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Social Awareness
PROSPECTUS AND APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 8,
Registration Number 33-19896 filed on Form N1-A on February 28, 1995.
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STATEMENT OF ADDITIONAL INFORMATION
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Social Awareness Fund, Inc. (the Fund) dated
April 29, 1995. You may obtain a copy of the Fund's Prospectus on request and
without charge. Please write Kim Oakman, The Lincoln National Life Insurance
Company, P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-348-1212,
Extension 4912.
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
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The date of this Statement of Additional Information is April 29, 1995.
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TABLE OF CONTENTS
Page
General Information and History 2
Investment Policies and Techniques 2
Investment Restrictions 3
Portfolio Transactions and Brokerage 4
Determination of Net Asset Value 5
Appendix
Investment Advisor and Sub-Advisor A-1
Directors and Officers A-2
Investment policies and techniques (continued):
options, futures, securities trading, repurchases and
reverse repurchase agreements A-2
Custodian A-6
Independent Auditors A-7
Financial Statements A-7
Bond Ratings A-7
Commercial Paper Ratings A-8
U.S. Government Obligations A-8
Taxes A-8
State Requirements A-9
Derivative Transactions-definitions A-9
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GENERAL INFORMATION AND HISTORY
Lincoln National Social Awareness Fund, Inc. was incorporated in Maryland in
1986 as Lincoln National Government Securities Fund, Inc. It remained a
development stage enterprise under that name until December, 1987, when the name
was changed to Lincoln National Social Awareness Fund, Inc. The Fund commenced
investment activity on May 2, 1988.
INVESTMENT POLICIES AND TECHNIQUES
The Prospectus describes the Fund's investment objective and its general
investment policies. This Statement of Additional Information includes
additional information about various investment practices and restrictions of
the Fund.
The investment policies described in the Prospectus are not fundamental, and the
Directors may change such policies without stockholder approval. In addition,
the Fund may engage in these Strategic Portfolio Transactions.
A. OPTIONS TRADING
The Fund may write (sell) put and covered call options and purchase covered put
options for stock and stock indices and write and purchase options to close out
positions previously
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entered into by the Fund; provided, that the aggregate cost of all outstanding
options would not exceed 30% of the Fund's total assets, although the ultimate
loss to the Fund from options could be substantially greater than 30%. The Fund
will only write and purchase options in standard contracts which may be quoted
on NASDAQ or traded on the national securities exchanges.
Put and call options are generally short-term contracts with durations of nine
months or less. The Investment Adviser will generally write covered call options
when it anticipates declines in the market value of the portfolio securities and
the premiums received may offset to some extent the decline in the Fund's net
asset value. On the other hand, writing put options is a useful portfolio
investment strategy when the Fund has cash or other reserves and it intends to
purchase securities but expects prices to decline.
Generally, the risk to the Fund in writing options is that the Investment
Adviser's assumption about the price trend of the underlying security may prove
inaccurate. If, as a result, the Fund wrote a put, expecting the price of a
security to increase, and it decreased; or if the Fund wrote a call, expecting
the price to decrease but it increased, the Fund could suffer a loss if the
premium received in each case did not equal the difference between the exercise
price and the market price. See the Appendix for a more complete description of
put and call options and the risks involved.
B. FUTURES CONTRACTS AND OPTIONS THEREON
Generally, the Fund may buy and sell financial futures contracts ("futures
contracts") and related options thereon solely for hedging purposes. The Fund
may sell a futures contract or purchase a put option on that futures contract to
protect the value of the fund's portfolio in the event the Investment 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. See
the SAI for a more detailed explanation.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid for option
premiums exceeds 5% of the Fund's total assets. See the appendix for a more
complete description of the use of futures contracts and options thereon as well
as the risks related thereto.
C. LENDING OF PORTFOLIO SECURITIES
The Fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions and receive collateral from the borrower, in
the form of cash (which may be
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invested in short-term securities), U.S. government obligations or certificates
of deposit. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities, and will
be in the actual or constructive possession of the Fund during the term of the
loan. The Fund will retain the incidents of ownership of the loaned securities
and will be entitled to the interest or dividends payable on the loaned
securities. In addition, the Fund will receive interest on the amount of the
loan. The loans will be terminable by the Fund at any time and will not be made
to any affiliates of the Fund or the Adviser. The Fund may pay reasonable
finder's fees to persons unaffiliated with it in connection with the arrangement
of the loans.
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REPURCHASE AGREEMENTS
The Fund may make short-term investments in repurchase agreements. A repurchase
agreement typically involves the purchase by the Fund of securities (U.S.
government or other money market securities) from a financial institution such
as a bank, broker or savings and loan association, coupled with an agreement by
the seller to repurchase the same securities from the Fund at the specified
price and at a fixed time in the future, usually not more than seven days from
the date of purchase. The difference between the purchase price to the Fund and
the resale price to the seller represents the interest earned by the Fund which
is unrelated to the coupon rate or maturity of the purchased security. If the
seller defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement declines, or the Fund may incur disposition
costs in connection with liquidating the collateral. If bankruptcy proceedings
are commenced with respect to the seller, realization upon the collateral by the
Fund may be delayed or limited and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the bankruptcy
proceedings. However, repurchase agreements will be made only with brokers or
dealers deemed by the Board of Directors to be creditworthy; they will be fully
collateralized; and the collateral for each transaction will be in the actual or
constructive possession of the Fund during the term of the transaction, as
provided in the agreement.
FUTURES CONTRACTS AND OPTIONS THEREON
Generally, the Fund may buy and sell financial futures contracts ("futures
contracts") and related options thereon solely for hedging purposes. The Fund
may sell a futures contract or purchase a put option on that futures contract to
protect the value of the Fund's portfolio in the event the Investment Adviser
anticipates declining security prices. Similarly, if security prices are
expected to rise, the Fund may purchase a futures contract or a call option
thereon. (For certain limited purposes, the Fund is also authorized to buy
futures contracts on an unleveraged basis and not as an anticipatory hedge. See
the SAI for a more detailed explanation.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid for option
premiums exceeds 5% of the Fund's total assets. See the Statement of Additional
Information for a more complete description of the use of futures contracts and
options thereon as well as the risks related thereto.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the Prospectus, the
following investment restrictions have been
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adopted by the Fund as fundamental policies, except as otherwise indicated.
Under the Investment Company Act of 1940, as amended (the Act), a fundamental
policy may not be changed without the affirmative vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. See General
Information, in the Prospectus Appendix. For purposes of the following
restrictions: (1) all percentage limitations apply immediately after the making
of an investment; and (2) any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security
from the portfolio.
The Fund may not:
1. Invest more than 25% of its total assets in the securities of issuers in
any one industry. For purposes of this restriction, gas, electric, water
and telephone utilities are treated as separate industries.
2. Invest in the securities of any one issuer unless at least 75% of the
value of the Fund's total assets is represented by: (a) U.S. government
obligations, cash and cash items, (b) securities of other investment
companies, and (c) securities of issuers as to each of which, at the time
the investment was made, the Fund's investment in the issuer did not
exceed 5% of the Fund's total assets.
3. Purchase or sell real estate or interests therein, although it may
purchase securities of issuers which engage in real estate operations or
securities which are secured by interests in real estate.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed one-
third of its total assets at any one time. See Investment Policies--
Lending of Portfolio Securities, in the Prospectus. The purchase of debt
securities and the entry into repurchase agreements are not considered
the making of loans.
5. Purchase puts, calls or combinations thereof, except the Fund may write
and purchase put and call options and effect closing transactions as
described under Investment Policies.
6. Underwrite the securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of portfolio securities.
7. Invest more than 10% of its total assets in securities (including
repurchase agreements maturing in more than seven days) which are subject
to legal or contractual restrictions upon resale or are otherwise not
readily marketable.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
9. Make short sales of securities.
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10. Purchase or sell commodities or commodity futures contracts, except
financial futures contracts and options thereon.
11. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
12. Invest in companies for the purpose of, or with the effect of, acquiring
control.
13. Invest in interests in oil, gas and other mineral exploration or
development programs, except that the Fund may invest in the securities
of companies which invest in or sponsor such programs.
14. Invest in securities of any issuer if, to the knowledge of the Fund,
officers or directors of the Fund or its Adviser, who individually own
beneficially 1/2 of 1% or more of the securities of such issuer,
collectively own beneficially more than 5% of the securities of such
issuer.
15. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 2 in
the Prospectus. (For purposes of this restriction, collateral
arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures contracts are not
deemed to be pledges of assets.)
16. Issue senior securities as defined in the Act except insofar as the Fund
may be deemed to have issued a senior security by borrowing money in
accordance with the restrictions described above. (For the purpose of
this restriction, collateral arrangements with respect to the writing of
options and initial margin deposits for futures contracts and the
purchase or sale of futures contracts are not deemed to be the issuance
of a senior security.)
17. Hold more than 10% of the outstanding voting securities of any one
issuer.
The following two restrictions are not fundamental, but it is the Fund's present
policy to observe them:
A. Not to invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase).
B. Not to invest in securities of any issuer, which together with any
predecessors or controlling persons, has been in operation for less than
three consecutive years and in equity securities 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.)
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PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a security exchange are effected through brokers who charge a commission for
their services. Transactions in foreign securities generally involve the payment
of fixed brokerage commissions, which are generally higher than those in the
United States. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In the U.S. Government
securities market, securities are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the securities usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The Adviser currently provides investment advice to a number of other clients.
See Investment Adviser and Sub-Adviser, in the Appendix. It will be the practice
of the Adviser to allocate purchase and sale transactions among the Fund and
others whose assets 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. Portfolio securities are not
purchased from or sold to the Adviser or any affiliated person (as defined in
the Act) of the Adviser.
In connection with effecting portfolio transactions, primary consideration will
be given to securing the most favorable price and efficient execution. Within
the framework of this policy, the reasonableness of brokerage commissions 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, commissions charged by some brokers may be greater
than the amounts other brokers might charge. The Adviser may determine in good
faith that the amount of such higher transaction costs is reasonable in relation
to the value of the brokerage and research services provided. The Board of
Directors of the Fund will review regularly the reasonableness of commission and
other transaction costs incurred from time to time, and, in that connection,
will receive reports from the Adviser and published
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data concerning transaction costs incurred by institutional investors generally.
The nature of the research services provided to the Adviser by brokerage firms
varies from time to time but generally includes current and historical financial
data concerning particular companies and their securities; information and
analysis concerning securities markets and economic and industry matters; and
technical and statistical studies and data dealing with various investment
opportunities, risks and trends, all of which the Adviser regards as a useful
supplement of its own internal research capabilities. The Adviser may from time
to time direct trades to brokers which have provided specific brokerage or
research services for the benefit of the Adviser's clients; in addition, the
adviser may allocate trades among brokers that generally provide superior
brokerage and research services. Research services furnished by brokers are used
for the benefit of all the Adviser's clients and not solely or necessarily for
the benefit of the Fund. The Adviser believes that the value of research
services received is not determinable and does not significantly reduce its
expenses. The Fund does not reduce its fee to the Adviser by any amount that
might be attributable to the value of such services.
There were no brokerage commissions paid by the Fund from its inception in 1986,
until May 2, 1988, when investment activity began. The aggregate amount of
brokerage commissions paid by the Fund during 1994, 1993, and 1992 was $296,659,
$208,199, and $147,347.
If the Fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same broker-
dealer who executed the sale of the option. If a call written by the Fund is
exercised, normally the sale of the underlying securities will be executed by
the same broker-dealer who executed the sale of the call.
The writing of options by the Fund will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write may be affected by
options written by other investment advisory clients of its Adviser. An exchange
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions. As of the date of this Prospectus,
these limits (which are subject to change) are 2,000 options (200,000 shares) in
each class of puts or calls.
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Under the Sub-Advisory Agreement (see Investment Adviser, below) between the
Adviser (LNIMC) and the Sub-Adviser (Vantage), the Sub-Adviser (Vantage) may
perform some, or substantially all, of the investment advisory services required
by the Fund, even though the Adviser remains primarily responsible for
investment decisions affecting the Fund. The Sub-Adviser will follow the same
procedures and policies which are followed by the Adviser as described above.
The Sub-Adviser currently provides investment advice to a number of other
clients. References to "Adviser" in this Statement of Additional Information
include both LNIMC and Vantage.
DETERMINATION OF NET ASSET VALUE
A description of the days on which the Fund's net asset value per share will be
determined is given in the Prospectus. The New York Stock Exchange's most recent
announcement (which is subject to change) states that in 1995 it will be closed
on New Year's Day, January 2, (observed), President's Day, February 20; Good
Friday, April 14; Memorial Day, May 29; Independence Day, July 4; Labor Day,
September 4; Thanksgiving Day, November 23; and Christmas Day, December 25. It
may also be closed on other days.
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Social Awareness
STATEMENT OF ADDITIONAL INFORMATION APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 8,
Registration Number 33-19896 filed on Form N1-A on February 28, 1995.
