<PAGE>
LINCOLN NATIONAL
AGGRESSIVE GROWTH FUND, INC.
Aggressive Growth
DESCRIPTION OF THE FUND
The Aggressive Growth Fund (fund) was incorporated in Maryland in 1993. It is a
diversified open-end management investment company whose investment objective
is to maximize capital appreciation. The fund pursues its objective by
investing in a diversified portfolio of equity securities of small and medium-
sized companies which have a dominant position within their respective
industries, are undervalued or have potential for growth in earnings. The fund
invests primarily in companies with market capitalizations of between $250
million and $5 billion at the time of purchase. 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 principal risks
of this fund are those associated with investing in smaller, lesser-known
companies. Investment in these companies involves greater risk than investing
in larger, more mature, better-known issuers, including a greater possibility
of portfolio price volatility than you may find in broad stock market indices
such as the Dow Jones Industrial Average and the Standard & Poor's 500 Index
(S&P 500). Additional risks are discussed under Special risk factors.
In selecting investments, the advisor or sub-advisor seeks small and medium
capitalization companies that it believes are either undervalued in the
marketplace or have earnings that may be expected to grow faster than the U.S.
economy in general. These companies will typically possess one or more of these
characteristics: high quality management, a leading or dominant position in a
product and a relatively high rate of return on uninvested capital. When
selecting stocks, little importance is placed on the anticipated dividend
income.
The fund's objective is fundamental and cannot be changed without the
affirmative vote of a majority of its outstanding voting securities. All other
investment policies and practices of the fund are not fundamental and may be
changed by a majority vote of the Board of Directors. See General information
in the Appendix. There is no assurance that the objective of the fund will be
achieved.
PORTFOLIO MANAGER
Since 1994, the fund has been managed on a team basis by Edward J. Petner,
President and Kevin P. Ferguson, Senior Vice President of Investment
Management/ Research of Lynch and Mayer, Inc. (L&M), sub-advisor to the fund.
Petner has been active in investment management since 1983, during which time
he has worked for L&M. He holds a MBA from the Wharton School University of
Pennsylvania. Ferguson has been active in investment management with L&M since
1992. He holds a MBA from New York University.
INVESTMENT POLICIES AND TECHNIQUES
The fund will invest mainly in common stocks of small and medium-sized
companies. The fund may invest up to 15% of its total assets in companies with
capitalizations of less than $250 million or greater than $5 billion at the
time of purchase. However, it may also invest up to 35% of the value of its
assets in convertible bonds; convertible preferred stock and warrants to
purchase common stock; futures contracts; and options contracts.
The fund may invest up to 15% of its assets in similar securities of foreign
issuers.
The fund may invest up to 5% of its assets in the securities of issuers which
have been in continuous operation for less than three years. The securities of
these companies may have limited liquidity which can result in their being
priced lower than they may be otherwise. Investments in unseasoned companies
are more speculative and involve greater risk than do investments in companies
with established operating records.
For temporary defensive purposes when the advisor or sub-advisor determines
that market conditions warrant, the fund may invest up to 100% of its assets in
money market instruments, and may hold a portion of its assets in cash for
liquidity purposes. To the extent it is engaged in a temporary defensive
position, the fund will not be pursuing its investment objective.
The fund may invest in the following types of instruments or use the following
investment techniques:
CONVERTIBLE SECURITIES
The fund may invest in securities that either have warrants or rights attached,
or are otherwise convertible. A convertible security is typically a fixed-
income security (a bond or preferred stock) that may
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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 subordinate to similar non-
convertible securities. Convertible securities provide a fixed-income stream
which is generally higher in yield than the income that can be derived from a
common stock, but lower than that afforded by a similar non-convertible
security. Because it can be converted into common stock, frequently a
convertible security will allow its holder to take advantage of increases in
the market price of that common stock. In general, the market value of a
convertible security is at least the higher of its investment value (that is,
its value as a fixed-income security) or its conversion value (that is, 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
The fund may also 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 Government National Mortgage Association (GNMA) certificates and Federal
Housing Administration (FHA) debentures]. These securities are of the highest
possible credit quality, because the payment of principal and interest is
unconditionally guaranteed by the U.S. Government. They 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 are they guaranteed by, the
U.S. Treasury. However, they do 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. 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. There is no guarantee that the
government will support these types of securities, and therefore they may
involve more risk than other government obligations.
U.S. Government securities may be acquired by the fund in the form of
separately-traded principal and interest segments of selected securities
issued or guaranteed by the U.S. Treasury. These segments are traded
independently under the Separate Trading of Registered Interest and Principal
Securities (STRIPS) program. Under the STRIPS program, the principal and
interest parts are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the parts independently. Obligations of the Resolution Funding Corp. are
similarly divided into principal and interest parts and maintained on the book
entry records of the Federal Reserve Banks.
The fund may also 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), Treasury Interest Guarantee Receipts
(TIGRs), and Certificates of Accrual on Treasury Securities (CATS) and may not
be deemed U.S. Government securities.
The fund may invest occasionally 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.
In general, the U.S. Government securities in which the fund invests do not
have as high a yield as do more speculative securities not supported by the
U.S. Government or its agencies or instrumentalities.
MONEY MARKET INSTRUMENTS
The fund 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. They include:
1. Commercial paper (short-term notes up to nine months duration issued by
corporations or government 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); and/or
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4. Savings association obligations (certificates of deposit issued by mutual
savings banks or savings and loan associations).
Even though 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.
SPECIAL SITUATIONS
At times, the fund may invest in certain securities under special situations. A
special situation arises when, in the advisor's or sub-advisor's opinion, the
securities of a particular company will be recognized and will appreciate in
value due to a specific development at that company. Developments creating a
special situation might include a new product or process, a management change,
a technological breakthrough or another event considered significant.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention. The impact of the strategy on the fund will depend on the
fund's size and the extent of the holdings of the special situation company
relative to its total assets.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities that do not
exist for domestic trading. One important risk is that of fluctuation in
currency exchange rates. When the advisor or sub-advisor believes that a
currency in which a portfolio security or securities is denominated may suffer
a decline against the U.S. dollar, it may hedge that risk. It does so by
entering into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the portfolio securities denominated
in that foreign currency.
For a discussion of other risks inherent in foreign investing, see Foreign
investments in the Appendix. A detailed discussion of how the fund intends to
handle these risks appears in the SAI.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS
The fund may purchase securities on a delayed delivery or when-issued basis and
enter into firm commitment agreements (transactions where 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 or
government securities. The fund, as purchaser, assumes the risk of any decline
in value of the security beginning on the date of the agreement or purchase.
The fund 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.
The fund 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 the fund'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 fund 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 the fund's portfolio securities decline while the fund
is in a leveraged position, greater depreciation of its net assets would likely
occur than if it were not in such a position. The fund will not borrow money to
settle these transactions. Instead, it will liquidate other portfolio
securities in advance of settlement, if necessary, to generate additional cash
to meet its obligations.
BORROWING
The fund may borrow money for temporary or emergency purposes in amounts not
exceeding 25% of its total assets. If the fund borrows money, its share price
may be subject to greater fluctuation until the amount borrowed is paid off.
Purchasing securities when the fund has borrowed money may involve an element
of leverage. It will not purchase additional securities when the amount
borrowed exceeds 5% of its total assets.
ILLIQUID INVESTMENTS
Up to 15% of the fund's assets may be invested in securities or other
investments that are not readily marketable, including these:
1. Repurchase agreements with maturities greater than seven calendar days;
2. Time deposits maturing in more than seven calendar days;
3. To the extent a liquid secondary market does not exist for such instruments,
futures contracts and options on futures;
4. Certain over-the-counter options, as described in the SAI; and/or
5. Certain Rule 144A restricted securities (Rule 144A securities for which a
dealer or institutional market exists will not generally be considered
illiquid).
LOWER-RATED DEBT SECURITIES
The fund has no pre-established minimum quality standards and may invest in
debt securities of any quality, including lower-rated bonds that may offer
higher yields because of the greater risk involved in those investments. It may
invest up to 15% of its assets in those securities, including junk bonds. Debt
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securities rated below investment grade by the primary rating agencies (bonds
rated Ba or lower by Moody's Investors Service and BB or lower by Standard &
Poor's Corp.) constitute lower-rated securities. See the Appendix in the SAI
for a description of these ratings.
Securities rated below investment grade as well as unrated securities usually
are a greater risk (including the possibility of default or bankruptcy of the
issuers). They 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 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 legislation and
regulatory developments.
SPECIAL RISK FACTORS
Investing in securities of smaller, lesser-known companies involves greater
risks than those normally associated with larger, more mature, well known
firms, including a risk of increasing potential portfolio price volatility.
This is due to the greater business risks of small size and limited product
lines, markets, distribution channels and financial and managerial resources.
Historically, small capitalization stocks and stocks of recently organized
companies, in which the fund often invests, have been more volatile in price
than the larger capitalization stocks included in the S&P 500. Among the
reasons for the greater price volatility of these small company stocks are the
less certain growth prospects of smaller firms, the lower degree of liquidity
in the markets for such stocks, and the greater sensitivity of small companies
to changing economic conditions. The fund may invest, without limitation, in
Special situations securities of small capitalization companies which may have
experienced financial difficulties.
The values of small company stocks may fluctuate independently of larger
company stock prices. Small company stocks may decline in price as large
company stock prices rise, or rise in price as large company stock prices
decline. The securities of companies with small stock market capitalizations
may trade less frequently and in limited volume. Investors therefore should
expect that, to the extent the fund invests in stock of small-capitalization
companies, the net asset value of its shares may be more volatile than broad
stock market indices such as the S&P 500, and may fluctuate independently from
those indices.
To the extent the fund invests in fixed-income securities, the market value of
fixed-income obligations and, consequently, the fund's net asset value per
share, may vary inversely to changes in prevailing interest rates. You should
recognize that, in periods of declining interest rates, the yields of such
fixed-income securities will tend to be somewhat higher than prevailing market
rates. In periods of rising interest rates, the yields of those securities may
be somewhat lower.
PORTFOLIO TURNOVER
The fund's annual portfolio turnover rate is not expected to exceed 200% in
any particular year although market conditions could result in a greater
degree of market activity. (For example, a rate of portfolio turnover of 100%
would occur if all of the fund's portfolio were replaced in a period of one
year.) High turnover could result in additional brokerage commissions to be
paid by the fund. During 1996 the fund's portfolio turnover was 77.51% and in
1995 it was 85.82%.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the fund as
fundamental policies. See General information in the Appendix. For purposes of
the following restrictions: (1) all percentage limitations apply immediately
after the making of an investment; and (2) any subsequent change in any
applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio.
The fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) if, immediately after
and as a result of such investment (a) more than 5% of the value of its
total assets would be invested in securities of the issuer, except that, as
to 25% of its total assets, up to 10% of its total assets may be invested
in securities issued or guaranteed as to payment of interest and principal
by a foreign government or its agencies or instrumentalities or by a
multinational agency, or (b) it would hold more than 10% of the voting
securities of the issuer, or (c) more than 25% of the value of its assets
would be invested in a single industry. Each of the electric utility,
natural gas distribution, natural gas pipeline, combined electric and
natural gas utility and telephone industries shall be considered as a
separate industry for this purpose and/or
2. Acquire securities subject to restrictions on disposition (except certain
restricted securities for which a dealer or institutional market exists) or
securities for which there is no readily available market, or enter into
repurchase agreements or purchase time deposits maturing in more than seven
days, if, immediately after and as a result, the value of such securities
would exceed, in the aggregate, 15% of its total assets.
A complete listing of all of the fund's fundamental and non-fundamental
restrictions can be found in the SAI.
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STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the fund has considerable discretion in the selection
of appropriate fund investments. In the exercise of that discretion, the
portfolio manager may, at any given time, invest a portion of the fund's assets
in one or more strategic portfolio transactions which we define as derivative
transactions and cash enhancement transactions.
For your convenience, in the Appendix, we have included a basic discussion of
these special financial arrangement transactions and some of the risks
associated with them. Note also that the SAI booklet for the 11 funds contains
definitions of the more commonly used derivative transactions, technical
explanations of how these transactions will be used and the limits on their
use. You should consult your financial counselor if you have specific
questions.
THE AGGRESSIVE GROWTH FUND IS AUTHORIZED:
a) for derivative transactions, to: buy and sell exchange-traded and over-the-
counter put and call options on stock and stock indices, on fixed-income
(interest rate) securities; on equity and fixed-income indices and on other
financial transactions; buy and sell futures contracts and options on futures
contracts; engage in swaps, caps, floors, collars and similar interest-rate
transactions; enter into currency forward contracts, currency futures, currency
swaps, options on currencies and options on currency futures.
The fund 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 fund has purchased, after taking into account unrealized profits
and losses on such contracts, would exceed 5% of its total assets.
In addition to the above limitations, the fund will not (1) sell futures
contracts, purchase put options, or write call options if, as a result, more
than 25% of its total assets would be hedged with futures and options under
normal conditions; (2) purchase futures contracts or write put options if, as a
result, its total obligations upon settlement or exercise of purchased futures
contracts and written put options would exceed 25% of its total assets; or (3)
purchase call options if, as a result, the current value of option premiums for
call options purchased by it would exceed 5% of its 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.
In addition, the value of all futures contracts sold will not exceed the total
market value of the fund.
b) for cash enhancement transactions, to: lend portfolio securities; engage in
repurchase transactions. Collateral will be continually maintained at no less
than 102% of the value of the loaned securities or of the repurchase price, as
applicable.
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Appendix
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National
Aggressive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond
Fund, Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation Fund), Lincoln National Equity-Income Fund, Inc. (Equity-
Income Fund), Lincoln National Global Asset Allocation Fund, Inc. (Global Asset
Allocation Fund), Lincoln National Growth and Income Fund, Inc. (Growth and
Income Fund), Lincoln National International Fund, Inc. (International Fund),
Lincoln National Managed Fund, Inc. (Managed Fund), Lincoln National Money
Market Fund, Inc. (Money Market Fund), Lincoln National Social Awareness Fund,
Inc. (Social Awareness Fund), and Lincoln National Special Opportunities Fund,
Inc. (Special Opportunities Fund). Unless otherwise indicated, the following
information applies to each fund.
NET ASSET VALUE
Each fund's net asset value per share is determined as of close of business
(currently 4:00 p.m., New York Time) on the New York Stock Exchange (NYSE) on
each day it is open for trading. The net asset value per share for all funds
except the Money Market Fund is determined by adding the values of all
securities and other assets, subtracting liabilities (including dividends
payable) and dividing by the number of shares outstanding. Debt securities and
other assets of the fund, other than equity securities, for which market
quotations are readily available, are valued at their bid quotations.
When market quotations are not readily available, debt securities and other
assets are valued at their fair value as determined in good faith. This
valuation is made by or under the authority of each fund's Board of Directors
and it may include the use of valuations furnished by outside sources,
including pricing services which utilize electronic data processing techniques
for valuing normal institutional-size trading units of debt securities. The
value of equity securities is based on the last sale prices of those securities
on national securities exchanges or over-the-counter, or in the absence of
recorded sales, at the average of readily available closing bid and asked
prices on exchanges or over-the-counter. In the absence of readily available
closing bid and asked prices, equity securities will be valued at fair value.
See the SAI Appendix for a discussion of the methodology utilized to value
short-term investments (other than for the Money Market Fund), options, futures
and options thereon, and foreign securities.
MONEY MARKET FUND. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, under Rule 2a-7, as
amended (the Rule) under the Investment Company Act of 1940 (1940 Act). Under
the Rule, the fund's net asset value using the amortized cost method must
fairly reflect market value. The Board of Directors of the fund has established
procedures to assist fund management and the investment advisor in complying
with the requirements of the Rule, which imposes specific standards for the
maturity, quality and diversification of portfolio securities. The Rule also
assigns certain specific duties to fund management and the Board.
MANAGEMENT OF THE FUNDS
The business and affairs of each fund are managed under the direction of its
Board of Directors. The Board has the power to amend the bylaws of each fund,
to declare and pay dividends and to exercise all the powers of the fund except
those granted to the shareholder. Lincoln Life is the sole shareholder of each
fund.
INVESTMENT ADVISOR. Lincoln Investment is the investment advisor to the funds
and is headquartered at 200 East Berry Street, Fort Wayne, Indiana 46802.
Lincoln Investment (the advisor) is registered with the Securities and Exchange
Commission (the Commission or SEC) as an investment advisor and has acted as an
investment advisor to mutual funds for over 40 years. The advisor also acts as
investment advisor to Lincoln National Convertible Securities Fund, Inc., and
Lincoln National Income Fund, Inc., closed-end investment companies, and also
acts as sub-adviser to two of the series of Delaware Group Adviser Funds, Inc.,
an open-end series investment company.
The advisor is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. Through
its subsidiaries, LNC provides life insurance and annuities, property-casualty
insurance, reinsurance and financial services. Directors, officers and
employees of the advisor and each fund are permitted to engage in personal
securities transactions subject to restrictions and procedures set forth in the
Code of Ethics adopted by the advisor and each fund. Such restrictions and
procedures include substantially all of the recommendations of the Advisory
Group of the Investment Company Institute and comply with SEC rules and
regulations.
Under advisory agreements described in the Prospectus for the variable account,
the advisor provides portfolio management and investment advice to the funds
and administers their other affairs, subject to the supervision of each fund's
Board of Directors.
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Appendix
As compensation for its annual rate based on the
services to each fund, the average daily net asset
advisor is paid a monthly value of each fund, as
investment advisory fee at shown in the following
an chart:
<TABLE>
<CAPTION>
First Next In excess of
Fund $200 million $200 million $400 million
...Of average daily net asset value
- ---------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
All other funds .48 of 1 .40 of 1 .30 of 1
</TABLE>
The advisory fees for the
Capital Appreciation, Equi-
ty- Income, and Interna-
tional funds reflect the
more extensive services and
increased expense associated
with portfolios of securi-
ties issued outside the
United States.
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1996 ratio of the advisor's
compensation to average 1996 ratio of total expenses
Fund net assets to average net assets
- ---------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth .75% .82%
Bond .46 .51
Capital Appreciation .80 .93
Equity-Income .95 1.08
Global Asset Allocation .73 1.00
Growth and Income .33 .36
International .82 1.19
Managed .39 .43
Money Market .48 .57
Social Awareness .42 .46
Special Opportunities .40 .44
</TABLE>
Expenses specifically assumed by each fund include: compensation and expenses
of Directors of the fund who are not interested persons of the fund as defined
in the 1940 Act; registration, filing, printing, and other fees in connection
with filings with regulatory authorities, including the costs of printing and
mailing updated Prospectuses and SAIs provided to current contract owners; fees
and expenses of independent auditors; the expenses of printing and mailing
proxy statements and shareholder reports; custodian and transfer agent charges;
brokerage commissions and securities and options transaction costs incurred by
the fund; taxes and corporate fees; fees for accounting, valuation and related
services; legal fees incurred in connection with the affairs of the fund (other
than legal services provided by personnel of the advisor or its affiliated
companies); the fees of any trade association of which the fund is a member;
and expenses of shareholder and Director meetings.
SUB-ADVISORS. As advisor, Lincoln Investment is primarily responsible for
investment decisions affecting each of the funds. However, Lincoln Investment
has entered into sub-advisory agreements with several professional investment
management firms. These firms provide some or substantially all of the
investment advisory services required by a number of the funds, including day-
to-day investment management of those funds' portfolios. Each sub-advisor makes
investment decisions for its respective fund in accordance with that fund's
investment objectives and places orders on behalf of that fund to effect those
decisions. See the following tables for more information about the sub-advisors
and their fees:
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Appendix
<TABLE>
<CAPTION>
Date of
Fund Sub-advisor agreement Annual fee rate based on average daily net asset value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Lynch & Mayer 12/20/93 .50 of 1% of the first $150 million .35 of 1% of the
Growth 520 Madison Avenue excess over $150 million
New York, NY 10022
Capital Janus 1/1/94 .60 of 1% of the first $100 million .55 of 1% of the
Appreciation 100 Fillmore Street excess over $100 million
Denver, CO 80206
Equity- Fidelity 12/20/93 .75 of 1%
Income 82 Devonshire Street
Boston, MA 02108
Global Asset Putnam 6/8/87 the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation One Post Office Square first $200 million; .42 of 1% of the next $200 million;
Boston, MA 02104 and .40 of 1% of any excess over $400 million
International Clay Finlay 8/29/96 .665 of 1% of the first $50 million; .475 of 1% of the
200 Park Avenue next $50 million; and .250 of 1% of any
New York, NY 10166 excess over $100 million
- --------------------------------------------------------------------------------
<CAPTION>
Annual fee rate based on market value of securities
held in the portfolio of each respective client fund at
Date of the close of business on the last trading day of each
Fund Sub-advisor agreement calendar quarter
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Vantage 8/21/85 .20 of 1%
Income 630 5th Avenue
New York, NY 10111
Managed Vantage 8/21/85 .20 of 1%
(stock portfolio only)
Social
Awareness Vantage 4/30/88 .20 of 1%
Special
Opportunities Vantage 8/21/85 .20 of 1%
</TABLE>
No additional compensation from the assets of the funds will be assessed as a
result of the sub-advisory agreements; the sub-advisors are paid by Lincoln
Investment. (There is no sub-advisor for the Bond and Money Market Funds.)
SERVICE MARKS. The service mark for the funds and the name Lincoln National
have been adopted by the funds with the permission of LNC, and their continued
use is subject to the right of LNC to withdraw this permission in the event the
advisor should not be the investment advisor of the funds.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund and
Putnam with the Global Asset Allocation Fund. The continued use of these names
is subject to the right of the respective sub-advisor to withdraw its
permission in the event it ceases to be the sub-advisor to the particular fund
it advises.
PURCHASE OF SECURITIES BEING OFFERED
Shares of the funds' common stock ($0.01 par value) will be sold to Lincoln
Life for allocation to the variable annuity account (VAA), which has been
established for the purpose of funding variable annuity contracts; shares in
the funds will also be sold to Lincoln Life for allocation to one or more of
the variable life accounts, which have been established for the purpose of
funding variable life insurance contracts. Shares of each fund are sold and
redeemed at their net asset value per share determined daily. See Sale and
redemption of shares. Also see Net asset value. The funds' shares are sold to
Lincoln Life for the variable accounts on a no-load basis - that is, without
the imposition of a sales charge.
F-47
<PAGE>
Appendix
SALE AND REDEMPTION OF SHARES
The shares of each fund are sold and redeemed by the fund at their net asset
value per share next determined after receipt by Lincoln Life of a purchase or
redemption order in acceptable form. Redemption of fund shares held by Lincoln
Life for its own account will be effected at the fund's net asset value per
share next determined after receipt of the redemption request by the fund. The
value of shares redeemed may be more or less than original cost, depending upon
the market value of the portfolio securities at the time of redemption. Payment
for shares redeemed will be made within seven days after the redemption request
is received in proper form by the funds. However, the right to redeem fund
shares may be suspended or payment postponed for any period during which (1)
trading on the NYSE is restricted as determined by the Commission, or the NYSE
is closed for other than weekends and holidays; (2) an emergency exists, as
determined by the Commission, as a result of which (a) disposal by each fund of
securities owned by it is not reasonably practicable, or (b) it is not
reasonably practicable for each fund to determine fairly the value of its net
assets; or (3) the Commission by order so permits for the protection of
shareholders of the funds.
DISTRIBUTION AND FEDERAL INCOME TAX CONSIDERATIONS
Each fund's policy is to distribute, at least once a year, substantially all of
its net investment income. Net realized capital gains may only be distributed
annually. These distributions, when paid to Lincoln Life for the variable
accounts, will be reinvested automatically in additional shares of that fund,
at its net asset value per share.
Each fund intends to qualify and has elected to be taxed as a regulated
investment company under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the code). If a fund qualifies as a regulated
investment company and complies with the provisions of the code relieving
regulated investment companies which distribute substantially all of their net
income (both ordinary income and capital gain) from Federal income tax and the
4% nondeductible Federal excise tax, the funds will be relieved of those taxes
on the amounts distributed. See the SAI for a more complete discussion.
Each fund is subject to asset diversification requirements under Section 817(h)
of the code and the related regulation that the United States Treasury
Department has adopted. Each fund intends to comply with these diversification
requirements.
Since the sole shareholder of the funds is Lincoln Life, there is no discussion
here about the Federal income tax consequences at the shareholder level. For
information concerning the Federal income tax consequences to holders of
annuity or life insurance contracts, including the failure of a fund to comply
with the diversification requirements discussed above, see the Prospectus for
the variable account at the front of this booklet.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
In the Annual Report for the funds, the portfolio manager for each fund
discusses that fund's performance for the previous fiscal year and the factors
which affected that performance. We will send you a copy of the Annual Report
free upon request.
DESCRIPTION OF SHARES
The authorized capital stock of each fund consists of 50 million shares of
common stock (150 million for the Growth and Income Fund and 100 million each
for the Equity-Income Fund, International Fund and Managed Fund), $0.01 par
value. As of April 1, 1997, each fund had the following number of shares issued
and outstanding:
<TABLE>
<S> <C>
Aggressive Growth 19,033,638
Bond 22,323,906
Capital Appreciation 21,172,476
Equity-Income 32,730,897
Global Asset Allocation 25,529,165
Growth and Income 79,849,479
International 31,897,933
Managed 44,089,292
Money Market 9,655,455
Social Awareness 27,849,619
Special Opportunities 24,121,470
</TABLE>
Fund shares will be owned by Lincoln Life and will be held by it in the
variable accounts. As sole shareholder of each fund, Lincoln Life may be deemed
to be a control person as that term is defined under the 1940 Act. However, as
stated in the Prospectuses for the variable accounts, Lincoln Life provides to
contractowners of the variable accounts the right to direct the voting of fund
shares at shareholder meetings, to the extent provided by law. Lincoln Life
will vote for or against any proposition, or will abstain from voting, any fund
shares attributable to a contract for which no timely voting instructions are
received, and any fund shares
F-48
<PAGE>
Appendix
held by Lincoln Life for its own account, in proportion to the voting
instructions that it received with respect to all contracts participating in
that fund. However, if the 1940 Act or any regulation under it should change,
and as a result Lincoln Life determines it is permitted to vote fund shares in
its own right, it may elect to do so.
All the shares of each fund are of the same class with equal rights and
privileges. Each full share is entitled to one vote and each fractional share
is entitled to a proportionate fractional vote, on all matters subjected to a
vote of the shareholder. All shares, full and fractional, participate
proportionately in any dividends and capital gains distributions and, in the
event of liquidation, in that fund's net assets remaining after satisfaction of
outstanding liabilities.
When issued, each share is fully-paid and non-assessable and the shareholder
has no preemptive or conversion rights. Fund shares have non-cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
In that event the holders of the remaining shares so voting will not be able to
elect any directors. Shares may be redeemed as set forth under Sale and
redemption of shares.
The Bylaws of the funds allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as: (1)
a majority of the Directors then in office have at some point been elected by
the shareholder and, if any vacancy is filled by vote of the Board of
Directors, then immediately after filling the vacancy at least two thirds of
the Directors shall have been elected by the shareholder; (2) there is no
change in the independent auditor of the funds; (3) there is no material change
to the investment advisory and/or sub-advisory agreements and/or fundamental
policies; and (4) a shareholder vote is not required with respect to a
distribution agreement. In adopting this procedure for dispensing with annual
meetings that are a formality, the Directors of the funds have undertaken to
comply with the requirements of Section 16(c) of the 1940 Act. That Section
protects contract owners by providing a procedure by which they may require
management to convene a meeting of the shareholder to vote on removal of one or
more Directors. The Directors also have agreed to facilitate communication
among contract owners for the purpose of calling those meetings. Further
information about these procedures is available from fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management
philosophies many of the funds engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to seek to increase the fund's
overall value (or, depending on the condition of the securities markets, at
least to slow its decrease). Cash enhancement transactions are designed to make
some extra money for the fund when it has excess cash, or to help the fund
obtain some cash for temporary purposes when needed. See the Prospectus for
each fund for a listing of the kinds of transactions in which each fund may
engage.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one or more indices of asset values. The following types are
currently in fairly common use in the investment community, although not
every fund will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps; stock
index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs); interest rate swaps and their related
transactions (e.g., caps, floors, collars and corridors); and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest rate
swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED IN THE SAI APPENDIX.
Although they may be structured in complex combinations, derivative
transactions in which the funds engage generally fall into two broad
categories: options contracts or forward contracts. The combined forms are
constantly evolving. In fact, variations on the types listed previously may
come into use after the date of these Prospectuses. Therefore, where the
Prospectus for a particular fund discloses the intent of that fund to engage in
any of the types listed, that fund hereby reserves the right to engage in
related variations on those transactions.
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<PAGE>
Appendix
The funds intend to engage in derivative transactions only defensively.
Examples of this defensive use might be: to hedge against a perceived decrease
in a fund's asset value; to control transaction costs associated with market
timing (e.g., by using futures on an unleveraged basis); and to lock in
returns, spreads, or currency exchange rates in anticipation of future cash
market transactions.
There is no discussion here of asset-backed or mortgage-backed securities (such
as collateralized mortgage obligations, structured notes, inverse floaters,
principal-only or interest-only securities, etc.). See the Prospectus and SAI
for the Capital Appreciation and Equity-Income funds, which are authorized to
engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some derivatives
involve more of these risks than others. We briefly describe the most common
ones here; however, this is not an exhaustive list. Consult your financial
counselor if you have additional questions.
CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation of
domestic interbank fund transfer systems often do not overlap due to time
zone differences. In the interval between the time one counterparty has
received payment in one indicated currency and the time the other
counterparty(ies) receive payment in the others, those awaiting payment are
exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in particular
jurisdictions or against a financially troubled entity; or will be subject
to regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will be unable to control its
losses if a liquid secondary market for a financial instrument does not
exist. It is often considered as the risk that a (negotiable or assignable)
financial instrument cannot be sold quickly and at a price close to its
fundamental value.
MARKET RISK is the risk of a change in the price of a financial instrument,
which may depend on the price of an underlying asset.
OPERATING RISK is the potential of unexpected loss from inadequate internal
controls or procedures; human error; system (including data processing
system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money defaults
before the amounts due or assets have been received; or the risk that
technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely to
be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a market
segment, to a settlement system, etc.) might cause widespread difficulties
at other firms, in other market segments, or in the financial system as a
whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's ability
to correctly predict the direction of stock prices and interest rates, and
other economic factors. Options and futures trading may fail as hedging
techniques in cases where the price movements of the securities underlying
the options and futures do not follow the price movements of the portfolio
securities subject to the hedge. The loss from investing in futures
transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE OTHERS
MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here only
briefly. Before you invest in a particular fund, please consult your
financial counselor if you have questions about the risks associated with
that fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each fund, that fund's
portfolio manager decides which types of derivative transactions to employ,
at which times and under what circumstances. For a description of the
limits, risk factors and circumstances under which derivative transactions
will be used by each fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress and
industry regulators (such as the SEC and the Office of the Comptroller of
the Currency), and by self-regulatory agencies (such as the NASD). Should
legislation or regulatory initiatives be enacted resulting in
F-50
<PAGE>
Appendix
additional restrictive requirements for derivative transactions, Lincoln
Life and the funds reserve the right to make all necessary changes in the
contracts and the Registration Statements for the funds, respectively, to
comply with those requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the fund. They
are discussed more fully in the SAI.
A. Lending of portfolio securities
Any fund authorized to do so may make secured loans of its portfolio
securities, in order to realize additional income. The loans are limited to
a maximum of a stipulated amount of the fund's total assets. As a matter of
policy, securities loans are made to broker/dealers under agreements
requiring that the loans be continuously secured by collateral in cash or
short-term debt obligations at least equal at all times to 102% of the value
of the securities lent.
The borrower pays the fund an amount equal to any dividends or interest
received on securities lent. The fund retains all or a portion of the
interest received on securities lent. The fund also retains all or a portion
of the interest received on investment of the cash collateral, or receives a
fee from the borrower.
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the fund retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of
those securities - including the fund - to vote or consent on matters which
could materially affect the holders' investment. The fund may also call in
the loaned securities in order to sell them. None of the funds' portfolio
securities will be loaned to Lincoln Investment, to any sub-advisor, or to
any of their respective affiliates. The fund may pay reasonable finder's
fees to persons unaffiliated with it in connection with the arrangement of
the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. Repos. From time to time, the funds may enter into Repo transactions. In
a typical Repo transaction, the fund involved buys U.S. Government or
other money market securities from a financial institution (such as a
bank, broker, or savings and loan association). At the same time, as part
of the arrangement, the fund obtains an agreement from the seller to re-
purchase those same securities from the fund at a specified price on a
fixed future date.
The repurchase date is normally not more than seven days from the date of
purchase. Keeping the term under seven days is significant, because the
SEC considers Repo Agreements with maturities of more than seven days to
be illiquid assets of the fund, and the funds have strict limitations on
the percentage of their respective assets which may be illiquid.
2. Reverse repos. A fund may also be authorized to enter into Reverse Repo
transactions. This simply means the fund is on the reverse side of a Repo
transaction. That is, the fund is the Seller of some of its portfolio se-
curities, subject to buying them back at a set price and date.
Authorized funds will engage in Reverse Repos for temporary purposes, such
as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse repo
transaction is considered to be the borrowing of money by the fund. Funds
authorized to engage in Repos as buyers are not necessarily authorized to
do Reverse Repos.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions; reduced availability of public information concerning issuers;
and the fact that foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic
companies. With respect to certain foreign countries, there is also the
possibility of expropriation, nationalization, confiscatory taxation, and
limitations on the use or removal of cash or other assets of a fund, including
the withholding of interest payments or dividends. These risks may be
particularly great in so-called developing or undeveloped countries, sometimes
referred to as Emerging Markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio
F-51
<PAGE>
Appendix
liquidity. The funds will incur costs in converting foreign currencies into
U.S. dollars. Custody charges are generally higher for foreign securities. In
buying and selling securities on foreign exchanges, a fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged
in the United States. In addition, there is generally less governmental
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries that in the United States. There may be difficulty in
enforcing legal rights outside the United States. For example, in the event of
default on any foreign debt obligations, it may be more difficult or impossible
for the fund to obtain or to enforce a judgment against the issuers of these
securities. The advisor or sub-advisor will take all these factors into
consideration in managing a fund's foreign investments.
Certain state insurance regulations impose additional restrictions on the
extent to which a fund may invest in foreign securities. See the SAI.
The share price of a fund that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a fund's
investments abroad, changes in a fund's share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the fund invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an
important factor in the performance of the fund.
FOREIGN CURRENCIES
When an advisor or sub-advisor believes that a currency in which a portfolio
security or securities is denominated or exposed may suffer a decline against
the U.S. dollar, it may hedge that risk by entering into a forward contract to
sell an amount of foreign currency approximating the value of some or all of
the portfolio securities denominated in or exposed to that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a fund may hold various foreign currencies,
the value of the net assets of that fund as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market. The cost of
currency exchange transactions will generally be the difference between the bid
and offer spot rate of the currency being purchased or sold. Some foreign
currency values may be volatile, and there is the possibility of government
controls on currency exchange or governmental intervention in currency markets
which could adversely affect the fund.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a fund's advisor or sub-
advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to
the U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the fund's assets denominated in or exposed
to that currency), or by participating in options or futures contracts with
respect to that currency. If the advisor or sub-advisor believes that a
particular currency may decline relative to the U.S. dollar, the fund may also
enter into contracts to sell that currency (up to the value of the fund's
assets denominated in or exposed to that currency) in exchange for another
currency that the advisor or sub-advisor expects to remain stable or to
appreciate relative to the U.S. dollar. This technique is known as currency
cross-hedging. Refer to the Prospectus for each fund to determine which funds
may engage in these transactions.
These strategies are intended to minimize the effect of currency appreciation
as well as depreciation, but do not protect against a decline in the underlying
value of the hedged security. In addition, these strategies may reduce or
eliminate the opportunity to profit from increases in the value of the original
currency and may adversely impact the fund's performance if the advisor or sub-
advisor's projection of future exchange rates is inaccurate. See Strategic
portfolio transactions.
GENERAL INFORMATION
Your inquiries should be directed to Lincoln National Life Insurance Co., at
P.O. Box 2340, Fort Wayne, Indiana 46801; or, you may call 1-800-4LINCOLN (454-
6265).
The funds will issue unaudited semiannual reports showing current investments
in each fund and other information; and annual financial statements audited by
their independent auditors.
Under the 1940 Act a fundamental policy of a fund may not be changed without
the affirmative vote of a majority of the fund's outstanding shares.
As used in this Prospectus, the term majority of the fund's outstanding shares
means the vote of: (1) 67% or more of each fund's shares present at a meeting,
if the holders of more than 50% of the outstanding
F-52
<PAGE>
Appendix
shares of each fund are present or represented by proxy, or (2) more than 50%
of each fund's outstanding shares, whichever is less.
These Prospectuses do not contain all the information included in their
Registration Statements filed with the Commission. The Registration Statements,
including the exhibits filed with them, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Prospectuses about
the contents of any contract or other document referred to in them are not
necessarily complete. In each instance, reference is made to the copy of that
contract or other document filed as an exhibit to the Registration Statement of
which the particular Prospectus forms a part, and each statement is qualified
in all respects by that reference.
The use of funds by both variable annuity and variable life insurance separate
accounts is known as mixed funding. Due to differences in redemption rates, tax
treatment, or other considerations, the interests of contract owners under the
variable life accounts may conflict with those of contract owners under the
variable annuity account, in those cases where mixed funding occurs. For
example, violation of the federal tax laws by one variable account investing in
the funds could cause the contracts and Policies funded through another
variable account to lose their tax-deferred status, unless remedial action were
taken. The Board of Directors of each fund will monitor for any material
conflicts and determine what action, if any, should be taken.
Should any conflict arise which requires that a substantial amount of assets be
withdrawn from any of the funds, orderly portfolio management could be
disrupted, to the detriment of those contract owners still investing in that
fund. Also, if that fund believes that any portfolio has become so large as to
materially impair investment performance, then the fund will examine other
investment options.
Lincoln Life performs the dividend and transfer functions for the funds.
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<PAGE>
Appendix
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS-11 UNDERLYING
FUNDS*
<TABLE>
<CAPTION>
Item
- --------------------------------------------------------------------------------
<S> <C>
General Information and History
Investment objective
Investment policies and techniques
Investment restrictions
Portfolio transactions and brokerage
Determination of net asset value
</TABLE>
*Note: This is a generic table. There are variations in the contents of the SAI
from fund to fund.
<TABLE>
<CAPTION>
Item
- --------------------------------------------------------------------------------
<S> <C>
Appendix
Investment advisor and sub-advisor
Directors and officers
Investment policies and techniques (continued): options, futures,
securities valuation, securities lending, repurchase and reverse
repurchase agreements
Custodian
Independent auditors
Financial statements
Bond and commercial paper ratings
U.S. Government obligations
Taxes
State requirements
Derivative transactions - definitions
</TABLE>
- --------------------------------------------------------------------------------
Please send me a free copy of the current Statement of Additional Information
for Lincoln National Life Insurance Co. Variable Annuity Account C:
(Please Print)
Name: __________________________________________________________________________
Address: _______________________________________________________________________
City __________________________ State ____________Zip _________________________
Mail to Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana
46081
11
<PAGE>
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F-54
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
THE PREFACE AND DIRECTORY ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING
FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (AG)
Lincoln National Bond Fund, Inc. (B)
Lincoln National Capital Appreciation Fund, Inc. (CA)
Lincoln National Equity-Income Fund, Inc. (E-I)
Lincoln National Global Asset Allocation Fund, Inc. (GAA)
Lincoln National Growth and Income Fund, Inc. (GI)
Lincoln National International Fund, Inc. (I)
Lincoln National Managed Fund, Inc. (M)
Lincoln National Money Market Fund, Inc. (MM)
Lincoln National Social Awareness Fund, Inc. (SA)
Lincoln National Special Opportunities Fund, Inc. (SO)
Preface/Directory
Shares of all the funds are sold to Lincoln National Life Insurance Co.
(Lincoln Life) for allocation to its Variable Annuity Account C (the variable
annuity account [VAA]) to fund variable annuity contracts and for allocation to
its Variable Life Account K to fund variable life insurance contracts.
To fund its variable life contracts, Variable Life Account D buys shares of the
Bond, Growth and Income, Managed, Money Market and Special Opportunities Funds.
To fund its variable life contracts, Variable Life Account G buys shares of the
Growth and Income and Special Opportunities Funds.
Each of these Variable Life and Annuity Accounts may be referred to as a
variable account. For each fund listed above, see Description of the fund in
its Prospectus for a statement of that fund's investment objective. Each of
these funds is referred to individually as a fund; collectively, as the funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THESE PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
These Prospectuses set forth concisely the information about each fund that you
ought to know before investing. Please read and keep this Prospectus booklet
for future reference.
A separate Statement of Additional Information (SAI) for each fund has been
filed with the SEC. By this reference, each SAI, dated May 1, 1997, is
incorporated into the Prospectus of the fund with which it is registered. A
free copy will be provided upon request. Either write Lincoln National Life
Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN
(454-6265).
The Financial Highlights table of each fund contains per-share data calculated
on the basis of a share outstanding throughout the period, together with
financial ratios and other supplemental data. The Financial Highlights table is
incorporated by reference to the fund's 1996 Annual Report. A copy of the
Annual Report will be provided on request and without charge. Either write
Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801
or call 1-800-4LINCOLN (454-6265).
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES, IN CONNECTION WITH THE OFFERS CONTAINED IN THEM. IF ANY ARE GIVEN
OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND(S) IN QUESTION. THESE PROSPECTUSES DO NOT
CONSTITUTE OFFERS BY THE FUNDS TO SELL, OR SOLICITATIONS OF ANY OFFERS TO BUY,
ANY OF THE SECURITIES OFFERED BY THEM IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL FOR THE FUNDS TO MAKE THOSE OFFERS.
Prospectuses dated May 1, 1997
23
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
Preface/Directory
<TABLE>
<CAPTION>
Subject Page
- ----------------------------------------
<S> <C>
PREFACE 23
DESCRIPTION OF THE FUND
Aggressive Growth Fund 25
Bond Fund 31
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 43
Growth and Income Fund 49
International Fund 51
Managed Fund 55
Money Market Fund 59
Social Awareness Fund 61
Special Opportunities Fund 65
- ----------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Aggressive Growth Fund 25
Bond Fund 31
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 43
Growth and Income Fund 49
International Fund 51
Managed Fund 55
Money Market Fund 59
Social Awareness Fund 61
Special Opportunities Fund 65
- ----------------------------------------
INVESTMENT RESTRICTIONS
Aggressive Growth Fund 28
Bond Fund 33
Capital Appreciation Fund 38
Equity-Income Fund 41
Global Asset Allocation Fund 46
Growth and Income Fund 49
International Fund 53
Managed Fund 57
Money Market Fund 60
Social Awareness Fund 62
Special Opportunities Fund 66
</TABLE>
<TABLE>
<CAPTION>
Subject Page
- -------------------------------------------------------------
<S> <C>
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth Fund 29
Bond Fund 33
Capital Appreciation Fund 38
Equity-Income Fund 42
Global Asset Allocation Fund 46
Growth and Income Fund 50
International Fund 53
Managed Fund 57
Money Market Fund 60
Social Awareness Fund 62
Special Opportunities Fund 67
- -------------------------------------------------------------
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
Net asset value 69
Management of the funds 69
Purchase of securities being offered 71
Sale and redemption of shares 72
Distributions and federal income tax considerations 72
Management discussion of fund performance 72
Description of shares 72
Strategic portfolio transactions-Additional information 73
Foreign investments 75
General information 76
Statement of Additional Information
Table of contents - 11 underlying funds 79
</TABLE>
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