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Social
Awareness
LINCOLN NATIONAL
SOCIAL AWARENESS FUND, INC.
DESCRIPTION OF THE FUND
The Social Awareness Fund (fund) was incorporated in Maryland in 1986. It is an
open-end, diversified management investment company whose investment objective
is long-term capital appreciation. The fund's objective is fundamental and
cannot be changed without the affirmative vote of a majority of the outstanding
shares of the fund. See General information in the Appendix. The fund will
pursue its objective by investing primarily in a portfolio of common stock and
securities convertible into common stock, all selected in accordance with the
fund's Social Criteria. There is no assurance that the objective of the fund
will be achieved.
This fund invests in common stocks of established companies which satisfy the
Social Criteria, with the objective of maximizing long-term capital
appreciation, while giving some emphasis to income. The primary risk associated
with common stock investing is that the shares will fluctuate in value as the
common stock market fluctuates. Because the policy of this fund is to emphasize
investment in established companies, it is expected that the volatility will be
in line with the broad stock market indices such as the Dow Jones Industrial
Average and the Standard & Poor's 500 Index (S&P 500). See Investment policies
and techniques. The Social Criteria impose restrictions on the content of the
portfolio. Because of its Social Criteria, the fund may not be able to take the
same advantage of certain investment opportunities as do those funds which do
not have Social Criteria.
PORTFOLIO MANAGER
The primary portfolio manager for the fund is T. Scott Wittman, President,
Vantage Global Advisors, Inc., sub-advisor to the fund. Vantage is a wholly
owned subsidiary of Lincoln National Corp., a publicly held insurance holding
company organized under Indiana law. Wittman, a Chartered Financial Analyst,
has managed the fund since October, 1993. He has been with Vantage since
February, 1991; before that he was managing director at TSA Capital Management.
Wittman specializes in quantitative investment analysis.
Effective October 1, 1997, Cozey W. Baker, Jr., is no longer managing the
short-term investment segment of the fund.
Jil Schoeff Lindholm, Short-Term Investment Manager for Lincoln Investment, the
advisor of the fund is assuming responsibility for the short-term investments
segment of the fund's portfolio on October 1, 1997. She has been a Short-Term
Investment Manager with Lincoln Investment since February 1995, She was a GIC
Sales Executive for Lincoln Life from March, 1992 through February, 1995. Ms.
Lindholm holds a Master's Degree in business administration from Indiana
University.
INVESTMENT POLICIES AND TECHNIQUES
In seeking to attain capital appreciation in a common stock portfolio, it is
important to attempt to minimize losses. When conditions dictate a defensive
strategy or until the proceeds from the sale of the fund's shares have been
invested or when cash is otherwise available, the fund may invest in money
market instruments, including commercial paper of domestic corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks, and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. When cash is available only for a few days, it
may be invested by the fund in repurchase agreements until such time as it may
otherwise be invested or used for payment of obligations of the fund.
SOCIAL CRITERIA
The fund will adhere to the following Social Criteria, all as a matter of non-
fundamental policy. The Board of Directors can add to, modify, or eliminate any
of these at any time, without shareholder approval.
The fund will not knowingly invest in or hold securities of companies which
engage in:
1. Activities which result or are likely to result in damage to the natural
environment;
2. The production of nuclear power, the design or construction of nuclear power
plants, or the manufacture of equipment for the production of nuclear power;
3. The manufacturing of, or contracting for, military weapons; and/or
4. The liquor, tobacco or gambling industries.
Neither the fund nor its advisor or sub-advisor will exercise any discretion
over which securities to exclude from purchase on the basis of the Social
Criteria. Instead, the fund will rely upon the Social Investment Database
published by Kinder, Lydenberg, Domini & Co., Inc. (KLD). KLD's principal
office is in Cambridge,
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Massachusetts. KLD specializes in providing the financial community with
social research on publicly traded U.S. corporations. Securities of companies
appearing in the KLD Database and for which KLD indicates a concern or a major
concern relating to one or more of the Social Criteria will be excluded from
purchase by the fund.
KLD will determine the extent to which a company's involvement in the
activities prohibited by the Social Criteria is significant enough to merit a
concern or a major concern. Significance may be determined on the basis of the
percentage of revenue generated by, or the size of the operations attributable
to, activities related to these Criteria, or other factors selected by KLD.
The social screening undergoes continual refinement and modification.
Securities of companies not excluded by any of the Social Criteria will be
eligible for consideration for purchase by the fund according to the
objectives and policies described in this Prospectus.
PERIOD FOR DISINVESTMENT. It is possible that the fund may at some point find
that securities in its portfolio no longer meet the Social Criteria, although
at the time of purchase they did. It is also possible that securities which do
not meet the Social Criteria have been inadvertently acquired by the fund.
Should either event occur, the fund will commence the orderly sale of those
securities, in a manner so as to minimize any adverse effect of the sale on
the fund's assets. Except in an extreme case, the fund will sell these
securities within 90 days from the date on which fund management determines
them to be in violation. An extreme case is one for which, in the advisor's or
sub-advisor's opinion, a sale within the 90-day period would produce a
significant loss to the overall value of the fund's assets.
FOREIGN INVESTMENTS
The fund may invest up to 15% of its assets in securities principally traded
in foreign markets. Eurodollar certificates of deposit are excluded for
purposes of these limitations. Foreign investments can involve risks not
present in domestic investments. For a discussion of those risks, see Foreign
investments in the Appendix.
PORTFOLIO TURNOVER
The fund does not expect its portfolio turnover rate to exceed 100%. (A rate
of portfolio turnover of 100% would occur if all of the fund's portfolio were
replaced in a period of one year.) However, the fund is not restricted in
policy with regard to portfolio turnover, and when it engages in short-term
trading in attempting to achieve its objectives, it may increase the turnover
rate and incur larger brokerage commissions and other expenses than usual. A
turnover rate higher than expected could occur if the fund should be required
to liquidate any portfolio securities because of their failure to conform to
the Social Criteria. During 1996 the fund's portfolio turnover was 45.90% and
in 1995 it was 54.02%.
INVESTMENT RESTRICTIONS
The investment restrictions are fundamental. See General information in the
Appendix. For purposes of the restrictions, all percentage limitations apply
immediately after the making of an investment; 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 in the securities of a single issuer, unless the following
conditions are met: At least 75% of the value of the fund's total assets
must be 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. (The fund does not anticipate that any more than 15% of the fund's
total assets would be invested in the securities of a single issuer at any
time, other than those of the U.S. Government, its agencies and
instrumentalities.);
2. Borrow money, except for temporary or emergency purposes and not exceeding
5% (taken at the lower of cost or current value) of its total assets (not
including the amounts borrowed); and/or
3. Invest more than 5% of its total assets in securities of issuers which,
together with predecessors, have been in operation for less than three
years. This restriction shall not apply to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
4. Hold more than 10% of the outstanding voting securities of any one issuer.
Additional investment restrictions can be found in the SAI. Certain socially-
motivated limitations on fund activity are explained in this Prospectus under
Social criteria.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the fund has considerable discretion in the
selection of appropriate fund investments. In the exercise of that discretion,
the portfolio manager may, at any given time, invest a portion of the fund's
assets in one or more strategic
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portfolio transactions which we define as derivative transactions and cash
enhancement transactions.
For your convenience, in the Appendix, we have included a basic discussion of
these special financial arrangement transactions and some of the risks
associated with them. Note also that the SAI booklet for the 11 funds contains
definitions of the more commonly used derivative transactions, technical
explanations of how these transactions will be used and the limits on their
use. You should consult your financial counselor if you have specific
questions.
THE SOCIAL AWARENESS FUND IS AUTHORIZED:
a) for derivative transactions, to: sell put and covered call options and buy
put options for stock and stock indices and buy and sell options to close out
positions previously entered into (The aggregate cost of premiums for all
outstanding options shall not exceed 30% of the fund's total assets, although
the ultimate loss to the fund from options could be substantially greater than
30%.); buy and sell financial futures contracts and buy put and call options on
those contracts. (For certain limited purposes, the fund may also buy financial
futures contracts on an unleveraged basis and not as an anticipatory hedge. See
the SAI.) Amounts committed to margin and paid for option premiums on futures
contracts may not exceed 5% of assets.
b) for cash enhancement transactions, to: lend portfolio securities, if such
loans of securities do not exceed one-third of the fund's total assets at any
one time, 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.
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