structured notes,
inverse floaters, principal-only or interest-only securities, etc. For a
description of these securities see the Prospectus or SAI for the FUNDS that 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
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one counterparty
has received payment in one indicated currency and the time the other
counterparty(ies) receive payment in the
A-6
<PAGE>
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 exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundamental 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 system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a
market segment, to a settlement system, etc.) might cause widespread
difficulties at other firms, in other market segments, or in the
financial system as a whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's
ability to correctly predict the direction of stock prices and interest
rates, and other economic factors. Options and futures trading may fail
as hedging techniques in cases where the price 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 transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular FUND, please consult your
financial counselor if you have questions about the risks associated with
that FUND'S use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each FUND, that FUND'S
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each FUND, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the
Comptroller of the Currency), and by self-regulatory agencies (such as
the NASD). Should legislation or regulatory initiatives be enacted
resulting in additional restrictive requirements for derivative
transactions, 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
securities in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the FUND'S total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to
102% of the value of the securities lent.
The borrower pays the FUND an amount equal to any dividends or interest
received on securities lent. The FUND retains all or a portion of the
interest received on securities lent. The FUND also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
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.
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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 FUND'S 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 repurchase 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. Repurchase agreements maturing in more than seven
days will be considered illiquid and subject to the FUND'S
restriction on illiquid securities.
2. REVERSE REPOS. A FUND may also be authorized to enter into Reverse
Repo transactions. This simply means the FUND is on the reverse side
of a Repo transaction. That is, the FUND is the Seller of some of
its portfolio securities, subject to buying them back at a set price
and date.
Authorized FUNDS will engage in Reverse Repos for temporary purposes,
such as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the FUND by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse
repo transaction is considered to be the borrowing of money by the
FUND. FUNDS authorized to engage in Repos as buyers are not
necessarily authorized to do Reverse Repos.
RISKS OF OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to all FUNDS except the International Fund and the Money
Market Fund. (Note: The Aggressive Growth, Capital Appreciation, Equity-Income
and Global Asset Allocation Funds provide additional disclosures concerning the
types and risks of the strategic portfolio transactions in which they may
engage.)
OPTIONS TRADING
The FUND may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the FUND'S
portfolio. The FUND may not 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
securities 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.
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
ADVISOR'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
increase, 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 received
in each case did not equal the difference between the exercise price and the
market price.
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.
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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 brokerage 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 purchases and sales of portfolio
securities.
FUTURES CONTRACTS AND OPTIONS THEREON
The FUND may buy and sell financial futures contracts (futures contracts) and
related options thereon solely for hedging purposes. The FUND may sell a futures
contract or purchase a put option on that futures contract to protect the value
of the FUND'S portfolio in the event the INVESTMENT ADVISOR anticipates
declining security prices. Similarly, if security prices are expected to rise,
the FUND may purchase a futures contract or a call option thereon. (For certain
limited purposes, the FUND is also authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge.)
The FUND may purchase and sell financial futures contracts (futures contracts)
as a hedge against fluctuations in the value of securities which are held in the
FUND'S portfolio or which the FUND intends to purchase. The FUND will engage in
such transactions consistent with the FUND'S investment objective. Currently,
futures contracts are available on Treasury bills, notes, and bonds as well as
interest-rate and stock market indexes.
The FUND will not enter into any futures contract and options thereon 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 FUNDS will not purchase or sell
futures contracts or related options if immediately thereafter more than 1/3 of
its net assets would be hedged.
There are a number of risks associated with futures hedging. Changes in the
price of a futures contract generally parallel but do not necessarily equal
changes in the prices of the securities being hedged. The risk of imperfect
correlation increases as the composition of the FUND'S securities portfolio
diverges from the securities that are the subject of the futures contract.
Because the change in the price of the futures contract may be more or less than
the change in the prices of the underlying securities, even a correct forecast
of 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
payments of variation margin. However, in the event futures contracts have been
sold to hedge portfolio securities, such securities will not be sold until the
offsetting futures contracts can be executed. Similarly, in the event futures
have been bought to hedge anticipated securities purchases, such purchases will
not be executed until the offsetting futures contracts can be sold.
Successful use of futures contracts by the FUND is also subject to the ability
of the INVESTMENT ADVISOR to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. For example,
if the FUND has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and prices
of such securities increase instead, the FUND will lose part or all of the
benefit of the increased value of its securities because it will have offsetting
losses in its futures positions. In addition, in such situations, if the FUND
has insufficient cash to meet daily variation margin requirements, it may have
to sell securities to meet such requirements. Such sale of securities may be,
but will not necessarily be, at increased prices that reflect the rising market.
The FUND may have to sell securities at a time when it is disadvantageous to do
so. Where futures are purchased to hedge against a possible increase in the
price of securities before the FUND is able to invest its cash in an orderly
fashion, it is possible that the market may decline instead; if the FUND 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 are subject to position limits, which are affected
by the activities of the INVESTMENT ADVISOR.
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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.
The FUND'S successful use of futures contracts and options thereon depends upon
the ability of its INVESTMENT ADVISOR to predict movements in the securities
markets and other factors affecting markets for securities and upon the degree
of correlation between the prices of the futures contracts and the prices of the
securities being hedged. As a result, even a correct forecast of 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 increase
instead, the FUND will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
Although the FUND will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
LENDING OF PORTFOLIO SECURITIES
The FUNDS may from time to time lend securities from their portfolios to
brokers, dealers and financial institutions and receive collateral from the
borrower, in the form of cash (which may be invested in short-term securities),
U.S. Government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 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 securities and will continue
to be entitled to the interest or dividends payable on the loaned securities. In
addition, the FUND will receive interest on the amount of the loan. The loans
will be terminable by the FUND at any time and will not be made to any
affiliates of the FUND or the 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.
RISKS OF REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The FUNDS may make short-term investments in repurchase agreements. The
difference between the purchase price to the FUND and the resale price to the
seller represents the interest earned by the FUND which is unrelated to the
coupon rate or maturity of the purchased security. If the seller defaults, the
FUND may incur a loss if the value of the collateral securing the repurchase
agreement declines, or the FUND may incur disposition costs in connection with
liquidating the collateral. If bankruptcy proceedings are commenced with respect
to the seller, realization upon the collateral by the FUND may be delayed or
limited and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. The Board of
Directors of the FUNDS or its delegate will evaluate the creditworthiness of all
entities, including banks and broker-dealers, with which they propose to enter
into repurchase agreements. These transactions will be fully collateralized; and
the collateral for each transaction will be in the actual or constructive
possession of the particular FUND during the terms of the transaction, as
provided in the agreement.
Similarly, the FUND will enter into reverse repurchase agreements only with
parties that the ADVISOR or SUB-ADVISOR deems creditworthy. While a reverse
repurchase agreement is outstanding, the FUNDS will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages, bars preventing the removal of assets, or other
foreign governmental laws or restrictions; reduced availability of public
information concerning issuers; and the fact that foreign companies are not
generally subject to uniform accounting, auditing, and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is also the possibility of expropriation, nationalization, confiscatory
taxation, and limitations on the use or removal of cash or other assets of a
FUND, including the withholding of
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interest 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
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a FUND'S foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The FUNDS will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a FUND
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States. There may be difficulty
in enforcing legal rights outside the United States. For example, in the event
of default on any foreign debt obligations, it may be more difficult or
impossible for the FUND 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.
The share price of a FUND that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a FUND'S
investments abroad, changes in a FUND'S share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the FUND invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the FUND.
FOREIGN CURRENCIES
When an ADVISOR or SUB-ADVISOR believes that a currency in which a portfolio
security or securities is denominated or exposed may suffer a decline against
the U.S. dollar, it may hedge that risk by entering into a forward contract to
sell an amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in or exposed to that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a FUND may hold various foreign currencies,
the value of the net assets of that FUND as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (I.E., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold. 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
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the FUND'S assets denominated in or exposed
to that currency), or by participating in options or futures contracts with
respect to that currency. If the ADVISOR or SUB-ADVISOR believes that a
particular currency may decline relative to the U.S. dollar, the FUND may also
enter into contracts to sell that currency (up to the value of the FUND'S assets
denominated in or exposed to that currency) in exchange for another currency
that the ADVISOR or SUB-ADVISOR expects to remain stable or to appreciate
relative to the U.S. dollar. This technique is known as currency cross-hedging.
Refer to the Prospectus for each FUND to determine which FUNDS may engage in
these transactions.
These strategies 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
eliminate the opportunity to profit from increases in the value of the original
currency and may adversely impact the FUND'S performance if the ADVISOR or
SUB-ADVISOR'S projection of future exchange rates is inaccurate. See Strategic
portfolio transactions.
[Additionally, several European countries are participating in the European
Economic and Monetary Union, which established a common European currency for
participating countries. This currency is commonly known as the "Euro." Each
participating country replaced its existing currency with the Euro on January 1,
1999. Additional European countries may elect to participate after that date.
FUNDS investing in securities of participating countries could be adversely
affected if
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the computer systems used by their major service providers are not properly
prepared to handle both the implementation of this single currency and the
prospect of the adoption of the Euro by additional countries in the future.
These FUNDS are taking steps to obtain satisfactory assurances that their major
service providers are, in turn, taking steps reasonably designed to address
these matters with respect to the computer systems they use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of any FUND.] [to be updated]
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 options
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
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that FUND'S portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market rates,
as computed by the custodian of the FUND'S assets.
However, trading on foreign exchanges may take place on dates or at times of day
when the NYSE is not open; conversely, overseas trading may not take place on
dates or at times of day when the NYSE is open. Any of these circumstances could
affect the net asset value of FUND shares on days when the investor has no
access to the FUND. There are more detailed explanations of these circumstances
in the SAI for the various FUNDS. See the Preface to this Prospectus booklet for
information about how to obtain a copy of the SAI booklet for the 11 FUNDS.
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 The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, NY 11245. Chase Manhattan agreed to act as custodian for each
FUND pursuant to a Custodian Agreement dated March 30, 1998.
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 disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit 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, Two Commerce
Square, Suite 4000, 2001 Market Street, Philadelphia, PA 19103, to be the
independent auditors for the FUND. In addition to the audit of the 1998
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 reporting matters; and meetings with the Audit
Committee.
FINANCIAL STATEMENTS
The audited financial statements and the report of Ernst & Young LLP,
Independent Auditors, for the FUNDS
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are incorporated by reference to the FUNDS' 1998 Annual Report. We will provide
a copy of the Annual Report 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 (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 rating
categories of Moody's Investors Service, Inc. and Standard & Poor's Corp.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
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
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
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
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than for
bonds in the A category and higher.
BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1 -- Highest Quality;
Prime 2 -- Higher Quality;
Prime 3 -- High Quality.
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(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 Categories, as
follows:
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The FUND
will not invest in commercial paper rated A-3).
A -- 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A -- 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of two to ten years and
Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
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
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the Code). If a FUND qualifies as a regulated investment
company and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each FUND must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
which are not directly related to the FUND'S principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its investing in such
stocks, securities, or currencies.
The federal tax laws impose a 4% nondeductible excise tax on each regulated
investment company with respect to an amount, if any, by which such company does
not meet distribution requirements specified in such tax laws, unless certain
exceptions apply. Each FUND intends to comply with such distribution
requirements or qualify under one or more exceptions, and thus does not expect
to incur 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
level.
The discussion of federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service (IRS). These
interpretations can be changed at any time. The above discussion covers only
federal tax considerations with respect to the FUND. State and local taxes vary.
DERIVATIVE TRANSACTIONS-DEFINITIONS
The SAI for each FUND and this uniform APPENDIX discuss the type of derivative
transactions in which the FUNDS may engage and the risks typically associated
with
A-14
<PAGE>
many derivative transactions. Here are some definitions for the derivatives
listed in the APPENDIX:
OPTION. A contract which gives the FUND the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the FUND to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options trading
to terminate an outstanding option contract by entering into an offsetting
transaction known as a closing transaction; as a result of which the FUND would
either pay out or receive a cash settlement. This is 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 company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the FUND and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a loan
or bond borrowing from one interest rate base (fixed term or floating rate) or
currency of one denomination to another.
EQUITY SWAP. One which allows the FUND to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the FUND and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed rate
to floating rate in the same currency); basis swaps (one floating rate index to
another floating rate index in the same currency); and cross-currency interest
rate swaps (fixed rate in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An 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 future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected stocks,
with prices based on a composite of the changes to the prices of the individual
securities in the index (E.G., S&P 500).
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the FUND and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal is
involved; the difference between the contracted rate and the prevailing rate is
settled in cash.
CURRENCY CONTRACT. A contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES. Futures contracts on foreign currencies. Used to hedge the
purchase or sale of foreign securities.
CURRENCY OPTION. An option taken on foreign currency.
A-15
<PAGE>
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-16
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
A-17
<PAGE>
PART C - OTHER INFORMATION
Item 22. Financial Statements
(1) Part A.
-------
The financial highlights of Lincoln National Global Asset
Allocation Fund (the Fund) for the years ended December 31, 1998, 1997, 1996,
1995, 1994, 1993, 1992, 1991, 1990, 1989, is incorporated by reference to
Pages of the Fund's 1998 Annual Report.
Part B.
------
The following financial statements and report of Independent
Auditors of the Fund are incorporated by reference to Pages
of the Fund's 1998 Annual Report:
- Statement of Net Assets -- December 31, 1998
- Statement of Operations -- Year Ended December 31, 1998
- Statements of Changes in Net Assets -- Years Ended
December 31, 1998 and 1997
- Notes to Financial Statements -- December 31, 1998
- Report of Independent Auditors, Ernst & Young LLP
In total, only pages of the Fund's 1998 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>
Item 23. Exhibits:
(a) - Articles of Incorporation*
(b) - By-Laws*
(c) - Certificate*
(d)1. - Advisory Agreement between Lincoln Investment Management,
Inc. and Lincoln National Global Asset Allocation Fund, Inc.
dated May 31, 1987.*
2. - Sub-Advisory Agreement between Lincoln Investment
Management, Inc. and Putnam Investment Management, Inc. dated
June 8, 1987.*
(e)1. - NA
2. - Specimen Agents Contract*
(f) - NA
(g)1. - Custody Agreement*
2. - Custody Fee Schedule (Filed with post-effective Amendment
No. 12 to this registration statement)
(h)1. - Agreement to Purchase Shares*
2. - Trade Name Agreement*
3. - Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc. and Lincoln National
Life Insurance Company is incorporated herein by
reference to the Registration Statement on Form S-6
(333-40745) filed on November 21, 1997.
(i) - Opinion of Counsel*
(j) - Consent of Ernst & Young LLP, Independent Auditors to be
filed by Amendment
(k) - NA
(l) - Investment Letter*
(m) - NA
(n) - Financial Data Schedule to be filed by Amendment
(o) - NA
(p)1. - Power of Attorney-Nancy L. Frisby*
2. - Power of Attorney-John B. Borsch Jr.*
3. - Power of Attorney-Barbara S. Kowalczyk*
(q) - ORG chart to be filed by Amendment
(r) - Memorandum Concerning Books and Records to be filed by
Amendment
* Filed with Post-Effective Amendment No. 13 to this Registration
Statement.
Item 24. 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 25. Indemnification
Reference is made to Article IX of the Fund's By-Laws (filed as Exhibit
(b) hereto), Section 8 of the Agreement to Purchase Shares between the Fund
and Lincoln National Pension Insurance Company (filed as Exhibit (h)1.
hereto), and Section 2-418 of the Maryland General Corporation Law.
<PAGE>
Item 26. 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
Investment 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. 801-7974).
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.
(a) As of January 13, 1999, the officers and/or directors of the
Investment Adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
JoAnn Becker Senior Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
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
Steven R. Brody Senior Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company, and Lincoln Advisor Funds, Inc., 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
J. Michael Keefer Vice President 200 East Berry Street
General Counsel and Fort Wayne, Indiana 46802
Assistant Secretary,
And Director
Mark Laurent Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Thomas M. McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., President, Chief Executive Officer and Director,
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 Other Substantial Business
Jil Schoeff-Lindholm Portfolio Manager 200 East Berry Street, Fort Wayne, Indiana 46802
Cedrick Walta Short Term Investment 200 East Berry Street, Fort Wayne, Indiana 46802
Manager
Denny Westrick Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Jay Yentis Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
</TABLE>
(b) The Sub-Advisor.
As of March 13, 1998 the officers and/or directors of the Sub-Adviser
are as follows:
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
Name Title
------ ----------
Putnam, George Chairman
Lasser, Lawrence J. President & Director
Silver, Gordon H. Director & SMD
Burke, Robert W. Sr Managing Director
Coburn, Gary N. Sr Managing Director
Ferguson, Tim Sr Managing Director
Regan, Anthony W. Sr Managing Director
Spiegel, Steven Sr Managing Director
Anderson, Blake E. Managing Director
Bogan, Thomas R. Managing Director
Browchuk, Brett Managing Director
Cassaro, Joseph A. Managing Director
Collman, Kathleen M. Managing Director
Curtin, William J. Managing Director
D'Alello, Edward H. Managing Director
DeTore, John A. Managing Director
Durgarian, Karnig H. Managing Director
Esteves, Irene M. Managing Director
Gillis, Roland Managing Director
Haslett, Thomas R. Managing Director
Hurley, William J. Managing Director
Jacobs, Jerome J. Managing Director
Joseph, Joseph P. Managing Director
Kearney, Mary E. Managing Director
King, David L. Managing Director
Kohli, D. William Managing Director
Krelsel, Anthony I. Managing Director
Landes, William J. Managing Director
Maloney, Kevin J. Managing Director
Martino, Michael Managing Director
Maxwell, Scott M. Managing Director
McGue, William F. Managing Director
McMullen, Carol C. Managing Director
Miller, Daniel L. Managing Director
Morgan, Jr., John J. Managing Director
O'Donnell Jr., C. Patrick Managing Director
Peacher, Stephen C. Managing Director
Porter, Charles E. Managing Director
Reilly, Thomas V. Managing Director
Schultz, Mitchell D. Managing Director
Scott, Justin M. Managing Director
Swift, Robert Managing Director
Talanian, John C. Managing Director
Woolverton, William H. Managing Director
Zieff, William E. Managing Director
Waldman, David L. Managing Director & CFO
Asher, Steven E. Senior Vice President
Atkin, Michael J. Senior Vice President
<PAGE>
Attridge, Gail S. Senior Vice President
Bakshi, Manjit S. Senior Vice President
Bamford, Dolores Snyder Senior Vice President
Baumbach, Robert K. Senior Vice President
Beck, Robert R. Senior Vice President
Blaisdell, Geoffrey C. Senior Vice President
Bousa, Edward P. Senior Vice President
Breenahan Leslee R. Senior Vice President
Burke, Andrea Senior Vice President
Burns, Cheryl A. Senior Vice President
Callahan, Ellen S. Senior Vice President
Carlson, David G. Senior Vice President
Chapman, Susan Senior Vice President
Cotner, C. Beth Senior Vice President
Cronin, Kevin M. Senior Vice President
Curran, Peter J. Senior Vice President
Dalferro, John R. Senior Vice President
Daly, Kenneth L. Senior Vice President
Derbyshire, Ralph S. Senior Vice President
England, Richard B. Senior Vice President
Eurkus, David J. Senior Vice President
Fitzgerald, Michael T. Senior Vice President
Flaherty, Patricia C. Senior Vice President
Francis, Jonathan H. Senior Vice President
Frucci, Richard M. Senior Vice President
Fullerton, Brian J. Senior Vice President
Grant, J. Peter Senior Vice President
Grim, Daniel J. Senior Vice President
Haagensen, Paul E. Senior Vice President
Hadden, Peter J. Senior Vice President
Halperin, Matthew C. Senior Vice President
Han, Billy P. Senior Vice President
Healey, Deborah R. Senior Vice President
Holding, Pamela Senior Vice President
Joyce, Kevin M. Senior Vice President
Kamshad, Omid Senior Vice President
Kay, Karen R. Senior Vice President
Kirson, Steven L. Senior Vice President
Kobylarz, Jeffrey J. Senior Vice President
Koontz, Jill A. Senior Vice President
Korn, Karen R. Senior Vice President
Kuenstner, Deborah F. Senior Vice President
Leichter, Jennifer E. Senior Vice President
Lindsey, Jeffrey R. Senior Vice President
Lukens, James W. Senior Vice President
MacElwee, Elizabeth M. Senior Vice President
Madore, Robert A. Senior Vice President
Malloy, Julie M. Senior Vice President
Manning, Howard K. Senior Vice President
<PAGE>
Matteis, Andrew S. Senior Vice President
McAuley, Alexander J. Senior Vice President
McDonald, Richard E. Senior Vice President
Meehan, Thalia Senior Vice President
Mikami, Darryl K. Senior Vice President
Miller, William H. Senior Vice President
Minn, Seung H. Senior Vice President
Mockard, Jeanne L. Senior Vice President
Morgan, Kelly A. Senior Vice President
Mufson, Michael J. Senior Vice President
Mullin, Hugh H. Senior Vice President
Netois, Jeffrey W. Senior Vice President
Nguyen, Triet M. Senior Vice President
Oler, Stephen S. Senior Vice President
Paine, Robert M. Senior Vice President
Parker, Margery C. Senior Vice President
Perry, William Senior Vice President
Peters, Carmel Senior Vice President
Pohl, Charles G. Senior Vice President
Pollard, Mark D. Senior Vice President
Ray, Christopher A. Senior Vice President
Reeves, William H. Senior Vice President
Rosalanko, Thomas J. Senior Vice President
Ruys de Perez, Charles A. Senior Vice President
Santos, David J. Senior Vice President
Schwister, Jay E. Senior Vice President
Scordato, Christine A. Senior Vice President
Senter, Max S. Senior Vice President
Shadek Jr., Edward T. Senior Vice President
Silk, David M. Senior Vice President
Simon, Sheldon N. Senior Vice President
Smith Jr., Leo J. Senior Vice President
Smith, Margaret D. Senior Vice President
Stairs, George W. Senior Vice President
Storkerson, John K. Senior Vice President
Strumpf, Casey Senior Vice President
Sullivan, Roger R. Senior Vice President
Svensson, Lisa H. Senior Vice President
Swanberg, Charles H. Senior Vice President
Taubes, Kenneth J. Senior Vice President
Thomas, David K. Senior Vice President
Thomsen, Rosemary H. Senior Vice President
Tibbetts, Richard B. Senior Vice President
Till, Hilary F. Senior Vice President
Troped, Bonnie L. Senior Vice President
Van Vleet, Charles C. Senior Vice President
Verani, John R. Senior Vice President
Warren, Paul C. Senior Vice President
Weinstein, Michael R. Senior Vice President
<PAGE>
Weiss, Manuel Senior Vice President
Whalen, Edward P. Senior Vice President
Wheeler, Diane D.F. Senior Vice President
Wyke, Richard P. Senior Vice President
Yogg, Michael R. Senior Vice President
Zukowski, Gerald S. Senior Vice President
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
See Exhibit 23(r)
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Registrant makes the following undertakings:
to file an amendment to this Registration Statement with certified
financial statements showing the initial capital received before it
accepts subscriptions from any persons in excess of 25 if Registrant
proposes to raise its initial capital pursuant to Section 14(a)(3) of
the Act; and
to file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date
of this Registration Statement.
The registrant undertakes to provide, without charge, a copy of the
Fund's most recent Annual Report to any receipient of its prospectus who
requests it.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to the 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 January 1999.
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
By /s/ Kelly D. Clevenger
----------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below on January 28,
1999, by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
January 28, 1999
/s/ Kelly D. Clevenger Chairman of the Board -----------------
- ------------------------ President and Director
Kelly D. Clevenger (Principal Executive
Officer)
January 28, 1999
* Director -----------------
- ------------------------
John B. Borsch, Jr.
January , 1999
Director -----------------
- ------------------------
Kenneth G. Stella
January 28, 1999
*** Director -----------------
- ------------------------
Barbara S. Kowalczyk
January 28, 1999
** Director -----------------
- ------------------------
Nancy L. Frisby
/s/ Eric C. Jones Chief Accounting Officer January 28, 1999
- ------------------------ (Principal Accounting -----------------
Eric C. Jones Officer)
/s/ Janet C. Chrzan Vice President and January 28, 1999
- ------------------------ Treasurer (Principal -----------------
Janet C. Chrzan Financial Officer)
* By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with the original
------------------- Registration Statement.
Jeremy Sachs
** By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
------------------- Effective Amendment No. 8 to this Registration
Jeremy Sachs Statement.
*** By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
------------------- Effective Amendment No. 9 to the Registration
Jeremy Sachs Statement.
</TABLE>
