<PAGE>
Lincoln Advisor Funds, Inc.
Supplement dated August 8, 1995 to Prospectus dated
January 27, 1995
The description of eligible investors in Class D
shares is amended as follows:
Effective immediately, Class D shares will be available for
purchase to retirement plans introduced by persons not
associated with brokers or dealers that are primarily
engaged in the retail securities business (and rollover
individual retirement accounts from such plans), as well as
insurance companies (including both general and separate
accounts), affiliates of insurance companies and investment
companies registered under the Investment Company Act of
1940. The minimum initial purchase will continue to be $2
million.
</Page>
LOGO
PROSPECTUS JANUARY 27, 1995 LINCOLN ADVISOR FUNDS, INC.
LINCOLN GROWTH AND INCOME PORTFOLIO LINCOLN ENTERPRISE PORTFOLIO
LINCOLN U.S. GROWTH PORTFOLIO LINCOLN WORLD GROWTH PORTFOLIO
LINCOLN NEW PACIFIC PORTFOLIO LINCOLN GOVERNMENT INCOME
PORTFOLIO LINCOLN CORPORATE INCOME PORTFOLIO LINCOLN TAX-FREE
INCOME PORTFOLIO LINCOLN CASHFUND PORTFOLIO
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Lincoln Advisor Funds, Inc. (the "Fund") is an open-end
management investment company. The Fund currently issues nine
separate series of shares (EACH REFERRED TO AS A PORTFOLIO OR
COLLECTIVELY AS THE PORTFOLIOS) each representing a separate,
diversified portfolio of securities. The Portfolios are the
Lincoln Growth and Income Portfolio, Lincoln Enterprise
Portfolio, Lincoln U.S. Growth Portfolio, Lincoln World Growth
Portfolio, Lincoln New Pacific Portfolio, Lincoln Government
Income Portfolio, Lincoln Corporate Income Portfolio, Lincoln
Tax-Free Income Portfolio and Lincoln Cashfund Portfolio. Each
Portfolio has a fundamental investment objective and certain
investment policies which are set forth herein.
THE INVESTMENT OBJECTIVES OF EACH PORTFOLIO ARE AS
FOLLOWS:---------------------------------------------------------
-------------
EQUITY PORTFOLIOS THE LINCOLN GROWTH AND INCOME PORTFOLIO seeks
to provide a combination of capital appreciation and current
income. The Portfolio attempts to achieve its objective by
investing in common stocks, preferred stocks, fixed income
securities, convertible securities and money market instruments.
THE LINCOLN ENTERPRISE PORTFOLIO seeks to provide maximum
appreciation of capital by investing in medium-sized companies
which have a dominant position within their industry, are
undervalued, or have potential for growth in earnings.
THE LINCOLN U.S. GROWTH PORTFOLIO seeks to maximize capital
appreciation by investing in companies of all sizes which have
low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry.
THE LINCOLN WORLD GROWTH PORTFOLIO seeks to maximize total
return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of
equity securities.
THE LINCOLN NEW PACIFIC PORTFOLIO seeks long-term capital
appreciation by investing primarily in companies which are
domiciled in or have their principal business activities in the
Pacific
Basin.-----------------------------------------------------------
-----------
FIXED-INCOME AND MONEY MARKET PORTFOLIOS THE LINCOLN GOVERNMENT
INCOME PORTFOLIO seeks to maximize current income consistent
with preservation of capital. The Portfolio attempts to achieve
this objective by investing primarily in securities issued by
the U.S. Government, its agencies and instrumentalities.
THE LINCOLN CORPORATE INCOME PORTFOLIO seeks to provide high
current income consistent with preservation of capital. The
Portfolio attempts to achieve this objective primarily by
investing in a diversified portfolio of investment-grade fixed
income securities issued by U.S. corporations. Investment-grade
fixed income securities are those rated at least Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Corporation
or, if not rated, are of comparable quality in the opinion of
the advisor or sub-advisor.
THE LINCOLN TAX-FREE INCOME PORTFOLIO seeks to provide a high
level of current income that is exempt from federal income
taxes. The Portfolio attempts to achieve this objective by
investing in a diversified portfolio of municipal bonds.
THE LINCOLN CASHFUND PORTFOLIO seeks to provide current income
and preservation of principal. The Portfolio seeks to achieve
this objective by investing primarily in a portfolio of
short-term money market instruments maturing within 13 months
of their purchase date.
THE LINCOLN CASHFUND PORTFOLIO INTENDS TO MAINTAIN ITS NET ASSET
VALUE AT $1.00 PER SHARE. AN INVESTMENT IN THE LINCOLN CASHFUND
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. SEE "NET ASSET VALUE."
This Prospectus sets forth concisely the information about the
Fund and the Portfolios that a prospective investor ought to
know before investing. Additional information about the Fund
and the Portfolios has been filed with the Securities and
Exchange Commission in a Statement of Additional Information
dated January 27, 1995 and an Annual Report, dated October 31,
1994, which information is incorporated herein by reference, is
legally a part of this Prospectus, and is available without
charge by calling the Fund's shareholder services agent at
1-800-9ADVISOR (1-800-923-8476).
This Prospectus contains useful information that can help the
investor decide whether each Portfolio's investment objective
matches his/her own. Achievement of a Portfolio's investment
objective cannot, of course, be assured due to the risk of
capital loss from fluctuating prices inherent in any investment
in securities. Investments in the Portfolios are neither
insured or guaranteed by any entity. In the opinion of the staff
of the Securities and Exchange Commission (the "SEC") the use
of this combined Prospectus may make each Portfolio liable for
misstatements or omissions pertaining to any of the other
Portfolios.
<PAGE> TABLE OF CONTENTS <TABLE>
<CAPTION>
PAGE
--------<S>
<C> Prospectus
Summary..........................................................
............................... 3 Fund
Expenses.........................................................
..................................... 6 Financial
Highlights.......................................................
................................ 11 Lincoln Growth and
Income
Portfolio........................................................
................ 13 Lincoln Enterprise
Portfolio........................................................
....................... 13 Lincoln U.S. Growth
Portfolio........................................................
...................... 14 Lincoln World Growth
Portfolio........................................................
..................... 14 Lincoln New Pacific
Portfolio........................................................
...................... 15 Lincoln Government Income
Portfolio........................................................
................ 15 Lincoln Corporate Income
Portfolio........................................................
................. 16 Lincoln Tax-Free Income
Portfolio........................................................
.................. 16 Lincoln Cashfund
Portfolio........................................................
......................... 17
Management.......................................................
.......................................... 20 Execution
of Portfolio
Transactions.....................................................
................... 23 Net Asset
Value............................................................
................................ 23 How to Purchase
Shares...........................................................
.......................... 24 How to Sell
Shares...........................................................
.............................. 29 How to Exchange
Shares...........................................................
.......................... 33 Dividends, Distributions
and
Taxes............................................................
............. 34 Shareholder Services and
Information......................................................
................. 35 Other Shareholder
Matters..........................................................
........................ 36 The Portfolios'
Performance......................................................
.......................... 37 General
Information......................................................
.................................. 37 Implementation of
Investment Objectives and
Policies.......................................................
A-1 </TABLE> 2
<PAGE> PROSPECTUS SUMMARY THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING IN THE BODY OF THE PROSPECTUS.
CROSS REFERENCES IN THIS SUMMARY REFER TO THE HEADINGS FOUND IN
THE BODY OF THE PROSPECTUS. <TABLE> <S>
<C> Investment Objectives:.............. Each
Portfolio's investment objective is
"fundamental" and may be changed only with the
approval of the holders of
a majority of the
outstanding voting securities of the Portfolio, as
defined in the Investment Company Act
of 1940 (the "Investment
Company Act"). Other investment policies
reflect current practices of the Portfolios and
may be changed by the
Portfolios without the approval of
shareholders. Investment Advisor:.................
Lincoln National Investment Management Company serves
as the Investment Advisor for each of
the Portfolios (the
"Advisor"). See "Management" for descriptions of
sub-advisors for several of the Portfolios.
Alternative Purchase Plan:.......... With the exception of the
Lincoln Cashfund Portfolio,
individual investors may select from three classes of
shares, each with different expense
levels and with a public
offering price that reflects a different sales
charge. A fourth class of shares is available
only to certain
institutional investors. Class A:........................
Offered at net asset value plus any applicable sales
charge (expressed as a percentage of
the offering price) and
subject to service and distribution fees
at the rate of 0.35% of the average daily net
asset value of the Class A
shares. Class B:........................ Offered at net
asset value and subject to service and
distribution fees at the rate 1% of the average daily
net assets of the
Class B shares. A maximum
contingent deferred sales charge (CDSC) of 5% is
imposed on certain redemptions.
The CDSC is reduced as
shown under "How to Sell Shares -- Contingent
Deferred Sales Charge -- Class B Shares"
on page 32. At the end of
the sixth year, the CDSC no longer
applies. Class B shares automatically convert to
Class A shares upon
termination of the CDSC period. Class
C:........................ Offered at net asset value and
subject to service and
distribution fees at the rate of 1% of the average
daily net assets of the Class C
shares. A CDSC of 1% is
imposed if shares are redeemed during the first 12
months after purchase. Class
D:........................ Offered at net asset value to
insurance companies
(including both general and separate accounts),
affiliates of insurance companies
and investment companies
registered under the Investment Company
Act. The minimum initial purchase amount for
Class D shares is $2
million. </TABLE> 3
<PAGE> <TABLE> <S> <C>
Lincoln Cashfund Portfolio Lincoln Cashfund
Portfolio offers two classes of
Shares:............................ shares: Regular shares and
Class B Exchange shares.
Regular shares are offered at net asset value ($1.00)
and there are no service or
distribution fees. Class B
Exchange shares, which are issued only upon the
exchange of Class B shares of other
Portfolios, are offered at
net asset value ($1.00) but are subject to
service and distribution fees of 1% of the
average daily net assets of
the Class B Exchange shares. The
Lincoln Cashfund Portfolio Class B Exchange shares
continue to be subject to a
CDSC, if any.* See How to
Purchase Shares, page 24, and "How to Exchange
Shares", page 33. Purchase of
Shares:................. Contacting broker-dealers, LNC
Equity Sales Corporation,
(the "Distributor") or directly through
the Fund's shareholder services agent. See "How
to Purchase Shares", page
24. Exchange Privileges:................ Shares of one
Portfolio may be exchanged for shares
of the corresponding class of shares of any
other Portfolio at no
additional charge. Holders of Class B
Shares of an Equity or Fixed-Income Portfolio who
exchange their shares for
shares of the Lincoln
Cashfund Portfolio will receive Class B Exchange
Shares which will continue to be
subject to service and
distribution fees and a CDSC. See "How to
Exchange Shares", page 33. Dividends,
Distributions and Dividends are paid monthly on:
Taxes:............................. Lincoln Government Income
Portfolio Lincoln Corporate
Income Portfolio Lincoln
Tax-Free Income Portfolio
Lincoln Cashfund Portfolio (accrued daily)
Each of the other Portfolios pays dividends, at
least annually. Dividends
are paid from available net
investment income. Other distributions, if any, are
paid annually from realized net
capital gains. See
"Dividends, Distributions and Taxes", page 34.
Reinvestment:....................... Distributions may be
automatically reinvested in
Portfolio shares of the same class of each Portfolio
without a sales charge.
Dividends may also be
reinvested in shares of the same class of a different
Portfolio without a sales charge.
See "Shareholder Services
and Information", page 35. Initial Investment:.................
$500 minimum on initial purchases except for the
Cashfund. Exceptions are: $250
for spousal IRA accounts,
$100 for the Cashfund, $25 for investments
through the Automatic Investment Plan and $2
million for investments in
Class D shares. See "How to
Purchase Shares", page 24. Subsequent
Investments:............. Additional investments can be made at
any time for as little as
$50. For investments through the Automatic
Investment Plan, the minimum additional
investment is $25. </TABLE>
------------------------
* Class B Exchange shares are offered as a convenience to
shareholders. The period of time during which a shareholder
owns these shares is credited toward calculation of the CDSC,
if any, upon redemption.
4 <PAGE> <TABLE> <S> <C> Net
Asset Values:................... Each class of each Portfolio
may be separately quoted in
the financial section of appropriate newspapers.
The net asset values are also available
by calling 1-800-9ADVISOR
(1-800-923-8476), toll-free, 24 hours,
7 days a week. See "Net Asset Value", page 23. Other
Shareholder Services:......... The following services are
available for Classes A, B
and C: -- Purchase by Wire
(see page 25) --
Automatic Investment Plan (see page 28)
-- Telephone Redemption Privilege (see page 30)
-- Systematic Withdrawal
Plan (see page 31) --
30-day Repurchase Privilege (see page 31)
-- Cross Reinvestment (see page 36)
-- Dollar Cost Averaging Plan (see
page 36) The following
services are available for Class A:
-- Right of Accumulation (see page 28)
-- Concurrent Purchases (see page 28)
-- Letter of Intent (see
page 28) -- Access to
service representatives
-- IRA, SEP and Keogh account handling
The following service is available for Regular shares
of the Lincoln Cashfund
Portfolio: -- Checkwriting
(see page 31) </TABLE> Fundamental Shareholder Services,
Inc. serves as the Fund's shareholder services agent and is
located at 90 Washington Street, New York, New York 10006.
5 <PAGE>
FUND EXPENSES SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are charges you pay when you
buy or sell shares of a fund. See pages 24-33 for an
explanation of how and when these charges apply to the
Portfolios. EQUITY PORTFOLIOS
<TABLE> <CAPTION> LINCOLN
GROWTH AND LINCOLN
LINCOLN LINCOLN LINCOLN
INCOME ENTERPRISE U.S. GROWTH
WORLD GROWTH NEW PACIFIC SHAREHOLDER TRANSACTION
---------------- ---------------- ----------------
---------------- ---------------- EXPENSES A
B C D A B C D A B C D A B C
D A B C D -------------------------- ---- -- -- --
---- -- -- -- ---- -- -- -- ---- -- -- -- ---- --
-- -- <S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)................... 5.5% - - - 5.5% -
- - 5.5% - - - 5.5% - - - 5.5% - - -
Maximum Sales Charge or Contingent Deferred Sales Charges
Imposed on Reinvested Dividends..... - - - - - -
- - - - - - - - - - - - - -
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, whichever is
lower)*..... - 5% 1% - - 5% 1% - - 5% 1% -
- 5% 1% - - 5% 1% - Redemption Fees...........
- - - - - - - - - - - - - - -
- - - - - Exchange Fees............. - - - -
- - - - - - - - - - - - - -
- </TABLE> FIXED-INCOME AND MONEY MARKET
PORTFOLIOS <TABLE> <CAPTION>
LINCOLN LINCOLN LINCOLN
GOVERNMENT CORPORATE LINCOLN
CASHFUND INCOME
INCOME TAX-FREE INCOME ----------------- SHAREHOLDER
TRANSACTION --------------- --------------- ---------------
CLASS B EXPENSES A B C D A
B C D A B C D REGULAR EXCHANGE
-------------------------- ---- -- -- --
---- -- -- --
---- -- -- --
------- -------- <S> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C> <C> Maximum Sales Charge
Imposed on Purchase (as a percentage of offering
price)................... 4.5% - - - 4.5% - - - 4.5%
- - - - - Maximum Sales Charge or Contingent
Deferred Sales Charges Imposed on Reinvested Dividends..... -
- - - - - - - - - - - - -
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, whichever is
lower)*..... - 5% 1% - - 5% 1% - - 5% 1% - -
5% Redemption Fees........... - - - - - -
- - - - - - - - Exchange Fees.............
- - - - - - - - - - - - -
</TABLE> ------------------------
* The Contingent Deferred Sales Charge on Class B shares
declines to 0% after six years.
6 <PAGE> ANNUAL FUND OPERATING EXPENSES (AS PERCENTAGE
OF DAILY NET ASSETS) The purpose of the following
table is to assist the investor in understanding the
various costs and expenses that will bear directly or
indirectly in owning shares of each Portfolio. Coopers &
Lybrand L.L.P, the Fund's independent accountants, has audited
the Fund's financial statements. Coopers & Lybrand L.L.P's
report appears in the Fund's annual report.
EQUITY PORTFOLIOS ANNUAL FUND OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET ASSETS) <TABLE> <CAPTION>
LINCOLN GROWTH AND INCOME
PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
0.80% 0.80% 0.80% 0.80% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.60 0.60
0.60 0.60 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.75%
2.40% 2.40% 1.40%
------- ------- ------- -------
------- ------- ------- -------
<CAPTION> LINCOLN
ENTERPRISE PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
0.80% 0.80% 0.80% 0.80% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.70 0.70
0.70 0.70 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.85%
2.50% 2.50% 1.50%
------- ------- ------- -------
------- ------- ------- ------</TABLE>
<TABLE> <CAPTION>
LINCOLN U.S. GROWTH PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C>
<C> <C> <C> Management Fees.........................
0.70% 0.70% 0.70% 0.70% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.80 0.80
0.80 0.80 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.85%
2.50% 2.50% 1.50%
------- ------- ------- -------
------- ------- ------- -------
<CAPTION> LINCOLN
WORLD GROWTH PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
1.10% 1.10% 1.10% 1.10% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.40 0.40
0.40 0.40 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.85%
2.50% 2.50% 1.50%
------- ------- ------- -------
------- ------- ------- ------<CAPTION>
LINCOLN NEW
PACIFIC PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
1.10% 1.10% 1.10% 1.10% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.40 0.40
0.40 0.40 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.85%
2.50% 2.50% 1.50%
------- ------- ------- -------
------- ------- ------- ------</TABLE>
7 <PAGE>
FIXED-INCOME PORTFOLIOS AND MONEY MARKET PORTFOLIOS ANNUAL FUND
OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE> <CAPTION>
LINCOLN GOVERNMENT INCOME PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS
D ------- -------
------- ------- <S> <C>
<C> <C> <C> Management
Fees......................... 0.30% 0.30% 0.30%
0.30% 12b-1 Fees.............................. 0.35 1.00
1.00 0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.60 0.60
0.60 0.60 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.25%
1.90% 1.90% 0.90%
------- ------- ------- -------
------- ------- ------- -------
<CAPTION> LINCOLN
CORPORATE INCOME PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
0.30% 0.30% 0.30% 0.30% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.60 0.60
0.60 0.60 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.25%
1.90% 1.90% 0.90%
------- ------- ------- -------
------- ------- ------- ------<CAPTION>
LINCOLN TAX-FREE
INCOME PORTFOLIO
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- -------
------- <S> <C> <C>
<C> <C> Management Fees.........................
0.30% 0.30% 0.30% 0.30% 12b-1
Fees.............................. 0.35 1.00 1.00
0.00 Other Expenses (after giving effect to
reimbursements)+*...................... 0.45 0.45
0.45 0.45 -------
------- ------- ------- Total Fund Operating Expenses
(after giving effect to reimbursements)+.... 1.10%
1.75% 1.75% 0.75%
------- ------- ------- -------
------- ------- ------- ------</TABLE>
<TABLE> <CAPTION>
LINCOLN CASHFUND PORTFOLIO
--------------------------
REGULAR CLASS B EXCHANGE
-------
---------------- <S>
<C> <C> Management
Fees................................... 0.25% 0.25%
12b-1 Fees........................................ 0.00
1.00 Other Expenses (after giving effect to
reimbursements)+*................................ .85
.85
------- --- Total Fund Operating Expenses (after giving
effect to reimbursements)+..................... 1.10%
2.10%
------- ---
------- --</TABLE> ------------------------
* "Other expenses" are based on expenses incurred by the Fund
during the fiscal period ended October 31, 1994 and includes
Directors' and professional fees, reports to shareholders,
transfer agent, custodian and registration fees. + "Other
expenses" and "Total Fund Operating Expenses" are net of fee
waivers and expense reimbursements by the Advisor. Absent such
fee waivers and expense reimbursements, total fund operating
expenses would be as follows: <TABLE> <CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- -------
------- ------- <S> <C>
<C> <C> <C> Lincoln Growth and Income
Portfolio..... 2.87% 3.53% 3.52% 2.52% Lincoln
Enterprise Portfolio............ 3.10% 3.76% 3.75%
2.75% Lincoln U.S. Growth Portfolio........... 2.94% 3.60%
3.54% 2.60% Lincoln World Growth Portfolio..........
3.56% 4.22% 4.23% 3.21% Lincoln New Pacific
Portfolio........... 3.66% 4.32% 4.31% 3.31%
Lincoln Government Income Portfolio..... 2.58% 3.22%
3.22% 2.23% Lincoln Corporate Income Portfolio...... 2.55%
3.21% 3.17% 2.20% Lincoln Tax-Free Income
Portfolio....... 2.66% 3.31% 3.27% -- Lincoln
Cashfund Portfolio.............. 2.11% -- --
-</TABLE> 8 <PAGE>
EXAMPLE: An investor would, directly or indirectly, pay the
following expenses on a hypothetical $1,000 investment in the
Portfolios, assuming: (1) expenses as set forth above under
Annual Fund Operating Expenses, (2) maximum initial sales
charges (without regard to any waivers) or the applicable CDSC,
(3) a 5% annual return, and (4) redemption at the end of the
period shown. <TABLE> <CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- -----
----- <S> <C>
<C> <C> <C> Lincoln Growth and Income Portfolio Class
A......................................... $72 $107 $145
$250 Class B......................................... 74
115 148 242 Class
C......................................... 34 75 128
274 Class D......................................... 14
44 77 168 Lincoln Enterprise Portfolio Class
A......................................... $73 $110 $150
$260 Class B......................................... 75
118 153 247 Class
C......................................... 35 78 133
284 Class D......................................... 15
47 82 179 Lincoln U.S. Growth Portfolio Class
A......................................... $73 $110 $150
$260 Class B......................................... 75
118 153 247 Class
C......................................... 35 78 133
284 Class D......................................... 15
47 82 179 Lincoln World Growth Portfolio Class
A......................................... $73 $110 $150
$260 Class B......................................... 75
118 153 247 Class
C......................................... 35 78 133
284 Class D......................................... 15
47 82 179 Lincoln New Pacific Portfolio Class
A......................................... $73 $110 $150
$260 Class B......................................... 75
118 153 247 Class
C......................................... 35 78 133
284 Class D......................................... 15
47 82 179 Lincoln Government Income Portfolio Class
A......................................... $57 $83 $111
$190 Class B......................................... 69
100 123 215 Class
C......................................... 29 60 103
222 Class D......................................... 9
29 50 111 Lincoln Corporate Income Portfolio Class
A......................................... $57 $83 $111
$190 Class B......................................... 69
100 123 215 Class
C......................................... 29 60 103
222 Class D......................................... 9
29 50 111 Lincoln Tax-Free Income Portfolio Class
A......................................... $56 $78 $103
$173 Class B......................................... 68
95 115 206 Class
C......................................... 28 55 95
206 Class D......................................... 8
24 42 93 Lincoln Cashfund Portfolio
Regular......................................... $11 $35
$ 61 $134 Class B Exchange................................
71 106 133 226 </TABLE>
9 <PAGE> For purposes of the Class B and Class B
Exchange shares, you would pay the following expenses on the
same investment, assuming (1) expenses (after giving effect to
waivers and reimbursements) as set forth above under Annual
Fund Operating Expenses, and (2) no redemption. <TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- ----- <S>
<C> <C> <C>
<C> Lincoln Growth and Income Portfolio............... $24
$75 $128 $242 Lincoln Enterprise
Portfolio...................... 25 78 133 247
Lincoln U.S. Growth Portfolio..................... 25 78
133 247 Lincoln World Growth Portfolio....................
25 78 133 247 Lincoln New Pacific
Portfolio..................... 25 78 133 247
Lincoln Government Income Portfolio............... 19 60
103 215 Lincoln Corporate Income Portfolio................
19 60 103 215 Lincoln Tax-Free Income
Portfolio................. 18 55 95 206 Lincoln
Cashfund Portfolio Class B
Exchange................................ 21 66 113
226 </TABLE> The examples of hypothetical investments in
each of the Portfolios should not be considered a
representation of future performance or expenses. Actual
expenses may be greater or less than those shown. For
purposes of the Class C shares, you would pay the following
expenses on the same investment, assuming (1) expenses (after
giving effect to waivers and reimbursements) as set forth above
under Annual Fund Operating Expenses, and (2) no redemption.
<TABLE> <CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- ----- <S>
<C> <C> <C>
<C> Lincoln Growth and Income Portfolio............... $24
$75 $128 $274 Lincoln Enterprise
Portfolio...................... 25 78 133 284
Lincoln U.S. Growth Portfolio..................... 25 78
133 284 Lincoln World Growth Portfolio....................
25 78 133 284 Lincoln New Pacific
Portfolio..................... 25 78 133 284
Lincoln Government Income Portfolio............... 19 60
103 222 Lincoln Corporate Income Portfolio................
19 60 103 222 Lincoln Tax-Free Income
Portfolio................. 18 55 95 206 </TABLE>
The examples of hypothetical investments in each of the
Portfolios should not be considered a representation of future
performance or expenses. Actual expenses may be greater or
less than those shown. 10
<PAGE> FINANCIAL HIGHLIGHTS The
table below provides financial highlights of income and capital
changes for one share of each Class outstanding for the fiscal
period ending October 31, 1994, and has been audited by Coopers
& Lybrand L.L.P., the Fund's independent accountants, whose
report is included in the Statement of Additional Information
for the fiscal period ending October 31, 1994. This information
is supplemented by the unaudited financial statements and
accompanying notes appearing in the Statement of Additional
Information. <TABLE> <CAPTION>
LINCOLN LINCOLN LINCOLN LINCOLN
LINCOLN LINCOLN LINCOLN
GROWTH AND LINCOLN U.S. WORLD NEW
GOVERNMENT CORPORATE TAX-FREE
INCOME ENTERPRISE GROWTH GROWTH PACIFIC
INCOME INCOME INCOME CLASS A SHARES:
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------
----------- ----------- ---------- ---------- ----------
----------- ---------- ---------- <S>
<C> <C> <C> <C> <C>
<C> <C> <C> Net asset value, beginning of
period $ 10.00 $ 10.00 $ 10.00 $
10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
Income from investment operations: Net investment income
(loss) 0.05 (0.08) (0.04)
0.02 (0.02) 0.38 0.51 0.34 Net
realized and unrealized gain (loss) on investments
(0.26) (0.71) 0.26 1.01
0.47 (0.86) (1.20) (1.06)
----------- ----------- ---------- ----------
---------- ----------- ---------- ---------- Total from
investment operations (0.21) (0.79)
0.22 1.03 0.45 (0.48) (0.69)
(0.72) ----------- -----------
---------- ---------- ---------- ----------- ----------
---------- Less distributions to shareholders: From net
investment income (0.05) (0.01) (0.01)
(0.03) (0.01) (0.37) (0.51) (0.35) From
net realized gains -- -- --
-- -- -- -- --
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
Total distributions (0.05) (0.01) (0.01)
(0.03) (0.01) (0.37) (0.51) (0.35)
----------- ----------- ----------
---------- ---------- ----------- ---------- ---------- Net
asset value, end of period $ 9.74 $
9.20 $ 10.21 $ 11.00 $ 10.44 $ 9.15 $
8.80 $ 8.93 -----------
----------- ---------- ---------- ---------- -----------
---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
---------- ---------- Total return ** (2.15)%
(7.91)% 2.18% 10.25% 4.53% (4.93)%
(7.06)% (7.40)% Ratios/Supplemental Data: Net assets,
end of period (000's) $ 10,437 $ 10,579 $
10,669 $ 11,721 $ 11,333 $ 9,658 $ 9,620 $
9,438 Net expenses to average daily net assets
1.75%* 1.85%* 1.85%* 1.85%* 1.85%*
1.25%* 1.25%* 1.10%* Net investment income
(loss) to average daily net assets 0.49%*
(1.01)%* (0.51)%* 0.25%* (0.21)%* 4.38%*
6.04%* 3.98%* Portfolio turnover rate 39%
120% 66% 6% 104% 366%
185% 25% Commencement of Operations
12/03/93 12/03/93 12/03/93 12/03/93 12/03/93
12/03/93 12/03/93 12/03/93 Without the waiver of
fees and reimbursement of expenses by the advisor,
the ratio of net expenses to average net assets would
have been: 2.87%* 3.10%*
2.94%* 3.56%* 3.66%* 2.58%* 2.55%*
2.66%* <CAPTION> CLASS B SHARES: <S>
<C> <C> <C> <C> <C>
<C> <C> <C> Net asset value, beginning of
period $ 10.00 $ 10.00 $ 10.00 $
10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
Income from investment operations: Net investment income
(loss) 0.01 (0.04) (0.03)
(0.00) (0.03) 0.12 0.29 0.16 Net
realized and unrealized gain (loss) on investments
(0.49) (0.15) 0.22 0.43
0.89 (0.23) (0.28) (0.33)
----------- ----------- ---------- ----------
---------- ----------- ---------- ---------- Total from
investment operations (0.48) (0.19)
0.19 0.43 0.86 (0.11) 0.01
(0.17) ----------- -----------
---------- ---------- ---------- ----------- ----------
---------- Less distributions to shareholders: From net
investment income (0.03) -- --
(0.03) -- (0.11) (0.28) (0.16) From
net realized gains -- -- --
-- -- -- -- --
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
Total distributions (0.03) 0.00 0.00
(0.03) 0.00 (0.11) (0.28) (0.16)
----------- ----------- ----------
---------- ---------- ----------- ---------- ---------- Net
asset value, end of period $ 9.49 $
9.81 $ 10.19 $ 10.40 $ 10.86 $ 9.78 $
9.73 $ 9.67 -----------
----------- ---------- ---------- ---------- -----------
---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
---------- ---------- Total return (4.83)%
(1.91)% 1.90% 4.28% 8.58% (1.11)%
0.11% (1.73)% Ratios/Supplemental Data: Net assets,
end of period (000's) $ 563 $ 761 $
204 $ 523 $ 431 $ 239 $ 222 $
95 Net expenses to average daily net assets
2.40%* 2.50%* 2.50%* 2.50%* 2.50%*
1.90%* 1.90%* 1.75%* Net investment income
(loss) to average daily net assets (0.14)%*
(1.53)%* (1.26)%* (0.37)%* (0.88)%* 4.87%*
5.94%* 3.52%* Portfolio turnover rate 39%
120% 66% 6% 104% 366%
185% 25% Commencement of Operations
03/29/94 04/14/94 03/29/94 03/29/94 03/29/94
07/27/94 05/11/94 05/04/94 Without the waiver of
fees and reimbursement of expenses by the advisor,
the ratio of net expenses to average net assets would
have been: 3.53%* 3.76%*
3.60%* 4.22%* 4.32%* 3.22%* 3.21%*
3.31%* <CAPTION> LINCOLN
CASHFUND CLASS A SHARES:
PORTFOLIO ---------------------------- ---------- <S>
<C> Net asset value, beginning of period
$ 1.00 ----------
Income from investment operations: Net investment income
(loss) 0.03 Net realized and
unrealized gain (loss) on investments
0.00 ---------- Total from
investment operations 0.03
---------- Less distributions to shareholders:
From net investment income (0.03) From net realized
gains -- ----------
Total distributions (0.03)
---------- Net asset value, end of period
$ 1.00 ----------
---------- Total return **
2.63% Ratios/Supplemental Data: Net assets, end of
period (000's) $ 10,897 Net expenses to average
daily net assets 1.10%* Net investment
income (loss) to average daily net assets
2.90%* Portfolio turnover rate --
Commencement of Operations 12/03/93
Without the waiver of fees and reimbursement of
expenses by the advisor, the ratio of net expenses to
average net assets would have been:
2.11%* CLASS B SHARES: <S> <C> Net
asset value, beginning of period Income from investment
operations: Net investment income (loss) Net realized and
unrealized gain (loss) on investments Total from
investment operations Less distributions to shareholders:
From net investment income From net realized gains Total
distributions Net asset value, end of period Total return
Ratios/Supplemental Data: Net assets, end of period
(000's) Net expenses to average daily net assets
Net investment income (loss) to average daily net
assets Portfolio turnover rate Commencement of
Operations Without the waiver of fees and reimbursement
of expenses by the advisor, the ratio of net
expenses to average net assets would have been:
</TABLE> ----------------------------------
* Annualized ** Class A total return calculations exclude front
end sales load. 11 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED) <TABLE>
<CAPTION> LINCOLN
LINCOLN LINCOLN LINCOLN LINCOLN LINCOLN
LINCOLN GROWTH AND LINCOLN
U.S. WORLD NEW GOVERNMENT CORPORATE
TAX-FREE INCOME ENTERPRISE
GROWTH GROWTH PACIFIC INCOME INCOME
INCOME CLASS C SHARES: PORTFOLIO PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO ---------------------------- ----------- -----------
---------- ---------- ---------- ----------- ----------
---------- <S> <C> <C>
<C> <C> <C> <C> <C>
<C> Net asset value, beginning of period $
10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $
10.00 $ 10.00 $ 10.00
----------- ----------- ---------- ---------- ----------
----------- ---------- ---------- Income from investment
operations: Net investment income (loss)
0.00 (0.05) (0.03) (0.01) (0.02)
0.15 0.08 0.05 Net realized and
unrealized gain (loss) on investments
(0.02) 0.07 0.65 0.44 0.68
(0.22) (0.19) (0.35)
----------- ----------- ---------- ---------- ----------
----------- ---------- ---------- Total from investment
operations (0.02) 0.02 0.62
0.45 0.66 (0.07) (0.11) (0.30)
----------- ----------- ----------
---------- ---------- ----------- ---------- ---------- Less
distributions to shareholders: From net investment income
(0.02) -- -- (0.02) --
(0.14) (0.09) (0.06) From net realized gains
-- -- -- -- --
-- -- --
----------- ----------- ---------- ---------- ----------
----------- ---------- ---------- Total distributions
(0.02) 0.00 0.00 (0.02) 0.00
(0.14) (0.09) (0.06)
----------- ----------- ---------- ---------- ----------
----------- ---------- ---------- Net asset value, end of
period $ 9.96 $ 10.02 $ 10.62
$ 10.43 $ 10.66 $ 9.79 $ 9.80 $ 9.64
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
----------- ----------- ----------
---------- ---------- ----------- ---------- ----------
Total return (0.22)% 0.23%
6.17% 4.45% 6.55% (0.72)% (1.00)%
(3.04)% Ratios/Supplemental Data: Net assets, end of
period (000's) $ 24 $ 37 $ 5 $
38 $ 12 $ 49 $ 9 $ 7 Net
expenses to average daily net assets 2.40%*
2.50%* 2.50%* 2.50%* 2.50%* 1.90%*
1.90%* 1.75%* Net investment income (loss) to
average daily net assets (0.08)%*
(1.53)%* (1.09)%* (0.16)%* (0.83)%* 4.71%*
5.91%* 3.50%* Portfolio turnover rate 39%
120% 66% 6% 104% 366%
185% 25% Commencement of Operations
05/11/94 05/10/94 05/23/94 05/10/94 07/07/94
07/07/94 09/14/94 09/14/94 Without the waiver of
fees and reimbursement of expenses by the advisor, the
ratio of net expenses to average net assets would have
been: 3.52%* 3.75%*
3.54%* 4.23%* 4.31%* 3.22%* 3.17%*
3.27%* </TABLE> <TABLE> <CAPTION>
LINCOLN LINCOLN LINCOLN LINCOLN
LINCOLN LINCOLN GROWTH AND
LINCOLN U.S. WORLD NEW GOVERNMENT
CORPORATE INCOME ENTERPRISE
GROWTH GROWTH PACIFIC INCOME INCOME CLASS
D SHARES: PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ---------- ----------
---------- ----------- ---------- <S>
<C> <C> <C> <C> <C>
<C> <C> <C> Net asset value, beginning of
period $ 10.42 $ 10.44 $ 10.52 $
10.50 $ 11.14 $ 10.00 $ 9.98
----------- ----------- ---------- ----------
---------- ----------- ---------- Income from investment
operations: Net investment income (loss)
0.05 (0.02) (0.01) 0.04 0.01
0.33 0.41 Net realized and unrealized gain
(loss) on investments (0.66) (1.19)
(0.28) 0.52 (0.67) (0.85) (1.12)
----------- ----------- ----------
---------- ---------- ----------- ---------- Total from
investment operations (0.61) (1.21)
(0.29) 0.56 (0.66) (0.52) (0.71)
----------- ----------- ----------
---------- ---------- ----------- ---------- Less
distributions to shareholders: From net investment income
(0.07) -- -- (0.04) --
(0.33) (0.43) From net realized gains --
-- -- -- -- --
-- ----------- -----------
---------- ---------- ---------- ----------- ----------
Total distributions (0.07) 0.00 0.00
(0.04) 0.00 (0.33) (0.43)
----------- ----------- ---------- ----------
---------- ----------- ---------- Net asset value, end of
period $ 9.74 $ 9.23 $ 10.23
$ 11.02 $ 10.48 $ 9.15 $ 8.84
----------- ----------- ---------- ----------
---------- ----------- ----------
----------- ----------- ---------- ---------- ----------
----------- ---------- Total return (5.93)%
(11.61)% (2.78)% 5.26% (5.98)% (5.17)%
(7.21)% Ratios/Supplemental Data: Net assets, end of
period (000's) $ 2,620 $ 234 $ 1,630 $
63 $ 47 $ 353 $ 1,302 Net expenses to
average daily net assets 1.40%* 1.50%*
1.50%* 1.50%* 1.50%* 0.90%* 0.90%*
Net investment income (loss) to average daily net
assets 0.91%* (0.63)%* (0.27)%*
0.76%* 0.23%* 5.57%* 6.88%* Portfolio
turnover rate 39% 120% 66% 6%
104% 366% 185% Commencement of
Operations: 02/03/94 02/03/94 02/03/94
02/03/94 02/03/94 02/03/94 02/03/94 Without the
waiver of fees and reimbursement of expenses by the
advisor, the ratio of net expenses to average net
assets would have been: 2.52%*
2.75%* 2.60%* 3.21%* 3.31%* 2.23%*
2.20%* </TABLE> ----------------------------------
* Annualized 12 <PAGE>
THE PORTFOLIOS' FUNDAMENTAL OBJECTIVES AND
OTHER INVESTMENT POLICIES THE EQUITY
PORTFOLIOS LINCOLN GROWTH AND INCOME PORTFOLIO.
This Portfolio's fundamental investment objective is to seek
to provide a combination of capital appreciation and current
income by investing in common stocks, preferred stocks,
fixed-income securities, convertible securities and money market
investments. There is no limitation on the percentage of
assets invested in various investment categories (equity
securities, debt obligations and money market instruments)
and the Advisor or sub-advisor will determine the specific
asset mix from time to time based on prevailing market
conditions. Capital appreciation and current income will be
given equal consideration in determining the investments to be
acquired by the Portfolio. However, the Portfolio does not
necessarily intend to maintain any balance between equity and
debt securities. The equity securities in which the
Portfolio will primarily invest are common stocks of
established corporations in any industry, which corporations
have market capitalizations in excess of $200 million and the
stock of which is traded on the New York Stock Exchange, the
American Stock Exchange or NASDAQ. 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. The stock of such corporations must, in the
opinion of the Advisor or sub-advisor, have prospects for price
appreciation greater than that of the Standard & Poor's
Corporation ("S&P") 500 Index generally. The Advisor's or
sub-advisor's forecast of price appreciation is based on
estimates of future earnings and cash flow, and the
anticipated impact of those estimates on the price of the
stock. The Portfolio may also invest in preferred stocks or debt
securities that are either convertible into common stock or have
warrants attached. The Portfolio will also invest in debt
securities which primarily have ratings at the time of
purchase within the four highest categories determined by
Moody's Investors Service, Inc. ("Moody's") or S&P or, if
not rated, be of comparable quality in the opinion of the
Advisor or sub-advisor. The Portfolio may invest up to 15% of
its assets in securities having ratings at the time of purchase
lower than Baa by Moody's or BBB by S&P or, if not rated, of
comparable quality in the opinion of the Advisor or
sub-advisor. The Portfolio will not invest in debt securities
rated lower than B by Moody's or S&P. Lower-rated or unrated
securities, commonly referred to as "junk bonds," are more
likely to react to developments affecting market and credit
risk than are more highly rated securities, which react
primarily to movements in the general level of interest
rates. See page 18 for a description of the risks inherent
in such securities and see "Description of Security Ratings"
in the Statement of Additional Information for a
description of the Moody's and S&P ratings. The Portfolio may
also invest in U.S. Government Securities. The Portfolio
may invest up to 15% of its assets in the securities of
foreign issuers. LINCOLN ENTERPRISE PORTFOLIO. This
Portfolio's fundamental investment objective is to seek to
provide maximum appreciation of capital by investing in
medium-sized companies which have a dominant position within
their industry, are undervalued, or have potential for growth
in earnings. Currently, medium-sized companies are considered to
have market capitalizations between $250 million and $5 billion.
The Portfolio is unlikely to participate in slow growth
industries such as utilities and is likely to invest
frequently in high growth rate companies in the retail, health
care, computer, communication and entertainment industries.
Under normal circumstances, at least 65% of the value of
the Portfolio's assets will be invested in equity securities.
In selecting investments, the Portfolio's Advisor or
sub-advisor seeks small or medium capitalization companies that
it believes have earnings that may be expected to grow faster
than the U.S. economy in general. These companies will
typically possess one or more characteristics, including
high quality management, a leading or dominant position in
a product and a relatively high rate of return on invested
capital. Income derived from securities of such companies is
only an incidental consideration of the Portfolio.
13 <PAGE> The Portfolio will
primarily invest in common stocks although it may invest up to
35% of the value of its assets in convertible bonds, convertible
preferred stock, warrants to purchase common stock, futures and
options. The Portfolio may invest up to 15% of its assets
in securities of foreign issuers. LINCOLN U.S. GROWTH
PORTFOLIO. This Portfolio's fundamental investment objective
is to seek to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields,
strong balance sheets and high expected earnings growth rates
relative to their industry. The Advisor or sub-advisor will
seek investments in companies of all sizes that the Advisor
or sub-advisor believes have earnings that may be expected to
grow faster than the U.S. economy in general. Such companies
may offer the possibility of accelerated earnings growth
because of management changes, new products or structural
changes in the economy. In addition, those companies with
relatively high rates of return on invested capital may be
able to finance future growth from internal sources. Income
derived from securities in such companies will be only an
incidental consideration of the Portfolio. The Portfolio
intends to invest primarily in common stocks believed by the
Advisor or sub-advisor to have appreciation potential. However,
common stock is not always the class of security that
provides the greatest possibility for appreciation. The
Portfolio may invest up to 35% of its assets in debt
securities, bonds, convertible bonds, preferred stock and
convertible preferred stock. The Portfolio may also invest up
to 10% of its assets in securities rated lower than Baa by
Moody's or BBB by S&P if, in the opinion of the Advisor, doing
so would further the Portfolio's objective. Lower-rated or
unrated securities, commonly referred to as "junk bonds," are
more likely to react to developments affecting market and
credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates.
See page 18 for a description of the risks inherent in such
securities and see "Description of Security Ratings" in
the Statement of Additional Information for a description
of the Moody's and S&P ratings. The Portfolio may invest up
to 20% of its assets in foreign securities. LINCOLN WORLD
GROWTH PORTFOLIO. This Portfolio's fundamental objective is
to seek to maximize total return (capital appreciation and
income) by investing primarily in equity securities of foreign
issuers located in countries that the Fund's Advisor or
sub-advisor deems to have attractive investment opportunities.
"Total return" refers to income plus realized and unrealized
appreciation of the securities. Under normal circumstances, the
Portfolio will invest at least 65% of the value of its total
assets in securities of issuers located in at least three
countries other than the United States. However, more than
25% of the Portfolio's total assets may be invested in the
securities of issuers located in the same country. The
Portfolio will emphasize established companies, although it may
invest in companies of varying sizes as measured by assets,
sales and capitalization. The Portfolio may invest in
securities of issuers located in a variety of different
foreign regions and countries which includes, but is not
limited to, the following: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland,
Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and The United Kingdom. The relative
strength or weakness of a particular country's currency or
economy may dictate whether securities of issuers located in
such country will be purchased or sold. Criteria for
determining the appropriate distribution of investments among
various countries and regions include prospects for relative
economic growth among foreign countries, expected levels
of inflation, government policies influencing business
conditions, the outlook for currency relationships, and the
range of investment opportunities available to international
investors. The Portfolio invests in common stock and may
invest in other securities with equity characteristics,
consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Portfolio may also
invest in convertible securities, consisting of debt securities
or preferred stock that may be converted into common stock or
that carry the right to purchase common stock. The Portfolio
may invest in securities listed on foreign or domestic
securities exchanges and securities traded in foreign and
domestic over-thecounter markets and may invest in
restricted or unlisted securities. In addition, the
Portfolio's investments may include American Depository
Receipts (ADRs), American Depository Shares (ADSs) and
securities of 14 <PAGE>
foreign investment funds or trusts to the extent permitted under
the Portfolio's investment restrictions. See "Risk Factors and
Special Considerations -- Foreign Investments" below. For a
complete list of the Portfolio's investment restrictions,
see "Investment Restrictions" in the Statement of
Additional Information. The Portfolio may invest up to 20%
of its assets in securities of companies located in, or
governments of, developing countries. For temporary defensive
purposes, the Portfolio may invest a major portion of its
assets in securities of U.S. issuers. In addition, the
Portfolio may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses and liquidity
requirements. LINCOLN NEW PACIFIC PORTFOLIO. This
Portfolio's fundamental investment objective is to seek to
maximize long-term capital appreciation by investing primarily
in equity securities of companies domiciled or having their
principal business activities in countries located in the
Pacific Basin. The Portfolio will invest in companies of
varying size, measured by assets, sales and capitalization. The
Portfolio will invest in companies in one or more of the
following Pacific Basin countries: <TABLE> <S> <C>
Australia Pakistan China Philippines Hong Kong
Singapore India South Korea Indonesia Sri Lanka
Japan Taiwan Malaysia Thailand New Zealand </TABLE>
The Portfolio may invest in companies located in other
countries or regions in the Pacific Basin as those economies
and markets become more accessible. The Portfolio will invest
in other countries or regions only after the decision to do so
is disclosed in an amendment to this Prospectus. Any
amendment to this Prospectus containing such a material
change will be delivered to investors. While the Portfolio
will generally have investments in companies located in at
least three different countries or regions, the Portfolio may
from time to time have investments only in one or a few
countries or regions. The Portfolio invests in common stock
and may invest in other securities with equity
characteristics, consisting of trust or limited
partnership interests, preferred stock, rights and warrants.
The Portfolio may also invest in convertible securities,
consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to
purchase common stock. The Portfolio may invest in securities
listed on foreign or domestic securities exchanges and
securities traded in foreign and domestic over-thecounter
markets and may invest in restricted or unlisted securities.
Under normal circumstances, at least 65% of the Portfolio's
assets will be invested in equity securities of foreign
issuers located in the Pacific Basin. The Portfolio may invest
in securities of companies located in, or governments of,
developing countries within the Pacific Basin. The Portfolio
may invest up to 35% of its assets in securities of U.S.
issuers. In addition, the Portfolio may be invested in
short-term debt instruments to meet anticipated day-to-day
operating expenses and liquidity requirements. THE FIXED-INCOME
PORTFOLIOS AND MONEY MARKET PORTFOLIOS LINCOLN GOVERNMENT
INCOME PORTFOLIO. This Portfolio's fundamental
investment objective is to seek to maximize current income
consistent with the preservation of capital by investing
primarily in securities issued by the U.S. Government, its
agencies and instrumentalities ("U.S. Government Securities").
Under normal conditions, at least 65% of the value of the
Portfolio's total assets will be invested in U.S. Government
Securities. Depending upon prevailing market conditions,
the Portfolio may invest in U.S. Government Securities of
varying maturities, ranging up to 40 years. U.S. Government
Securities include certain mortgage-backed securities, such
as Government National Mortgage Association Certificates.
See "Mortgage-Backed Securities" in Appendix A. As the
Portfolio invests primarily in U.S. Government Securities, which
are lower-risk 15 <PAGE>
securities, it may not achieve as high a level of income
under all market conditions as would be the case if the
Portfolio invested in higher yielding securities. Up to 35%
of the Portfolio's assets may be invested in corporate bonds
of U.S. companies, mortgage-backed securities and asset-backed
securities that are rated at least Aa by Moody's or AA by
S&P or, if not rated, are of comparable quality in the
Advisor's or sub-advisor's opinion. See "Description of
Security Ratings" in the Statement of Additional Information.
LINCOLN CORPORATE INCOME PORTFOLIO. This Portfolio's
fundamental investment objective is to seek to provide a high
level of current income consistent with preservation of capital
by investing primarily in corporate bonds of U.S.
companies that are rated at least Baa by Moody's or BBB by S&P
or, if not rated, are of comparable quality in the opinion of
the Advisor or sub-advisor. See Description of Security
Ratings in the Statement of Additional Information.
Maturities of the corporate bonds held by the Portfolio are
expected to range from seven to forty years, unless the
Portfolio's Advisor or sub-advisor believes that investing in
corporate bonds with shorter or longer maturities would be
appropriate in light of prevailing market conditions. The
Portfolio may also invest up to 35% of its assets in preferred
stock, corporate bonds and preferred stock convertible into or
that carry the right to acquire common stock, corporate bonds
that are not of investment grade quality, U.S. Government
Securities, various mortgage-backed securities and asset-backed
securities, common stock consistent with the Portfolio's
objective, and bonds issued by foreign governments or foreign
corporations, provided that no more than 10% of the
Portfolio's assets will be invested in bonds issued by foreign
governments or foreign corporations and no more than 10% of
the Portfolio's assets will be denominated in any one foreign
currency. The Portfolio will not invest more than 20% of its
assets in bonds that are not of investment grade quality and
will not invest in bonds rated below Caa by Moody's or CCC by
S&P. Lower-rated or unrated securities, commonly referred to
as "junk bonds," are more likely to react to developments
affecting market and credit risk than are more highly rated
securities, which primarily react to movements in the general
level of interest rates. See page 18 for a description of the
risks inherent in such securities and see "Description of
Security Ratings" in the Statement of Additional Information
for a description of the Moody's and S&P ratings. LINCOLN
TAX-FREE INCOME PORTFOLIO. This Portfolio's fundamental
investment objective is to seek to provide a high level of
current income that is exempt from federal income taxes by
investing at least 80% of its net assets in municipal
securities, the interest on which is exempt from federal
income tax and not treated as a preference item for individuals
for purposes of the federal alternative minimum tax. Under
normal circumstances, at least 65% of the Portfolio's assets
will be invested in securities rated at least Baa by Moody's or
BBB by S&P or, if not rated, are of a comparable quality in
the opinion of the Advisor or sub-advisor. Up to 35% of the
Portfolio's assets may be invested in municipal obligations
rated below investment grade, but rated at least Ba by Moody's
or BB by S&P or having investment characteristics similar to
those obligations. Subsequent to its purchase by the
Portfolio, a municipal obligation may be assigned a lower
rating or cease to be rated. Such an event would not require
the elimination of the issue from the Portfolio, but the
Advisor will consider such an event in determining whether
the Portfolio should continue to hold the security.
Obligations rated below investment grade typically offer
higher yields than higher rated obligations but involve
greater risk. Lower-rated or unrated securities, commonly
referred to as "junk bonds," are more likely to react to
developments affecting market and credit risk than are
more highly rated securities, which primarily react to
movements in the general level of interest rates. See page 18
for a description of the risks inherent in such securities and
see "Description of Security Ratings" in the Statement of
Additional Information for a description of the Moody's and S&P
ratings. The Portfolio will not invest more than 25% of
its assets in obligations within a single industry, including
revenue bonds payable only from revenues derived from
facilities or revenues within a single industry. The Portfolio
does not intend to invest more than 25% of its assets in
obligations of governmental units or issuers located in the same
state, territory or possession of the U.S. Under normal market
conditions, it is anticipated that the Portfolio's weighted
average maturity will range from fifteen to 25 years although
the Portfolio may shorten its weighted average maturity to
as little as two years if deemed appropriate.
16 <PAGE> The Portfolio may invest
up to 10% of its assets in the securities of foreign
issuers. LINCOLN CASHFUND PORTFOLIO. This Portfolio's
fundamental investment objective is to seek to provide current
income and preservation of principal by investing in
high-quality money market instruments. The Portfolio invests
in the following U.S. dollar denominated high-quality, money
market instruments issued by U.S. and foreign financial
institutions and non-financial corporations and by the U.S.
government, its agencies and instrumentalities: 1.
Negotiable certificates of deposit, time deposits and
bankers' acceptances of U.S. and foreign banks and
thrifts with a Moody's deposit rating of P1 or minimum
long-term ratings of Aa by Moody's or AA by S&P; 2.
Commercial paper (including variable rate demand notes) rated
P1 or A1 by Moody's or S&P, respectively (a maximum
of 5% may be held in P2 or A2 instruments); 3.
Short-term corporate obligations with minimum long-term ratings
of Aa by Moody's or AA by S&P; 4. U.S.
Government Securities; and 5. Repurchase agreements
collateralized by U.S. Government Securities. The Portfolio
follows industry standard guidelines on the quality and
maturity of its investments designed to help maintain a
stable $1.00 share price. The Portfolio does not, however,
guarantee a $1.00 share price, and a significant change in
interest rates or a default on an investment could cause the
share price to change. The Portfolio may invest in U.S.
Government Securities without limit and during normal market
conditions will invest at least 25% of its assets in
domestic bank obligations and U.S. denominated securities of
foreign banks. The Lincoln Cashfund Portfolio is generally
prevented from investing more than 5% of its total assets in
the securities of any one issuer. However, under a
"three-day safe harbor" exception to Rule 2a-7 of the Investment
Company Act the Portfolio may invest up to an additional
25% of its total assets in the securities of a single
issuer for a maximum of three business days, if the highest
quality standards of the Rule are satisfied, and other
conditions are met. This exception will allow the Advisor to
efficiently invest large inflows of cash into the Portfolio.
CERTAIN INVESTMENT GUIDELINES ILLIQUID SECURITIES. Up to
10% of the assets of each Portfolio may be invested in
securities that are not readily marketable, including,
where applicable: (1) repurchase agreements with maturities
greater than seven calendar days; (2) time deposits maturing
in more than seven calendar days; (3) certain instruments,
futures contracts and options thereon for which there is no
liquid secondary market; (4) certain over-the-counter options,
as described in the Statement of Additional Information; (5)
certain variable rate demand notes having a demand period of
more than seven days; and (6) certain Rule 144A restricted
securities (Rule 144A securities for which a dealer or
institutional market exists will not be considered illiquid).
RESTRICTED SECURITIES. The Lincoln Growth and Income,
Lincoln Enterprise, Lincoln U.S. Growth, Lincoln World Growth
and Lincoln New Pacific Portfolios may invest in restricted
securities. Restricted securities are securities with legal or
contractual restrictions on resale. Restricted securities
eligible for resale pursuant to Rule144A that have a readily
available market will not be considered illiquid for purposes
of the Portfolios' investment restriction concerning
illiquid securities. OTHER GUIDELINES. In addition, each
Portfolio may invest up to 5% of its assets in the securities
of issuers which have been in continuous operation for less
than three years. In the case of the Lincoln Tax-Free Income
Portfolio, this guideline applies only to industrial
development revenue bonds where the private entity on whose
credit the security is based directly or indirectly is less
than three years old (including predecessors). Each
Portfolio may also borrow from banks for temporary or
other emergency purposes, but not for investment purposes, in
an amount up to one-third of its total assets, and may pledge
its assets to the 17
<PAGE> same extent in connection with such borrowings.
Whenever these borrowings, including reverse repurchase
agreements, exceed 5% of the value of a Portfolio's total
assets, the Portfolio will not purchase any securities.
Except for the limitations on borrowing, the investment
guidelines set forth in this paragraph may be changed at any
time without shareholder consent by vote of the Board of
Directors. A complete list of investment restrictions that
identifies additional restrictions that cannot be changed
without the approval of a majority of an affected Portfolio's
outstanding shares (as well as other non-fundamental
restrictions) is contained in the Statement of Additional
Information. RISK FACTORS AND SPECIAL CONSIDERATIONS
FIXED-INCOME SECURITIES. The market value of fixed-income
obligations held by the Portfolios and, consequently, the net
asset value per share of the Portfolios investing in
fixed-income securities can be expected to vary inversely
to changes in prevailing interest rates. Investors should
also recognize that, in periods of declining interest
rates, the yields of the Fixed-Income Portfolios will tend to
be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the Fixed-Income Portfolio's
yields will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money to a
Fixed-Income Portfolio will likely be invested in instruments
producing lower yields than the balance of assets in the
Portfolio, thereby reducing current yields. In periods of rising
interest rates, the opposite can be expected to occur. In
addition, obligations purchased by certain of the Fixed-Income
Portfolios that are rated in the lowest of the top four
ratings (Baa by Moody's or BBB by S&P) are considered to have
speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments
than is the case with higher grade securities. See
"Lower-Rated Securities" herein. FOREIGN INVESTMENTS. The
Lincoln World Growth Portfolio and the Lincoln New Pacific
Portfolio may invest all of their assets in foreign investments.
Certain of the Portfolios may invest the following
percentages of their assets in foreign securities: the Lincoln
Growth and Income Portfolio (15%), the Lincoln Enterprise
Portfolio (15%), the Lincoln U.S. Growth Portfolio (20%), the
Lincoln Corporate Income Portfolio (10%) and the Lincoln
Tax-Free Income Portfolio (10%). There are certain risks
involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange
rates, devaluation of currencies, future political or economic
developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning
issuers, and the fact that foreign companies are not
generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to
domestic companies. Although the Portfolios' Advisor or
sub-advisors do not intend to expose the Portfolios to such
risks, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of
funds or other assets of the Portfolios, including the
withholding of dividends. When the Portfolios' Advisor or
sub-advisor believes that currency in which a portfolio
security or securities is denominated may suffer a decline
against the United States dollar, it may hedge such risk by
entering into a forward contract to sell an amount of foreign
currency approximating the value of some or all of the
Portfolios' portfolio securities denominated in such foreign
currency. Because foreign securities generally are
denominated and pay dividends or interest in foreign
currencies, and the Portfolios hold various foreign
currencies from time to time, the value of the net assets of
the Portfolios as measured in United States 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. In order to protect against uncertainty
in the level of future foreign currency exchange rates, the
Portfolios are authorized to enter into certain foreign
transactions. Investors should be aware that exchange rate
movements can be significant and can endure for long
periods of time. The Investment Advisor and sub-advisors of the
Portfolios attempt to manage exchange rate risk through active
currency management. 18
<PAGE> 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
New York Stock Exchange. Accordingly, the Portfolios' foreign
investments may be less liquid and their prices may be
more volatile than comparable investments in securities of
United States companies. Moreover, the settlement periods for
foreign securities, which are often longer than those for
securities of United States issuers, may affect portfolio
liquidity. In buying and selling securities on foreign
exchanges, the Portfolios normally pay 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. The Lincoln World Growth Portfolio and the Lincoln
New Pacific Portfolio may purchase foreign equity and debt
securities that are listed on a principal foreign securities
exchange or over-the-counter market, represented by American
Depository Receipts (ADRs) or American Depository Shares
(ADSs). An ADR or ADS facility may be either a "sponsored"
or "unsponsored" arrangement. In a sponsored arrangement,
the foreign issuer establishes the facility, pays some or all
the depository's fees, and usually agrees to provide
shareholder communications. In an unsponsored arrangement,
the foreign issuer is not involved and the ADR or ADS
holders pay the fees of the depository. Depository banks
arrange unsponsored ADR and ADS facilities, either upon their
initiative or at the urging of large shareholders of or dealers
in the foreign securities. Unsponsored ADRs or ADSs may
involve more risk to the Portfolio than sponsored ADRs or
ADSs due to the additional costs involved to the Portfolio,
the relative illiquidity of the issue in U.S. markets, and
the possibility of higher trading costs in the over the counter
market as opposed to exchange-based trading. The Portfolio
will take these and other risk considerations into account
before making an investment in an unsponsored ADR or ADS.
Investments in foreign securities offer potential benefits
not available from investments in securities of domestic
issuers. Such benefits include the opportunity to invest in
securities that appear to offer greater potential for long-term
capital appreciation than investments in domestic securities,
and to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets. LOWER-RATED SECURITIES. The
following Portfolios may invest the following percentages of
their total assets in debt securities rated lower than Baa by
Moody's or BBB by S&P: Lincoln Growth & Income Portfolio
(15%), Lincoln U.S. Growth Portfolio (10%), Lincoln Corporate
Income Portfolio (35%), and Lincoln Tax-Free Income Portfolio
(35%). Prices for securities rated below investment grade may
be affected by legislative and regulatory developments.
Securities rated BB or lower are commonly referred to as "junk
bonds". See "Description of Security Ratings" in the Statement
of Additional Information. Securities rated below
investment grade as well as unrated securities usually
entail greater risk (including the possibility of default or
bankruptcy of the issuers), and generally involve greater
price volatility and risk of principal and income, and may be
less liquid, than securities in higher rated categories. Both
price volatility and illiquidity may make it difficult for the
Portfolio to value certain of these securities at certain
times and these securities may be difficult to sell under
certain market conditions. Prices for securities rated below
investment grade may be affected by legislative and
regulatory developments. BORROWING. Each of the
Portfolios may borrow money for temporary or emergency
purposes in amounts not in excess of one-third of each
Portfolio's total assets. If a Fund borrows money, its share
price may be subject to greater fluctuation until the
borrowing is repaid. If a Fund makes additional
investments while borrowings are outstanding, this may be
construed as a form of leverage. None of the Portfolios, except
for the Lincoln Enterprise and Lincoln U.S. Growth Portfolios,
will purchase additional securities when money borrowed exceeds
5% of the Portfolio's total assets. SECURITIES LENDING.
Each Portfolio may lend securities with a value of up to
one-third of its total assets to broker-dealers,
institutions and other persons as a means of earning
additional income. Any such loan shall be continuously
secured by collateral at least equal to 100% of the value of
the security being loaned. If
19 <PAGE> the collateral is cash, it may be invested in
short-term securities, U.S. Government obligations or
certificates of deposit. Each Portfolio will retain the
evidence of ownership of any loaned securities and will
continue to be entitled to the interest or dividends
payable on the loaned securities. In addition, the Portfolio
will receive interest on the loan. The loan will be
terminable by the Portfolio at any time and will not be made
to affiliates of the Portfolio, the Investment Advisor or
the respective Sub-Advisor. The Portfolio may pay reasonable
finder's fees to persons unaffiliated with it in connection
with the arrangement of loans. If the other party to a
securities loan becomes bankrupt, a Portfolio could experience
delays in recovering its securities. To the extent that, in
the meantime, the value of securities loans has increased, the
Fund could experience a loss. TEMPORARY DEFENSIVE POSITION.
For temporary defensive purposes when the Advisor or
sub-advisor determines that market conditions warrant, each
Portfolio may invest up to 100% of its assets in money market
instruments. To the extent a Portfolio is engaged in a
temporary defensive position, the Portfolio will not be
pursuing its investment objective. Each Portfolio may also hold
a portion of its assets in cash for liquidity purposes.
PORTFOLIO TURNOVER. The portfolio turnover rates for the
Portfolios for the period ending October 31, 1994 were as
follows: 39% (Lincoln Growth and Income Portfolio), 120%
(Lincoln Enterprise Portfolio), 66% (Lincoln U.S. Growth
Portfolio), 6% (Lincoln World Growth Portfolio), 104%
(Lincoln New Pacific Portfolio), 366% (Lincoln Government
Income Portfolio), 185% (Lincoln Corporate Income Portfolio)
and 25% (Lincoln Tax-Free Income Portfolio). High turnover in
any Portfolio could result in additional brokerage commissions
to be paid by the Portfolio. In addition, high portfolio
turnover may also mean that a proportionately greater
amount of distributions to shareholders will be taxed as
ordinary income rather than long-term capital gains
compared to investment companies with lower portfolio
turnover. See "Dividends, Distributions and Taxes."
MANAGEMENT The Fund's Board of
Directors has overall responsibility for the operation of the
Fund. Pursuant to such responsibility the Board contracts with
various financial organizations to provide, among other
things, day-to-day management services for the Portfolios.
INVESTMENT ADVISOR Lincoln National Investment Management
Company ("LNIMC"), the Advisor to the Portfolios, is
headquartered at 200 East Berry Street, Fort Wayne, Indiana
46802. LNIMC was incorporated in Illinois on June 27,
1930, and is a wholly-owned subsidiary of Lincoln
National Corporation. Lincoln National Corporation, whose
principal office is at 200 East Berry Street, Fort Wayne,
Indiana 46802, is a publicly-held holding company organized
under Indiana law which, through subsidiaries, provides, on a
national basis, life insurance and annuities, property-casualty
insurance, investment products and related services.
LNIMC is registered with the SEC as an investment advisor
and acts as investment advisor to several registered investment
companies in addition to the Fund. LNIMC also provides
investment services to Lincoln National Corporation and its
principal subsidiaries and acts as investment advisor to other
clients. As of September 30, 1994 LNIMC had total assets
under management of $30.8 billion. INVESTMENT ADVISORY
AGREEMENT. The Investment Advisory Agreements, dated October
25, 1993, under which LNIMC serves as Investment Advisor to each
of the Portfolios, were approved by the Board of Directors
of the Fund, including a majority of the Directors who are
not "interested persons" of the Fund, on October 1, 1993.
20 <PAGE> LNIMC receives
advisory fees monthly based upon each Portfolio's average
daily net assets at the following annual rates: <TABLE> <S>
<C> Lincoln Growth and Income
Portfolio................................. .80% Lincoln
Enterprise Portfolio........................................
.80% Lincoln U.S. Growth
Portfolio....................................... .70%
Lincoln World Growth
Portfolio...................................... 1.10%
Lincoln New Pacific
Portfolio....................................... 1.10%
Lincoln Government Income
Portfolio................................. .30% Lincoln
Corporate Income Portfolio..................................
.30% Lincoln Tax-Free Income
Portfolio................................... .30% Lincoln
Cashfund Portfolio..........................................
.25% </TABLE> The advisory fees for the Lincoln Growth
and Income, Lincoln Enterprise, Lincoln World Growth and
Lincoln New Pacific Portfolios are higher than those paid by
most mutual funds. Under the Investment Advisory
Agreements, LNIMC is responsible for the investment and
reinvestment of each Portfolio's assets, subject to the general
supervision of the Fund's Board. LNIMC performs and bears the
costs of research, statistical analysis and continuous
supervision of the Portfolios' investment portfolios. LNIMC
also furnishes the Portfolios with office space and all
ordinary and necessary office facilities, equipment and
personnel for managing the affairs of the Portfolios. In
addition, LNIMC bears the cost of fees, salaries or other
remuneration of all of the officers and any employees of the
Fund. LNIMC uses a team of portfolio managers to provide the
advisory services under the Investment Advisory Agreement.
Securities regulations of various states in which the
Portfolios intend to have shareholders may provide that, if
expenses borne by a Portfolio in any fiscal year exceed
certain limitations, LNIMC must reimburse the Fund for any
such excess at least annually and prior to publication of
the Fund's annual report. The percentage limitation includes
the advisory fee but excludes interest, taxes, a portion of a
Portfolio's service and distribution fee, a portion of a
Portfolio's custody fee attributable to investments in
foreign securities, brokerage fees and, where permitted,
extraordinary expenses. These expense limitations may be
raised or lowered from time to time. Under present state
regulations, the most restrictive limitation of state securities
commissions is: 2 1/2% of the first $30,000,000 of average net
assets of a Portfolio, 2% of the next $70,000,000 of average
net assets and 1 1/2% of average net assets in excess of
$100,000,000 during the applicable year. During any year LNIMC
will be bound by the most stringent applicable requirements
of any state in which a Portfolio has registered its shares
for sale. The Investment Advisory Agreements will continue
in effect for a period of two years from the date of
their execution, and will continue annually thereafter if
approved by a vote of a majority of the Directors who are
not interested persons of the Fund or LNIMC, at a meeting
called for the purpose of voting on such approval. The
Investment Advisory Agreements may be terminated without
penalty at any time (1) on 60 days' written notice, by
vote of a majority of the Board of Directors of the Fund, (2)
on 60 days' written notice, by vote a majority of the
outstanding voting securities of the Portfolios, or (3) on 60
days' written notice by LNIMC. The Investment Advisory
Agreements terminate automatically in the event of
"assignment". The terms "assignment", "majority of outstanding
voting securities" and "interested person" are as defined
in the Investment Company Act. INVESTMENT SUB-ADVISORS
Pursuant to a sub-advisory agreement with LNIMC (the
"Sub-Advisory Agreement" or, collectively, the "Sub-Advisory
Agreements"), each Portfolio's sub-advisor participates in the
management of its respective Portfolio's assets, is responsible
for the day-to-day investment management of the Portfolio, makes
investment decisions for the Portfolio in accordance with
the Portfolio's investment objective and places orders on
behalf of the Portfolio to effect the investment decisions
made. LNIMC continues to have responsibility for all
investment advisory services in connection with the management
of the Portfolios pursuant to the
21 <PAGE> Investment Advisory Agreement and supervises
the sub-advisors' performance of such services. Each of the
sub-advisors uses a team of portfolio managers to provide the
advisory services pursuant to the Sub-Advisory Agreements.
The sub-advisors receive subadvisory fees from the
Advisor for their services calculated in accordance with
the schedule set forth below. The Portfolios do not pay any
fees to the sub-advisors. <TABLE> <CAPTION>
PORTFOLIO SUB-ADVISOR
ANNUAL FEE------------------------------------------
------------------------------------------- --------------<S>
<C>
<C> Lincoln Growth and Income Portfolio
Beutel, Goodman Capital Management .50%
Lincoln Enterprise Portfolio Lynch & Mayer, Inc
.50% Lincoln U.S. Growth
Portfolio Provident Investment Counsel
.40% Lincoln World Growth Portfolio
Walter Scott & Partners Limited .80%
Lincoln New Pacific Portfolio John Govett &
Company Limited .80% </TABLE> The
following registered investment advisors act as
sub-advisors (the "Sub-Advisors" or individually the
"Sub-Advisor") to LNIMC with respect to the management of the
assets of the Portfolios as indicated below. Beutel, Goodman
Capital Management, Sub-Advisor to LNIMC with respect to the
management of the assets of the Lincoln Growth and Income
Portfolio, 5847 San Felipe, Suite 4500, Houston, Texas 77057,
provides advice on pension investments to a number of
institutional firms as well as to high net worth individuals.
Through its affiliate, Beutel, Goodman & Company Ltd., pension
investments are managed for a number of Fortune 500 companies
with Canadian pension plans. In total, the companies managed
assets of over $7.5 billion as of September 30, 1994.
Lynch & Mayer, Inc., Sub-Advisor to LNIMC with respect to
management of the assets of the Lincoln Enterprise Portfolio,
520 Madison Avenue, New York, New York 10022, provides
investment advice to pension funds, foundations,
endowments, trusts and high net worth individuals and
families and had assets under management, as of December 31,
1994, in excess of $5.6 billion. Provident Investment
Counsel, a wholly owned subsidiary of United Asset
Management Corporation as of February 15, 1995, Sub-Advisor
to LNIMC with respect to management of the assets of the
Lincoln U.S. Growth Portfolio, 300 North Lake Avenue,
Penthouse Suite, Pasadena, California 91101-4106, provides
investment advice to pension funds, foundations, endowments and
mutual funds and had assets under management, as of December 31,
1994, of $14.3 billion. Walter Scott & Partners Limited,
Sub-Advisor to LNIMC with respect to management of the
assets of the Lincoln World Growth Portfolio, Millburn Tower,
Gogar, Edinburgh, Scotland EH12 9BS, provides investment advice
to pension funds and foundations and had assets under
management, as of December 31, 1994, in excess of $1.5
billion. John Govett & Company Limited, Sub-Advisor to
LNIMC with respect to management of the assets of the Lincoln
New Pacific Portfolio, Shackleton House, 4 Battlebridge Lane,
London, England SE1 2HR, provides investment advice to
investment trusts, investment companies, mutual funds and
pension funds and had assets under management, as of December
31, 1994, of $4.5 billion. While LNIMC acts as investment
advisor for all of the Portfolios, it is solely responsible
for the investment management of the Lincoln Government
Income Portfolio, Lincoln Corporate Income Portfolio, Lincoln
Tax-Free Income Portfolio and Lincoln Cashfund Portfolio.
DISTRIBUTOR LNC Equity Sales Corporation ("LNC Equity
Sales" or the "Distributor") is located at 3811 Illinois Road,
Suite 212, Fort Wayne, Indiana 46804 and serves as
distributor of the Fund shares. LNC Equity Sales is paid an
annual service fee with respect to Class A, Class B and Class C
shares of the Portfolios at the rate of 0.25% of the value of
the average daily net assets of the respective class of each
Portfolio. LNC Equity Sales is also paid an annual
distribution fee by Class A, Class B and Class C shares at
the rate of 0.10%, 0.75% and 0.75%, respectively, of the
value of average daily net assets attributable to those classes
of shares. The fees are authorized pursuant to separate
service and distribution plans for each of the
Class A, Class B and
22 <PAGE> Class C shares (the "Plans") adopted by the
Portfolios pursuant to Rule 12b-1 under the Investment Company
Act and are used by LNC Equity Sales to pay its financial
advisors for servicing shareholder accounts and also to cover
expenses primarily intended to result in the sale of those
shares of the Portfolios. These expenses include costs of
printing and distributing the Portfolios' Prospectus,
Statement of Additional Information and sales literature
to prospective investors; an allocation of overhead and
other branch office distribution-related expenses; payments
to and expenses of registered representatives and other
persons who provide support services in connection with the
distribution of the shares; and accruals for interest on the
amount of the foregoing expenses that exceed distribution fees
and, in the case of Class B shares, the CDSC received by LNC
Equity Sales. Registered representatives may receive different
levels of compensation for selling one class of shares over
another. Payments under the Plans are not tied exclusively
to the distribution and shareholder services expenses actually
incurred, and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will
evaluate the appropriateness of the Plan and its payment terms
on a continuing basis and in doing so will consider all
relevant factors, including expenses, the amounts received under
the Plans and the proceeds of the CDSC. The National
Association of Securities Dealers, Inc. ("NASD") limits the
annual expenditures which each Portfolio may incur under
each Plan to 1% annually of which 0.75% may be used to pay
such distribution expenses and 0.25% may be used to pay
shareholder service fees. The NASD rule also limits the
aggregate amount which the Portfolios may pay for such
distribution costs to 6.25% of gross share sales from
inception of each Plan, plus interest at the prime rate plus
1% on unpaid amounts thereof (less any CDSCs paid by the
shareholders to LNC Equity Sales). The Portfolios will be
operated accordingly. CUSTODIAN AND ADMINISTRATOR Investors
Bank & Trust Company ("Investors Bank") serves as Custodian
and Administrator for each of the Portfolios and, in that
capacity, has custody of the Portfolios' securities and
maintains certain financial and accounting books and records
pursuant to an agreement with the Fund. Its mailing address is
89 South Street, Boston, MA 02111. Investors Bank is not
involved in the investment decisions made with respect to the
Portfolios. EXECUTION OF PORTFOLIO
TRANSACTIONS Orders for the Portfolios' securities
transactions are placed by the Advisor or respective
sub-advisor. The Advisor and Sub-Advisors strive to obtain
the best available prices in their portfolio transactions,
taking into account the costs and promptness of executions.
Subject to the requirement of seeking the best available
prices and execution, the Advisor or a Sub-Advisor may, in
circumstances in which two or more broker-dealers are in a
position to offer comparable prices and execution, give
preference to broker-dealers that have provided investment
research, statistical, and other related services to the
Advisor or Sub-Advisor for the benefit of the Portfolios
and/or of other Portfolios served by the Advisor or
Sub-Advisor. Affiliates of the Advisor, such as Lynch &
Mayer, Inc. may act as a broker or futures commission merchant
for the Fund, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See
"Execution of Portfolio Transactions" in the Statement of
Additional Information. NET
ASSET VALUE Each Portfolio's net asset value per share is
determined by subtracting its liabilities from the value of
its assets and dividing the remainder by the number of
outstanding shares. Net asset value is calculated separately for
each class of shares for each Portfolio at 4:00 p.m., eastern
time. Each Portfolio will compute its net asset value once
daily on the days that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. 23 <PAGE>
With the exception of the Lincoln Cashfund Portfolio,
Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in
good faith under procedures established by the Fund's Board of
Directors. See "Net Asset Value" in the Statement of
Additional Information. The Lincoln Cashfund Portfolio
determines the value of its portfolio securities by the
amortized cost method. The method involves valuing an
instrument at cost and thereafter assuming a constant
amortization to maturity of any discount or premium regardless
of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides
certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if it sold the
instrument. During these periods, the yield to an existing
shareholder may differ somewhat from that which could be
obtained from a similar Portfolio which marks its portfolio
securities to market each day. The Board of Directors has
established procedures designed to stabilize, to the extent
reasonably possible, the net asset value of the Lincoln
Cashfund Portfolio at $1.00 per share. The Lincoln Cashfund
Portfolio seeks to maintain a value of $1.00 per share at all
times. To achieve this, the Portfolio purchases only
securities with remaining maturities of less than thirteen
months and limits the dollar-weighted average maturity to 90
days or less. The Portfolio cannot guarantee a $1.00 share
price, but the Portfolio's maturity standards and investments
solely in high-quality money market instruments help minimize
any price decreases or increases that might result from rising
or declining interest rates. See "Net Asset Value" in the
Statement of Additional Information. Although the legal
rights of Class A, Class B, Class C and Class D shares are
substantially identical, the different expenses borne by each
class will result in different net asset values and dividends.
The net asset value of Class B and Class C shares will
generally be lower than Class A shares and the net asset
value of Class A, Class B and Class C shares will generally be
lower than Class D shares as a result of the respective
service and distribution fees charged. It is expected,
however, that the net asset value per share of each of the
classes will tend to converge immediately after the recording
of dividends since the dividends will differ by approximately
the amount of the distribution expense accrual differential
between the classes. HOW TO
PURCHASE SHARES An investor may purchase shares of the
Portfolios through a registered broker-dealer that has an
agreement with the Fund, the Distributor, or directly from the
Fund through its shareholder services agent. The minimum
initial investment in each Portfolio, except for the Lincoln
Cashfund Portfolio, is $500, or $250 for a spousal IRA or $25
for investments through the Automatic Investment Plan. The
minimum subsequent investment is $50 unless made through the
Automatic Investment Plan, in which case the minimum subsequent
investment is $25. Investors in Class D shares must meet higher
minimums and other purchase requirements. The minimum initial
investment for the Lincoln Cashfund Portfolio is $100. See the
Statement of Additional Information. All minimum investment
requirements may be waived for certain retirement and employee
savings plans or custodial accounts where the value of all
accounts under the plan exceeds the minimum. Dividend
reinvestments into the same or a different Portfolio are not
subject to the minimum investment requirements. The purchase
price is the next determined net asset value, plus a sales
charge which may be imposed at the time of purchase or on a
deferred basis, at the option of the purchaser, or, in the case
of Class C shares, without a sales charge after the first
year but subject to an annual distribution fee. See
"Alternative Purchase Plan" below. See also "Net Asset Value."
SHARE CERTIFICATES Shares for an initial investment, as
well as subsequent investments, including the reinvestment
of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books
of the Class of the Portfolio purchased, without the issuance
of a share certificate. Maintaining shares in uncertificated
form minimizes the risk of loss or theft of a share certificate.
A lost, stolen or 24
<PAGE> destroyed certificate cannot be replaced without
obtaining a sufficient indemnity bond. The cost of such a
bond, which is generally borne by the shareholder, can be 2%
or more of the value of the lost, stolen or destroyed
certificate. A certificate will be issued if requested in
writing by the shareholder or by his or her broker. PURCHASE
BY CHECK Investors may also open an account and purchase
shares directly through Shareholder Services by completing and
signing the application form included at the back of this
Prospectus. Investors should forward to Shareholder Services
the completed application form, indicating the Portfolio and
class of shares together with a check to cover the purchase, in
accordance with the instructions provided on the application
form. PURCHASE BY WIRE For an initial purchase of shares
of the Portfolios by wire, the investor must first telephone
Shareholder Services at the number provided in "General
Information" on page 35 of this Prospectus. The following
information will be requested: the investor's name, address,
tax identification number, Portfolio election, class of shares
election, dividend distribution election, amount being wired and
wiring bank. Instructions should then be given by the investor
to the investor's bank to transfer funds by wire to Bankers
Trust Company of New York, ABA #021001033, Account #00234931,
specifying on the wire the account number assigned by
Shareholder Services and the investor's name and identifying
the Portfolio and the sales charge alternative (Class A, Class B
or Class C shares). For investments in the Lincoln Cashfund
Portfolio, no sales charge alternative need be specified.
In making a subsequent purchase order by wire, the investor
should wire Investors Bank and Trust directly and should be sure
that the wire specifies the Portfolio, Class A, Class B,
Class C or Class D shares (in the case of Portfolios
other than the Lincoln Cashfund Portfolio) and the investor's
name and individual account number. It is not necessary to call
Shareholder Services to make subsequent purchase orders
utilizing federal funds. All orders received before 4:00 PM
eastern time on any Business Day will be executed at net asset
value plus sales charge for the applicable class of shares
determined that day. A Business Day is any day Monday through
Friday on which the New York Stock Exchange is open for
business. The broker-dealer is responsible for forwarding
purchase orders to Shareholder Services prior to the daily
deadline. ALTERNATIVE PURCHASE PLAN EQUITY AND FIXED-INCOME
PORTFOLIOS. The Fund offers three classes of shares to the
individual investor in the Equity Portfolios and Fixed-Income
Portfolios which allow the investor to choose the most
beneficial sales charge structure for the investor's
circumstances. The factors to consider in selecting a sales
charge structure are the amount of the purchase and the
length of time the investor expects to hold the shares
and other relevant circumstances. The investor may purchase
shares at the next determined net asset value plus, at the
investor's election, a sales charge which may be imposed either
at the time of purchase (the Class A shares or the initial
sales charge alternative) or on a deferred basis (the Class B
shares or the deferred sales charge alternative), or without a
sales charge but subject to an annual distribution fee and a
1.0% redemption fee during the first year (the Class C
shares or the level load alternative). A fourth class is
available to certain institutional investors. The Fund has
received exemptive relief from the Securities and Exchange
Commission to permit the issuance of multiple classes of stock.
Class A shares are subject to an initial sales charge of up
to 5.5% of the offering price on shares of the Equity
Portfolios and 4.5% on shares of the Fixed-Income Portfolios
and an annual distribution fee which is currently being charged
at a rate of up to .35% of the average daily net asset
value of the Class A shares. Certain purchasers of Class A
shares may qualify for a reduction or waiver of initial sales
charges. See "Initial Sales Charge Alternative -Class A
Shares" and "Reduction and/or Waiver of Initial Sales Charges"
below. 25 <PAGE> Class
B shares do not incur a sales charge when they are purchased
but are subject to a contingent deferred sales charge ("CDSC")
(declining from 5.0% to zero of the lesser of the amount
invested or the redemption proceeds), which will be imposed on
certain redemptions made within six years of purchase. There
are annual service and distribution fees of up to 1.0% of the
average daily net asset value of the Class B shares. Certain
redemptions of Class B shares may qualify for waiver or
reduction of the CDSC. See "How to Sell Shares -- Waiver of
Contingent Deferred Sales Charge." Class C shares are not
subject to an initial sales charge but are subject to a 1.0%
CDSC if redeemed in the first year and annual service and
distribution fees of 1.0% of the average daily net asset value
of the Class C shares. Class D shares are not subject to an
initial sales charge, a CDSC or annual service and distribution
fees. The mimimum initial deposit for Class D shares is $2
million. Class D shares are available only to insurance
companies (including both general and separate accounts),
affiliates of insurance companies and investment companies
registered under the Investment Company Act. The four
classes of shares represent an interest in the same portfolio
of investments for each Portfolio and have the same rights,
except that each class bears the separate expenses of its Rule
12b-1 distribution and service plan and has exclusive voting
rights with respect to such plan. The four classes also have
separate exchange privileges. See "How to Exchange Shares"
below. The net income attributable to each class and the
dividends payable on the shares of each class will be reduced
by the amount of the service and distribution fee of each
class. Class B and Class C shares bear the expense of a higher
service and distribution fee which will cause the Class B and
Class C shares to have a higher expense ratio and pay lower
dividends than the Class A shares. CONVERSION FEATURE. At
the end of the period ending six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert into Class A
shares and will no longer incur a higher service and
distribution fee. Such conversion will be on the basis of
the relative net asset values of the two classes,
without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the service
and distribution fee paid by holders of the Class B shares
that have been outstanding long enough for the Distributor to
have been compensated for distribution expenses incurred in
the sale of such shares. For purposes of conversion to
Class A, Class B shares purchased through the reinvestment of
dividends and distributions paid in respect of Class B shares in
a shareholder's account will be considered to be held in a
separate sub-account. Each time any Class B shares in the
shareholder's account (other than those in the sub-account)
convert to Class A, an equal pro-rata portion of the Class B
shares in the sub-account will also convert to Class A. The
conversion of Class B shares to Class A shares is subject
to the continuing availability of an opinion of counsel to
the effect that (i) the assessment of the higher service and
distribution fee and transfer agency costs with respect to
Class B shares
does not result in the Portfolio's dividends or distributions
constituting "preferential dividends" under the Internal
Revenue Code, and (ii) the conversion of Class B shares to
Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Class B shares to
Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, no further conversions of Class B shares would
occur, and shares might continue to be subject to the
higher service and distribution fee for an indefinite period
which may extend beyond the period ending six years after
the end of the calendar month in which the shareholder's
purchase order was accepted. The following illustrations
are provided to assist the investor in determining which
method of purchase best suits the investor's individual
circumstances: If he/she qualifies for a reduced sales
charge, the investor might elect the initial sales charge
alternative because a similar sales charge reduction is not
available for purchases under the contingent deferred sales
charge or level load alternatives. However, because the initial
sales charge is deducted at the time of purchase, the investor
would not have all of his/her money invested initially.
26 <PAGE> On the other
hand, the investor might determine that it is advantageous to
have all of his or her money invested initially, although it
is subject to an annual service and distribution fee of 1%
and, in the case of Class B shares, for a six-year period, a
CDSC of up to 5.0% and, in the case of Class C shares, for a
one-year period, a CDSC of up to 1%. Due to the conversion
feature, an investor who intends to maintain an investment in a
Portfolio for more than six years and does not qualify for a
reduced sales charge might consider purchasing Class B shares.
However, this example does not take into account the time value
of money which further reduces the impact of the 1.0%
distribution fee on the investment, fluctuations in the net
asset value, or the effect of the return on the investment over
this period of time. The Lincoln Cashfund Portfolio offers
two classes of shares; the Regular shares and the Class B
Exchange shares. Regular shares are offered at net asset value
($1.00) without a sales charge and are not subject to any
service or distribution fees. Class B Exchange shares are issued
only upon the exchange of shares of Class B shares of any
other Portfolio. Such Class B Exchange shares are sold at net
asset value ($1.00) without an initial sales charge but are
subject to service and distribution fees of 1.0% of the average
daily net asset value of the Class B Exchange shares. Such
shares are also subject to the same CDSC as Class B shares, if
any. See "How to Exchange Shares." INITIAL SALES CHARGE
ALTERNATIVE -- CLASS A SHARES The offering price of Class
A shares for investors choosing the initial sales charge
alternative is the next determined net asset value plus a
sales charge (expressed as a percentage of the offering
price) as shown in the following table:
EQUITY PORTFOLIOS <TABLE> <CAPTION>
SALES CHARGE AS SALES CHARGE AS
DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF AMOUNT
OF PURCHASE OFFERING PRICE AMOUNT
INVESTED OFFERING
PRICE----------------------------------------
------------------- -------------------
--------------------<S>
<C> <C> <C> Less than
$50,000....................... 5.5%
5.82% 5.0% $50,000 to
$99,999...................... 4.5
4.71 4.0 $100,000 to
$249,999.................... 3.5 3.63
3.0 $250,000 to $499,999....................
3.0 3.09 2.5 $500,000
to $999,999.................... 2.0
2.04 1.5 $1,000,000 and
above.................... 0.0* 0.00
0.5 </TABLE> ------------------------
* A fee of 0.5% will be applied on net asset value purchases of
$1,000,000 and above redeemed during the first year.
FIXED-INCOME PORTFOLIOS <TABLE> <CAPTION>
SALES CHARGE AS
SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF NET AS
PERCENTAGE OF AMOUNT OF PURCHASE
OFFERING PRICE AMOUNT INVESTED OFFERING
PRICE----------------------------------------
------------------- ------------------- -------------------<S>
<C> <C>
<C> Less than $100,000......................
4.5% 4.71% 4.00% $100,000 to
$249,999.................... 3.5 3.63
3.00 $250,000 to $499,999....................
2.5 2.56 2.00 $500,000
to $999,999.................... 2.0
2.04 1.50 $1,000,000 and
above.................... 0.0* 0.00
0.50 </TABLE> ------------------------
* A fee of 0.5% will be applied on net asset value purchases
of $1,000,000 and above redeemed during the first year.
Selling dealers may be deemed to be underwriters, as that term
is defined in the Securities Act of 1933, as amended.
27 <PAGE> REDUCTION AND/OR WAIVER OF
INITIAL SALES CHARGES RIGHT OF ACCUMULATION. Pursuant to
the right of accumulation (the "Right of Accumulation"),
investors may purchase shares of the Portfolios at the sales
charge applicable to the total of (1) the dollar amount then
being purchased plus (2) the amount equal to the total
purchase price of the investor's concurrent purchases of
the other Portfolios plus (3) the current public offering
price of all shares of the Fund already held by the
investor. To receive the Right of Accumulation at the time of
purchase investors must give their brokers, Shareholder
Services or LNC Equity Sales sufficient information to permit
confirmation of qualification. The foregoing Right of
Accumulation does not apply to purchases of Lincoln Cashfund
Portfolio shares. CONCURRENT PURCHASES. To qualify for a
reduced sales charge, the investor may combine concurrent
purchases of two or more Portfolios in the Fund, except direct
purchases of the Lincoln Cashfund Portfolio. For example, if the
investor concurrently invests $25,000 in one Portfolio and
$25,000 in another, the sales charge would be reduced to
reflect a $50,000 purchase. LETTER OF INTENT. The investor
may reduce sales charges on all investments by meeting the terms
of a letter of intent (a "Letter of Intent"), a nonbinding
commitment to invest a certain amount within a 13 month period.
Up to 5% of the Letter of Intent amount will be held in escrow
to cover additional sales charges which may be due if the
investor's total investments over the thirteen month period
are insufficient to qualify for a sales reduction. A Letter
of Intent will cover investments only in the Equity
Portfolios and the Fixed-Income Portfolios. AUTOMATIC
INVESTMENT PLAN Investors may purchase Class A, Class B,
Class C or Class D shares of a Portfolio through an automatic
investment plan. Under this plan, an amount specified by
the shareholder of $25 or more on a monthly, quarterly
or semi-annual basis will be sent to Shareholder Services from
the investor's bank for investment in a Portfolio.
Participants in the automatic investment plan should not elect
to receive dividends or other distributions from the Portfolio
in cash. To participate in the automatic investment plan,
investors should complete the appropriate portion of the
application form provided at the end of this Prospectus.
Investors should contact their broker-dealers or Shareholder
Services for more information. WAIVER OF SALES CHARGES
Sales charges do not apply to shares of the Portfolios
purchased: (1) by registered representatives, other employees
of broker-dealers their immediate family members and employees
of registered representatives pursuant to a sales agreement
with the Distributor; (2) by a director or officer of a fund
managed or advised by LNIMC or a director (including a
retired director), officer or employee of Lincoln National
Corporation or its subsidiaries or a director, officer or
employee acting as a custodian for a child or a person
acting as trustee of a trust for the sole benefit of a
director, officer or employee or the immediate family member of
a director, officer or employee; (3) in accounts as to which
a broker-dealer charges an account management fee, provided
the broker-dealer has an agreement with the Distributor; (4) as
part of an employee benefit plan having more than 100 eligible
employees or a minimum of $1,000,000 invested in the Fund,
provided that certain other requirements, as explained in the
Statement of Additional Information, are met; (5) with certain
redemption proceeds from other mutual fund complexes on which
the investor paid a front-end sales charge only as part of
certain promotional programs established by the Fund and/or
Distributor; (6) by one or more members of a group of at least
1000 persons engaged in a common business, profession, civic or
charitable endeavor or other activity and retirees and
immediate family members of such persons pursuant to a
marketing program between the distributor and such group; (7)
by directors, officers, employees and immediate family
members of current sub-advisors to the Portfolio; or (8) by
employees and immediate family members of the current custodian
and shareholder services agent. Immediate family members
are defined as the spouse, parents, siblings, natural or
adopted children, mother-in-law, father-in-law, brother-in-law
and sister-in-law of a director, officer or employee. The term
"employee" is deemed to include current and retired employees.
28 <PAGE> Exemptions
must be qualified in advance by the Distributor and must meet
all requirements specified in the Statement of Additional
Information. Your investment professional should call the
Distributor or Shareholder Services for more information.
Additional information on waiver of the contingent deferred
sales charges on Class B shares can be found on page 32.
REALLOWANCE TO BROKERS From time to time the Distributor may
reallow to brokers the full amount of the sales charge on
Class A shares. To the extent that the Distributor reallows the
full amount of the sales charge to brokers, such brokers may be
deemed to be underwriters under the Securities Act of 1933, as
amended. CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS
B SHARES The offering price of Class B shares for investors
choosing the contingent deferred sales charge alternative
is the net asset value next determined following receipt of
an order by Shareholder Services or LNC Equity Sales.
Although there is no sales charge imposed at the time of
purchase, redemptions of Class B shares may be subject to a
CDSC. See "How to Sell Shares -Contingent Deferred Sales
Charge -- Class B Shares." LEVEL SALES CHARGE ALTERNATIVE --
CLASS C SHARES The offering price of Class C Shares for
investors choosing the level sales charge alternative is the net
asset value next determined following receipt of an order by
Shareholder Services. See "Net Asset Value." Although there is
no initial sales charge, the Class C shares are subject to
a charge of 1% on redemptions made in the first 12 months.
CLASS D SHARES -- INSURANCE COMPANIES, AFFILIATES OF INSURANCE
COMPANIES AND INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT. Insurance companies (including
both general and separate accounts), affiliates of
insurance companies and investment companies registered under
the Investment Company Act may invest in the Portfolios
through Class D. Class D shares are offered at net asset value
to these investors. Shareholders are not entitled to use the
"Lincoln National" name or otherwise refer to Lincoln
National in any materials distributed to third parties,
including participants in these retirement or deferred
compensation plans, without the prior written consent of the
Fund. HOW TO SELL SHARES As
described below, shares of the Portfolios may be redeemed at
their net asset value (subject to any applicable contingent
deferred sales charge for Class B and Class C shares) and
redemption proceeds will be sent within seven days of the
execution of a redemption request. Shareholders with brokers
that sell shares may redeem shares through such brokers. If
the shares are held in the broker's "street name," the
redemption must be made through the broker. Other
shareholders may redeem shares through Shareholder
Services. If a redeeming shareholder owns both Class A and
Class B shares of a Portfolio, the Class A shares will be
redeemed first unless the shareholder specifically requests
otherwise. In the case of Lincoln Cashfund Portfolio, the
Regular shares will be redeemed before any Class B Exchange
shares are redeemed, unless otherwise specifically requested.
REDEMPTIONS THROUGH BROKERS Shareholders may submit
redemption requests to brokers that have an agreement
with the Fund ("registered representatives").
Registered representatives may honor a redemption request
either by repurchasing shares from a redeeming shareholder at
the shares' net asset value next computed after the registered
representative receives the request or by forwarding such
requests to Shareholder Services (see "Redemptions
Through Shareholder Services"). Redemption proceeds (less any
applicable contingent deferred sales charge for Class B and
Class C shares) normally will be paid by check or, if offered
by the registered representative, credited to the
shareholder's brokerage account at the election of the
shareholder. 29 <PAGE>
Registered representatives may impose a service charge for
handling redemption transactions placed through them and may
have other requirements concerning redemptions. Accordingly,
shareholders should contact their registered
representative for more details. REDEMPTIONS THROUGH
SHAREHOLDER SERVICES Redemption requests may be transmitted
to Shareholder Services by telephone or by mail, in accordance
with the instructions provided below. All redemptions will be
effected at the net asset value next determined after
Shareholder Services has received the request and any
required supporting documentation (less any applicable
contingent deferred sales charge for Class B and Class C
shares). Redemption requests received before 4:00 p.m.
eastern time on any Business Day will be effected at the
net asset value calculated on that day. Redemption requests
will not require a signature guarantee if the redemption
request is for an amount which is less than $50,000 and the
proceeds are to be sent either: (1) to the redeeming
shareholder at the shareholder's address of record as
maintained by Shareholder Services, provided the shareholder's
address of record has not been changed within the preceding
thirty days; or (2) directly to a pre-designated bank,
savings and loan or credit union account
("Pre-Designated Account"). ALL OTHER REDEMPTION REQUESTS MUST
BE ACCOMPANIED BY A SIGNATURE GUARANTEE OF THE REDEEMING
SHAREHOLDER'S SIGNATURE. A signature guarantee can be
obtained from any bank, U.S. trust company, a member firm of a
U.S. stock exchange or a foreign branch of any of the
foregoing or other eligible guarantor institution. A notary
public is not an acceptable guarantor. A shareholder uncertain
about the Funds' signature guarantee requirement should contact
Shareholder Services. Shareholders may qualify to
have redemption proceeds sent to a Pre-Designated Account
by completing the appropriate section of the Account
Application. Shareholders with Pre-Designated Accounts
should request that redemption proceeds be sent either by
bank wire or by check. The minimum redemption amount for a
bank wire is $5,000. Shareholders requesting a bank wire should
allow two business days from the time the redemption request is
effected for the proceeds to be deposited in the shareholder's
Pre-Designated Account. See "How to Sell Shares -- Other
Important Redemption Information." Shareholders may change
their Pre-Designated Accounts only by a letter of
instruction to Shareholder Services containing all account
signatures, each of which must be guaranteed. Shareholder
Services currently does not charge a bank wire service fee on
each wire redemption sent, but reserves the right to do so in
the future. TELEPHONE REDEMPTION PRIVILEGE You may request
the Telephone Redemption Privilege by telephone either (i) by
completing the appropriate section of the application form
or (ii) by signature guaranteed written request. A signature
guarantee must be from an eligible guarantor institution
approved by Shareholder Services. Signature guarantees in
proper form generally will be accepted from domestic banks,
a member of a national securities exchange, credit unions and
savings and loan associations, as well as from participants
in the Securities Transfer Agents Medallion Program ("STAMP").
If you have any questions with respect to signature guarantees,
please call Shareholder Services. Once the privilege is
instituted, you may call Shareholder Services at the number
provided on the back cover of this Prospectus. All calls
will be recorded. Shareholder Services will act on
instructions that it reasonably believes to be genuine. The
proceeds of the redemption will only be mailed to the address
of record with the Fund, provided that your account registration
has not changed in the last 30 days. The Fund reserves the
right to refuse a telephone redemption and may limit the
amount and frequency. The Telephone Redemption Privilege may
be modified or terminated at any time by the Fund. Neither
the Fund nor Shareholder Services will be liable for
following instructions that they reasonably believe to be
genuine. It is the Fund's policy to provide a written
confirmation statement of all telephone transactions to
shareholders at their address of record within 5 business
days after the telephone transaction. You should verify the
accuracy of telephone transactions immediately upon receipt of
your confirmation statement. As a result of this policy, you
will bear the risk of loss in the event of a fraudulent
telephone exchange (or redemption transaction). If it is
determined that the Fund has not followed reasonable procedures
in effecting telephone transactions, the Fund may be held liable
for related losses. 30
<PAGE> REDEMPTIONS BY MAIL Redemption requests should be
mailed directly to Shareholder Services at the address provided
on the back cover of this Prospectus. Requests for payment of
redemption proceeds to a party other than the registered account
owner(s) and/or requests that redemption proceeds be mailed
to an address other than the shareholder's address of
record require a signature guarantee. In addition, if the
shareholder's address of record has been changed within the
preceding thirty days or if the redemption proceeds exceed
$50,000, a signature guarantee is required. Redemptions of
shares for which certificates have been issued must be
accompanied by properly endorsed share certificates. SYSTEMATIC
WITHDRAWAL PLAN Shareholders owning shares with a value of
$10,000 or more may participate in the Systematic Withdrawal
Plan. A participating shareholder will receive proceeds from
monthly, quarterly or annual redemptions of Fund shares
with respect to Class A, Class B or Class C shares. Contingent
deferred sales charges may be imposed on certain
redemptions of Class B shares made under the Systematic
Withdrawal Plan. The minimum periodic amount is $50. To
participate in the Systematic Withdrawal Plan, investors
should complete the appropriate portion of the Application.
Investors should contact their brokers or Shareholder
Services for more information. With respect to Class A and
Class B shares, participation in the Systematic Withdrawal Plan
concurrent with initial purchases of Class A shares of the
Fund may be disadvantageous to investors because of the sales
charges or CDSC involved and possible tax implications. In
addition, shareholders who participate in the Systematic
Withdrawal Plan should elect to reinvest dividends or other
distributions in additional Portfolio shares. Shareholders may
not elect systematic withdrawal privileges if they hold
certificates. CHECKWRITING Shareholders may redeem Regular
shares of the Lincoln Cashfund Portfolio by writing checks, a
supply of which may be obtained through Shareholder Services,
against their Lincoln Cashfund Portfolio accounts (checkwriting
is not available with respect to Class B Exchange Shares). The
minimum check amount is $250. When the check is presented to
Shareholder Services for payment, Shareholder Services will
cause the Lincoln Cashfund Portfolio to redeem a sufficient
number of shares to cover the amount of the check. This
procedure enables the shareholder to continue receiving
dividends on those shares until such time as the check is
presented to Shareholder Services for payment. Canceled checks
are not returned; however, shareholders may obtain photocopies
of their canceled checks upon request. Shareholder Services
reserves the right to charge for this service. If a shareholder
does not own sufficient shares of the Lincoln Cashfund
Portfolio to cover a check, the check will be returned to the
payee marked "not sufficient funds." Checks written in amounts
less than $250 also will be returned. The Lincoln Cashfund
Portfolio reserves the right not to honor check redemption
requests if the shares to be redeemed have been purchased
by check within fifteen days prior to the date the
redemption request was received by Shareholder Services.
Shares for which stock certificates have been issued may not be
redeemed by check. The Lincoln Cashfund Portfolio and
Shareholder Services reserve the right to terminate or modify
the checkwriting service at any time or to impose a service
charge in connection with it. Because the aggregate amount
of shares owned by a shareholder is likely to change each
day, shareholders should not attempt to redeem all shares held
in their accounts by using the checkwriting procedure. Charges
may be imposed in the future for checkwriting. 30-DAY
REPURCHASE PRIVILEGE If an investor redeems shares in a
Portfolio and has not previously exercised the repurchase
privilege, the investor may reinvest any portion or all of the
proceeds of such redemption in shares of the same Portfolio at
the net asset value next determined after the order is
received, which must be within 30 days after the date of the
redemption. No sales charge will apply to such repurchases.
The investor will receive pro rata credit for any CDSC paid
in connection with the redemption of Class B and Class C
shares (or Class B Exchange shares in the case of the Lincoln
Cashfund Portfolio). The investor must notify Shareholder
Services, either directly or through a registered
broker-dealer, at the time the repurchase privilege is
exercised, that the investor is entitled to a net asset
value purchase or credit for the CDSC previously paid.
31 <PAGE> Exercise of the
repurchase privilege will generally not affect federal income
tax treatment of any gain realized upon redemption. If the
redemption results in a loss, some or all of the loss, depending
on the amount reinvested, will not be allowed for federal income
tax purposes. OTHER IMPORTANT REDEMPTION INFORMATION A
request for redemption will not be processed until all of the
necessary documentation has been received in good order. A
shareholder in doubt about what documents are required should
contact his or her broker-dealer or Shareholder Services.
Except in extraordinary circumstances and as permitted under
the Investment Company Act, payment for shares redeemed by
telephone or by mail will be made promptly after receipt of a
redemption request, if in good order, but not later than seven
days after the date the request is executed. Requests for
redemption which are subject to any special conditions or
which specify a future or past effective date cannot be
accepted. If Shareholder Services is requested to redeem
shares for which a Portfolio has not yet received good payment,
the Portfolio may delay payment of redemption proceeds until it
has assured itself that good payment has been collected for
the purchase of the shares. In the case of purchases by check,
it can take up to fifteen business days to confirm that the
check has cleared and good payment has been received. Redemption
proceeds will not be delayed when shares have been paid for
by wire or when the investor's account holds a sufficient
number of shares for which funds already have been collected.
Each Portfolio may involuntarily redeem the shares of any
shareholder whose account is reduced to less than $500 in net
asset value through redemptions or other action by the
shareholder. Notice will be given to the shareholder at
least 60 days prior to the date fixed for such redemption,
during which time the shareholder may increase his or her
holdings to an aggregate amount of $500 or more (with a minimum
purchase of $50 or more). CONTINGENT DEFERRED SALES CHARGE --
CLASS B SHARES If the investor elects to purchase shares
without an initial sales charge (Class B), a CDSC (declining
from 5.0% to zero) will be imposed at the time of redemption.
The CDSC will be deducted from the redemption proceeds and
reduce the amount paid to the investor. For federal income
tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount
recognized on the redemption of shares. The CDSC will be
imposed on any redemption which reduces the current value of
the investor's Class B shares to an amount which is lower than
the amount originally purchased by the investor for the purchase
of Class B shares during the preceding six years. A CDSC
will be applied on the original purchase price or the current
value of the shares being redeemed, whichever is less.
Increases in the value of the investor's shares or shares
purchased through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any CDSC will be paid
to and retained by the Distributor. See "Management --
Distributor" and "Waiver of the Contingent Deferred Sales
Charge" below. The amount of the CDSC, if any, will vary
depending on the number of years from the time of payment for
the purchase of Class B shares until the time of redemption of
such shares. Solely for purposes of
32 <PAGE> determining the number of years from the
time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made
on the last day of the month. The following tables sets forth
the rate of the CDSC. <TABLE> <CAPTION>
CONTINGENT DEFERRED SALES
CHARGE
AS A PERCENTAGE OF
DOLLARS INVESTED OR YEAR SINCE PURCHASE PAYMENT
MADE REDEMPTION
PROCEEDS---------------------------------------------------------
- ---------------------------<S>
<C>
First.....................................................
5.0%
Second....................................................
4.0%
Third.....................................................
4.0%
Fourth....................................................
3.0%
Fifth.....................................................
2.0%
Sixth.....................................................
1.0% Seventh and
thereafter.................................... None
</TABLE> In determining whether a contingent deferred sales
charge is applicable to a redemption, the calculation will be
made in a manner that results in the lowest possible rate. It
will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment
of dividends and distributions; then of amounts representing
the cost of shares purchased six years or more prior to the
redemption; and finally, of amounts representing the cost of
shares held for the longest period of time within the
applicable six-year period. For example, assume an
investor purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, the shareholder acquired 15
additional shares through dividend reinvestment. During the
second year after the purchase the investor decided to redeem
$500 of his/her investment. Assuming at the time of the
redemption a net asset value of $11 per share, the value
of the investor's shares would be $1,265 (115 shares at $11
per share). The CDSC would not be applied to the value of the
reinvested dividend shares or the appreciated value of the
purchased shares. Therefore, the CDSC would be charged on
30.45 shares, purchased at $10 per share, at a rate of 4.0%
(the applicable rate in the second year after purchase) for a
total CDSC of $12.18. WAIVER OF CONTINGENT DEFERRED SALES
CHARGE. The CDSC may be waived in the case of a redemption
following the death or complete disability of a shareholder if
the redemption is made within one year of death or initial
determination of disability. The waiver is available for total
or partial redemptions of shares owned by a person, either
individually or in joint tenancy (with rights or
survivorship), at the time of death or initial determination of
disability. The CDSC will also be waived in the case of a
total or partial redemption in connection with certain required
distributions made without penalty under the Internal Revenue
Code from a tax-deferred retirement plan or Section 403(b)
custodial account. These distributions include a lump-sum or
other distribution after retirement, or for an IRA or
Section 403(b) custodial account, after attaining age 70 1/2,
a tax-free return of an excess contribution or plan
distribution following the death or total and permanent
disability of the shareholder. The waiver does not apply in
the case of a tax-free rollover or transfer of assets, other
than one following a separation from service. In the case of a
401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay
loans made from the account to the participant. See "Purchase
and Redemption of Fund Shares -- Waiver of the Contingent
Deferred Sales Charge -- Class B Shares" in the
Statement of Additional Information. Investors must notify
Shareholder Services either directly or through an approved
broker-dealer at the time of redemption, that they are
entitled to waiver of the CDSC. The waiver will be granted
subject to confirmation of entitlement.
HOW TO EXCHANGE SHARES As shareholders of the Fund,
investors have an exchange privilege with certain other
Portfolios, subject to the minimum investment requirements of
such Portfolios. Class A, Class B, Class C and
Class D shares of
33 <PAGE> the Equity Portfolios and the Fixed-Income Portfolios
may be exchanged for Class A, Class B, Class C and Class D
shares, respectively, of another Equity or Fixed-Income
Portfolio on the basis of the relative net asset value. Class
A exchanges between Portfolios that have different front-end
sales charges will be assessed the sales charge differential.
Exchanges from Portfolios may also be made into the
Lincoln Cashfund Portfolio. In the case where Class A shares
of a Portfolio are exchanged for Regular class shares of
the Lincoln Cashfund Portfolio, those shares may
subsequently be exchanged for Class A shares of another
Portfolio without incurring an initial sales charge. Class B
shares may be exchanged into Class B Exchange shares of the
Lincoln Cashfund Portfolio. A shareholder's holding period
of Class B Exchange shares would be counted for purposes of
calculating the applicable CDSC to which that shareholder's
redemption would be subject. A shareholder would be assessed
a CDSC, if applicable, upon redemption of the Class B
Exchange shares, but no CDSC will be imposed upon the exchange
out of the Lincoln Cashfund Portfolio into Class B shares
of another Portfolio. Exchanges of Class C shares will be
treated the same as exchanges of Class A shares into or out of
Regular shares of the Lincoln Cashfund Portfolio. However, if
shares originally purchased through Class C are redeemed in
the first 12 months, they will be subject to a CDSC of 1%.
An exchange will be treated as a redemption and purchase for
tax purposes. See "Purchase and Redemption of Shares --
Exchange Privilege" in the Statement of Additional Information.
A shareholder may give exchange instructions to the
shareholder's broker-dealer or Shareholder Services by
telephone at the number provided on the back cover of this
Prospectus. Exchange orders will be accepted by telephone
provided that the exchange involves only uncertificated shares
on deposit in the shareholder's account or for which
certificates previously have been deposited. All exchanges
received by Shareholder Services prior to 4:00 p.m. eastern
time will be made on the basis of the relative net asset value
of the two Portfolios next determined after the request is
received in good order. The exchange privilege is available
only in states where the exchange may legally be made.
Investors may also exchange shares by mail by writing to
the address provided on the back page of this Prospectus. In
periods of severe market or economic conditions the telephone
exchange of shares may be difficult to implement and the
investor should make exchanges by mail. The exchange privilege
may be modified or terminated at any time on sixty days' notice
to shareholders. DIVIDENDS, DISTRIBUTIONS
AND TAXES The Fixed-Income Portfolios and the Lincoln
Cashfund Portfolio accrue dividends from net investment
income and usually distribute such accrued dividends to
shareholders monthly. The Lincoln Cashfund Portfolio
accrues dividends daily. The Equity Portfolios declare
dividends from net investment income and usually distribute
such accrued dividends to shareholders at least annually. All
capital gains, if any, are distributed annually, usually
in December. When a capital gain dividend is declared, the
net asset value per share is reduced by the amount of the
dividend. Investors considering buying shares of one of the
Portfolios just prior to a record date for a taxable
dividend or capital gain distribution should be aware that,
regardless of whether the price of the Portfolio shares to be
purchased reflects the amount of the forthcoming dividend or
distribution payment, any such payment will be a taxable
dividend or distribution payment. The Fund intends to
qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). In any fiscal
year in which the Fund so qualifies and distributes to
shareholders its net investment income and net realized
capital gains, the Fund will be relieved of federal income
tax. It is the Fund's policy to distribute to the shareholders
all of its net investment income and capital gains realized
during each fiscal year.
34 <PAGE> Under current law for each of the Portfolios,
dividends paid from net investment income and distributions of
net realized short-term capital gains are taxable to
shareholders as ordinary income, regardless of how long
shareholders have held their Fund shares or whether such
dividends and distributions are received in cash or reinvested
in additional Fund shares. Distributions of net realized
long-term capital gains will be taxable to shareholders as
long-term capital gains, regardless of how long shareholders
have held Fund shares and whether such distributions are
received in cash or are reinvested in additional Fund shares.
The per share dividends and distributions on Class A shares will
be higher than the per share dividends and distributions on
Class B and Class C shares as a result of lower
distribution fees applicable to Class A shares. Furthermore,
as a general rule, a shareholder's gain or loss on a sale
or redemption of Fund shares will be a long-term capital
gain or loss if the shareholder has held the shares for more
than one year and will be a short-term capital gain or loss
if the shareholder has held the shares for one year or less.
Some of the Portfolios' dividends declared from net investment
income may qualify for the federal dividends-received
deduction for corporations. The investor will be notified each
year as to the amount and federal tax status of all dividends
and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state or local taxes.
Distributions of tax-exempt income are not subject to federal
income taxes, except for the possible applicability of the
alternative minimum tax. However, distributions may be subject
to state and local income taxes. A portion of each Portfolio's
income, including income from repurchase agreements and gains
from options and futures transactions may be taxable to
shareholders as ordinary income. Long-term capital gains from
options and futures transactions may be taxable to
shareholders as ordinary income. Long-term capital
gains distributions, if any, are taxable as long term capital
gains, regardless of the length of time a shareholder has
owned shares. Short-term capital gains and other taxable
income distributions are taxable as ordinary income.
Distributions of tax-exempt income are taken into consideration
in computing the portion, if any, of social security and
railroad retirement benefits subject to federal and, in some
cases, state taxes. If an investor has not furnished a
certified correct taxpayer identification number (generally a
Social Security number) and has not certified that
withholding does not apply, or if the Internal Revenue Service
has notified the Fund that the taxpayer identification number
listed on the investor's account is incorrect according to
their records or that the investor is subject to backup
withholding, federal law generally requires the Fund to
withhold 31% from any dividends and/or redemptions (including
exchange redemptions). Amounts withheld are applied to the
investor's federal tax liability; a refund may be obtained
from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to
withhold 30% or the applicable tax treaty rate from dividends
paid to certain nonresident alien, non-U.S. partnership
and non-U.S. corporation shareholder accounts. Certain
Portfolios may be required to pay withholding and other
taxes imposed by foreign countries in connection with their
investments outside the U.S. generally at rates from 10% to
40%, which would reduce these Portfolios' investment income.
Certain income received by the Lincoln World Growth and Lincoln
New Pacific Portfolios may be subject to foreign taxes. If more
than 50% of the value of the Portfolio's total assets at the
close of any taxable year consists of securities of foreign
corporations, the Portfolio may elect to treat any foreign taxes
paid by it as paid by its shareholders. If a Portfolio
makes this election, its shareholders will generally be
required to include in income their respective pro rata
positions in computing their taxable income or, alternatively,
to claim foreign tax credits (subject, in either case, to
certain limitations). Each year that a Portfolio makes such an
election, it will report to its shareholders the amount per
share of foreign taxes it has elected to have treated as paid by
its shareholders. SHAREHOLDER SERVICES
AND INFORMATION Shareholders are encouraged to place
purchase, exchange and redemption orders through their
broker-dealers. Shareholders also may place such orders
directly through LNC Equity Sales or through Shareholder
Services in accordance with this Prospectus. See "How to
Purchase Shares," "How to Exchange Shares," "How to Sell
Shares" and "Dividends, Distributions and Taxes" for more
information. 35 <PAGE>
The following shareholder services are described
elsewhere in this Prospectus: Purchase by Wire (see page 25),
Right of Accumulation (see page 28), Concurrent Purchases (see
page 28), Letter of Intent (see page 28), Automatic Investment
Plan (see page 28), Telephone Redemption Privilege (see page
30), Systematic Withdrawal Plan (see page 31), Checkwriting
(see page 31) and 30-day Repurchase Privilege (see page
31). In addition to these privileges, shareholders of
the Fund can take advantage of the following services and
privileges: AUTOMATIC REINVESTMENT OF DIVIDENDS.
Investors' dividends and capital gain distributions of each
Portfolio are automatically reinvested in full and
fractional shares of the Portfolio at net asset value without
a sales charge unless indicated otherwise on the account
application. Changes to initial elections must be directed to
Shareholder Services in writing or by telephone not less
than 5 full business days prior to the record date.
CROSS REINVESTMENT. The investor may cross-reinvest
dividends and/or capital gain distributions paid by one
Portfolio into another Portfolio in the Fund, subject to
conditions outlined in the Statement of Additional
Information. Generally, to use this service the account
value in the distributing Portfolio must equal at least
$10,000. DOLLAR COST AVERAGING PLAN. The owner of
$10,000 or more of the shares of a Portfolio may authorize
the monthly exchange of a specified amount into another
Portfolio. This privilege may be selected by completing
the appropriate section on the Account Application or by
contacting Shareholder Services for appropriate forms. If
selected, exchanges will be made automatically until
the privilege is terminated by the shareholder or the Fund.
Exchanges are subject to terms and conditions as described
herein and in the Statement of Additional Information.
This privilege may not be used for the exchange of shares
held in certificated form. TAX DEFERRED RETIREMENT
PLANS. Various tax-deferred retirement plans, including a
401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the
Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account
arrangement. Information regarding the establishment of these
plans, the administration, custodial fees and other
details is available from the Distributor, an approved
broker-dealer or Shareholder Services. If you are
considering adopting such a plan, you should consult with
your own legal or tax advisor with respect to the
establishment and maintenance of such a plan. REPORTS TO
SHAREHOLDERS. The Fund will send annual and semi-annual
reports to shareholders. The financial statements
appearing in annual reports are audited by independent
accountants. In order to reduce duplicate mailing and
printing expenses, the Fund will provide one annual and
semi-annual shareholder report and annual prospectus per
household. You may request additional copies of such
reports by calling 1-800-9ADVISOR (1-800-923-8476) or by
writing to the Fund at 200 East Berry Street, Fort Wayne,
Indiana 46802. For additional information regarding the
services and privileges described above, see the Statement of
Additional Information. OTHER
SHAREHOLDER MATTERS All shares of the Fund have equal voting
rights and are entitled to one vote per share with
proportional voting for fractional shares. As permitted by
Maryland law, there will normally be no meetings of shareholders
for the purpose of electing Directors unless and until such time
as fewer than a majority of the Directors holding office have
been elected by shareholders. At that time, the Directors in
office will call a shareholders meeting for election of
Directors. Shareholders have certain rights, including the
right to call a meeting upon a vote of 10% of the Fund's
outstanding shares for the purpose of voting on the removal of
one or more Directors or to transact any other business. The
shares do not have cumulative voting rights. Accordingly, the
holders of a majority of the shares voting for the election of
directors can elect all the Directors. Shares of the Fund,
when issued, will be fully paid and non-assessable.
36 <PAGE> In matters which only
affect a particular Portfolio, the matter shall have been
effectively acted upon by a majority vote of that Portfolio
even though: (1) the matter has not been approved by a
majority vote of any other Portfolio; or (2) the matter has not
been approved by a majority vote of the Fund. Initial
investments into the Fund were made by American States
Insurance Company ("ASI") and Lincoln National Life
Insurance Company ("LNLIC"), both affiliates of the Advisor.
As of October 31, 1994, ASI held 79% of the outstanding
shares of Enterprise, 82% of the outstanding shares of U.S.
Growth, and 97% of the outstanding shares of Tax-Free Income
Portfolios; LNLIC held 72% of the outstanding shares of Growth
and Income, 89% of the outstanding shares of World Growth, 88%
of the outstanding shares of New Pacific, 92% of the
outstanding shares of Government Income, 83% of the
outstanding shares of Corporate Income, and 94% of the
outstanding shares of Cashfund Portfolios.
THE PORTFOLIOS' PERFORMANCE From time to time, each
Portfolio may advertise its "average annual total return" over
various periods of time for each class. Total return figures
show the average percentage change in value of an investment
in the class from the beginning date of the measuring period to
the end of the measuring period. These figures reflect changes
in the price of the shares and assume that any income,
dividends and/or capital gains distributions made by a
Portfolio during the period were reinvested in shares of the
same class. Class A total return figures include the maximum
initial sales charge and Class B and Class C total return
figures include any applicable CDSC. These figures also take
into account the service and distribution fees, if any, payable
with respect to the respective classes. In reports or
other communications to shareholders and in advertising
material performance of the classes may be compared with that
of other mutual funds or classes of shares of other funds as
listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services that monitor the
performance of mutual funds, or other industry or financial
publications such as BARRON'S, BUSINESS WEEK, CDA INVESTMENT
TECHNOLOGIES INC., FORBES, FORTUNE, INSTITUTIONAL INVESTOR,
INVESTORS DAILY, PENSIONS & INVESTMENTS, USA TODAY, FINANCIAL
SERVICES WEEK, FINANCIAL WORLD, INVESTMENT DEALERS' DIGEST,
MUTUAL FUND FORECASTER, PERSONAL FINANCE, SMART MONEY, PERSONAL
INVESTING NEWS, YOUR MONEY, BLOOMBERG MAGAZINE, KIPLINGER'S
PERSONAL FINANCE MAGAZINE, MONEY, MORNINGSTAR MUTUAL FUND
VALUES, THE NEW YORK TIMES AND THE WALL STREET JOURNAL. Total
return figures are based on historical earnings and are not
intended to indicate future performance. The Statement of
Additional Information contains a further description of
methods used to determine performance. Performance figures
may be obtained from the shareholders services
representative or a registered representative.
GENERAL INFORMATION SHAREHOLDER SERVICES
Shareholder servicing, reporting and general shareholder
services functions for the Fund are performed by Fundamental
Shareholder Services, Inc., which maintains its offices at 90
Washington Street, New York, New York 10006. You may telephone
Shareholder Services at 1-800-9ADVISOR (1-800-923-8476).
INDEPENDENT ACCOUNTANTS The Fund's independent accountants
are Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand L.L.P. conducts an annual
audit of each Portfolio and consults with the Fund and each
Portfolio as to matters of accounting, regulatory filings
and federal and state income taxation.
37 <PAGE> (This page
intentionally left blank.)
38 <PAGE> APPENDIX A
IMPLEMENTATION OF INVESTMENT OBJECTIVES AND POLICIES In
attempting to achieve their investment objectives and
policies, the Portfolios may employ, among others, one or more
of the strategies set forth below. CONVERTIBLE SECURITIES
The Portfolios, other than the Lincoln Tax-Free Income
Portfolio and the Lincoln Cashfund Portfolio, may invest in
securities that either have warrants or rights attached or
are otherwise convertible into other or additional
securities. A convertible security is typically a fixed-income
security (a bond or preferred stock) that may be converted at
a stated price within a specified period of time into a
specified number of shares of common stock of the same or a
different issuer. Convertible securities are generally senior to
common stocks in a corporation's capital structure but are
usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in
yield than the income derivable from a common stock but lower
than that afforded by a similar non-convertible security), a
convertible security also affords an investor the
opportunity, through its conversion feature, to participate in
capital appreciation attendant upon a market price advance in
the common stock underlying the convertible security. In
general, the market value of a convertible security is at
least the higher of its "investment value" (I.E., its value
as a fixed-income security) or its "conversion value" (I.E.,
its value upon conversion into its underlying common stock).
While no securities investment is without some risk, investments
in convertible securities generally entail less risk than
investments in the common stock of the same issuer. U.S.
GOVERNMENT SECURITIES All of the Portfolios may invest
in securities of the U.S. Government. Securities guaranteed by
the U.S. Government include: (1) direct obligations of the
U.S. Treasury (such as Treasury bills, notes and bonds) and
(2) federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates and
Federal Housing Administration debentures). For these
securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus
they are of the highest possible credit quality. Such
securities are subject to variations in market value due to
fluctuations in interest rates, but if held to maturity are
deemed to be free of credit risk for the life of the investment.
Securities issued by U.S. Government instrumentalities and
certain federal agencies are neither direct obligations
of, nor guaranteed by, the U.S. Treasury. However, they
generally involve federal sponsorship in one way or another:
some are backed by specific types of collateral; some are
supported by the issuer's right to borrow from the U.S.
Treasury; some are supported by the discretionary authority of
the U.S. Treasury to purchase certain obligations of the issuer;
and others are supported only by the credit of the
issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, and Federal Home Loan Banks.
MORTGAGE-BACKED SECURITIES The Lincoln Corporate Income,
Lincoln Government Income and Lincoln Tax-Free Income Portfolios
may invest in various types of mortgage-backed securities.
Mortgage-backed securities may be issued by governmental
agencies (such as the Government National Mortgage Association
("GNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), by the Federal National Mortgage Association
("FNMA")), which is a federally chartered and privately-owned
corporation, or by private financial institutions such as
commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or
affiliates of such institutions established to issue these
securities). Most mortgage-backed securities, including
the securities issued by GNMA, FHLMC and FNMA, are so-called
"pass-through" securities representing interests in a pool of
underlying mortgage loans, on which the regular interest
and principal payments (including any prepayments) are passed
through to the holder of the securities. Although the
mortgage loans in a pool will have stated maturities of up
to 30 years, due to both normal principal repayment and
prepayments, the average effective maturities of these
securities will vary and will tend to be shorter than those
of the underlying mortgages. Due to the prepayment feature
and the A-1 <PAGE> need
to reinvest prepayments of principal at current market
rates, these securities can be less effective than typical
bonds of similar maturities at "locking in" yields during
periods of declining interest rates. Like other fixed-income
investments, the value of mortgage-related securities will tend
to rise when interest rates fall and to fall when interest
rates rise. Their value may also change due to changes
in the market's perception of the creditworthiness of
the entity that issues or guarantees them. For additional
information regarding mortgage-backed securities, see the
Statement of Additional Information. U.S. Government
securities may be acquired by the Portfolios in the form of
separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The
principal and interest components of selected securities are
traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest
components are individually numbered and separately issued
by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts
independently. Obligations of Resolution Funding
Corporation are similarly divided into principal and
interest components and maintained as such on the
book-entry records of the Federal Reserve Banks. In
addition, the Portfolios may invest in custodial receipts that
evidence ownership of future interest payments, principal
payments or both on certain U.S. Treasury notes or bonds in
connection with programs sponsored by banks and brokerage firms.
Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known
by various names, including "Treasury Receipts" ("TRs"),
("TIGRs") and "Certificates of Accrual on Treasury Securities"
("CATS"), and may not be deemed U.S. Government securities.
The Portfolios may also invest from time to time in collective
investment vehicles, the assets of which consist principally
of U.S. Government securities or other assets substantially
collateralized or supported by such securities, such as
government trust certificates. The U.S. Government
securities in which the Portfolios invest do not, in general,
have as high a yield as more speculative securities or
securities not supported by the U.S. Government or its
agencies or instrumentalities. When interest rates increase,
the value of debt securities and shares of the Portfolios
can be expected to decline. ASSET-BACKED SECURITIES The
Lincoln Government Income and Lincoln Corporate Income
Portfolios may purchase asset-backed securities, which
represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets,
most often a pool of assets similar to one another. Assets
generating such payments will consist of motor vehicle
installment purchase obligations, credit card receivables, other
financial receivables and home equity loans. See the Statement
of Additional Information. REPURCHASE AGREEMENTS The
Portfolios may enter into repurchase agreements, under which a
Portfolio buys a security (typically a U.S. Government
security or other money market security) and obtains a
simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must
maintain with the Fund's Custodian collateral equal to at
least 100% of the repurchase price including accrued
interest, as monitored daily by the Advisor and/or
Sub-Advisor. A Portfolio only will enter into repurchase
agreements involving securities in which it could otherwise
invest and with banks, brokers or dealers deemed by the Board
of Directors to be creditworthy. If the seller under the
repurchase agreement defaults, the Portfolio may incur a loss
if the value of the collateral securing the repurchase
agreement has declined and 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 Portfolio may be delayed
or limited. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT
AGREEMENTS All of the Portfolios may purchase securities
on a delayed delivery or "when-issued" basis and enter
into firm commitment agreements (transactions whereby the
payment obligation and interest rate are fixed at the time of
the transaction but the settlement is delayed). The
transactions may involve either corporate, municipal or
government securities. A Portfolio as a purchaser assumes
the risk of any decline in value of the
A-2 <PAGE> security beginning on the date of the
agreement or purchase. The Portfolios may invest in when-issued
securities in order to take advantage of securities that may
be especially under or over valued when trading on a when-issued
basis. Each Portfolio will segregate liquid assets such
as cash, U.S. Government securities or other appropriate high
grade debt obligations in an amount sufficient to meet its
payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes,
to the extent a Portfolio's aggregate commitments under these
transactions exceed its holdings of cash and securities that
do not fluctuate in value (such as money market instruments),
the Portfolio temporarily will be in a leveraged position
(I.E., it will have an amount greater than its net assets
subject to market risk). Should market values of a
Portfolio's portfolio securities decline while the Fund is in
a leveraged position, greater depreciation of its net assets
would likely occur than were it not in such a position. The
Portfolios will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio
securities in advance of settlement if necessary to
generate additional cash to meet their obligations thereunder.
MONEY MARKET INSTRUMENTS With the exception of the Lincoln
Cashfund Portfolio, all of the Portfolios may invest in money
market instruments without limit for temporary or defensive
purposes. These are shorter-term debt securities generally
maturing in one year or less which include (1) commercial
paper (short-term notes up to 9 months issued by corporations
or governmental bodies), (2) commercial bank obligations
(certificates of deposit (interest-bearing time deposits),
bankers' acceptances (time drafts on a commercial bank where
the bank accepts an irrevocable obligation to pay at
maturity), and documented discount notes (corporate
promissory discount notes accompanied by a commercial bank
guarantee to pay at maturity)), (3) corporate bonds and notes
(corporate obligations that mature, or that may be redeemed,
in one year or less), (4) variable rate demand notes,
short-term tax-exempt obligations and (5) savings
association obligations (certificates of deposit issued by
mutual savings banks or savings and loan associations).
Although certain floating or variable rate obligations
(securities which have a coupon rate that changes at
least annually and generally more frequently) have maturities
in excess of one year, they are also considered to be
short-term debt securities. In the case of Lincoln Tax-Free
Income Portfolio, the Portfolio may invest in tax-free cash
equivalents, such as floating or variable rate demand notes,
tax-exempt commercial paper and general obligation and
revenue notes or in taxable cash equivalents, such as
certificates of deposit, bankers acceptances and time
deposits or other short-term taxable investments such as
repurchase agreements. STRATEGIC TRANSACTIONS GENERAL.
The Portfolios (other than the Lincoln Cashfund Portfolio)
may, but are not required to, utilize various other
investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates,
and broad or specific equity or fixed-income market movements),
to manage the effective maturity or duration of fixed income
securities in the Fund's portfolio or to enhance potential
gain. Such strategies are generally accepted as modern
portfolio management and are regularly utilized by many
mutual funds and other institutional investors. Techniques and
instruments may change over time as new instruments and
strategies are developed or regulatory changes occur. In the
course of pursuing these investment strategies, the
Portfolio may purchase and sell derivative securities. In
particular, the Portfolios may purchase and sell
exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and
options thereon, enter into various interest rate
transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions"). Strategic
Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be
purchased for the Portfolio resulting from securities markets
or currency exchange rate fluctuations, to protect the
Portfolio's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or
duration of fixed income securities in a Portfolio, or to
establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities.
Any or all of these investment techniques may be used at any
time and there is no particular strategy that dictates the
use of one technique rather than
A-3 <PAGE> another, as use of any Strategic
Transaction is a function of numerous variables including
market conditions. The ability of a Portfolio to utilize
these Strategic Transactions successfully will depend on
the Advisor's or Sub-Advisor's ability to predict
pertinent market movements, which cannot be assured. The
Portfolios will comply with applicable regulatory requirements
when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial
futures and options thereon will be purchased, sold or entered
into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.
Additional information relating to certain financial instruments
or strategies is set forth below. In addition, see "Special
Risks of Strategic Transactions" below for a discussion of
certain risks. LIMITATIONS ON FUTURES AND OPTIONS
TRANSACTIONS. The Portfolios intend to file a notice of
eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading
Commission ("CFTC") and the National Futures Association,
which regulates trading in the futures markets, before
engaging in any purchases or sales of futures contracts or
options on futures contracts. Pursuant to Section 4.5 of the
regulations under the Commodity Exchange Act, each notice
of eligibility will include the following representations:
a) The Portfolios will use futures contracts and related
options solely for bona fide hedging purposes within
the meaning of the definition of bona fide hedging
transactions if the positions are used as part of a
portfolio management strategy and are incidental to the
Portfolios' activities in the cash market, and the
underlying commodity value of the positions at all times
will not exceed the sum of (i) cash or money market
instruments set aside in an identifiable manner, plus margin
deposits, (ii) cash proceeds from existing investments due
in 30 days and (iii) accrued profits on the positions held
by a futures commission merchant; and b) The Portfolios
will not enter into any futures contract or option on
a futures contract if, as a result, the sum of initial
margin deposits on futures contracts and related options
and premiums paid for options on futures contracts the
Portfolios have purchased, after taking into account
unrealized profits and losses on such contracts, would exceed
5% of the Portfolios' total assets. In addition to the
above limitations, each Portfolio will not (a) sell futures
contracts, purchase put options or write call options if, as a
result, more than 25% of a Portfolio's total assets would be
hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a
result, a Portfolio's total obligations upon settlement or
exercise of purchased futures contracts and written put options
would exceed 25% of its total assets; or (c) purchase call
options if, as a result, the current value of option premiums
for call options purchased by a Portfolio would exceed 5% of the
Portfolio's total assets. These limitations do not apply to
options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that
incorporate features similar to options. The limitations
on the Portfolios' investments in futures contracts and
options, and the Portfolios' policies regarding futures
contracts and options discussed elsewhere are not fun
damental policies and may be changed as regulatory
agencies permit. OPTIONS TRANSACTIONS. The Portfolios may
purchase and write (I.E., sell) put and call options on
securities and currencies that are traded on national
securities exchanges or in the over-the-counter market to
enhance income or to hedge their portfolios. A call option
gives the purchaser, in exchange for a premium paid, the right
for a specified period of time to purchase securities or
currencies subject to the option at a specified price (the
exercise price or strike price). When a Portfolio writes a call
option, the Portfolio gives up the potential for gain on the
underlying securities in excess of the exercise price of the
option. A put option gives the purchaser, in return for a
premium, the right for a specified period of time to sell the
securities or currencies subject to the option to the writer
of the put at the specified exercise price. The writer of the
put option, in return for the premium, has the obligation, upon
exercise of the option, to acquire the securities underlying
the option at the exercise price. A Portfolio might,
therefore, be obligated to purchase the underlying securities
for more than their current market price.
A-4 <PAGE> The Portfolios will write only
"covered" options. An option is covered if a Portfolio owns an
offsetting position in the underlying security or maintains
cash, U.S. Government securities or other high-grade debt
obligations with a value sufficient at all times to cover
its obligations. See the Statement of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolios
(other than the Lincoln Tax-Free Income Portfolio and the
Lincoln Cashfund Portfolio) may enter into forward foreign
currency exchange contracts to protect the value of their
portfolios against future changes in the level of currency
exchange rates. The Portfolios may enter into such contracts
on a spot (I.E., cash) basis at the rate then prevailing in
the currency exchange market or on a forward basis, by
entering into a forward contract to purchase or sell currency
at a future date. A Portfolio's dealings in forward contracts
will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging
generally arises in connection with the purchase or sale
of its portfolio securities and accruals of interest or
dividends receivable and Portfolio expenses. Position
hedging generally arises with respect of existing portfolio
security or currency positions. FUTURES CONTRACTS AND
OPTIONS THEREON. The Portfolios may purchase and sell financial
futures contracts and options thereon which are
exchange-listed or over-the-counter for certain hedging,
return enhancement and risk management purposes in accordance
with regulations of the CFTC. These futures contracts and
related options will be on interest-bearing securities,
financial indices and interest rate indices. A financial
futures contract is an agreement to purchase or sell an agreed
amount of securities at a set price for delivery in the
future. A Portfolio may not purchase or sell futures
contracts and related options if immediately thereafter the sum
of the amount of initial margin deposits on the Portfolio's
existing futures and options on futures and premiums paid on
such related options would exceed 5% of the market value of
the Portfolio's total assets. In addition, the value of all
futures contracts sold will not exceed the total market value
of the Portfolio. SWAP AGREEMENTS. The Portfolios may
enter into interest rate swaps, currency swaps, and other
types of swap agreements such as caps, collars and floors. In
an interest rate swap, one party agrees to make regular payments
of a floating rate times a "notional" principal amount in
return for payments of a fixed rate times the same amount.
Swaps may also depend on other prices or rates such as the value
of an index or mortgage prepayment rates. Swap agreements
usually involve a small investment of cash relative to the
magnitude of risk assumed. As a result, swaps can be very
volatile and may substantially impact a Portfolio's
performance. Swap agreements are also subject to the risk of a
counterpart's ability to perform (I.E., creditworthiness). A
Portfolio may also suffer loses if it is unable to terminate
swap agreements or reduce exposure through offsetting
transactions in a timely manner. SPECIAL RISKS OF STRATEGIC
TRANSACTIONS. Participation in the options or futures markets
and in currency exchange transactions involves investment risks
and transaction costs to which a Portfolio would not be
subject absent the use of these Strategic Transactions. If
the Advisor's and/or Sub-Advisor's prediction of movements
in the direction of the securities, foreign currency and
interest rate markets are inaccurate, the adverse
consequences to a Portfolio may leave the Portfolio in a worse
position than if such Strategic Transactions were not used.
Risks inherent in the use of options, foreign current and
futures contracts and options on futures contracts include
(1) dependence on the Advisor's and/or Sub-Advisor's ability
to predict current movements in the direction of interest
rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and
futures contracts and options thereon and movements in the
prices of securities being hedged; (3) the fact that skills need
to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any
time; (5) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences; and (6) the
possible inability of a Portfolio to purchase or sell a
portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for a Fund to
sell a portfolio security at a disadvantageous time, due to
the need for a Portfolio to maintain "cover" or to
segregate securities in connection with Strategic
Transactions. Although the use of futures contracts and
options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the
hedged position, at the
A-5 <PAGE> same time they tend to limit any potential gain
which might result from an increase in value of such
position. Finally, the daily variation margin requirements
for futures contracts would create a greater ongoing
potential financial risk than would purchase of options, where
the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not
been utilized. The Strategic Transactions that the Portfolios
may use and some of their risks are described more fully in
the Statement of Additional Information. See the Statement
of Additional Information. Each Portfolio's ability to
engage in Strategic Transactions is limited by the
requirements of the Internal Revenue Code of 1986, as
amended, for qualification as a regulated investment company.
See the Statement of Additional Information.
A-6 <PAGE>
