<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1997
- ------------------------------------------------------------------------------
File No. 2-82276
--------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 16
-----------------------------
LINCOLN NATIONAL MANAGED FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1300 South Clinton Street, Fort Wayne, Indiana 46802
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (219)455-2000
JACK D. HUNTER, ESQ.
200 E. Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
--------------------------------------
Copies of all communications to
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.,
Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
Bruce Rosenblum, Esq.
--------------------------------------
Fiscal year-end: December 31
--------------------------------------
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. Pursuant to Rule 24f-2(b)(1), the Registrant filed a Rule 24f-2 Notice for
the last fiscal year (1996) on February 28, 1997.
--------------------------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
x on 5/1/97 pursuant to paragraph (b)
---
___ 60 days after filing pursuant to paragraph (a) (1)
___ on _________ pursuant to paragraph (a) (1)
___ 75 days after filing pursuant to paragraph (a) (2)
___ on _________ pursuant to paragraph (a) (2) of Rule 485.
<PAGE>
LINCOLN NATIONAL MANAGED FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 16 AND
AMENDMENT NO. 16
to
Registration on Form N-1A
This amendment consists of the following papers and documents:
Facing Sheet
Contents sheet
Cross-reference sheet
Part A -
Prospectus
Part B -
Statement of Additional Information
Part C -
Items 24 through 32
Signatures
Exhibit Index
Exhibits
<PAGE>
Exhibit Index
LINCOLN NATIONAL MANAGED FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
<TABLE>
<CAPTION>
Item Number - Part A Location in Prospectus
- -------------------- ----------------------
<S> <C>
1. Cover Page Preface
2. Synopsis Not Applicable
3. Condensed Financial
Information Preface
4. General Description of Description of the Fund; Investment
Registrant Policies and Techniques; Investment
Restrictions; Strategic Portfolio
Transactions (Prospectus and
Appendix)
5. Management of the Fund Description of the Fund; Investment
Policies and Techniques; Management
of the funds (Appendix)
5A. Management's Discussion Management Discussion of Fund
of Fund Performance Performance (Appendix)
6. Capital Stock and Other Description of Shares; Sales and
Securities Redemption of Shares; General
Securities Information;
Distribution and Federal Income Tax Considerations (All in
Appendix)
7. Purchase of Securities Net Asset Value; Purchase of
Being Offered Securities Being Offered; Sale and
Redemption of Shares (All in Appendix)
8. Redemption or Repurchase Sale and Redemption of Shares
(Appendix)
</TABLE>
<PAGE>
9. Legal Proceedings Not Applicable
<TABLE>
<CAPTION>
Location in Statement of
Item Number - Part B Additional Information
- -------------------- ------------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
14. Management of the Directors and Officers (Appendix)
Fund
15. Control Persons and See "Management of the Funds" and
Principal "Description of Shares" in the
Prospectus Appendix
16. Investment Advisory Investment Advisor and Sub-Advisor;
and Other Services Custodian; Independent Auditors (All in
Appendix)
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Not Applicable
Other Securities
19. Purchase, Redemption Purchase of Securities Being Offered;
and Pricing of Sale and Redemption of Shares; and
Securities Being Offered Net Asset Value; all in the Prospectus
Appendix
20. Tax Status Taxes
21. Underwriters Not Applicable
</TABLE>
<PAGE>
<TABLE>
<S> <C>
22. Calculation of Not Applicable (See the SAI for the
Performance Data Variable Annuity Account on Form
N-4.)
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
PAGES 21 AND 22 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
F-1
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
Preface/Directory
<TABLE>
<CAPTION>
Subject Page
- ----------------------------------------
<S> <C>
PREFACE 21
DESCRIPTION OF THE FUND
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 47
International Fund 49
Managed Fund 53
Money Market Fund 57
Social Awareness Fund 59
Special Opportunities Fund 61
- ----------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 47
International Fund 49
Managed Fund 53
Money Market Fund 57
Social Awareness Fund 59
Special Opportunities Fund 61
- ----------------------------------------
INVESTMENT RESTRICTIONS
Aggressive Growth Fund 26
Bond Fund 30
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 44
Growth and Income Fund 47
International Fund 51
Managed Fund 54
Money Market Fund 58
Social Awareness Fund 60
Special Opportunities Fund 62
</TABLE>
<TABLE>
<CAPTION>
Subject Page
- -------------------------------------------------------------
<S> <C>
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth Fund 26
Bond Fund 31
Capital Appreciation Fund 36
Equity-Income Fund 39
Global Asset Allocation Fund 45
Growth and Income Fund 48
International Fund 51
Managed Fund 55
Money Market Fund 58
Social Awareness Fund 60
Special Opportunities Fund 63
- -------------------------------------------------------------
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
Net asset value 65
Management of the funds 65
Purchase of securities being offered 67
Sale and redemption of shares 68
Distributions and federal income tax considerations 68
Management discussion of fund performance 68
Description of shares 68
Strategic portfolio transactions-Additional information 69
Foreign investments 71
General information 72
Statement of Additional Information
Table of contents - 11 underlying funds 73
</TABLE>
F-2
<PAGE>
LINCOLN NATIONAL
MANAGED FUND, INC.
Managed
DESCRIPTION OF THE FUND
The Managed Fund (fund) was incorporated in Maryland in 1983. It is an open-
end diversified management investment company whose investment objective is
maximum long-term total return (capital gains plus income) consistent with
prudent investment strategy. The fund pursues its objective by investing in a
portfolio of stocks, bonds, money market instruments and securities
convertible into common stock. The fund's investment objective and policies
are fundamental and cannot be changed without the affirmative vote of a
majority of the outstanding voting securities of the fund. See General
information in the Appendix. There is no assurance that the objective of the
fund will be achieved.
A principal risk in this kind of investing involves the allocation of assets
among the various sectors. Adverse market fluctuations could result if asset
allocation decisions by the fund's investment advisor (the advisor) are
inappropriately timed. Additionally, there are risks associated with the
different investment sectors (i.e., money market, bond market and stock
market), which the fund attempts to minimize by maintaining some balance among
these various sectors. The advisor commits the fund's assets to securities in
the various sectors based on periodic reassessment of the opportunities in the
different areas. See Investment policies and techniques.
PORTFOLIO MANAGERS
Jay Yentis, Second Vice-President, Lincoln Investment, the advisor to the
fund, is the manager of the fund's asset allocation strategy. Yentis, a
Chartered Financial Analyst, has managed this fund since January, 1993. Yentis
joined Lincoln National in 1985. He has over 20 years of experience in
economic and financial forecasting.
T. Scott Wittman, President, Vantage Global Advisors, Inc., the sub-advisor to
the fund, is the portfolio manager of the fund's equity portfolio. Vantage is
a wholly owned subsidiary of Lincoln National Corp., a publicly held insurance
holding company organized under Indiana law. Wittman, a Chartered Financial
Analyst, has managed this segment of the fund since October, 1993. He has been
with Vantage since February, 1991; before that he was managing director at TSA
Capital Management. Wittman specializes in quantitative investment analysis.
Timothy J. Policinski, Second Vice-President, Lincoln Investment, the advisor
to the fund, has been the portfolio manager for the fund's fixed income
portfolio since January 1995. Policinski has been with Lincoln National since
1978. He has been with Lincoln Investment since 1991. He holds a Masters
degree in business administration from Indiana University.
Cozey W. Baker, Jr., Short-Term Investment Manager, Lincoln Investment, the
advisor to the fund, has been the portfolio manager for the fund's money
market portfolio since February 1991. Baker has managed money market funds
since 1991; before that, he was involved in the Cash Investments area of
Lincoln Investment for seven years.
INVESTMENT POLICIES AND TECHNIQUES
The fund will invest in the following investment sectors:
1. Money market instruments and other debt securities with maturities
generally not exceeding one year including:
A. Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Some of these obligations are guaranteed by the U.S.
Government and some are not. See U.S. Government Obligations in the SAI
Appendix;
B. Obligations (including certificates of deposit, bankers' acceptances and
time deposits) of any U.S. bank or other U.S. financial institution that
is a member of the Federal Reserve System, the Federal Deposit Insurance
Corp. (FDIC) or the Federal Savings and Loan Insurance Corp. (FSLIC)
[including obligations of foreign branches of these members] and of any
U.S branch of a foreign bank. These U.S. institutions or foreign banks
with U.S. branches are required to have total assets (as most recently
reported) of not less than $1 billion or the foreign currency equivalent.
Under current FDIC and FSLIC regulations, $100,000 is the maximum
insurance payable as to any one domestic certificate of deposit;
therefore, certificates of deposit purchased by the fund will not
generally be fully insured; and/or
F-33
<PAGE>
Managed
C. Commercial paper and other corporate obligations of U.S. corporations
which either: (1) have an outstanding senior long-term debt issue rated
in the top four credit rating categories by Moody's Investors Service or
by Standard & Poor's Corp. or (2) do not have rated long-term debt
outstanding but have commercial paper rated in the top two credit rating
categories by Moody's Investors Service or by Standard and Poor's Corp.
See Bond and commercial paper ratings in the SAI Appendix.
2. Bond and other debt securities with maturities generally exceeding one
year, including:
A. Straight debt securities (other than municipal securities) which are
rated, at the time of purchase, in the top four categories by Moody's
Investors Service or by Standard and Poor's Corp. See Bond and commercial
paper ratings in the SAI Appendix;
B. Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; or marketable U.S. dollar denominated securities
(payable in U.S. dollars) of, or guaranteed by, foreign governments or
any instrumentality or political subdivision of them. See U.S. Government
obligations in the SAI Appendix; and/or
C. Straight debt securities not described in 2.A., provided such debt
securities do not exceed 15% of the fund's total assets at time of
purchase (for example, securities not rated, by major agencies; private
placements; mortgage backed securities or mortgage participation pools;
high quality dollar denominated debt securities of foreign corporations;
securities which are rated, at time of purchase, below the top four
credit rating categories by Moody's Investors Service or by Standard and
Poor's Corp.). See Bond and commercial paper ratings in the SAI Appendix.
Normally, the current value of debt securities varies inversely with changes in
prevailing interest rates. If interest rates increase after a security is
purchased, the value of the security will normally decrease. Conversely, should
prevailing interest rates decrease after a security is purchased, the market
price for that security will normally increase. Also, there is generally a
greater credit and market risk associated with higher-yielding, lower-grade
debt securities than there is with lower-yielding, higher-grade securities.
3. Common stock and other equity securities such as preferred stock and debt
securities with conversion privileges or warrants.
The fund will continuously adjust the mix of investments among the three
investment sectors to control the level of risk during changing economic
conditions and market outlooks and to take advantage of perceived variations in
return potential produced by those environmental changes. While the fund may
change its exposure to various markets over the course of the investment cycle,
the securities purchased will be primarily for investment rather than for
short-term trading profits. However, short-term profits or losses may be
realized at times if the longer-term objectives of the fund are best served by
those transactions. No more than 75% of the fund's assets may be invested in
either the common stock sector or the bond sector. Up to 100% of the fund's
assets may be invested in the money market sector; however, it is expected that
the fund will have some exposure to the three investment sectors at all times.
The fund does give some portfolio emphasis to securities in the fourth credit
rating category. (See paragraph 2.A.) Generally speaking, these instruments are
regarded as medium-grade instruments, and as such may bear a greater element of
risk than those rated in the top three categories. That risk can involve
increased market price volatility stemming from the sensitivity of interest
rates, concerns over creditworthiness and availability of quotations on the
secondary market. These bonds may have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened ability of the issuer of such bonds to make principal and interest
payments than is the case with higher-grade bonds. It is anticipated that, on
average, no more than 20% of the fund's assets devoted to this sector will be
invested in securities in this category at any one time; however, there may be
times when prudent investment strategy dictates a higher or lower percentage.
FOREIGN INVESTMENTS
Investments in securities issued by foreign issuers involve certain risks which
are not associated with investment in U.S. securities. The fund has the
authority to invest in foreign securities, within the limits set forth
elsewhere in this Prospectus. Eurodollar deposits in foreign branches of U.S.
banks are similar to domestic deposits, but are not covered by FDIC insurance
and may be influenced by future political and economic developments and
governmental restrictions (for example, restrictions on the flow of capital
between Europe and the United States). Refer to Foreign investments in the
Appendix for a discussion of the various risks inherent in foreign investing.
PORTFOLIO TURNOVER
The fund is not restricted in policy with regard to portfolio turnover. (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.) During 1996 the fund's
portfolio turnover was 108.86% and in 1995 it was 112.52%.
F-34
<PAGE>
Managed
INVESTMENT RESTRICTIONS
The investment restrictions that follow 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. Invest in the securities of a single issuer, unless the following
conditions are met: At least 75% of the value of the fund's total assets
must be represented by: (a) U.S. Government obligations, cash and cash
items, (b) securities of other investment companies, and (c) securities of
issuers as to each of which, at the time the investment was made, the
fund's investment in the issuer did not exceed 5% of the fund's total
assets. (With respect to the remaining 25% of the fund's total assets, the
fund does not anticipate that any more than 15% of the fund's total assets
would be invested in the securities of a single issuer at any time, other
than those of the U.S. Government, its agencies and instrumentalities.);
2. Borrow money, except for temporary or emergency purposes and not exceeding
5% (taken at the lower cost or current value) of its total assets (not
including the amounts borrowed); and/or
3. Invest more than 5% of its total assets in securities of issuers which
(together with predecessors) have been in operation for less than three
years. This restriction shall not apply to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
4. Hold more than 10% of the outstanding voting securities of any one issuer.
Additional investment restrictions can be found in the SAI.
STRATEGIC PORTFOLIO TRANSACTIONS
Each 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 MANAGED FUND IS AUTHORIZED:
a) for derivative transactions, to: write put and covered call options and buy
put options for stock and stock indices and buy and sell options to close out
positions previously entered into (The aggregate cost of premiums for all
outstanding options shall not exceed 30% of the fund's total assets, although
the ultimate loss to the fund from options could be substantially greater than
30%.); buy and sell financial futures contracts; put and call options on those
contracts. (For certain limited purposes the fund may also buy financial
futures contracts on an unleveraged basis and not as an anticipatory hedge. See
the SAI.) Amounts committed to margin and paid for option premiums on futures
contracts may not exceed 5% of assets.
b) for cash enhancement transactions, to: lend portfolio securities, if such
loans of securities do not exceed 15% of the funds total assets at any one
time, and engage in repurchase transactions. Collateral will be continually
maintained at no less than 102% of the value of the loaned securities or of the
repurchase price, as applicable.
F-35
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F-36
<PAGE>
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.
F-45
<PAGE>
Appendix
annual rate based on the
As compensation for its average daily net asset
services to each fund, the value of each fund, as
advisor is paid a monthly shown in the following
investment advisory fee at chart:
an
<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:
F-46
<PAGE>
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.
F-49
<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.
F-53
<PAGE>
Managed
LINCOLN NATIONAL
MANAGED FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should be read in conjunction with the Prospectus of Lincoln National
Managed
Fund, Inc. (fund) dated May 1, 1997. You may obtain a copy of the fund's Pro-
spectus
on request and without charge. Please write, Lincoln National Life Insurance
Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN (454-6265)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- -----------------------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE MF-2
- -----------------------------------------------------------------------
INVESTMENT POLICIES MF-2
- -----------------------------------------------------------------------
INVESTMENT RESTRICTIONS MF-3
- -----------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE MF-4
- -----------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE MF-5
- -----------------------------------------------------------------------
APPENDIX
Investment advisor and sub-advisor A-1
- -----------------------------------------------------------------------
Directors and officers A-3
- -----------------------------------------------------------------------
Investment policies and techniques (continued): options, futures,
securities valuation, securities lending, repurchase and reverse
repurchase agreements A-4
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
- -----------------------------------------
<S> <C>
Custodian A- 9
- -----------------------------------------
Independent auditors A- 9
- -----------------------------------------
Financial statements A- 9
- -----------------------------------------
Bond and commercial paper ratings A- 9
- -----------------------------------------
U.S. Government obligations A-11
- -----------------------------------------
Taxes A-11
- -----------------------------------------
State requirements A-12
- -----------------------------------------
Derivative transactions-definitions A-13
</TABLE>
- --------------------------------------------------------------------------------
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1997.
MF-1
<PAGE>
Managed
INVESTMENT OBJECTIVE
The investment objective of the fund is maximum long-term total return
(capital gains plus income) consistent with prudent investment strategy. The
fund's investment objective and policies are fundamental and cannot be changed
without the affirmative vote of a majority of the outstanding voting
securities of the fund. See General information in the Prospectus. There can
be no assurance that the objective of the fund will be achieved.
This fund attempts to minimize the risk associated with different investment
sectors (i.e., money market, bond market and stock market) by maintaining some
balance among these various sectors. The fund's investment advisor (the
advisor) commits the fund's assets to securities in the various sectors based
on periodic reassessment of the opportunities in the different areas. A
principal risk in this kind of investing involves the allocation of assets
among the various sectors. Adverse market fluctuations could result if the
advisor's decisions with regard to asset allocation are inappropriately timed.
References to advisor in this SAI include both Lincoln Investment Management,
Inc. (Lincoln Investment) and Vantage Global Advisors, Inc.
INVESTMENT POLICIES
The fund pursues its investment objective by investing in money market
instruments, bond and other debt securities, and common stock and other equity
securities. (See Description of the fund and Investment policies in the
Prospectus.)
In addition, the fund may write (sell) and purchase options and invest in
futures contracts and options thereon. A more detailed description of put and
call options and futures contracts and options thereon appears in the
Appendix.
OPTIONS TRADING
The fund may write (sell) put and covered call options and purchase covered
put options for stock and stock indices and to write and purchase options to
close out positions previously entered into by the fund; provided, that the
aggregate cost of all outstanding options would not exceed 30% of the fund's
total assets, although the ultimate loss to the fund from options could be
substantially greater than 30%. The fund will only write and purchase options
in standard contracts which may be quoted on NASDAQ or traded on the national
securities exchanges.
Put and call options are generally short-term contracts with durations of nine
months or less. The investment advisor will generally write covered call
options when it anticipates declines in the market value of the portfolio
securities and the premiums received may offset to some extent the decline in
the fund's net asset value. On the other hand, writing put options may be a
useful portfolio investment strategy when the fund has cash or other reserves
and it intends to purchase securities but expects prices to increase.
Generally, the risk to the fund in writing options is that the investment
advisor's assumption about the price trend of the underlying security may
prove inaccurate. If the fund wrote a put, expecting the price of a security
to increase, and it decreased; or if the fund wrote a call, expecting the
price to decrease but it increased, the fund could suffer a loss if the
premium received in each case did not equal the difference between the
exercise price and the market price. See the SAI Appendix for a more complete
description of put and call options and the risks involved.
LENDING OF PORTFOLIO SECURITIES
The fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions and receive collateral from the borrower,
in the form of cash (which may be invested in short-term securities), U.S.
Government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 102% of the current
market value of the loaned securities, and will be in the actual or
constructive possession of the fund during the term of the loan. The fund will
maintain the incidents of ownership of the loaned securities and will continue
to be entitled to the interest or dividends payable on the loaned securities.
In addition, the fund will receive interest on the amount of the loan. The
loans will be terminable by the fund at any time and will not be made to any
affiliates of the fund or the advisor. The fund may pay reasonable finder's
fees to persons unaffiliated with it in connection with the arrangement of the
loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of
portfolio securities will be made only to firms deemed by the advisor to be
creditworthy.
REPURCHASE AGREEMENTS
The fund may make short-term investments in repurchase agreements. A
repurchase agreement typically involves the purchase by the fund of securities
(U.S. Government or other money market securities) from a financial
institution such as a bank, broker-dealer or savings and loan association,
coupled with an agreement by the seller to repurchase the same securities from
the fund at the specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. The difference between the
purchase price to the fund and the resale price to the seller represents the
interest earned by the fund which is unrelated to the coupon rate or maturity
of
MF-2
<PAGE>
Managed
the purchased security. If the seller defaults, the fund may incur a loss if
the value of the collateral securing the repurchase agreement declines, or the
fund may incur disposition costs in connection with liquidating the
collateral. If bankruptcy proceedings are commenced with respect to the
seller, realization upon the collateral by the fund may be delayed or limited
and a loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings. The Board of Directors or
its delegate will evaluate the creditworthiness of all entities, including
banks and broker-dealers, with which they propose to enter into repurchase
agreements. These transactions will be fully collateralized; and the
collateral for each transaction will be in the actual or constructive
possession of the fund during the term of the transaction, as provided in the
agreement.
FUTURES CONTRACTS AND OPTIONS THEREON
Generally, the fund may buy and sell financial futures contracts (futures
contracts) and related options thereon solely for hedging purposes. The fund
may sell a futures contract or purchase a put option on that futures contract
to protect the value of the fund's portfolio in the event the investment
advisor anticipates declining security prices. Similarly, if security prices
are expected to rise, the fund may purchase a futures contract or a call
option thereon. (For certain limited purposes, the fund is also authorized to
buy futures contracts on an unleveraged basis and not as an anticipatory
hedge.
The fund will not invest in futures contracts and options thereon if
immediately thereafter the amount committed to margins plus the amount paid
for option premiums exceeds 5% of the fund's total assets. In addition, the
fund will not hedge more than one-third of its net assets. See the Appendix
for a more complete discussion of the use of futures contracts and options
thereon as well as the risks related thereto.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the Prospectus, the
following investment restrictions have been adopted by the fund as fundamental
policies. Under the Investment Company Act of 1940, as amended (1940 Act), a
fundamental policy may not be changed without the affirmative vote of a
majority of the outstanding voting securities of the fund. See General
information in the Prospectus. For purposes of the following restrictions: (1)
all percentage limitations apply immediately after the making of an
investment; and (2) any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any
security from the portfolio.
The fund may not:
1. Invest more than 25% of its total assets in the securities of issuers in
any one industry. For purposes of this restriction, gas, electric, water
and telephone utilities are treated as separate industries.
2. Invest in the securities of any one issuer unless at least 75% of the
value of the fund's total assets is represented by: (a) U.S. Government
obligations, cash and cash items, (b) securities of other investment
companies, and (c) securities of issuers as to each of which, at the time
the investment was made, the fund's investment in the issuer did not
exceed 5% of the fund's total assets.
3. Purchase or sell real estate or interests therein, although it may
purchase securities of issuers which engage in real estate operations or
securities which are secured by interests in real estate.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed 15% of
its total assets at any one time. See Investment policies. The purchase of
debt securities and the entry into repurchase agreements are not
considered the making of loans.
5. Purchase puts, calls or combinations thereof, except the fund may write
and purchase put and call options and effect closing transactions as
described under Investment policies.
6. Underwrite the securities of other issuers, except insofar as the fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of
portfolio securities.
7. Invest more than 10% of its total assets in securities (including
repurchase agreements and non-negotiable time deposits maturing in more
than seven days) which are subject to legal or contractual restrictions
upon resale or are otherwise not readily marketable.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
9. Make short sales of securities.
10. Purchase or sell commodities or commodity futures contracts, except finan-
cial futures contracts and options thereon.
11. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
12. Invest in companies for the purpose of, or with the effect of acquiring
control.
MF-3
<PAGE>
Managed
13. Invest in interests in oil, gas and other mineral exploration or
development programs, except that the fund may invest in the securities of
companies which invest in or sponsor such programs.
14. Invest in securities of any issuer if, to the knowledge of the fund,
officers or directors of the fund or its advisor, who individually own
beneficially 0.5% or more of the securities of such issuer, collectively
own beneficially more than 5% of the securities of such issuer.
15. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 2 in
the Prospectus. (For purposes of this restriction, collateral arrangements
with respect to the writing of options and collateral arrangements with
respect to initial margin for futures contracts are not deemed to be
pledges of assets.)
16. Issue senior securities as defined in the 1940 Act except insofar as the
fund may be deemed to have issued a senior security by borrowing money in
accordance with restrictions described above. (For the purpose of this
restriction, collateral arrangements with respect to the writing of options
and initial margin deposits for futures contracts and the purchase or sale
of futures contracts are not deemed to be the issuance of a senior
security.)
17. Hold more than 10% of the outstanding voting securities of any one issuer.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The advisor is responsible for decisions to buy and sell securities for the
fund, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a net basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the securities usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
The advisor currently provides investment advice to a number of other clients.
See Investment advisor and sub-advisor in the Appendix. It will be the practice
of the advisor to allocate purchase and sale transactions among the fund and
others whose assets are managed in such manner as is deemed equitable. In
making such allocations, major factors to be considered are investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the fund and other client accounts. Securities of
the same issuer may be purchased, held, or sold at the same time by the fund or
other accounts or companies for which the advisor provides investment advice
(including affiliates of the advisor). On occasions when the advisor deems the
purchase or sale of a security to be in the best interest of the fund, as well
as the other clients of the advisor, the advisor, to the extent permitted by
applicable laws and regulations, may aggregate such securities to be sold or
purchased for the fund with those to be sold or purchased for other clients in
order to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the advisor in the manner
it considers to be equitable and consistent with its fiduciary obligations to
all such clients, including the fund. In some instances, the procedures may
impact the price and size of the position obtainable for the fund. Portfolio
securities are not purchased from or sold to the advisor or any affiliated
person (as defined in the 1940 Act) of the advisor.
In connection with effecting portfolio transactions, primary consideration will
be given to securing the most favorable price and efficient execution. To the
extent that the execution and price offered by more than one dealer are
comparable, the advisor may, in its discretion, purchase and sell portfolio
securities to and from dealers who provide the fund with research advice or
other services, which services may be used for the benefit of other clients for
which the advisor acts as advisor. Within the framework of this policy, the
reasonableness of commission or other transaction costs is a major factor in
the selection of brokers and is considered together with other relevant
factors, including financial responsibility, research and investment
information and other services provided by such brokers. It is expected that,
as a result of such factors, transaction costs charged by some brokers may be
greater than the amounts other brokers might charge. The advisor may determine
in good faith that the amount of such higher transaction costs is reasonable in
relation to the value of the brokerage and research services provided. The
Board of Directors of the fund will review regularly the reasonableness of
commission and other transaction costs incurred by the fund in the light of
facts and circumstances deemed relevant from time to time, and, in that
connection, will receive reports from the advisor and published data concerning
transaction costs incurred by institutional
MF-4
<PAGE>
Managed
investors generally. The nature of the research services provided to the
advisor by brokerage firms varies from time to time but generally includes
current and historical financial data concerning particular companies and their
securities; information and analysis concerning securities markets and economic
and industry matters; and technical and statistical studies and data dealing
with various investment opportunities, risks and trends, all of which the
advisor regards as a useful supplement to its own internal research
capabilities. The advisor may from time to time direct trades to brokers which
have provided specific brokerage or research services for the benefit of the
advisor's clients; in addition the advisor may allocate trades among brokers
that generally provide superior brokerage and research services. During 1996,
the advisor directed transactions totalling approximately $8.3 million to these
brokers and paid commissions of approximately $11,000 in connection with these
transactions. Research services furnished by brokers are used for the benefit
of all of the advisor's clients and not solely or necessarily for the benefit
of the fund. The advisor believes that the value of research services received
is not determinable and does not significantly reduce its expenses. The fund
does not reduce its fee to the advisor by any amount that might be attributable
to the value of such services.
The aggregate amount of brokerage commissions paid by the fund during 1996,
1995, and 1994 was $630,422, $471,755, and $474,000, respectively.
If the fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same broker-
dealer who executed the sale of the option. If a call written by the fund is
exercised, normally the sale of the underlying securities will be executed by
the same broker-dealer who executed the sale of the call.
The writing of options by the fund will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the fund may write may be affected
by options written by other investment advisory clients of its advisor. An
exchange may order the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions. As of the date of this
Prospectus, these limits (which are subject to change) are 2,000 options
(200,000 shares) in each class of puts or calls.
Under the sub-advisory agreement between the advisor and the sub-advisor, the
sub-advisor may perform some, or substantially all, of the investment advisory
services required by the fund, even though the advisor remains primarily
responsible for investment decisions affecting the fund. The sub-advisor will
follow the same procedures and policies which are followed by the advisor as
described previously. The sub-advisor currently provides investment advice to a
number of other clients.
DETERMINATION OF NET ASSET VALUE
A description of the days on which the fund's net asset value per share will be
determined is given in the Prospectus. The New York Stock Exchange's most
recent announcement (which is subject to change) states that in 1997 it will be
closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. It may also
be closed on other days. It may also be closed on other days. Although the
Directors expect the same holiday schedule to be observed in the future, the
NYSE may modify its holiday schedule at any time. To the extent that the fund's
securities are traded in other markets on days when the NYSE is closed, the
fund's NAV may be affected on days when investors do not have access to the
fund to purchase or redeem shares.
MF-5
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MF-6
<PAGE>
Appendix
APPENDIX
(Note: This is uniform information for the 11 Funds. See each Fund's SAI for
information specific to that Fund.)
THIS APPENDIX CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL AGGRESSIVE
GROWTH FUND, INC. (AGGRESSIVE GROWTH 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.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment) is the investment
advisor to the funds and is headquartered at 200 E. Berry Street, Fort Wayne,
Indiana 46802. Lincoln Investment (the advisor) is a subsidiary of Lincoln
National Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis,
insurance and financial services. Lincoln Investment is registered with the
Securities and Exchange Commission (SEC) as an investment advisor and has acted
as an investment advisor to mutual funds for over 40 years. The advisor also
acts as investment advisor to Lincoln National Income Fund, Inc. (a closed-end
investment company whose investment objective is to provide a high level of
current income from interest on fixed-income securities) and Lincoln National
Convertible Securities Fund, Inc. (a closed-end investment company whose
investment objective is a high level of total return on its assets through a
combination of capital appreciation and current income) and to other clients,
and also acts as sub-adviser to two of the series of Delaware Group Adviser
Funds, Inc. (the Corporate Income Fund and the Federal Bond Fund of that retail
mutual fund complex).
Under Advisory Agreements with the funds, the advisor provides portfolio
management and investment advice to the funds and administers its other
affairs, subject to the supervision of the funds' Board of Directors. The
advisor, at its expense, will provide office space to the funds and all
necessary office facilities, equipment and personnel and will make its officers
and employees available to the funds as appropriate. In addition, the advisor
will pay all expenses incurred by it or by the funds in connection with the
management of each fund's assets or the administration of its affairs, other
than those assumed by the funds, as described in the Appendix to the
Prospectus. Lincoln Life has paid the organizational expenses of all the funds.
The rates of
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund $1,428,803 $ 725,544 $ 232,000
Bond Fund 1,188,030 1,061,701 999,397
Capital Appreciation Fund 1,549,656 726,011 211,773
Equity-Income Fund 3,303,336 1,457,623 348,255
Global Asset Allocation Fund 2,072,722 1,570,876 1,381,059
Growth and Income Fund 7,063,276 5,077,981 3,896,902
International Fund 3,319,701 2,770,197 2,262,664
Managed Fund 2,480,524 2,120,656 1,919,150
Money Market Fund 417,468 385,019 404,441
Social Awareness Fund 1,877,030 1,048,366 736,602
Special Opportunities Fund 2,274,229 1,809,514 1,351,374
</TABLE>
A-1
<PAGE>
Appendix
compensation to the advisor and the sub-advisors are set forth in the Appendix
to the Prospectus.
During the last three years, the advisor received the following amounts for
investment advisory services: If total expenses of the funds (excluding taxes,
interest, portfolio brokerage commissions and fees, and expenses of an
extraordinary and non-recurring nature, but including the investment advisory
fee) exceed 1 1/2% per annum of the average daily net assets of each fund (2%
for the International Fund), the advisor will pay such excess by offsetting it
against the advisory fee. If such offset is insufficient to cover the excess,
any balance remaining will be paid directly by the advisor to each fund.
The current advisory agreements between the advisor and the funds will remain
in effect from year to year if approved annually by: (1) the Board of Directors
of each fund or by the vote of a majority of the outstanding voting securities
of each fund, and (2) a vote of a majority of the directors who are not
interested persons of the funds or the advisor, cast in person at a meeting
called for the purpose of voting on such approval. The advisory agreement may
be terminated without penalty at any time, on 60 days' written notice by: (1)
the Board of Directors of each fund, (2) vote of a majority of the outstanding
voting securities of each fund or (3) the advisor. The advisory agreement
terminates automatically in the event of assignment.
In like manner, the current sub-advisory agreement will remain in effect from
year to year if approved annually by the Board of Directors of the applicable
funds or by the vote of a majority of the outstanding voting securities of
those funds. The sub-advisory agreements may be terminated without penalty at
any time, on 60 days' written notice, by: (1) the Board of Directors of the
applicable fund, (2) vote of the majority of the outstanding voting securities
of the applicable fund, (3) the sub-advisor, or (4) the advisor. The sub-
advisory agreements terminate automatically in the event of assignment.
A-2
<PAGE>
Appendix
DIRECTORS AND OFFICERS
The directors and executive officers of each fund, their business addresses,
positions with fund, age and their principal occupations during the past five
years are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
* KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
Chairman of the Board,
President and
Director, age 44
1300 S. Clinton Street
Fort Wayne, IN 46802
- -------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--
Director, age 63 Investments, Northwestern University
1776 Sherwood Road
Des Plaines, IL 60016
- -------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Regional Vice President/Chief Financial Officer
Director, age 55 (formerly Vice President--Finance; Regional
700 Broadway Controller of Finance), St. Joseph Medical Center,
Fort Wayne, IN 46802 Fort Wayne, Indiana
- -------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate
Director, age 45 Planning and Development, Lincoln National
1300 S. Clinton St. Corporation; Director, Lincoln Life and Annuity
Fort Wayne, IN 46802 Company of New York (formerly Executive Vice
President, Lincoln Investment Management, Inc.)
- -------------------------------------------------------------------------------
STANLEY R. NELSON Executive in Residence Program in Health Services
Director, age 70 Administration, University of Minnesota, Minneapolis,
420 Delaware St., S.E. Minnesota (formerly President, Henry Ford Health Care
Minneapolis, MN 55455 Corp., Detroit, Michigan)
- -------------------------------------------------------------------------------
* JANET C. WHITNEY Vice President and Treasurer, Lincoln National Corp.
Treasurer, age 48 (formerly Vice President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
- -------------------------------------------------------------------------------
* CYNTHIA A. ROSE Assistant Secretary, Lincoln National Life Insurance
Secretary, age 42 Co.
200 East Berry Street
Fort Wayne, IN 46802
</TABLE>
- --------------------------------------------------------------------------------
* Interested persons of the funds, as defined in the 1940 Act. Directors' fees
of $250 per meeting are paid by each fund to each director who is not an
interested person of the fund. During 1996, each fund paid $1,250 in director's
fees to each such director, plus out of pocket expenses to attend meetings.
During 1996, the fund complex paid each of these directors aggregate fees of
$13,750.
A-3
<PAGE>
Appendix
INVESTMENT POLICIES AND TECHNIQUES
OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to the Bond, Growth and Income, Managed, Social
Awareness and Special Opportunities Funds. Neither the International Fund nor
the Money Market Fund has sought the authority to engage either in options or
in futures trading. (NOTE: The Aggressive Growth, Capital Appreciation, Equity-
Income and Global Asset Allocation Funds have their own respective discussions
of the strategic portfolio transactions in which they may engage.)
OPTIONS TRADING
The fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the fund's
portfolio. The fund may not purchase or write put or covered call options in an
aggregate cost exceeding 30% of the value of its total assets. The fund would
invest in options in standard contracts which may be quoted on NASDAQ, or on
national securities exchanges. Currently options are traded on numerous
securities and indices including, without limitation, the Standard and Poor's
100 Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), and the NYSE
Beta Index.
A. In General. Put and call options are generally short-term contracts with
durations of nine months or less. The investment advisor will generally
write covered call options when it anticipates declines in the market value
of the portfolio securities and the premiums received may offset to some
extent the decline in the fund's net asset value. On the other hand,
writing put options may be a useful portfolio investment strategy when the
fund has cash or other reserves and it intends to purchase securities but
expects prices to increase.
Generally, the risk to the fund in writing options is that the investment
advisor's assumption about the price trend of the underlying security may prove
inaccurate. If the fund wrote a put, expecting the price of a security to
increase, and it decreases, or if the fund wrote a call, expecting the price to
decrease but it increased, the fund could suffer a loss if the premium received
in each case did not equal the difference between the exercise price and the
market price.
B. Call Options. The fund may write only call options which are covered,
meaning that the fund either owns the underlying security or has an
absolute and immediate right to acquire that security, without additional
cash consideration, upon conversion or exchange of other securities
currently held in its portfolio. In addition, the fund will not, before the
expiration of a call option, permit the call to become uncovered. If the
fund writes a call option, the purchaser of the option has the right to buy
(and the fund has the obligation to sell) the underlying security at the
exercise price throughout the term of the option. The amount paid to the
fund by the purchaser of the option is the premium. The fund's obligation
to deliver the underlying security against payment of the exercise price
would terminate either upon expiration of the option or earlier if the fund
were to effect a closing purchase transaction through the purchase of an
equivalent option on an exchange. The fund would not be able to effect a
closing purchase transaction after it had received notice of exercise.
In order to write a call option, the fund is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corp. (OCC) and the various exchanges. The fund may not purchase call
options except in connection with a closing purchase transaction. It is
possible that the cost of effecting a closing purchase transaction may be
greater than the premium received by the fund for writing the option.
Generally, the investment advisor (the advisor) intends to write listed covered
calls during periods when it anticipates declines in the market values of
portfolio securities and the premiums received (net of transaction costs) may
offset to some extent the decline in the fund's net asset value occasioned by
such declines in market value. The advisor will generally not write listed
covered call options when it anticipates that the market value of the fund's
portfolio securities will increase.
If the advisor decides that at a price higher than the current value a
portfolio security would be overvalued and should be sold, the fund may write a
call option on the security at that price. Should the security subsequently
reach that price and the option be exercised, the fund would, in effect, have
increased the selling price of that security, which it would have sold at that
price in any event, by the amount of the premium. In the event the market price
of the security declined and the option were not exercised, the premium would
offset all or some portion of that decline. It is possible, of course, that the
price of the security could increase beyond the exercise price; in that event,
the fund would forego the opportunity to sell the security at that higher
price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgment of the
advisor, the market price of a security is overvalued and it should be sold,
the fund may elect to write a call with an exercise price substantially below
the current market price. So long as the value of the underlying security
remains above the exercise price during the term of the option, the
A-4
<PAGE>
Appendix
option will be exercised, and the fund will be required to sell the security at
the exercise price. If the sum of the premium and the exercise price exceeds
the market price of the security at the time the call is written, the fund
would, in effect, have increased the selling price of the security. The fund
would not write a call under these circumstances if the sum of the premium and
the exercise price were less than the current market price of the security.
In summary, a principal reason for writing calls on a securities portfolio is
to attempt to realize, through the receipt of premium income, a greater return
than would be earned on the securities alone. A covered call writer, such as
the fund, which owns the underlying security has, in return for the premium,
given up the opportunity for profit from a price increase in the underlying
security above the exercise price, but has retained the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to a
call, the fund as a call writer may be required to hold such securities until
the expiration of the call option or until the fund engages in a closing
purchase transaction at a price that may be below the prevailing market.
C. Put Options. The fund may also write put options. If the fund writes a put
option, it is obligated to purchase a given security at a specified price
at any time during the term of the option. The rules regarding the writing
of put options are generally comparable to those described above with
respect to call options.
Writing put options may be a useful portfolio investment strategy when the fund
has cash or other reserves available for investment as a result of sales of
fund shares or because the advisor believes a more defensive and less fully
invested position is desirable in light of market conditions. If the fund
wishes to invest its cash or reserves in a particular security at a price lower
than current market value, it may write a put option on that security at an
exercise price which reflects the lower price it is willing to pay. The buyer
of the put option generally will not exercise the option unless the market
price of the underlying security declines to a price near or below the exercise
price. If the fund writes a put option, the price of the underlying security
declines and the option is exercised, the premium, net of transaction charges,
will reduce the purchase price paid by the fund for the security. Of course,
the price of the security may continue to decline after exercise of the put
options, in which event the fund would have foregone an opportunity to purchase
the security at a lower price, or the option might never be exercised.
If, before the exercise of a put, the advisor determines that it no longer
wishes to invest in the security on which the put has been written, the fund
may be able to effect a closing purchase transaction on an exchange by
purchasing a put of the same series as the one which it has previously written.
The cost of effecting a closing purchase transaction may be greater than the
premium received on writing the put option, and there is no guarantee that a
closing purchase transaction can be effected. The fund may purchase put options
only in connection with a closing transaction.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of the position in the underlying security), the
fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
At the time a put option is written, the fund will be required to establish,
and will maintain until the put is exercised or has expired, a segregated
account with its custodian consisting of cash or short-term U.S. Government
securities equal in value to the amount which the fund will be obligated to pay
upon exercise of the put. Principal factors affecting the market value of a put
or call option include supply and demand, interest rates, the current market
price and price volatility of the underlying security and the time remaining
until the expiration date. In addition, there is no assurance that the fund
will be able to effect a closing transaction at a favorable price. If the fund
cannot enter into such a transaction, it may be required to hold a security
that it might otherwise have sold, in which case it would continue to be at
market risk on the security. If a substantial number of covered options written
by the fund are exercised, the fund's rate of portfolio turnover could exceed
historic levels. This could result in higher transaction costs, including
brokerage commissions. The fund will pay brokerage commissions in connection
with the writing and purchasing of options to close out previously written
options. Such brokerage commissions are normally higher than those applicable
to purchases and sales of portfolio securities.
FUTURES CONTRACTS AND OPTIONS THEREON
A. In General. The fund may buy and sell financial futures contracts (futures
contracts) and related options thereon solely for hedging purposes. The fund
may sell a futures contract or purchase a put option on that futures
contract to protect the value of the fund's portfolio in the event the
investment advisor anticipates declining security prices. Similarly, if
security prices are expected to rise, the fund may purchase a futures
contract or a call option thereon. (For certain limited purposes, as
explained later, the fund is also authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge.)
The fund will not invest in futures contracts and options thereon if
immediately thereafter the amount
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Appendix
committed to margins plus the amount paid or option premiums exceeds 5% of the
fund's total assets. In addition the fund will not hedge more than 1/3 of its
net assets.
B. Futures contracts. The fund may purchase and sell financial futures
contracts (futures contracts) as a hedge against fluctuations in the value
of securities which are held in the fund's portfolio or which the fund
intends to purchase. The fund will engage in such transactions consistent
with the fund's investment objective. Currently, futures contracts are
available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
There are a number of reasons why entering into futures contracts for hedging
purposes can be beneficial to the fund. First, futures markets may be more
liquid than the corresponding cash markets on the underlying securities. Such
enhanced liquidity results from the standardization of the futures contracts
and the large transaction volumes. Greater liquidity permits a portfolio
manager to effect a desired hedge both more quickly and in greater volume than
would be possible in the cash market. Second, a desired sale and subsequent
purchase can generally be accomplished in the futures market for a fraction of
the transaction costs that might be incurred in the cash market.
The purpose of selling a futures contract is to protect the fund's portfolio
from fluctuation in asset value resulting from security price changes. Selling
a futures contract has an effect similar to selling a portion of the fund's
portfolio securities. If security prices were to decline, the value of the
fund's futures contracts would increase, thereby keeping the net asset value of
the fund from declining as much as it otherwise might have. In this way,
selling futures contracts acts as a hedge against the effects of declining
prices. However, an increase in the value of portfolio securities tends to be
offset by a decrease in the value of corresponding futures contracts.
Similarly, when security prices are expected to rise, futures contracts may be
purchased to hedge against anticipated subsequent purchases of portfolio
securities at higher prices. By buying futures, the fund could effectively
hedge against an increase in the price of the securities it intends to purchase
at a later date in order to permit the purchase to be effected in an orderly
manner. At that time, the futures contracts could be liquidated at a profit if
prices had increased as expected, and the fund's cash position could be used to
purchase securities.
When a purchase or sale of a futures contract occurs, a deposit of high-
quality, liquid securities called initial margin is made by both buyer and
seller with a custodian for the benefit of the broker. Unlike other types of
margin, a futures margin account does not involve any loan or borrowing but is
merely a good faith deposit that must be maintained in a minimum amount of cash
or U.S. Treasury bills. All futures positions, both long and short, are marked-
to-market daily, with cash payments called variation margin being made by
buyers and sellers to the custodian, and passed through to the sellers and
buyers, to reflect daily changes in the contract values.
Most futures contracts are typically canceled or closed out before the
scheduled settlement date. The closing is accomplished by purchasing (or
selling) an identical futures contract to offset a short (or long) position.
Such an offsetting transaction cancels the contractual obligations established
by the original futures transaction. Other financial futures contracts call for
cash settlements rather than delivery of securities.
If the price of an offsetting futures transaction varies from the price of the
original futures transaction, the hedger will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
realized loss or gain on the hedged securities position, but may not always or
completely do so.
The fund will not enter into any futures contract if, immediately thereafter,
the aggregate initial margin for all existing futures contracts and options
thereon and for premiums paid for related options would exceed 5% of the fund's
total assets. The fund will not purchase or sell futures contracts or related
options if immediately thereafter more than 1/3 of its net assets would be
hedged.
C.Risks and limitations involved in futures hedging. There are a number of
risks associated with futures hedging. Changes in the price of a futures
contract generally parallel but do not necessarily equal changes in the
prices of the securities being hedged. The risk of imperfect correlation
increases as the composition of the fund's securities portfolio diverges from
the securities that are the subject of the futures contract. Because the
change in the price of the futures contract may be more or less than the
change in the prices of the underlying securities, even a correct forecast of
price changes may not result in a successful hedging transaction. Another
risk is that the investment advisor could be incorrect in its expectation as
to the direction or extent of various market trends or the time period within
which the trends are to take place.
The fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. There can be no assurance that a liquid
market will always exist for any particular contract at any particular time.
Accordingly, there can be no assurance that it will always be possible to close
a futures position when such closing is desired and, in the event of adverse
price movements, the fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
sold to hedge
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<PAGE>
Appendix
portfolio securities, such securities will not be sold until the offsetting
futures contracts can be executed. Similarly, in the event futures have been
bought to hedge anticipated securities purchases, such purchases will not be
executed until the offsetting futures contracts can be sold.
Successful use of futures contracts by the fund is also subject to the ability
of the investment advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. For example,
if the fund has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and prices
of such securities increase instead, the fund will lose part or all of the
benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the fund has insufficient cash to meet daily variation margin requirements, it
may have to sell securities to meet such requirements. Such sale of securities
may be, but will not necessarily be, at increased prices that reflect the
rising market. The fund may have to sell securities at a time when it is
disadvantageous to do so. Where futures are purchased to hedge against a
possible increase in the price of securities before the fund is able to invest
its cash in an orderly fashion, it is possible that the market may decline
instead; if the fund then concludes not to invest in securities at that time
because of concern as to possible further market decline or for other reasons,
the fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The selling of futures contracts by the fund and use of related transactions in
options on futures contracts (discussed later) are subject to position limits,
which are affected by the activities of the investment advisor.
The hours of trading of futures contracts may not conform to the hours during
which the fund may trade securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the securities markets that cannot be reflected in the futures
markets.
Pursuant to Rule 4.5 under the Commodity Exchange Act, investment companies
registered under the 1940 Act are exempted from the definition of commodity
pool operator in the Commodity Exchange Act, subject to compliance with certain
conditions. The exemption is conditioned upon a requirement that all of the
investment company's commodity futures transactions constitute bona fide
hedging transactions (except on an unleveraged basis, as described in (F.) With
respect to long positions assumed by the fund, the fund will segregate with its
custodian an amount of cash and other assets permitted by Commodity Futures
Trading Commission (CFTC) regulations equal to the market value of the futures
contracts and thereby insure that the use of futures contracts is unleveraged.
The fund will use futures in a manner consistent with these requirements.
D. Options on futures contracts. The fund only intends to engage in options on
futures contracts for bona fide hedging purposes in compliance with CFTC
regulations. An option on a futures contract gives the purchaser the right,
but not the obligation, to assume a position in a futures contract (which
position may be a long or short position) at a specified exercise price at
any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (which
position may be a long or short position). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account that represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected.
The fund will be required to deposit initial and variation margin with respect
to put and call options on futures contracts written by it pursuant to the
fund's futures commissions merchants' requirements similar to those applicable
to the futures contracts themselves, described previously.
E. Risks of futures transactions. The fund's successful use of futures
contracts and options thereon depends upon the ability of its investment
advisor to predict movements in the securities markets and other factors
affecting markets for securities and upon the degree of correlation between
the prices of the futures contracts and the prices of the securities being
hedged. As a result, even a correct forecast of price changes may not result
in a successful hedging transaction. Although futures contracts and options
thereon may limit the fund's exposure to loss, they may also limit the
fund's potential for capital gains. For example, if the fund has hedged
against the possibility of decrease in prices which would adversely affect
the price of securities in its portfolio and prices of such securities
increase instead, the fund will lose part or all of the benefit of the
increased value of its securities because it will have offsetting losses in
its futures positions. Although the fund will enter into futures contracts
only where there appears to be a liquid market, there can be no assurance
that such liquidity will always exist.
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<PAGE>
Appendix
F. The fund also is authorized, subject to the limitations set out in the
Prospectus, to purchase futures contracts on an unleveraged basis, when not
intended as an anticipatory hedge. When a contract is purchased on this
basis the investment company establishes a segregated account, composed of
cash and/or cash equivalents, equal to the total value of the contract (less
margin on deposit). As with other futures trading, these purchases must not
be for speculative purposes.
The ability to engage in these purchases on an unleveraged basis can
significantly decrease transaction costs to the funds in certain instances. For
example, if an inordinately large deposit should occur on a single day, the
sheer volume of securities purchases required for that day may place the fund
at a market disadvantage by requiring it to purchase particular securities in
such volume that its own buying activity could cause prices to increase. In
addition, if this deposit had involved market-timing' and as a result there
subsequently were an oversized withdrawal, the fund could again suffer market
disadvantage, this time because the volume of sales could, for the same reason,
force prices of particular securities to decrease. The fund, by buying a
futures contract (followed by the appropriate closing transaction) instead of
purchasing securities could achieve considerable savings in transaction costs
without departing from fund objectives. Furthermore, as stated in (C.), price
changes in a futures contract generally parallel price changes in the
securities that the fund might otherwise have purchased. Thus, purchase of a
futures contract on an unleveraged basis allows the fund to comply with its
objective while at the same time achieving these lower transaction costs.
VALUATION OF PORTFOLIO SECURITIES
SHORT-TERM INVESTMENTS. For funds (other than the Money Market Fund) that own
short-term investments which mature in less than 60 days, these instruments are
valued at amortized cost. Such securities acquired with a remaining maturity of
61 days or more are valued at their fair value until the sixty-first day prior
to maturity; thereafter, their cost for valuation purposes is deemed to be
their fair value on such sixty-first day.
OPTIONS TRADING. For those funds engaging in options trading, fund investments
underlying call options will be valued as described previously. Options are
valued at the last sale price or, if there has been no sale that day, at the
mean of the last bid and asked price on the principal exchange where the option
is traded, as of the close of trading on the NYSE. The fund's net asset value
will be increased or decreased by the difference between the premiums received
on writing options and the cost of liquidating those positions measured by the
closing price of those options on the exchange where traded.
FUTURES CONTRACTS AND OPTIONS THEREON. For those funds buying and selling
futures contracts and related options thereon, the futures contracts and
options are valued at their daily settlement price.
FOREIGN SECURITIES. For funds investing in foreign securities, the value of a
foreign portfolio security held by a fund is determined based upon its closing
price or upon the mean of the closing bid and asked prices on the foreign
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that fund's portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market
rates, as computed by the custodian of the fund's assets.
However, trading on foreign exchanges may take place on dates or at times of
day when the NYSE is not open; conversely, overseas trading may not take place
on dates or at times of day when the NYSE is open. Any of these circumstances
could affect the net asset value of fund shares on days when the investor has
no access to the fund. There are more detailed explanations of these
circumstances in the SAI for the various funds. See the Preface to this
Prospectus booklet for information about how to obtain a copy of the SAI
booklet.
LENDING OF PORTFOLIO SECURITIES
As described in the Prospectus, the funds may from time to time lend securities
from their portfolios to brokers, dealers and financial institutions and
receive collateral from the borrower, in the form of cash (which may be
invested in short-term securities), U.S. Government obligations or certificates
of deposit. Such collateral will be maintained at all times in an amount equal
to at least 102% of the current market value of the loaned securities, and will
be in the actual or constructive possession of the particular fund during the
term of the loan. The fund will maintain the incidents of ownership of the
loaned securities and will continue to be entitled to the interest or dividends
payable on the loaned securities. In addition, the fund will receive interest
on the amount of the loan. The loans will be terminable by the fund at any time
and will not be made to any affiliates of the fund or the advisor. The fund may
pay reasonable finder's fees to persons unaffiliated with it in connection with
the arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made to firms deemed by the advisor to be creditworthy.
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Appendix
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. A
repurchase agreement typically involves the purchase by the fund of securities
(U.S. Government or other money market securities) from a financial institution
such as a bank, broker-dealer or savings and loan association, coupled with an
agreement by the seller to repurchase the same securities from the fund at the
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The difference between the purchase price to
the fund and the resale price to the seller represents the interest earned by
the fund which is unrelated to the coupon rate or maturity of the purchased
security. If the seller defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement declines, or the fund may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by the fund may be delayed or limited and a loss may be incurred if
the collateral securing the repurchase agreement declines in value during the
bankruptcy proceedings. The Board of Directors of the funds or its delegate
will evaluate the creditworthiness of all entities, including banks and broker-
dealers, with which they propose to enter into repurchase agreements. These
transactions will be fully collateralized; and the collateral for each
transaction will be in the actual or constructive possession of the particular
fund during the terms of the transaction, as provided in the agreement.
In a reverse repurchase agreement, the fund involved sells a portfolio security
to another party, such as a bank or broker-dealer, in return for cash and
agrees to repurchase the instrument at a particular price and time. While a
reverse repurchase agreement is outstanding, the funds will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The fund will enter into reverse repurchase
agreements only with parties that the advisor or sub-advisor deems
creditworthy. Reverse repurchase agreements are considered to be borrowing
transactions, and thus are subject to the fund's limitation on borrowing. Not
every fund is authorized to enter into reverse repurchase agreements.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities Funds are
currently held in custody by Bankers Trust Co., 14 Wall Street, 4th Floor, New
York, New York 10005. Bankers Trust agreed to act as custodian for each fund
pursuant to a Custodian Agreement dated June 17, 1985 (March 10, 1986 for the
Social Awareness Fund). It is anticipated that in the future the custodian for
each of these funds will be changed to The Chase Manhattan Bank, N.A., 4 Chase
MetroTech Center, Brooklyn, New York, 11245. This change is not expected to
result in any material variation in the custodial services currently provided
to these funds.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation and International Funds
are held in custody by State Street Bank and Trust Co., 225 Franklin Street,
Boston, Massachusetts 02110. State Street agreed to act as custodian for these
funds pursuant to Custodian Contracts effective July 21, 1987 for the Global
Asset Allocation Fund, April 29, 1991 for the International Fund, and December
6, 1993 for the other three funds.
Under these Agreements, the respective custodians shall (1) receive and
disburse money; (2) receive and hold securities; (3) transfer, exchange, or
deliver securities; (4) present for payment coupons and other income items,
collect interest and cash dividends received, hold stock dividends, etc.; (5)
cause escrow and deposit receipts to be executed; (6) register securities; and
(7) deliver to the funds proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each fund's Board of Directors has engaged Ernst & Young LLP, 2300 Fort Wayne
National Bank Building, Fort Wayne, Indiana 46802, to be the independent
auditors for the fund. In addition to the audit of the 1996 financial
statements of the funds, other services provided include review and
consultation connected with filings of annual reports and registration
statements with the Securities and Exchange Commission (SEC); consultation on
financial accounting and reporting matters; and meetings with the Audit
Committee.
FINANCIAL STATEMENTS
The financial statements for the funds are incorporated by reference to the
funds' 1996 Annual Report. We will provide a copy of the Annual Report on
request and without charge. Either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call: 1-800-4LINCOLN (452-6265).
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Appendix
BOND AND COMMERCIAL PAPER RATINGS
Certain of the funds' investment policies and restrictions include references
to bond and commercial paper ratings. The following is a discussion of the
rating categories of Moody's Investors Service, Inc. and Standard & Poor's
Corp.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
STANDARD & POOR'S CORP.
AAA -- This is the highest rating assigned by Standard & Poor's Corp. to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay principal and interest
than for bonds in the A category and higher.
BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Prime 1 -- Highest Quality;
Prime 2 -- Higher Quality;
Prime 3 -- High Quality.
(The fund will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORP.
A Standard & Poor's Corp. commercial paper rating is a current assessment of
the likelihood of timely payment
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Appendix
of debt having an original maturity of no more than 365 days. The fund will
invest in commercial paper rated in the A Categories, as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2, and 3 to indicate the relative degree of safety.
(The fund will not invest in commercial paper rated A-3).
A - 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A - 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a
maturity of one year or less. Treasury notes have maturities of two to ten
years and Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). Obligations supported by the credit of the instrumentality include
securities issued by government-sponsored corporations whose stock is publicly
held (for example, the Federal National Mortgage Association, and the Student
Loan Marketing Association). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk
than other government obligations.
TAXES
Each fund intends to qualify and has elected to be taxed as a regulated
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the code). If a fund qualifies as a regulated investment
company and complies with the provisions of the code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from Federal income tax, it
will be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each fund must, among other
things, derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or foreign currencies
(subject to the authority of the Secretary of the Treasury to exclude foreign
currency gains which are not directly related to the fund's principal business
of investing in stock or securities or options and futures with respect to such
stock or securities), or other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to its investing
in such stocks, securities, or currencies. In addition, to qualify as a
regulated investment company each fund must derive less than 30% of its gross
income from the sale or other disposition of securities held for less than
three months. In order to meet these requirements, a fund may be required to
defer disposing of certain futures contracts and underlying securities beyond
the time when it might otherwise be advantageous to do so. Specifically, these
requirements may limit a fund's ability to (a) sell securities held for less
than three months; (b) effect closing transactions on futures contracts entered
into less than three months previously; (c) enter into futures contracts for a
period of less than three months; and (d) enter into futures contracts on
securities held for less than the long-term capital gains holding period.
Further, for purposes of the 30% test, increases (and decreases) in the value
of positions that are part of a designated hedge (as defined in the code) are
netted.
The Federal tax laws impose a 4% nondeductible excise tax on each regulated
investment company with respect to an amount, if any, by which such company
does not meet distribution requirements specified in such tax laws, unless
certain exceptions apply. Each fund intends to comply with such distribution
requirements or qualify under one or more exceptions, and thus does not expect
to incur the 4% nondeductible excise tax.
Since the sole shareholder of each fund will be Lincoln Life, no discussion is
stated herein as to the Federal income tax consequences at the shareholder
level.
The discussion of Federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the code and Treasury Regulations
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Appendix
currently in effect as interpreted by the Courts and the Internal Revenue
Service (IRS). These interpretations can be changed at any time. The above
discussion covers only Federal tax considerations with respect to the fund.
State and local taxes vary.
STATE REQUIREMENTS
The California Department of Insurance has established the following guidelines
for an underlying portfolio of a variable account. The funds intend to comply
with these guidelines:
BORROWING
The borrowing limit for any fund is 33 1/3 percent of total assets. Entering
into a reverse repurchase agreement shall be considered "borrowing" as that
term is used herein.
FOREIGN INVESTMENTS -- DIVERSIFICATION
The diversification guidelines to be followed by international and global funds
are as follows:
a. An international fund or a global fund is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional fund is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the fund.
c. The name of a single country fund must accurately describe the fund.
d. An index fund must substantially mirror the index.
DERIVATIVE TRANSACTIONS-DEFINITIONS
The Prospectus for each fund and the uniform Appendix for the Prospectus
booklet discuss the type of derivative transactions in which the funds may
engage and the risks typically associated with many derivative transactions.
Here are some definitions for the derivatives listed in the Appendix:
OPTION. A contract which gives the fund the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options
trading to terminate an outstanding option contract by entering into an
offsetting transaction known as a closing transaction; as a result of which the
fund would either pay out or receive a cash settlement. This is discussed
below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX OPTION. One based on the value of an index which measures the fluctuating
value of a basket of pre-selected securities.
STOCK (EQUITY) OPTION. One based on the shares of stock of a particular
company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price, level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a
loan or bond borrowing from one interest rate base (fixed term or floating
rate) or currency of one denomination to another.
EQUITY SWAP. One which allows the fund to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the fund and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed
rate to floating rate in the same currency); basis swaps (one floating rate
index to another floating rate index in the same currency); and cross-currency
interest rate swaps (fixed rate in one currency to floating rate in another).
Related transactions to interest rate swaps:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
A-12
<PAGE>
Appendix
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An arrangement to simultaneously purchase a cap and sell a floor, in
order to maintain interest rates within a defined range. The premium income
from the sale of the floor reduces or offsets the cost of buying the cap.
d. Corridor. An agreement to buy a cap at one interest rate and sell a cap at a
higher rate.
SWAPTION. An option to enter into, extend, or cancel a swap.
FUTURES CONTRACT. A contract which commits the fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the
future. Futures contracts are normally traded on an exchange and their terms
are standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected
stocks, with prices based on a composite of the changes to the prices of the
individual securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the fund and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal is
involved; the difference between the contracted rate and the prevailing rate is
settled in cash.
CURRENCY CONTRACT. A contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES. Futures contracts on foreign currencies. Used to hedge the
purchase or sale of foreign securities.
CURRENCY OPTION. An option taken on foreign currency.
CURRENCY SWAP. A swap involving the exchange of cash flows and principal in one
currency for those in another, with an agreement to reverse the principal swap
at a future date.
CROSS-CURRENCY INTEREST RATE SWAP. A swap involving the exchange of streams of
interest rate payments (but not necessarily principal payments) in different
currencies and often on different interest bases (e.g., fixed Deutsche Mark
against floating dollar, but also fixed Deutsche Mark against fixed dollar).
FORWARD CURRENCY CONTRACT. A contract to lock in a currency exchange rate at a
future date, to eliminate risk of currency fluctuation when the time comes to
convert from one currency to another.
A-13
<PAGE>
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A-14
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Part A.
------
The financial highlights of Lincoln National Managed Fund, Inc. (the
Fund) for the years ended December 31, 1996, 1995, 1994, 1993, 1992,
1991, 1990, 1989, 1988, 1987, and 1986 are incorporated by reference to
Pages 53-54 of the Fund's 1996 Annual Report
Part B.
------
The following financial statements of the Fund are incorporated by
reference to Pages 33-37, 43-55, of the Fund's 1996 Annual Report:
- Statement of Net Assets -- December 31, 1996
- Statement of Operations -- Year Ended December 31, 1996
- Statements of Changes in Net Assets -- Years Ended December 31,
1996 and 1995
- Notes to Financial Statements -- December 31, 1996
In total, only pages 33-37, and 43-55 of the Fund's 1996 Annual Report
are incorporated by reference into this Registration Statement. No
other pages of that Report are incorporated by reference.
(2) Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the required
information is included in the financial statements, and therefore have
been omitted.
(b) Exhibits:
1 - Articles Supplementary
6 - Specimen Agent's Contract
9(d) - Services Agreement between Lincoln National Life Insurance Company,
Delaware Management Holding Companies, Inc. and Delaware Services
Company, Inc. dated August 15, 1996
11 - Consent of Ernst & Young LLP, Independent Auditors
17(a) - Financial Data Schedule
19 - Memorandum Concerning Books and Records
We have no changes to report to Exhibits 2-5, 7-8, 10 and 12-16. These exhibits
are incorporated by reference to the Registration Statement (File No. 2-82276)
including all amendments and/or post-effective amendments.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
See "Management of the Fund", "Purchase of Securities Being Offered", and
"Description of Shares" in the Prospectus forming Part A of this Registration
Statement and "Investment Adviser and Sub-Adviser" in the Statement of
Additional Information forming Part B of this Registration Statement. As of the
date of this Post-Effective Amendment, The Lincoln National Life Insurance
Company Lincoln Life, for its Variable Annuity Account C and Variable Life
Accounts D and K, is the sole shareholder in the Fund.
No persons are controlled by the Registrant. A diagram of all persons under
common control with the Registrant is filed as Exhibit 15(a) to the Form N-4
Registrant Statement filed by Lincoln National Variable Annuity Account C (File
No. 33-25990), and is incorporated by reference into this Registration
Statement.
Item 26. Number of Holders of Securities
As of April 1, 1997, there was one record holder of common stock, $.01 par value
per share.
Item 27. Indemnification
See prior filings.
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to any business and other connections of Registrant's
investment adviser, Lincoln Investment, is hereby incorporated by reference from
the section captioned "Management of the Fund" in the Prospectus forming Part A
of this Registration Statement, the section captioned "Investment Adviser and
Sub-Adviser" in the Statement of Additional Information forming Part B of this
Registration Statement, and Item 7 of Part II of Lincoln Investment's Form ADV
filed separately with the Commission (File No. 801-5098). Information pertaining
to any business and other connections of Registrant's sub-investment adviser,
Vantage Global Advisors, Inc. ("Vantage") is incorporated by reference from the
section of the Prospectus captioned "Management of the Fund," the section of the
Statement of Additional Information captioned "Investment Adviser and Sub-
Adviser," and Item 7 of Part II of Vantage's Form ADV filed separately with the
Commission (File No. 801-15202).
The other businesses, professions, vocations, and employment of a substantial
nature, during the past two years, of the directors and officers of Lincoln
Investment and Vantage are hereby incorporated by reference, respectively, from
Schedules A and D of Lincoln Investment's Form ADV and from Schedules A and D of
Vantage's Form ADV.
As of February 5, 1997, the officers and/or directors of the Investment Adviser
held the following positions:
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 19.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant furnishes the following undertakings pursuant to the
Securities Act of 1933 (the "Act"):
(a) - (c): See prior filings.
(d) Registrant undertakes to provide, without charge, a copy of the
Fund's most recent Annual Report to any recipients of its
Prospectus who requests it.
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
David A. Berry Vice President Vice President, Lincoln National
Income Fund, Inc. and Lincoln
National Convertible Securities
Fund, Inc., Second Vice
President, Lincoln Life & Annuity
Company of New York, 200 East
Berry Street Fort Wayne, Indiana
46802
JoAnn E. Becker Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Dennis A. Blume Senior Vice President 200 East Berry Street,
(formerly Executive Fort Wayne, Indiana 46802
Vice President) and
Director
Anne E. Bookwalter Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Philip C. Byrde Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Steven R. Brody Senior Vice President President and Director, Lincoln
and Director (formerly National Realty Corporation;
Executive Vice Vice President, The Lincoln
President) National Life Insurance Company,
and Lincoln Advisor Funds, Inc.,
200 East Berry Street, Fort
Wayne, Indiana 46802
Patrick R. Chasey Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Garrett W. Cooper Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
David C. Fischer Vice President Vice President, Lincoln National
Income Fund, Inc.,
200 East Berry Street,
Fort Wayne, Indiana 46802
Luc N. Girard Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Donald P. Groover Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
William N. Holm, Jr. Vice President Vice President and Director,
Lincoln National Mezzanine Corporation,
200 East Berry Street,
Fort Wayne, Indiana 46802
Jennifer C. Hom Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- -------------------------
<S> <C> <C>
John A. Kellogg Vice President Vice President, Lincoln National
Realty Corporation,
200 East Berry Street,
Fort Wayne, Indiana, 46802
Timothy H. Kilfoil Vice President 200 East Berry Street,
Fort Wayne, Indiana, 46802
Lawrence T. Kissko Vice President Vice President and Director,
(Formerly Senior Lincoln National Realty
Vice President) Corporation; Vice President,
The Lincoln National Life
Insurance Company,
200 East Berry Street,
Fort Wayne, Indiana, 46802
Walter M. Korinke Vice President 200 East Berry Street,
Fort Wayne, Indiana, 46802
Lawrence M. Lee Vice President Vice President, Lincoln National
(formerly Second Realty Corporation,
Vice President) 200 East Berry Street,
Fort Wayne, Indiana, 46802
Harold F. McElraft Jr. Vice President Vice President and Chief
Financial Officer, Lincoln
National Investment Companies,
Inc; Vice President and
Treasurer, Lincoln National
Income Fund, Inc., Lincoln
National Convertible Securities
Fund, Inc.,
200 East Berry Street,
Fort Wayne Indiana 46802
H. Thomas McMeekin President and President and Director, Lincoln National
Director (formerly Convertible Securities Fund, Inc., Lincoln
Executive Vice National Income Fund, Inc.; President,
President, and Senior Chief Executive Officer and Director,
Vice President) Lincoln National Mezzanine Corporation;
Executive Vice President and Chief
Investment Officer, Lincoln National
Corporation; Director, Delaware Management
Holdings, Inc., Lincoln National (China) Inc.,
Lincoln National (India) Inc., Lincoln National
Investment Companies, Inc., Lincoln National
Realty Corporation, Lynch & Mayer, Inc., Vantage
Global Advisors, Lincoln National Life Insurance
Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
Marybeth Montgomery Vice President Second Vice President,
Lincoln National Realty
Corporation,
200 East Berry Street,
Fort Wayne, Indiana 46802
John David Moore Vice President 200 East Berry Street,
Fort Wayne, Indiana, 46802
Oliver H. G. Nichols Senior Vice President Vice President, Lincoln
National Realty Corporation,
Lincoln National Life Insurance Company
1300 South Clinton Street,
Fort Wayne Indiana 46802
David C. Patch Vice President 200 East Berry Street,
Fort Wayne, Indiana, 46802
Joseph T. Pusateri Vice President Vice President, Lincoln National
Realty Corporation,
200 East Berry Street,
Fort Wayne, Indiana, 46802
Gregory E. Reed Vice President Second Vice President,
Lincoln Life & Annuity Company of
New York,
200 East Berry Street
Fort Wayne, Indiana, 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
Bill L. Sanders Vice President
Roy D. Shimer Assistant Vice President 200 East Berry Street, Fort
(formerly Vice President) Wayne, Indiana 46802
Milton W. Shuey Vice President Vice President, Lincoln
Investment Management, Inc.,
200 East Berry Street, Fort
Wayne, Indiana 46802
Gerald M. Weiss Vice President 200 East Berry Street, Fort
(formerly Second Wayne, Indiana 46802
Vice President)
Janet C. Whitney Vice President and Vice President and Treasurer,
Treasurer The Financial Alternative, Inc.
Financial Alternative Resources, Inc.
Financial Choices, Inc.
Financial Investment Services, Inc.
Financial Investment Inc.
The Financial Resources Department
Investment Alternatives, Inc.
The Investment Center, Inc.
The Investment Group, Inc.
The Richard Leahy Corporation
Lincoln Financial Group, Inc.
Lincoln Life Improved Housing, Inc.
LNC Administrative Services Corporation
LNC Equity Sales Corporation
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National (China) Inc.
Lincoln National Corporation
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National Health & Casualty Insurance Company
Lincoln National (India) Inc.
Lincoln National Intermediaries, Inc.
Lincoln National International Fund, Inc.
The Lincoln National Life Insurance Company
Lincoln National Managed Fund, Inc.
Lincoln National Management Services, Inc.
Lincoln National Mezzanine Corporation
Lincoln National Money Market Fund, Inc.
Lincoln National Realty Corporation
Lincoln National Reassurance Company
Lincoln National Reinsurance Company (Barbados) Limited
Lincoln National Reinsurance Company Limited
Lincoln National Risk Management, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Lincoln National Structured Settlement, Inc.
Lincoln National Variable Annuity Fund A
Old Fort Insurance Company, Ltd.
Personal Financial Resources, Inc.
Special Pooled Risk Administrators, Inc.
Underwriters & Management Services, Inc.
Treasurer and Assistant Secretary,
Lincoln National Foundation, Inc.
Treasurer,
Lincoln National Investment Companies, Inc.
Lincoln National Underwriting Services, Ltd.
Professional Financial Planning, Inc.; Assistant Treasurer,
First Penn-Pacific Life Insurance Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
C. Suzanne Womack Secretary Vice President and Assistant Secretary, Lincoln National
Corporation and The Lincoln National Life Insurance Company;
Secretary, Lincoln Advisor Funds, Inc.; Lincoln National
Aggressive Growth Fund, Inc.; Lincoln National Capital
Appreciation Fund, Inc. Lincoln National Equity-Income Fund,
Inc.; Lincoln National Growth Fund, Inc.; Lincoln National
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
C. Suzanne Womack (Con't) International Fund, Inc.; Lincoln
National Managed Fund, Inc.;
Lincoln National Money Market
Fund, Inc.; Lincoln National
Putnam Master Fund; Lincoln
National Social Awareness Fund,
Inc.; Lincoln National Special
Opportunities Fund, Inc.; Lincoln
National Variable Annuity Fund A;
Lincoln National Variable Annuity
Fund B, 200 East Berry Street,
Fort Wayne, Indiana 46802
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Wayne, and State of Indiana, on the 16th
day of April, 1997.
LINCOLN NATIONAL
MANAGED FUND, INC.
By /s/ Kelly D. Clevenger
-----------------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kelly D. Clevenger Chairman of the Board April 16, 1997
- ---------------------- and President
Kelly D. Clevenger (Principal Executive Officer)
* Director April 16, 1997
- ----------------------
John B. Borsch, Jr.
*** Director April 16, 1997
- ----------------------
Barbara S. Kowalczyk
** Director April 16, 1997
- ----------------------
Nancy L. Frisby
* Director April 16, 1997
- ----------------------
Stanley R. Nelson
/s/ Lantz M. Mintch Chief Accounting Officer April 16, 1997
- ---------------------- (Principal Accounting Officer)
Lantz Mintch
/s/ Janet C. Whitney Vice President and Treasurer April 16, 1997
- ---------------------- (Principal Financial Officer)
Janet C. Whitney
</TABLE>
*By /s/ John L. Steinkamp, pursuant to Power of Attorney filed with
----------------------- Post-Effective Amendment No. 2 to this Registration
John L. Steinkamp Statement.
**By /s/ John L. Steinkamp, pursuant to a Power of Attorney filed with
---------------------- Post-Effective Amendment No. 12 to this Registration
John L. Steinkamp Statement.
***By /s/ Jeremy Sachs, pursuant to a Power of Attorney filed with
--------------------- Post-Effective Amendment No. 13 to this Registration
Jeremy Sachs Statement.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT NAME
- -------------- ------------
<S> <C>
1 Articles Supplementary
6 Specimen Agents Contract
9(d) Services Agreement between Lincoln
National Life Insurance Company,
Delaware Management Holding Companies,
Inc. and Delaware Services Company Inc.
dated August 15, 1996
11 Consent of Ernst & Young LLP, Independent Auditors
17(a) Financial Data Schedule
19 Memorandum Concerning Books & Records
</TABLE>
<PAGE>
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
ARTICLES SUPPLEMENTARY
To the State Department
of Assessments and Taxation
State of Maryland
FIRST: The name of the corporation (the "corporation") is LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
SECOND: In accordance with Maryland General Corporation Law, Section 2-
105(c), the Board of Directors of the corporation has, by resolution, authorized
an increase in the total number of shares of capital stock that the corporation
has authority to issue.
THIRD: Immediately before the increase, the total number of shares of stock
that the Corporation had authority to issue was 50,000,000 shares, with the par
value of $.01 per share, all of which were of a single class designated Common
Stock, such shares having an aggregate par value of $500,000.
After the increase, the total number of shares of stock that the
corporation shall have authority to issue is 100,000,000 shares, with the par
value of $.01 per share, all of which shall be of a single class designated
Common Stock, such shares having an aggregate par value of $1,000,000.
FOURTH: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, Lincoln National International Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President or
one of its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries on February 11, 1997.
ATTEST: LINCOLN NATIONAL INTERNATIONAL
FUND, INC.
/s/ Cynthia A. Rose /s/ Kelly D. Clevenger
- --------------------------- ------------------------------
Cynthia A. Rose, Secretary Kelly D. Clevenger, President
THE UNDERSIGNED, Kelly D. Clevenger, President, of Lincoln National
International Fund, Inc., who executed on behalf of said corporation, the
foregoing Articles Supplementary, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ Kelly D. Clevenger
------------------------------
Kelly D. Clevenger, President
<PAGE>
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
Board of Directors Meeting
February 11, 1997
RESOLVED, That the total number of shares of stock which the Corporation
shall have authority to issue be increased from 50,000,000 to 100,000,000
shares, with a par value of $.01 per share, all of which shall be of a single
class designated Common Stock, such shares having an aggregate par value of
$1,000,000.
RESOLVED FURTHER, That the officers of the Corporation are authorized and
directed to take any and all action which they deem necessary or appropriate to
effect this resolution, including executing and filing Articles Supplementary
pursuant to Maryland General Corporation Law, Section 2-208.1, and to take such
further action as may be necessary or appropriate as a result of filing said
Articles Supplementary.
<PAGE>
SAMPLE COPY
SECTION A. AGENT CONTRACT -- GENERAL PROVISIONS
Effective ___________________, 19__ Lincoln National Life Insurance Company, LNC
Equity Sales Corporation and Lincoln National Health and Casualty Insurance
Company, all of Fort Wayne, Indiana, and any other Lincoln National companies
made a party to this contract by future supplement (hereinafter "Lincoln
National") appoint
________________________________________________________________________________
Name of Agent
of (or incorporated under the laws of __________________________________________
City, State or State
as an Agent or Corporate Agent and/or as a Registered Representative
(hereinafter "Agent").
The Agent shall solicit applications for Individual Life Insurance, Individual
Disability Insurance, Individual Long Term Care, Group Insurance, Annuities and
solicit subscriptions for securities offered by or through Lincoln National.
1. Limitations on Appointment
This contract authorizes the Agent to solicit applications for those contracts
or securities offered by the specific companies comprising Lincoln National only
while properly licensed by and/or registered with the appropriate governmental
agency or authority for that specific type of product or securities.
If the Agent is a corporation it is not authorized to solicit applications for
Individual Annuities or any subscriptions or applications for any products
registered as a security with the Securities and Exchange Commission (SEC). The
Agent must have a letter of authorization or authorization card from the
appropriate Lincoln National company for the particular type of security offered
before soliciting subscriptions or applications for any SEC registered product.
2. Limitations of Authority
The Agent agrees not to perform any of the following acts on behalf of Lincoln
National:
a. incur any indebtedness or liability;
b. make, alter or discharge contracts or make or alter any securities or any
prospectus or item of supplemental sales literature pertaining to any such
securities;
c. initiate any legal action in any matter pertaining to Lincoln National's
business without prior written consent of Lincoln National;
d. change rates quoted by Lincoln National;
e. extend the time for payment of any premium;
f. waive payment in cash;
g. guarantee dividends; or
h. receive or collect any monies for or on behalf of Lincoln National, except
the initial premium as allowed by Lincoln National's rules on insurance or
annuities solicited by the Agent necessary to put the policy in force.
The Agent hereby agrees not to perform any of the following acts:
i. submit to Lincoln National any application which Agent has not personally
reviewed and believes to be accurate and complete;
j. hold himself/herself/itself out as an Agent of Lincoln National in any
manner or for any other purpose than is expressly prescribed in this
contract;
k. violate any federal or state statute, rule or regulation thereunder or rule
of Lincoln National, respecting the sale of insurance, annuities or
securities;
Rev. (2/94)
Form 1185 - A-1
<PAGE>
Limitations of Authority (cont.)
l. withhold any monies or property of Lincoln National;
m. rebate or offer to rebate all or any part of a premium or deposit on an
insurance or annuity contract issued or to be issued by Lincoln National;
n. induce or endeavor to induce any policyholder of Lincoln National to
discontinue payment or premium or relinquish any policy or annuity contract
unless the policyholder's interests are better served;
o. within a period of 90 days after termination of the Agent's appointment,
induce or endeavor to induce any agent of Lincoln National to leave its
service;
p. use any information acquired while a Registered Representative or
Registered Principal in a manner adverse to the interests of Lincoln
National or of the organizations for which Equity Sales shall act as the
distributor of securities; or
q. use any form of advertising bearing Lincoln National's name, other than
that furnished by Lincoln National, in negotiations, solicitations or
advertising without such advertising being submitted to and approved by
Lincoln National. The term "advertising" includes all forms of
communication by any medium including, but not limited to, print, radio,
television, billboards, direct mail, booklets, leaflets, business cards and
stationery.
3. Relationship of Parties
The Agent agrees to be governed in the performance of his/her/its duties by the
terms and conditions of this contract, and by the rules established by Lincoln
National. The services performed by the Agent are performed pursuant to this
contract, and the contract provides that the individual will not be treated as
an employee with respect to those services for tax purposes. The Agent shall be
considered an independent contractor, except during periods of time when the
Agent is party to a Subsidy Agreement with Lincoln National. While an
independent contractor, the Agent reserves the right to exercise independent
judgment as to the time, place and manner of soliciting applications for
insurance, annuities and securities. No other provision of this contract nor any
rule or regulation of Lincoln National shall be construed to abridge this right
or create the relationship of employer and employee.
The Agent has no authority except as stated in this contract. No other authority
may be implied from the authority expressly granted.
4. Prior Contracts
Execution of this contract by the parties terminates all previous contracts held
by the Agent with Lincoln National.
5. Right to Withdraw
Lincoln National may at its discretion withdraw from the Agent the privilege of
writing a particular type of policy contract or security.
Lincoln National may withdraw from any territory without liability to the Agent.
6. Termination
The Agent or Lincoln National may terminate the Agent's appointment under this
contract, with or without cause, by notice set by ordinary mail to the last
known address of the other party. A resignation of the Agent tendered to any
one of the companies a party to this contract will be assumed to be a
termination of appointment with all companies a party to this contract unless
otherwise specified.
Upon termination, the Agent shall immediately deliver to Lincoln National, or
its representative, all rate manuals, policyholder record cards, application
forms, letters, written correspondence with policyholders and representatives of
Lincoln National, records, sales material, software, equipment and all other
supplies and materials connected with, authorized or printed by and belonging to
Lincoln National or any of its affiliates.
Termination of appointment as used in this contract shall mean termination of
authority either through cancellation of the appropriate license or registration
as required by this paragraph or through termination of this entire contract.
In the event of termination for misappropriation of funds, fraud, or for any
reason based on action prohibited by the criminal laws of this jurisdiction in
which the act is committed, all future commissions, including bonuses and
service fees, shall be forfeited by Agent. Conviction is not a prerequisite to
the forfeiture of commissions.
Rev. (11/96)
A-2 - Form 1185
<PAGE>
7. Solicitations of Applications for Variable Annuities and Subscriptions for
Securities
a. The Agent expressly agrees to become familiar with all provisions of federal
and state statutes, rules and regulations respecting the sale of annuities
and securities and, periodically, to review such provisions.
b. The Agent may solicit applications for variable annuity contracts only while
authorized to sell variable annuities in accordance with rules of Lincoln
National and the laws of the state or other jurisdiction in which the Agent
shall offer such contracts.
c. The Agent may solicit subscriptions for securities only while authorized to
sell securities in accordance with the laws of the state (or states) in
which the Agent will offer such securities.
d. The Agent may solicit applications for any product required to be registered
with the Securities and Exchange Commission, including variable annuities
and securities:
1) Only after meeting all the requirements necessary to become registered
with a self-regulatory association organized pursuant to Section 15(a)
of the Securities Exchange Act of 1934 of which Lincoln National is a
member; and
2) Only while registered as a "Registered Representative" or "Registered
Principal" of the Lincoln National company offering the registered
product; and
3) Only upon delivery to the offeree of a prospectus or offering circular
required by federal and/or state securities laws.
e. The Agent expressly agrees to comply with such other rules and regulations
as the Securities and Exchange Commission, any self-regulatory association
of which Lincoln National may become a member or Lincoln National may
establish at present or in the future under requirements of applicable
federal or state law dealing with variable annuities or securities. The
Agent agrees to submit to such supervision regarding the sales of variable
annuities or securities as may be necessary to insure compliance with this
contract. Such rules shall include, but not be limited to, the following:
1) The Agent shall adhere to high standards of commercial honor and just
and equitable principles of trade in the course of soliciting
applications for variable annuities or subscriptions for securities;
2) The Agent shall not use advertising media with regard to variable
annuities and securities or supplemental sales material other than those
approved by Lincoln National for such purposes;
3) The Agent shall not use supplemental sales material other than those
previously approved by Lincoln National.
f. The Agent shall fully explain the terms of any variable annuity or security
and shall not make any untrue statement or fail to state any material fact
to a prospective purchaser.
g. The Agent shall take steps to acquaint himself/herself/itself with
prospective customers, including such inquiries as may be necessary to
satisfy himself/herself/itself that the offering contemplated is not
unsuitable having in view the customer's resources, investment objectives
and other investments.
h. The Agent shall not make any agreement with any person for the repurchase or
resale of a variable annuity or security, nor shall he/she/it directly or
indirectly solicit, purchase or traffic in any variable annuity or security
nor resort to "twisting" or "switching" of securities of any other company
or of insurance policies.
8. Delivery of Policies or Annuity Contracts
The Agent shall not deliver any policy if changes have occurred in the health or
in any other factor affecting the insurability of the proposed insured at the
time of delivery and unless the first premium has been fully paid. Delivery of a
policy after 60 days or delivery of an annuity contract after 10 days from and
including the date of mailing by Lincoln National is not permitted unless the
time for delivery has been extended by Lincoln National. Lincoln National
reserves the right to charge to the Agent's commission account a late delivery
fee or cancellation fee for violation of this provision.
Rev. (2/94)
Form 1185 - A-3
<PAGE>
9. COMPENSATION
a. The basic compensation of the Agent shall be commissions payable at rates
set forth in Sections B, C, and D of this contract that are in effect at
the time of application for the policy. Such compensation shall be subject
to the terms and conditions of this contract, Lincoln National's Rate Book
and established rules of Lincoln National.
b. To be entitled to commissions the Agent's name must appear as Soliciting
Agent on the application for the policy or annuity contract and the policy
or annuity contract must have been fairly effected through the
instrumentality of said Agent. In the case of the sale of a security, the
Agent's name must appear as Registered Representative on the customer
account and the Agent must have personally effected the sale and taken the
application or subscription.
c. Commissions and/or service fees shall be paid to the Agent only after the
appropriate premium or deposit has been paid in cash and accepted by
Lincoln National.
d. No commission and/or service fee shall be payable on any premium paid in
advance until the due date of the premium so paid in advance, and then only
if Lincoln National retains such premium. No agent of record changes on
Group Insurance shall be made retroactively.
e. Lincoln National shall have the right, at its discretion, to change the
vesting provisions and rates in Sections B, C, and D of this contract in
any manner and at any time for (1) policies, contracts or certificates; (2)
increases on existing policies, contracts or certificates; (3) bonuses and
(4) securities. Lincoln National may establish commission rates for new
policies, annuity contracts or securities not scheduled in Sections B, C,
or D of this contract.
Any changes made under this provision will be made on a prospective basis.
Any notification of changes may be by usual interoffice communication
methods.
f. If Lincoln National returns a premium or deposit on a policy, annuity
contract or security, for any reason whatsoever, the Agent shall repay to
Lincoln National on demand any commission or service fee received on such
premium or deposit.
g. Commissions and/or service fees on conversions, replacements, increases and
step-rate premium increases, or exchanges shall be allowed in accordance
with the rules of Lincoln National in force when the conversion,
replacement, increase or exchange is effected.
h. Commissions and/or service fees on policies or annuity contracts reinstated
after 90 days from the due date of the first premium in default are payable
to the original Agent only if the policy or annuity contract is wholly
reinstated through the efforts of the original Agent.
10. After Death Commissions
If the Agent dies at a time when monies are payable under this contract, Lincoln
National will pay such monies, as they accrue, to the surviving spouse of the
Agent, and, at the death of said spouse, to the estate of said spouse. If the
Agent dies leaving no spouse surviving, any monies payable under this contract
shall be payable to the estate of the Agent.
11. Indebtedness of Agent
Lincoln National shall have a first lien on all commissions and other
compensation payable hereunder for any debt due from the Agent to Lincoln
National, to any of its affiliates, to any other person or corporation acting on
behalf of Lincoln National or any of its affiliates, or to any other company
party to a Marketing Agreement with the Lincoln National Sales Corporation.
Such debt shall include loans and advances made to the Agent and charges made to
the Agent's commission account. Such debt shall also include any actual
expenses incurred and paid by Lincoln National as a result of Agent's breach of
any of the terms in Section A, Paragraph 2 of this contract.
Lincoln National may at any time deduct from any monies payable under this
contract and any supplement and/or amendment hereto, any such debt or debts due
from the Agent, including interest on such debts. The lien shall not be
eliminated by the termination of the Agent's appointment under this contract.
This provision shall not be construed in any way to limit any indebtedness of
the Agent to the value of the commissions and other compensation payable under
this contract. In the event of termination of the Agent's appointment, the
unpaid balance of the Agent's indebtedness shall be immediately due and payable
without demand or notice.
Rev. (2/94)
A-4 - Form 1185
<PAGE>
12. Accounting
Lincoln National shall provide to the Agent, on a monthly or otherwise regular
basis, a statement setting forth commissions earned and payable to the Agent
along with an accounting of changes to the Agent's commission account. Lincoln
National reserves the right to establish a minimum balance which must be reached
before a statement and check will be provided.
13. Assignments, Modifications
No modifications or amendments of this contract nor any assignment of
commissions payable hereunder shall be valid unless approved in writing by an
authorized officer of Lincoln National.
14. Severability
If any provision of this agreement is found to be illegal or otherwise
unenforceable, the remainder of this agreement shall not be affected and shall
remain fully enforceable.
15. Forbearance
Forbearance or neglect of Lincoln National to insist upon performance of this
contract shall not constitute a waiver of its rights and privileges.
Rev. (2/94)
Form 1185 - A-5
<PAGE>
SAMPLE COPY
Lincoln National Individual
- ---------------- ----------
By:x By:x
-------------------------- --------------------------
Assistant Secretary Agent
------------------------------
Social Security Number
OR
Corporate Agent
---------------
------------------------------
Corporate Agent
By:x
--------------------------
President
------------------------------
Tax Identification Number
Executed in Duplicate
The undersigned RCEO, on behalf of his
marketing organization, or PPGA
guarantees payment of any debt due
Lincoln National by the Agent and waives
any requirement that Lincoln National
first attempt to collect from the Agent.
By:
-------------------------------
RCEO/PPGA
Rev. (2/94)
A-6 - Form 1185
<PAGE>
SECTION B. SPECIAL PROVISIONS BETWEEN LINCOLN NATIONAL LIFE INSURANCE COMPANY
("LNL") AND THE AGENT
1. Vesting
a. Individual Life, Disability Income, and Long Term Care
All first year and renewal commissions payable under these products are
fully vested.
b. Group Insurance
First year commissions on all group insurance products shall be fully
vested. Service fees shall be payable to the Agent, regardless of
termination of appointment, if at the time the appropriate premium is paid,
the Agent maintains, in the opinion of LNL, effective control over the
continuance of the policy in force.
c. Annuity Products
1) Annuity Contracts
There is no vesting of commissions. Commissions or service fees for
these contracts are payable only when contributions are received prior
to termination of the appointment of the Agent.
2) Pension Investment Group Annuity Contracts
There is no vesting of commissions. Commissions or service fees for
these contracts are payable only when contributions are received prior
to termination of the appointment of the Agent and subject to the
other provisions of this contract.
2. Death or Total Disability
a. Prior to Age 70
If the Agent dies or becomes and remains totally disabled prior to age 70,
the following shall be payable:
<TABLE>
<CAPTION>
<S> <C> <C>
1) Individual Life, Disability Income and All service fees and renewal commissions through the
Long Term Care Policies. 10th policy year.
2) Group Insurance. All first policy year commissions.
3) Annuity Contracts (except Legacy) All service fees through the 10th annuity contract or
certificate year.
4) Legacy Annuity Contracts All service fees through the 7th annuity contract or
certificate year.
5) Group Annuity Contracts issued by All first year commissions.
Pension Investment Department.
</TABLE>
b. At or After Age 70
If the Agent dies or becomes and remains totally disabled at or after age
70, the following service fees and commissions shall be payable:
<TABLE>
<CAPTION>
<S> <C> <C>
1) Individual Life, Disability Income and All service fees and renewal commissions through the
Long Term Care Policies. 10th policy year.
2) Group Insurance. All first policy year commissions.
3) Annuity Contracts All service fees through the 5th annuity contract or
certificate year.
4) Group Annuity Contracts issued by All first year commissions.
Pension Investment Department.
</TABLE>
The term "total disabled" as used in this provision shall mean the complete
inability of the Agent to engage in any or every occupation for a wage or
profit for which the Agent is or becomes reasonably qualified by training,
education or experience.
Rev. (10/95) Form 1185 - B-1
<PAGE>
3. Compensation
a. Individual Life, Disability Income and Long Term Care
1) Service Fees
No service fees shall be payable after termination of the Agent's
appointment, except as provided for in B(2)(a) or B(2)(b) above.
2) Universal Life
I. Commissions will be earned on any net increase by original Agent
only if the policy is increased through the efforts of original
Agent. A net increase is defined as an increase in "Specified
Amount" over the previous highest "Specified Amount." This
definition may vary by product.
II. No commissions will be paid on flat extras payable for less than
10 years.
III. There will be a pro rata charge back on first year policy
terminations or decreases to recover commissions.
IV. When more than half of the percent of premium charge shown on the
universal life policy schedule is either waived or matched by an
immediate credit to the policy value, no commission or service
fee is normally payable. If a commission or service fee is
allowed in accordance with the rules in force at the time the
premium is paid, the Agent shall repay to Lincoln National, on
demand, any commission or service fee received on such premium if
there is a withdrawal from, lapse of, or surrender of the
universal life policy within 5 years of receipt of such premium.
3) Commission Schedule
The Individual Life and Disability Income rates shall apply to
policies issued for not less than Lincoln National's established
minimum amount for the policy plan involved, except that with respect
to insurance policies other than Universal Life issued at ages over 65
(age 55 for Nonparticipating Pension Whole Life) the first year
commission shall not exceed in amount the first year commission for
the same policy plan and amount issued at age 65 (age 55 for
Nonparticipating Pension Whole Life).
Renewal commissions only shall be payable on Disability Income
policies for issue ages 61 and over.
Commissions on term riders will be as set forth in the commission
schedule, otherwise they will be paid at the rate prescribed for the
policy to which the rider is attached.
For conversion to Universal Life, exercised without evidence of
insurability, of any term insurance which was originally issued by a
company other than Lincoln National Life, the Commissionable Premium
rate will apply only to the first $1,000,000 of Specified Amount for
the Universal Life policy. The "Excess Premium" rate will be applied
to any premiums received in excess of the Commissionable Premium
corresponding to $1,000,000 of Specified Amount.
Rev. (10/95)
B-2 - Form 1185
<PAGE>
Pages B-3 through B-21, which represent the schedules of upfront compensation
for insurance products other than variable annuities have been omitted.
<PAGE>
Compensation (cont.)
c. Annuity Contracts - Old LNL annuities
1) Individual Fixed Annuity (IFA), Individual Variable Annuity (IVA),
Group Variable Annuity (GVA) - Except Variable Annuity Fund 3
For each sale of a periodic payment contract a commission of 3% shall
be paid on each deposit, excluding non-recurring lump sum deposits
(see 3 I and 3 II below), as it is received under the contract during
the first contract year. In second and subsequent contract years,
service fees of 3% shall be paid on each deposit as it is received
under the contract.
2) Group Variable Annuity Fund 3 Contracts (not applicable to Pension
Flexible Annuity Contract)
For periodic payment GVA Fund 3 contracts, a first year commission
shall be payable on the lesser of (i) the amount of annualized
contributions expected to be received in the first contract year and
expected to recur in subsequent contract years as stated on the
application, or (ii) $5,000 at the rates shown below:
<TABLE>
<CAPTION>
Age at Issue Rates
-------------------------------------
<S> <C>
55 & under 9%
56 8
57 7
58 6
59 5
60 4
61 & over 3
</TABLE>
3) Single Payment Contracts or Contributions
I. Variable Annuity Fund 3 (not applicable to the Pension Flexible
Annuity Contract)
For single payment deferred contracts or for single payment
contributions under periodic payment contracts (those
contributions which have been assessed a single payment load) a
commission of 2% of the amount of the single payment contribution
shall be paid. For single payment immediate contracts, a
commission of 1 1/2% of the amount of the single payment
contribution shall be paid.
II. Other Annuity Contracts
For single payment contracts or for single payment contributions
under periodic payment contracts (those contributions which have
been assessed a single payment load under the load contract or
which would be subject to a single payment surrender charge under
the no front-end load contract), a commission equal to 1% of the
single payment contribution shall be paid.
4) Cash Flow Commissions on GVA Fund 3 (not applicable to the Pension
Flexible Annuity Contract)
I. A level commission at the rates itemized below shall be payable
on the amount of contributions, excluding single payment
contributions, in any certificate or contract year which is in
excess of the amount of contributions on which the commission in
paragraph b II above was paid. The level commission will be paid
as contributions, in excess of the amount of contributions on
which the commission in paragraph b II above was paid, are
received and its rate will vary depending upon the load rate
(sales and administrative expense charge) actually being assessed
against those contributions according to the following:
<TABLE>
<CAPTION>
Load Rate Charged Commission Rate
-----------------------------------------
<S> <C>
5.25% 3.00%
4.25 2.40
3.75 2.10
3.25 1.85
2.75 1.60
2.25 1.35
</TABLE>
This level commission is payable only on contributions received
by Lincoln National prior to the termination of the appointment
of the Agent.
Rev. (1/94)
B-22 - Form 1185
<PAGE>
Compensation (cont.)
II. For contributions (other than single payment contributions) received
in any certificate or contract year up to the amount of contributions
on which the commission in paragraph b II was paid, a commission at
the rate of 1% of such contributions shall be payable as such
contributions are received. This cash flow commission is payable only
on contributions received by Lincoln National prior to the termination
of the appointment of the Agent.
III. If a certificate or contract is cancelled, the commissions paid shall
be charged back against the account of the Agent. If contributions
cease during the first two years a certificate or an unallocated-type
contract is in force, commissions paid under paragraph b II above
shall be charged back against the account of the Agent, and a
commission at the rate of 2% shall be payable on the amount of such
contributions actually received in addition to the 1% commission
already paid.
5) Pension Flexible Annuity Contract
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Amount of Deposit
Received in Initial and Any Commission
Subsequent Contract Years
---------------------------------------------------------------------------
<S> <C> <C>
On the First $ 25,000 3.00%
---------------------------------------------------------------------------
On the Excess over 25,000
But not over 50,000 1.00
---------------------------------------------------------------------------
On the Excess over 50,000
But not over 100,000 .70
---------------------------------------------------------------------------
On the Excess over 100,000
But not over 500,000 .50
---------------------------------------------------------------------------
On the Excess over 500,000
But not over 1,000,000 .20
---------------------------------------------------------------------------
On the Excess over 1,000,000 .10
---------------------------------------------------------------------------
</TABLE>
6) Honeymoon Clause
Under all Fund A Contracts, excluding those used to fund Pension and Profit
Sharing Plans, and all Fund B Contracts, the surrender value of the fixed
portion of the contract or certificate is the greater of the fixed
accumulated value or the fixed gross contributions. If a contract or
certificate under such a contract is surrendered at a time when the fixed
gross contributions exceed the fixed accumulated value, one-half of the
excess of the fixed gross contributions over the fixed accumulated value
shall be charged back against the account of the Agent. This chargeback
shall be in addition to any other chargebacks provided for the contract.
7) Selling Agents
Where, in the judgment of Lincoln National, one or more agents has
performed extraordinary services in the procurement, solicitation and/or
servicing of a Group, Lincoln National may require other agents enrolling
participants thereunder to share a specified portion of the commissions
payable under this section with the agents who have performed such
services. Such agents shall be referred to as "selling agents."
8) Resumption of Contributions
If a new agent is involved in the resumption of contributions from paid-up,
terminated or cancelled Contracts, or after a participant changes
employers, Lincoln National reserves the right to pay a portion or all
future commissions/service fees to the new agent.
Rev.(2/94)
Form 1185 - B-23
<PAGE>
Compensation (cont.)
d. Annuity Contracts - New LNL annuities
1) Individual Variable Annuity (Multi-Fund) Contracts
I. Tax Sheltered {403(b)} and Deferred Compensation (457 plans only)
Markets
For each sale of a periodic payment Multi-Fund Contract in these
markets a commission shall be paid on the expected recurring
annualized premium (not to exceed $9,500) upon receipt of the
first periodic payment. In addition, a commission shall be paid
on each deposit as it is received under the contract during the
first contract year. In the second and subsequent contract years,
service fees shall be paid on deposits as received in each
contract year. The commission/service fee rates are:
<TABLE>
<CAPTION>
=======================================================================================
Cash Flow Cash Flow
Commission Rate On Rate on First Rate on Deposits in
Contract Annualized Premium $9,500 of Deposits Excess of $9,500 in
Issue Age Up to $9,500 In each Contract Year Each Contract Year
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
54 or Below 4% 2.25% 4%
---------------------------------------------------------------------------------------
55 or Above 0% 3.25% 4%
=======================================================================================
</TABLE>
II. All Other Markets
For each sale of a periodic payment Multi-Fund Contract a
commission of 4% shall be paid on each deposit as it is received
under the contract during the first contract year. In second and
subsequent contract years, service fees of 4% shall be paid on
each deposit as it is received under the contract.
2) Individual Fixed Annuity (IFA) Contracts
I. Tax Sheltered Annuity {403(b)} Market
For each sale of a periodic payment IFA Contract in this market a
commission shall be paid on the expected recurring annualized
premium (not to exceed $9,500) upon receipt of the first periodic
payment. In addition, a commission shall be paid on each deposit
as it is received under the contract during the first contract
year. In the second and subsequent contract years, service fees
shall be paid on deposits as received in each contract year. The
commission/service fee rates are:
<TABLE>
<CAPTION>
=======================================================================================
Cash Flow Cash Flow
Commission Rate On Rate on First Rate on Deposits in
Contract Annualized Premium $9,500 of Deposits Excess of $9,500 in
Issue Age Up to $9,500 In each Contract Year Each Contract Year
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
54 or Below 4% 1.50% 3%
---------------------------------------------------------------------------------------
55 or Above 0% 2.50% 3%
=======================================================================================
</TABLE>
II. All Other Markets
For each sale of a periodic payment IFA Contract a commission of
3% shall be paid on each deposit as it is received under the
contract during the first contract year. In second and subsequent
contract years, service fees of 3% shall be paid on each
deposit as it is received under the contract.
3) Group Fixed Annuity (GFA) Contracts
I. Deferred Compensation (457 plans only) Market
For each sale of a periodic payment GFA Contract in this market a
commission equal to 4% of the expected recurring annualized
premium (not to exceed $9,500) shall be paid upon the receipt of
the first periodic payment. In addition, a commission of 1.50%
shall be paid on each deposit up to $9,500 as it is received
under the contract during the first contract year and a
commission of 3% shall be paid on each deposit in excess of
$9,500 as it is received under the contract during the first
contract year. In the second and subsequent contract years,
service fees of 1.50% shall be paid on the first $9,500 of
deposits as received in each contract year and service fees of 3%
shall be paid on deposits in excess of $9,500 as received in each
contract year.
II. All Other Markets
For each sale of a periodic payment GFA contract commission of 3%
shall be paid on each deposit as it is received under the
contract during the first contract year. In second and subsequent
contract years, service fees of 3% shall be paid on each deposit
as it is received under the contract.
Rev. (2/94)
B-24 - Form 1185
<PAGE>
Compensation (cont.)
4) Group Fixed Annuity (GFA) Rolling Surrender Charge Contracts
I. Deferred Compensation Market
For each sale of a periodic payment GFA Rolling Surrender Charge
Contract commission of 2.25% shall be paid on each deposit as it
is received under the contract during the first contract year.
In second and subsequent contract years, service fees of 2.25%
shall be paid on each deposit as it is received under the
contract.
5) American Legacy Annuity Contracts
I. The American Legacy Individual Annuity Contracts (ALA-I) - Tax
Sheltered Annuity {403(b)} and Deferred Compensation (457 plans
only) Markets
For each sale of an ALA-I Contract in these markets, a
commission of 2.00% shall be paid on each deposit as it is
received under the Contract during the first contract year. In
the second and subsequent contract years, service fees of 2.00%
shall be paid on each deposit as it is received under the
Contract. Additional asset-based service fees equal to 0.25% on
an annual basis shall be paid quarterly in the second and
subsequent contract years on the value of all deposits which have
been in the Contract for fifteen months or more at the time of
payment.
II. The American Legacy Individual Annuity Contracts (ALA-I) - All
Other Markets
For each sale of an ALA-I Contract in these markets a commission
of 2.50% shall be paid on each deposit as it is received under
the Contract during the first contract year. In the second and
subsequent contract years, service fees of 2.50% shall be paid on
each deposit as it is received under the Contract. Additional
asset-based service fees equal to 0.25% on an annual basis shall
be paid quarterly in the second and subsequent contract years on
the value of all deposits which have been in the Contract for
fifteen months or more at the time of payment.
III. American Legacy-II Individual Annuity (ALA-II) Contracts
According to the following table, a commission shall be paid on
each deposit as it is received under the Contract:
<TABLE>
<CAPTION>
Annuitant's Age at Issue Commission Rate
----------------------------------------------
<S> <C>
80 or Below 3.00%
81 or Above 1.75%
</TABLE>
Additional asset-based service fees equal to 0.25% on all annual
basis shall be paid quarterly in the second and subsequent
contract years on the value of all deposits which have been in
the Contract for fifteen months or more at the time of payments.
IV. ALA-I and ALA-II Contracts
With respect to each contract year's purchase payments, an annual
2.24% (0.30% for American Legacy II) persistency bonus will be
paid on any "Increased Guaranteed Minimum Death Benefit" amount
as defined in the annuity Contract. The first bonus will be
payable at the time the guaranteed minimum death benefit is
adjusted, which will be on the seventh contract anniversary of
each such purchase payment. Subsequent bonus payments will be
made for the next seven years on each applicable contract
anniversary date, provided the Contract remains in effect.
The amount of each bonus payment will remain constant during the
period unless the "Increased Guaranteed Minimum Death Benefit"
amount is reduced due to withdrawals. Withdrawals are applied to
reduce the "Increased Guaranteed Minimum Death Benefit" amount on
a first-in first-out basis, so subsequent bonus payments would be
reduced accordingly. The persistency bonus will not be paid on
Contracts that have been annuitized.
V. American Legacy Group II (ALG-II) Annuity Contracts
For each sale of an AGL-II contract, a commission of 1.75% shall
be paid on each deposit as it is received under the Contract
during the first contract year. In the second and subsequent
contract years, service fees of 1.75% shall be paid on each
deposit as it is received under the Contract. Additional asset-
based service fees equal to 0.25% on an annual basis shall be
paid quarterly in second and subsequent contract years on the
value of all deposits which have been in the Contract for fifteen
months or more at the time of payment.
VI. American Legacy Retirement Investment Plan (AL-RIP) Annuity
Contracts
For each sale of an AL-RIP Contract, a commission of 1.80% shall
be paid on each deposit as it is received under the Contract
during the first contract year. In the second and third contract
years, a service fee of 1.20% shall be paid on each new deposit
as it is received under the Contract. An asset-based service fee
equal to 0.25% on an annual basis shall be paid quarterly in the
fourth and subsequent contract years on the value of all deposits
in the Contract at the time of payment.
Rev. (11/96)
Form 1185 - B-25
<PAGE>
Compensation (cont.)
6) Single Payment Contracts, Flexible Premium Contracts and Lump Sum
Deposits to Periodic Payment Contracts (A Lump Sum Deposit shall be
defined as a non-recurring amount in excess of the expected recurring
annualized premium which is clearly identified as a lump sum deposit
when submitted and which is submitted separately from the regular
salary reduction deposits.)
(a) Periodic Multi-Fund Contracts (MF-1) 4.00%
(b) Single/Flexible Premium Multi-Fund Contracts (MF-2) 4.00%
(c) Modified Single/Flexible Premium Multi-Fund
Contracts (MF-3) 3.00%
(d) Periodic Individual Fixed Annuity Contracts (IFA-1) 4.00%
(e) Single/Flexible Premium Individual Fixed Annuity
Contracts (IFA-2) 4.00%
(f) Modified Single/Flexible Premium Individual Fixed
Annuity Contracts (IFA-3) 3.00%
(g) Group Fixed Annuity Contracts 3.00%
(h) Single Premium Immediate Fixed Annuity Contracts 3.00%*
(i) Single Premium Immediate Variable Annuity Contracts
Non Life Contingent Option
3-10 Years Designated Period 1.50%*
11 + Years Designated Period 3.00%*
Life Contingent Option 3.00%*
For Lump Sum deposits to Periodic Payment Contracts {d(9)(a) and
d(9)(d)}, a 1% chargeback will apply on contracts annuitized within
the first twelve months after the lump sum is received. For Flexible
Premium Contracts {d(9)(b) and d(9)(e)}, a 1% chargeback will apply
to all purchase payments annuitized within twelve months after they
are deposited into the contract.
* Indicates standard commission paid on non-Lincoln National annuity
funds. The commission on contracts purchased with Lincoln National
annuity funds will depend on the duration of the existing Lincoln
National annuity contracts and the surrender charge schedule, if any,
in effect.
7) Chargebacks on Single Payment Contracts and Flexible Premium Contracts
The commissions shown in d(9)b-c and d(9)e-g, are subject to a
chargeback for contracts issued to annuitants age 81 and older. The
chargeback applies at the death of the annuitant according to the
following schedule:
<TABLE>
<CAPTION>
PRODUCT
=====================================================================
Death in d(9)b & d(9)e d(9)c & d(9)f d(9)g
Contract Year
---------------------------------------------------------------------
<S> <C> <C> <C>
1 4.00% 3.00% 3.00%
---------------------------------------------------------------------
2 4 00 3.00 3.00
---------------------------------------------------------------------
3 4.00 3.00 3.00
---------------------------------------------------------------------
4 2.00 2.00 1.50
---------------------------------------------------------------------
5 2.00 2.00 1.50
---------------------------------------------------------------------
6 or more 0 0 0
=====================================================================
</TABLE>
8) Selling Agents
Where, in the judgment of LNL, one or more agents has performed
extraordinary services in the procurement, solicitation and/or
servicing of a Group, LNL may require other agents enrolling
participants thereunder to share a specified portion of the
commissions payable under this section with the agents who have
performed such services. Such agents shall be referred to as "selling
agents." LNL may discontinue commissions and service fees to the
selling agent if in the judgment of LNL, the selling agent is no
longer actively servicing the Group.
Rev. (10/95)
B-26 - Form 1185
<PAGE>
Compensation (cont.)
12) Resumption of Contributions
If a new agent is involved in the resumption of contributions from
paid-up, terminated or cancelled contracts, or after a participant
changes employers, LNL reserves the right to pay a portion or all
future commissions/service fees to the new agent.
13) Service Fees
While this contract is in force, for each contract year subsequent to
the first in which the Agent continues to actively service the annuity
contract, the Agent will be eligible to receive service fees on annual
recurring deposits received in each contract year, except as indicated
in subsection d(6). LNL shall be the sole judge of whether the Agent
continues to actively service the annuity contract and is entitled to
receive service fees and commissions on the contract.
14) The Agent's commission account may be charged with any loss resulting
from the Agent's actions which are not in accordance with the client's
instructions. These actions would typically be failure to promptly
notify LNL of a change requested by the client or submitting incorrect
instructions.
15) With the prior notification to the Agent by LNL, the Agent may receive
compensation at rates different than those shown above. Submission of
business subsequent to such notification constitutes acceptance of the
commission modification.
Rev. (2/94)
Form 1185 - B-27
<PAGE>
Compensation (cont.)
e. Pension Investment Group Annuity Contracts
1) The following schedules show the basic commission rates applicable to
certain group annuity contracts. Where applicable, contract year shall
be as defined in the specific group annuity contract.
2) Contract Types
I. Lincoln Life Director(TM) Contract
Various commission schedules are available based on the level of
services provided and the fee structure contained in the specific
Lincoln Life Director(TM) contract. The schedule used with each
case will be subject to LNL's approval.
NET RATE ALLOCATED
------------------
Deposit Based
Commission
Schedule 1. 3%
Schedule 2. 2%
Asset Based
Commission
Schedule 3. .50%
Schedule 4. .25%
ALLOCATED
---------
<TABLE>
<CAPTION>
Deposit Based Asset Based Deposit Based Asset Based
Commission Commission Years 1 & 2 Years 3+
<S> <C> <C> <C> <C> <C> <C>
Schedule 3. 3% Schedule 7. 0.50% Schedule 10. 2% 0.25%
Schedule 4. 2% Schedule 8. 0.25% Schedule 11. 1%/1/ 0.25%/2/
Schedule 5. 1% Schedule 9. 0.00% Schedule 12. 1% 0.35%.
Schedule 6. 0%
</TABLE>
UNALLOCATED
-----------
<TABLE>
<CAPTION>
Deposit Based Asset Based Deposit Based Asset Based
Commission Commission Years 1 & 2 Years 3+
<S> <C> <C> <C> <C> <C> <C>
Schedule 13. 4% Schedule 18. 0.50% Schedule 21. 2% 0.25%
Schedule 14. 3% Schedule 19. 0.25% Schedule 22. 1%/1/ 0.25%/2/
Schedule 15. 2% Schedule 20. 0.00% Schedule 23. 1% 0.35%
Schedule 16. 1%
Schedule 17. 0%
</TABLE>
/1/ Deposit Based Year 1
/2/ Asset Based Years 2+
Rev. (4/96)
B-28 - Form 1185
<PAGE>
Compensation (cont.)
UNALLOCATED GRADED I
--------------------
<TABLE>
<S> <C> <C> <C>
DEPOSIT BASED
Schedule 24 $ 0 - $ 50,000 3.00%
50,000 - 100,000 2.00%
100,000 - 200,000 1.00%
200,000 - 500,000 0.50%
500,000 - 1,000,000 0.20%
OVER - 1,000,000 0.10%
ASSET BASED
Schedule 25 $ 0 - $ 250,000 0.50%
250,000 - 500,000 O.30%
500,000 - 1,000,000 0.25%
1,000,000 - 3,000,000 0.20%
3,000,000 - 5,000,000 0.15%
OVER - 5,000,000 0.10%
Schedule 26 No Commission.
UNALLOCATED GRADED II
---------------------
Minimum $1,000,000
First Year Deposit
DEPOSIT BASED
Schedule 27 $ 0 - $1,000,000 1.00%
OVER - 1,000,000 0.50%
ASSET BASED
Schedule 28 $ 0 - $1,000,000 0.40%
1,000,000 - 3,000,000 0.20%
3,000,000 - 5,000,000 0.15%
OVER - 5,000,000 0.10%
</TABLE>
For each of the above deposit based commission schedules, the applicable
schedule shall apply to the total deposits received during each contract
year. For each of the above asset based commission schedules the rates
shown are annual rates, and the applicable schedule shall apply to the
assets in the Lincoln Life Director(TM) contract during each contract year.
Rev. (10/95)
Form 1185 - B-29
<PAGE>
Compensation (cont.)
II. DC Manager
The Agent may elect to receive commissions under any one of the
following schedules:
Schedule 1 5% commission paid on first year deposits as they are
received. Asset-based service fees equal to .5% on an
annual basis shall be paid quarterly in the second and
subsequent contract years on the average assets in the
contract during the contract year.
Schedule 2 3% commission paid on all deposits as they are received.
Schedule 3 No commission.
III. Money Manager
Deposits Commission Rate
Deposit Based
$ 0 - $ 25,000 2.50%
25,000 - 50,000 1.00%
50,000 - 100,000 0.70%
100,000 - 500,000 0.50%
500,000 - 1,000,000 0.20%
OVER - 1,000,000 0.10%
The above schedule shall apply to the total deposits received during
each contract year.
IV. Money Manager II
Deposits Commission Rate
Deposit Based
$ 0 - $ 50,000 3.00%
50,000 - 100,000 2.00%
100,000 - 200,000 1.00%
200,000 - 500,000 0.50%
500,000 - 1,000,000 0.20%
1,000,000 - 2,000,000 0.10%
-------------------- ----
OVER - 2,000,000 0.00%
The above schedule shall apply to the total deposits received during
each contract year.
Rev. (10/95)
B-30 - Form 1185
<PAGE>
Compensation (cont.)
V. Target Funding, Target Plus, Money Builder, Target Return Annuity
Contract, Capital Funding Agreement, Focused Funding, Insured Funding
I, Insured Funding II, Insured Funding III, Insured Funding IV,
Earnings Plus and any contract made available in the future unless a
different schedule exists for a specific contract type.
Deposits Commission Rate
$ 0 - $ 5,000,000 0.20%
OVER - 5,000,000 0.10%
The above schedule shall be applied to the total deposits received
over the duration of each contract.
VI. Deposit Administration Group Annuity, Group Annuity Investment
Contract, Pension Annuity Investment Contract and Immediate
Participation Guarantee Contracts.
Contracts Eff. Contracts Eff.
Deposits After 7/1/78 Prior 7/1/78
Commission Rate Commission Rate
$ 0 - $ 50,000 1.30% 1.00%
50,000 - 100,000 0.40% 0.40%
100,000 - 500,000 0.40% 0.40%
500,000 - 1,000,000 0.20% 0.20%
1,000,000 - 2,000,000 0.10% 0.10%
2,000,000 - 5,000,000 0.05% 0.10%
OVER - 5,000,000 Refer to Home Office
The above schedule shall apply to the total deposits received during
each contract year.
3) While this contract is in force and while the Agent continues to actively
service the group annuity contract, the Agent shall be eligible to receive
commissions based on the appropriate schedule above. LNL may or may not
rely on instructions from a client, and LNL shall be the sole judge of
whether the Agent is entitled to receive commissions on the contract.
4) LNL has the right to not pay commissions on assets transferred from any
other product by LNL.
5) With the prior written approval of the Agent and LNL, the Agent may receive
commissions at rates different than those expressed in the above schedules.
If the amount payable is more than would be payable using the appropriate
schedules, the Agent must notify the owner of the contract in writing of
such fact before LNL shall agree to pay said commission. Further, LNL and
the Agent will agree in writing to waive the above schedule and state the
terms of the mutually agreed schedule.
6) LNL has the right to charge the Agent for any commissions paid on deposits
withdrawn within 90 days of the deposit date.
Rev. (10/95)
Form 1185 - B-31
<PAGE>
Compensation (cont.)
f. Production Bonus
The PRODUCTION BONUS for a given calendar year will be based on the
ELIGIBLE COMMISSIONS earned during that calendar year and will be paid
in a lump sum during the first quarter of the following year. The
agent must have an active contract with LNL at the time of payment to
receive a PRODUCTION BONUS.
ELIGIBLE COMMISSIONS earned in a given calendar year are the sum of
the first year commissions on the commission statements for the agent
for that calendar year and identified as Individual Products
(excluding Long Term Care, Moneyguard and Spectrum EG).
If the effective date of contract is prior to July 1 of the initial
calendar year, a prorated PRODUCTION BONUS will be calculated as
follows (the result of each step is the input for the next step):
(1.) Multiply the ELIGIBLE COMMISSIONS by 12;
(2.) Divide by the number of months contract was in force that
year;
(3.) Calculate the PRODUCTION BONUS using the formula given
below;
(4.) Multiply by the number of months used in (2);
(5.) Divide by 12.
If the effective date of contract is July 1, or later, of the initial
calendar year, no PRODUCTION BONUS will be calculated or paid for the
first initial calendar year. Instead, all ELIGIBLE COMMISSIONS earned
in the initial calendar year will be added to the ELIGIBLE COMMISSIONS
earned in the next calendar year and the sum will be used for the
first PRODUCTION BONUS calculation. The eligible commission level will
be the amount required for the first full calendar year.
If the agent is a Corporate agent containing more than one individual
holding an agent's contract with LNL, the PRODUCTION BONUS for the
agent is the sum of the PRODUCTION BONUSES calculated for the
individual members separately. That is, the PRODUCTION BONUS for each
individual member will be calculated using his/her ELIGIBLE
COMMISSIONS and the sum of the PRODUCTION BONUSES for all individual
members will be paid to the Corporate agent.
The PRODUCTION BONUS formula is:
----------------------------------------------------------------------
Eligible Commissions* Production Bonus
----------------------------------------------------------------------
$ 25,000 - 49,999 40% on excess over 20,000 + 4,450
----------------------------------------------------------------------
50,000 - 99,999 45% on excess over 50,000 + 16,450
----------------------------------------------------------------------
100,000 and over 50% on excess over 100,000 + 38,950
----------------------------------------------------------------------
* The Agent must have Eligible Commissions which equal or exceed the
minimum amount stated above for a given calendar year to be eligible
for a Production Bonus for that year. In addition, the agent must have
an affiliation with an RMO to be eligible for Production Bonus.
Rev. (10/95)
B-32 - Form 1185
<PAGE>
Compensation (cont.)
9. Persistency Bonus
There will be separate PERSISTENCY BONUSES for Individual Life business and
Personal and Business Disability Income business. For a given calendar year each
PERSISTENCY BONUS will be based on the ELIGIBLE ANNUALIZED INDIVIDUAL LIFE
PREMIUM or the ELIGIBLE ANNUALIZED DISABILITY PREMIUM, respectively, and paid
during the first quarter of the following year.
ELIGIBLE ANNUALIZED INDIVIDUAL LIFE PREMIUM for a given calendar year is the
sum, at the end of that year, of all annualized premium on Individual Life
business (excluding Universal Life, Single Premium Whole Life, Paid-Up Additions
Purchase Rider, Lincoln Life 10 Year Term and Lincoln Life Renewing Term.) then
in force, written under this contract and which was issued by LNL during the
second prior calendar year.
ELIGIBLE ANNUALIZED DISABILITY PREMIUM for a given calendar year is the sum, at
the end of that year, of all annualized premium on Personal and Business
Disability Income business (excluding Return of Premium Rider) then in force,
written under this contract and which was issued by LNL during the second prior
calendar year.
To receive either PERSISTENCY BONUS, the Agent must have an active career
agent's contract with LNL at the time of payment.
If the Agent is a Corporate Agent containing more than one individual holding a
Agent's contract with LNL, the PERSISTENCY BONUS for the Agent is the sum of the
PERSISTENCY BONUSES calculated for the individual members separately. That is,
the PERSISTENCY BONUSES of each individual member will be calculated using
his/her ELIGIBLE ANNUALIZED INDIVIDUAL LIFE PREMIUM and ELIGIBLE ANNUALIZED
DISABILlTY PREMIUM and the sum of the PERSISTENCY BONUSES for all individual
members will be paid to the Agent.
The PERSISTENCY BONUS for a given year for Individual Life business is
calculated by applying the following schedule to the ELIGIBLE ANNUALIZED
INDIVIDUAL LIFE PREMIUM.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Eligible Annualized Individual Persistency Bonus
Life Premium
- --------------------------------------------------------------------------------
<S> <C>
$ 0 - 9,999 0%
- --------------------------------------------------------------------------------
10,000 - 14,999 5% on excess over $10,000
- --------------------------------------------------------------------------------
15,000 - 24,999 10% on excess over 15,000 + $ 250
- --------------------------------------------------------------------------------
25,000 - 39,999 15% on excess over 25,000 + 1,250
- --------------------------------------------------------------------------------
40,000 - 59,999 20% on excess over 40,000 + 3,500
- --------------------------------------------------------------------------------
60,000 - 79,999 25% on excess over 60,000 + 7,500
- --------------------------------------------------------------------------------
80,000 - 99,999 30% on excess over 80,000 + 12,500
- --------------------------------------------------------------------------------
100,000 and over 35% on excess over 100,000 + 18,500
- --------------------------------------------------------------------------------
</TABLE>
The PERSISTENCY BONUS for a given year for Personal and Business Disability
Income business is calculated by applying the following schedule to the
ELIGIBLE ANNUALIZED DISABILITY PREMIUM.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Eligible Annualized Disability Persistency Bonus
Premium
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
$ 0 - 9,999 0%
- --------------------------------------------------------------------------------
10,000 - 14,999 5% on excess over $ 10,000
- --------------------------------------------------------------------------------
15,000 - 24,999 10% on excess over 15,000 + $ 250
- --------------------------------------------------------------------------------
25,000 - 39,999 15% on excess over 25,000 + 1,250
- --------------------------------------------------------------------------------
40,000 - 59,999 20% on excess over 40,000 + 3,500
- --------------------------------------------------------------------------------
60,000 - 79,999 25% on excess over 60,000 + 7,500
- --------------------------------------------------------------------------------
80,000 - 99,999 30% on excess over 80,000 + 12,500
- --------------------------------------------------------------------------------
100,000 and over 35% on excess over 100,000 + 18,500
- --------------------------------------------------------------------------------
</TABLE>
Rev. (10/95)
Form 1185 - B-33
<PAGE>
SECTION C. SPECIAL PROVISIONS BETWEEN LNC EQUITY SALES CORPORATION ("EQUITY
SALES") AND THE AGENT
1. Vesting
There is no vesting of commissions payable by Equity Sales to the Agent. No
commissions or other amounts shall be payable to the Agent with respect to
securities issued pursuant to a payment received by Equity Sales later than
one day after termination of the Agent's registration with Equity Sales.
2. Payments on Existing Customer's Account
Each payment on an existing customer's account for purchase of securities
shall be deemed a new application under this contract. The Agent who
obtained the original application shall be entitled to commissions on
subsequent payments only so long as the account or customer is assigned to
the Agent and the Agent is an active Agent of Equity Sales within the
territory in which the applicant resides at the time such payment is made.
In the event the applicant's residence is not within the territory assigned
to the original Agent, or if the original Agent has terminated, or if the
customer or account is no longer assigned to the original Agent, the
commissions on such subsequent payment shall thereafter be paid in
accordance with the then applicable rules and policies of Equity Sales.
3. Commissions Payable
The commission on any security product or service offered by Equity Sales
shall be based on meeting certain minimum production requirements. These
requirements will be determined and communicated annually. Those agents who
meet the minimum requirement will receive fifty percent (50%) of the net
concession for that specific product or service. Those agents who do not
meet the minimum shall receive forty percent (40%) of the net concession
for that specific product or service.
4. Charges to Agent's Commission Account
a. Any remissions paid or credited to the Agent by Equity Sales may be
charged back to the Registered Representative to the extent that:
1) such commissions are attributable to the uncompleted portion of a
pre-authorized or predated check or draft plan or to a dishonored
check or draft or similar instrument, or to an uncompleted
military allotment or payroll deduction or similar plan for the
systematic purchase of securities;
or
2) Equity Sales must return its dealer concession to the issuer or
distributor of securities pursuant to any selling group agreement
or other legal requirement.
b. The Agent's commission account may be charged with any loss resulting
from a "customer fail" involving a customer account under the Agent's
management at the time of the "fail." For purposes of this provision
the term "customer fail" shall be the failure of a customer to follow
through on an oral commitment to pay for a purchase or deliver
securities in settlement of a sale within a period of time specified
by regulation, industry practice or policy of Equity Sales.
Rev. (11/96)
Form 1185 - C-1
<PAGE>
SECTION D. SPECIAL PROVISIONS BETWEEN LINCOLN NATIONAL HEALTH AND CASUALTY
INSURANCE COMPANY AND THE AGENT
1. Vesting
Commissions are payable without regards to termination of the Agent's
appointment.
Service fees are payable in accordance with the applicable schedule only if
at the time of payment the Agent maintains, in the opinion of LNH&C,
effective control over the continuance of the policy in force.
2. Death or Total Disability
First policy year commissions are payable regardless of age or disablement.
3. Compensation Payable
Commission payable is in accordance with all terms and conditions shown
under Section A and Section B 3 b - Group Insurance - of this contract.
Commissions or service fees with respect to increases in Health and
Casualty premium on an existing policy shall be payable to the agent of
record at the time of such increase, in accordance with the existing
practices of Lincoln National.
Rev. (2/94)
Form 1185 - D-1
<PAGE>
SERVICES AGREEMENT
------------------
(Exhibit B and Schedules Omitted)
THIS SERVICES AGREEMENT (the "Agreement") is made as of August 15, 1996, by
and among Delaware Management Holdings, Inc., a Delaware corporation
("Holdings"), Delaware Service Company, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings ("Delaware"), Lincoln National Life
Insurance Company, an Indiana insurance corporation ("Lincoln Life"), and each
of the investment companies listed in Exhibit A hereto, each a Maryland
corporation (together with any other investment company designated in accordance
with Section 5.1, the "Funds," or individually, a "Fund").
The parties hereto, in consideration of the mutual covenants hereinafter
expressed, agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.1 Definitions. The following terms shall have the respective
meanings set forth in this Section 1.1 for all purposes of this Agreement except
where the application of such definitions is limited by reference in this
Section 1.1 to a specific Article of this Agreement (such definitions to be
equally applicable to both the singular and plural forms of the terms herein
defined):
"Acceptance Test" means a test, reasonably acceptable to Lincoln Life,
Delaware and the Funds, of the performance of the Value Calculation Services for
the Accounts included in the respective Phases, to be conducted in accordance
with Article 4.
"Accounting Services" means the services listed in the Cutover Schedule
with respect to the Accounts.
"Accounts" means the Funds and the Separate Accounts, collectively.
"Affiliate" means, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity.
"Business Day" means a day on which the New York Stock Exchange is open for
trading.
"Calculation Losses" means any losses suffered by a Contractowner, Third
Party Administrator, Fund or Separate Account directly caused by an error in a
Net Asset Value or Unit Value, or by the delivery to Lincoln Life or any Fund of
a Net Asset Value or Unit Value after the applicable deadline provided for in
Section 2.1; provided, however, that such losses shall not include any
consequential damages.
<PAGE>
"Contractowner" means the present or former owner of an insurance or
annuity contract supported by a Separate Account, or any beneficiary or
annuitant thereof.
"Cutover Date," with respect to any Phase, means the date, which shall be a
Business Day, on which Delaware actually commences providing the Accounting
Services with respect to such Phase in accordance with Section 4.2. The planned
Cutover Date for each Phase is set forth in the Cutover Schedule.
"Cutover Schedule" means Schedule 1.1(a) hereto, which sets forth the
accounting services to be rendered pursuant to this Agreement and the planned
Cutover Dates, as such Schedule may be amended from time to time pursuant to
Section 16.1.
"Delaware" has the meaning set forth in the preamble to this Agreement.
"Delaware Affiliate" means Holdings and any entity that is directly or
indirectly controlled by Holdings.
"Fee Schedule" means Schedule 6.1 hereto, as such Schedule may be amended
from time to time pursuant to Section 16.1.
"Fund" has the meaning set forth in the preamble to this Agreement.
"Holdings" has the meaning set forth in the preamble to this Agreement.
"Lincoln Affiliate" means any Affiliate of Lincoln Life other than a
Delaware Affiliate.
"Lincoln Life" has the meaning set forth in the preamble to this Agreement.
"Net Asset Value" means the daily net asset value per share of the
respective Funds for each Business Day, all determined in accordance with the
terms of the Cutover Schedule and with any applicable prospectus or regulatory
requirement.
"Phase" means a set of Accounts comprising the Phase I Accounts, the Phase
II Accounts or the Phase III Accounts.
"Phase I Account" means an Account designated as such on the Cutover
Schedule.
"Phase II Account" means an Account designated as such on the Cutover
Schedule.
"Phase III Account" means an Account designated as such on the Cutover
Schedule.
"Renewal Term" means each successive one-year term occurring
<PAGE>
after the expiration of the initial term of this Agreement as described in
Section 11.1.
"Separate Account" means a separate account of Lincoln Life identified as
such on the Cutover Schedule, and any additional separate account or sub-account
of Lincoln Life or any Lincoln Affiliate (or of any other person if Lincoln Life
or any Lincoln Affiliate has administrative responsibilities with respect to
such separate account or sub-account pursuant to any reinsurance agreement or
otherwise) designated in accordance with Section 5.1.
"Test Period" means, with respect to each Phase, a period of time prior to
the Cutover Date for such Phase, commencing on the date specified by Delaware
pursuant to Section 4.1 and having a duration of three weeks or such longer
period as may be determined pursuant to Section 4.1.
"Third Party Administrator" means an administrator of insurance or annuity
contracts acting on behalf of Contractowners.
"Unit Value" means the daily unit value per unit of the respective Separate
Accounts or sub-accounts thereof for each Business Day, all determined in
accordance with the terms of the Cutover Schedule and with any applicable
prospectus or regulatory requirement.
"Value Calculation Services" means those Accounting Services consisting of
or incidental to the calculation and communication of Unit Values and Net Asset
Values in accordance with the terms of this Agreement.
ARTICLE 2
SCOPE OF SERVICES; CUTOVER
--------------------------
Section 2.1 Scope of Services. Delaware shall provide the Accounting
Services to each of the Funds and to Lincoln Life with respect to each of the
Separate Accounts, all in accordance with the terms of this Agreement. Without
limiting the generality of the foregoing, from and after the Cutover Date for
each respective Phase, Delaware, no later than 6:00 p.m. (New York City time) on
each Business Day, shall in accordance with the terms of this Agreement provide
to Lincoln Life and to the Funds the Value Calculation Services for each of the
Accounts included in such Phase. In the event of any error in the Value
Calculation Services, the parties hereto will follow the procedures set forth in
Schedule 2.1, without prejudice to any other rights described in this Agreement.
Section 2.2 Cutover Schedule. Delaware, Lincoln Life and the Funds shall
use their respective best efforts to cause the Cutover Date to occur no later
than (a) August 15, 1996, with respect to the Phase I Accounts, (b) October 31,
1996, with
<PAGE>
respect to the Phase II Accounts and (c) January 1, 1997 with respect to the
Phase III Accounts.
ARTICLE 3
LINCOLN LIFE'S SUPPORT OBLIGATIONS
----------------------------------
Section 3.1 Provision of Data. Lincoln Life shall use its best efforts to
provide or cause to be provided to Delaware the data identified in Schedule 3.1
during the periods and in accordance with the procedures identified in such
Schedule, it being understood that Delaware shall not be responsible for any
Calculation Losses or other claims, suits, hearings, actions, damages,
liabilities, fines, penalties, costs, losses or expenses, including reasonable
attorney's fees, which any party may sustain or incur, directly or indirectly,
in each case to the extent caused by or arising from Lincoln Life's failure to
provide such data in accordance with such Schedule 3.1.
Section 3.2 Data to Be Provided by Third Parties. With respect to each of
the mutual funds identified in Schedule 3.2 as an available investment of one or
more of the Separate Accounts (other than mutual funds managed by Lincoln Life
or Delaware or their respective Affiliates) and each third party service
provider identified in such Schedule, Lincoln Life shall direct each of the
managers of such funds or such service provider, as the case may be, to provide
or cause to be provided to Delaware the data identified in Schedule 3.2 in
accordance with the procedures and time deadlines identified in such Schedule.
Section 3.3 Information for Periods Prior to Cutover Date. Lincoln Life
will provide appropriate financial and other information with respect to the
Accounts to Delaware, and will cooperate with Delaware, in connection with the
preparation of data for 1996 annual reports to Contractowner and other elements
of the Accounting Services that relate to periods prior to the Cutover Dates for
the respective Accounts. In addition, Lincoln Life will provide to Delaware
appropriate financial and other information regarding the Accounts for periods
prior to 1996 to the extent relevant to the performance of the Accounting
Services for 1996 and subsequent periods.
ARTICLE 4
ACCEPTANCE TEST; CUTOVER DATE
-----------------------------
Section 4.1 Acceptance Testing. Delaware shall notify Lincoln Life of the
date, which shall be a Business Day, on which the Value Calculation Services for
each respective Phase will be ready for the commencement of the Acceptance Test
for such Phase. During the Test Period for each Phase, Delaware, Lincoln Life
and the Funds shall cooperate in performing the Acceptance Test for such Phase,
and Delaware and Lincoln Life, respectively, shall use its best efforts to
remedy any failure in the performance of the Value Calculation Services caused
by such party. In the event that, during the Test Period with respect to any
Phase,
<PAGE>
performance of the Value Calculation Services is suspended for such Phase in
order to effect such remedy or for any other reason, the Test Period for such
Phase shall be extended by the number of days of such suspension. Further, if
at the date that would otherwise be the end of the Test Period for any Phase
Delaware is not performing the Value Calculation Services with respect to such
Phase to the reasonable satisfaction of Lincoln Life, and Lincoln Life shall so
notify Delaware, the Test Period shall be extended until the date on which
Lincoln Life notifies Delaware that the Value Calculation Services are being
performed to the reasonable satisfaction of Lincoln Life. All references in this
Section 4.1 to the performance of the Value Calculation Services shall refer to
the performance thereof in a test mode.
Section 4.2 Cutover Date. With respect to each Phase, upon the
termination of the Test Period, Lincoln Life, the Funds and Delaware shall
execute a written acknowledgment in the form of Exhibit B hereto confirming such
termination and specifying the Cutover Date, which shall be the Business Day
immediately following the date of such termination unless Lincoln Life, the
Funds and Delaware shall agree upon a different date.
ARTICLE 5
NEW ACCOUNTS; NEW INVESTMENT MANAGERS
-------------------------------------
Section 5.1 Additional Accounts. Lincoln Life may from time to time
designate (i) one or more additional investment companies or separate accounts
to constitute Funds or Separate Accounts, as the case may be, for all purposes
of this Agreement, or (ii) one or more newly established sub-accounts of any
Separate Account. Such designation shall be:
(a) subject to Delaware's consent, which shall not be unreasonably
withheld; provided, that such consent shall be considered to be
unreasonably withheld if Delaware does not make reasonable
efforts to accept such new investment companies, separate
accounts and sub-accounts, which efforts shall include, but not
be limited to, reasonable consideration of the expansion of
Delaware's infrastructure to handle such new investment
companies, separate accounts and sub-accounts; and
(b) evidenced by a writing executed by Lincoln Life, Delaware and, if
applicable, each such investment company, setting forth the name
of such investment company, separate account or new sub-account,
the applicable rate under the Fee Schedule that shall apply to
the Accounting Services for such investment company, separate
account or new sub-account, the effective date of the designation
thereof as a Fund, Separate Account or new sub-account, and any
other matters the parties wish to include.
<PAGE>
Notwithstanding clause (b) of the preceding sentence, if Delaware's performance
of the Accounting Services for such additional Funds, Separate Accounts, or sub-
accounts of such Separate Accounts would, in Delaware's reasonable opinion,
result in higher costs than the costs Delaware incurs for providing the
Accounting Services to the current Accounts, then the affected parties hereto
shall negotiate in good faith an addendum to the Fee Schedule for such
additional Funds, Separate Accounts and sub-accounts and Delaware shall not be
deemed to have unreason ably withheld its consent under clause (b) of this
Section 5.1 until such addendum has been agreed to. Except as otherwise
specified in such writing, from and after such effective date, Delaware shall
provide to such Fund, or to Lincoln Life with respect to a Separate Account or
new sub-account, the same Accounting Services as are specified in the Cutover
Schedule with respect to the other Funds, Separate Accounts or sub-account of a
Separate Account, as the case may be.
Section 5.2 New Investment Managers. If new investment managers are added
to provide investment advisory services to any of the Accounts, and Delaware's
performance of the Accounting Services is, as a result thereof, significantly
more costly to Delaware, the affected parties shall negotiate in good faith an
addendum to the Fee Schedule for such Accounts.
ARTICLE 6
FEES
----
Section 6.1 Accrual of Fees. From and after the Cutover Date with respect
to each Phase, Lincoln Life shall pay fees for the Accounting Services for each
of the Separate Accounts included in such Phase, and each Fund included in such
Phase shall pay fees for the Accounting Services for such Fund, in each case at
the respective rates per annum determined in accordance with the Fee Schedule.
Fees accrued pursuant to this Section 6.1 shall be payable in arrears on a
monthly basis.
Section 6.2 Payment of Fees by Lincoln Life. Delaware shall submit to
Lincoln Life an invoice for each month for all of the fees payable pursuant to
Section 6.1 with respect to each of the Separate Accounts, which invoice shall
be itemized to show the portion of such fees allocable to each of the Separate
Accounts in accordance with the Fee Schedule. Subject to the terms of this
Agreement, invoices for such fees shall be payable within 30 days of receipt.
Section 6.3 Payment of Fees by the Funds. Delaware shall submit to
each Fund, with a copy to Lincoln Life, an invoice for each month for all of the
fees payable pursuant to Section 6.1 with respect to such Fund. Subject to the
terms of this Agreement, invoices for such fees shall be payable within 30 days
of receipt.
<PAGE>
ARTICLE 7
STANDARD OF CARE; INDEMNIFICATION
---------------------------------
Section 7.1 Standard of Care. Delaware shall provide the Accounting
Services with a level of care equal to or greater than the level of care at
which it performs similar functions for mutual funds that are sponsored or
managed by any Delaware Affiliate, and in any event, Delaware shall always
exercise reasonable care in performing the Accounting Services.
Section 7.2 Indemnification
(a) Indemnification by Lincoln Life. Lincoln Life shall indemnify,
defend and hold harmless Delaware and any Delaware Affiliate, and the directors,
officers and employees of the fore going (each individually, a "Delaware
Indemnified Party"), against any and all claims, suits, hearings, actions,
damages, liabilities, fines, penalties, costs, losses or expenses, including
reasonable attorney's fees, which any Delaware Indemnified Party may sustain or
incur, directly or indirectly, in each case to the extent caused by or arising
from (i) the negligence, recklessness or intentional misconduct of Lincoln Life
or any Lincoln Affiliate, or any director, officer or employee thereof, in the
performance of this Agreement; or (ii) the failure of Lincoln Life to comply
with the terms of this Agreement.
(b) Indemnification by Delaware. Subject to Section 3.1, Delaware
shall indemnify, defend and hold harmless Lincoln Life, the Lincoln Affiliates
and the Funds, and the directors, officers and employees of the foregoing (each
individually, a "Lincoln Indemnified Party") against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs, losses
(including but not limited to (a) Calculation Losses reimbursed by Lincoln Life
and (b) any market fluctuation losses incurred by Lincoln Life in effecting such
reimbursement) or expenses, including reasonable attorney's fees, which any
Lincoln Indemnified Party may sustain or incur, directly or indirectly, in each
case to the extent caused by or arising from (i) the negligence, recklessness or
intentional misconduct of Delaware or any Delaware Affiliate, or any director,
officer or employee thereof, in the performance of this Agreement; or (ii) the
failure of Delaware to comply with the terms of this Agreement.
(c) Procedures. Subject to the provisions of Section 7.2(d), promptly
after receipt by a Delaware Indemnified Party or a Lincoln Indemnified Party
(each, an "Indemnified Party") of notice of the commencement of any action,
proceeding, investigation or claim by any Contractowner or other third party (a
"Proceeding"), the Indemnified Party shall, if a claim in respect thereof is to
be made pursuant to this Section 7.2 against another party to this Agreement
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
commencement thereof; but the failure so to notify the Indemnifying Party
<PAGE>
shall not relieve the Indemnifying Party from any liability under this Section
7.2, except to the extent that such failure to notify actually prejudices the
Indemnifying Party. In case any such Proceeding shall be brought against an
Indemnified Party, the Indemnifying Party shall be entitled to participate in
and to assume the defense thereof, with counsel satisfactory to the Indemnified
Party, and after notice from the Indemnifying Party to the Indemnified Party of
the Indemnifying Party's election to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if, in the reasonable judgment of the Indemnified Party, it is
advisable for the Indemnified Party to be represented by separate counsel other
than counsel for the Indemnifying Party, the Indemnified Party shall have the
right to employ a single counsel to represent the Indemnified Party, in which
event the reasonable fees and expenses of such separate single counsel shall be
borne by the Indemnifying Party, and (ii) in the case of any Proceeding brought
by any governmental authority, the Indemnifying Party shall have the right to
participate in, but not to assume the defense of, such Proceeding. The
Indemnifying Party shall not be obligated under any settlement agreement
relating to any Proceeding under this Section 7.2 to which it has not consented
in writing, which consent shall not be unreasonably withheld.
(d) Preserving Rights with Respect to Calculation Losses. Notwithstanding
Section 7.2(c), Lincoln Life may in its sole discretion elect to reimburse a
Contractowner, Third Party Administrator, Separate Account or Fund for
Calculation Losses out of Lincoln Life's own funds and such reimbursement shall
have no effect on the respective indemnification obligations of the parties
pursuant to Section 7.2(a) and (b).
(e) Overpayments. The parties agree that there may be circumstances in
which it would not be commercially reasonable for Lincoln Life and the Funds to
seek reimbursement from one or more Contractowners of overpayments made them,
taking into account relevant factors such as industry practice; the amount of
such overpayments; the number of Contractowners overpaid; the cost of seeking
reimbursement; and the implications for customer relations of seeking
reimbursement. In the event of any overpayment to a Contractowner for which
Lincoln Life or any Fund intends to seek indemnification from Delaware pursuant
to Section 7.2(b) without seeking reimbursement from the Contractowner, the
parties shall negotiate in good faith as to what effect, if any, the
determination not to seek such reimbursement should have under the circumstances
on the rights of Lincoln Life or the Funds to indemnification for the amounts
overpaid.
<PAGE>
ARTICLE 8
INSURANCE COVERAGE
------------------
Section 8.1 Insurance. Delaware and Holdings shall maintain
insurance coverage at a level at least equal to the insurance coverage held by
each of them at the time this Agreement becomes effective.
ARTICLE 9
FORCE MAJEURE AND DISASTER RECOVERY PLAN
----------------------------------------
Section 9.1 Force Majeure; Disaster Recovery Plan. No party shall be
liable to any other party for any damages caused by delays beyond its reasonable
control, including, without limitation, those delays occasioned by fire, strike,
labor dispute, acts of the other party, acts of any common carrier, pricing
service, corporate action service, or telephone network, acts of the power
supply company or its networks, restrictions by civil or military authorities,
acts of nature, or unforeseen transportation failures. In the event of any such
delay, the hindered party shall promptly notify the other parties and, upon the
giving of such notice, the period of time for performance of obligations
hereunder affected by such delays will be extended by the same number of days as
the delay. Notwithstanding the foregoing, Delaware shall maintain and implement
a customary disaster recovery plan and such plan shall be reasonably acceptable
to Lincoln Life and the Funds. This Article 9 shall not excuse any failure to
perform, or extend the time for performance of, any obligation of Delaware under
this Agreement to the extent that such failure or delay would have been avoided
by compliance with such disaster recovery plan, or by the use of reasonable,
readily available alternatives.
ARTICLE 10
EFFECTIVENESS
-------------
Section 10.1 Effectiveness.
(a) This Agreement shall become effective upon the later of:
(i) the date first set forth above; or
(ii) the date as of which Lincoln Life has complied with the
requirements of the Indiana insurance holding company laws
at Section 27-1-23-4 of the Indiana Code.
(b) Lincoln Life shall diligently and reasonably pursue the satisfaction
of the requirements of the Indiana insurance holding company laws at
Section 27-1-23-4 of the Indiana Code.
<PAGE>
ARTICLE 11
TERM AND TERMINATION
--------------------
Section 11.1 Term. The initial term of this Agreement shall end on
the fourth anniversary of the Cutover Date of Phase III, and this Agreement
shall be automatically renewed for subsequent Renewal Terms thereafter unless
sooner terminated under Section 11.2.
Section 11.2 Termination. Subject to the procedures set forth in
Article 12 and to Section 11.3, this Agreement may be terminated as follows:
(a) by Lincoln Life, Delaware, or any Fund, in each case upon notice
to each of the other parties at least 180 days prior to the
expiration of the initial term or any Renewal Term, with such
termination to become effective upon such expiration; and
(b) by Lincoln Life, Delaware or any Fund upon 30 days notice to each
of the other parties, for any material breach of this Agreement
unless such breach is cured within such notice period.
For the purpose of this Section 11.2(b) only, a "material breach" shall include,
but not be limited to, the failure by Delaware to provide Accounting Services
hereunder of a quality reasonably determined by Lincoln Life or any Fund to be
consistent with a superior level of service in the industry.
Section 11.3 Effect of Termination by a Fund. In the event one or
more Funds shall terminate this Agreement, this Agreement shall nonetheless
continue in full force and effect between and among those parties who have not
terminated this Agreement.
ARTICLE 12
PROCEDURES UPON TERMINATION
---------------------------
Section 12.1 Obligations Upon Termination. Upon termination of this
Agreement by any party under Article 11, each party shall be obligated to
cooperate with each other party to provide for the transfer of all
responsibilities, duties and obligations of this Agreement as may be necessary
to ensure the orderly, undisrupted business of each party. Such cooperation
shall include, but not be limited to, returning all papers, documents, materials
or equipment to the party owning such materials. In the event that this
Agreement is terminated by Lincoln Life or any Fund under Section 11.2(b),
Lincoln Life and the Funds shall have the right to require Delaware to continue
performing all or any part of its responsibilities, duties and obligations under
this Agreement until the earlier of (a) 210 days following the date notice of
such termination was given, or (b) the date that is 30 days after notice from
Lincoln Life or the Funds that
<PAGE>
Delaware shall cease such performance. For this purpose, (a) the terms of this
Agreement (including without limitation the obligation of Lincoln Life and the
Funds to pay Delaware's fees under Article 6, and the obligation of Delaware to
continue to exercise the standard of care required under Section 7.1 shall
remain in effect with respect to the period in which Delaware is obligated to
continue such performance, and (b) if any portion of Delaware's
responsibilities, duties and obligations during such period are not so extended
as required by Lincoln Life, the parties shall mutually agree in good faith on a
reduction of fees which reflects the termination of such responsibilities,
duties and obligations.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
------------------------------
Each party represents and warrants to the other parties as follows:
Section 13.1 Organization and Authority. Such party is duly organized,
validly existing and in good standing as a corporation under the laws of the
state indicated on the first page of this Agreement, with the requisite
authority and power, in conformity with applicable laws, rules and regulations,
to execute and deliver this Agreement and to perform its obligations hereunder.
Such party has taken all necessary action to authorize such execution, delivery
and performance.
Section 13.2 No Conflict with Laws. The execution, delivery and
performance of this Agreement by such party do not conflict with or violate any
laws applicable to such party, any provision of its constituent documents, any
order or judgment of any court or governmental agency applicable to it or any of
its assets or any contractual restriction binding on it or its assets.
Section 13.3 Obligation. This Agreement constitutes a legal, valid and
binding obligation of such party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to the enforcement of creditors' rights generally and
subject to principles of equity.
ARTICLE 14
PARENT GUARANTY
---------------
Section 14.1 Parent Guaranty. Holdings hereby unconditionally guarantees
the full and punctual performance of the covenants, agreements and obligations
of Delaware under this Agreement, including but not limited to the payment when
due of all amounts that may from time to time be payable by Delaware pursuant to
Section 7.2(b) (the "Guaranteed Obligations").
Section 14.2 Guaranty Unconditional. The obligations of
<PAGE>
Holdings hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released or discharged by:
(a) any extension, settlement, compromise, waiver or release in
respect of any obligation of Delaware under this Agreement;
(b) any modification or amendment of or supplement to this
Agreement;
(c) any change in the corporate existence, structure or ownership of
Delaware, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting Delaware or its assets; or
(d) any other act or omission to act or delay of any kind by
Delaware, Lincoln Life, any Fund or any other person which would, but for
the provisions of this paragraph (d), constitute a legal or equitable
discharge of Holding's obligations hereunder;
provided, however, that in the event of any extension, settlement, compromise,
waiver or release of any obligation of Delaware under this Agreement, or any
modification or amendment of or supplement to this Agreement, the guaranty
provided for in this Article 14 shall apply to the obligations of Delaware as so
extended, settled, compromised, waived, released, modified, amended or
supplemented.
Section 14.3 Discharge Only Upon Payment or Performance in Full;
Reinstatement in Certain Circumstances. Holding's obligations hereunder shall
remain in full force and effect until the Guaranteed Obligations shall have been
paid or performed in full. If at any time any payment of Guaranteed Obligations
by Delaware under this Agreement is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of Delaware or
otherwise, Holding's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
Section 14.4 Waiver by Holdings. Holdings irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any person
against Delaware or any other person.
Section 14.5 Subrogation. Upon making any payment with respect to
Delaware hereunder, Holdings shall be subrogated to the rights of the payee
against Delaware with respect to such payment; provided that Holdings shall not
enforce payment by way of subrogation until all Guaranteed Obligations have been
paid or performed in full.
<PAGE>
ARTICLE 15
DISPUTE RESOLUTION
------------------
Before commencing litigation of any dispute arising out of or relating to
this Agreement, the parties shall attempt in good faith to resolve the dispute
by the following means:
Section 15.1 Negotiation. The parties shall in good faith attempt to
resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy. A
party may give the other parties written notice of any dispute not resolved in
the normal course of business. Within 20 days after delivery of that notice,
executives of the affected parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claim as provided in Section 15.2. If a negotiator intends to be
accompanied at a meeting by an attorney, the other negotiator shall be given at
least 3 Business Days' notice of that intention and may also be accompanied by
an attorney.
Section 15.2 Mediation. If the dispute has not been resolved by
negotiation as provided in Section 15.1, the parties shall endeavor for an
additional period of 60 days to settle the dispute by mediation under the then-
current Center for Public Resources (CPR) Model Procedure for Mediation of
Business Disputes. The neutral third party will be selected from the CPR Panel
of Neutrals. If the parties encounter difficulty in agreeing on a neutral, they
will seek the assistance of CPR in the selection process.
Section 15.3 Confidentiality. All activities under this Article 15 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
ARTICLE 16
MISCELLANEOUS
-------------
Section 16.1 Amendment. This Agreement, including any Exhibits or
Schedules, may be amended, modified or supplemented only in writing signed by
Delaware, Lincoln Life and any Fund affected thereby. This Agreement shall be
binding upon all successors, assigns or transferees of the parties to this
Agreement.
Section 16.2 Assignment. This Agreement and the rights, duties and
obligations of the parties hereto shall not be assign able by any party, except
assignment to successors in the case of mergers, sales of all or substantially
all of the assets of such
<PAGE>
party or transfer of ownership by reorganization or similar restructuring to a
successor in interest to the business of such party, without the prior written
consent of the other parties, and any purported assignment in the absence of
such consent shall be void.
Section 16.3 Notices. All notices given or submitted pursuant to this
Agreement shall be made in writing and shall be deemed given when (a) deposited
with the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested; (b) deposited with a nationally recognized
overnight mail delivery service; (c) sent by facsimile with electronic
confirmation of delivery or with a copy sent by mail as described in (a) or (b)
above; or (d) delivered in person; all to the last address of record of each
party being notified.
Any notice under this Agreement to Lincoln Life shall be given to:
ATTN: O. Douglas Worthington
Vice President and Controller
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-3669
Facsimile: (219) 455-1939
Any notice under this Agreement to Delaware or Holdings
shall be given to:
ATTN: Michael J. Bishof
Vice President and Treasurer
Delaware Management Company
1818 Market Street; 7th Floor
Philadelphia, PA 19103
Phone: (215) 255-2852
Facsimile: (215) 255-1645
With a copy to:
Richard J. Flannery
Managing Director, Corporate
& Tax Affairs
Delaware Management Company
2005 Market Street
Philadelphia, PA 19103
Phone: (215) 255-1244
Facsimile: (215) 255-2822
<PAGE>
Any notice under this Agreement to any Fund shall be given
to:
ATTN: Kelly D. Clevenger
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-5119
Facsimile: (219) 455-1773
Any party may, by means of written notice in compliance with this Section
16.3, change the address or the identity of the person to whom any notice, or
copy thereof, is to be sent.
Section 16.4 Severability. If any provision of this Agreement, as applied
to any party or to any circumstances, shall be found by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall in no way
affect any other provision of this Agreement, the application of any such provi
sion in any other circumstances, or the validity or enforce ability of this
Agreement; provided, however, that nothing in this Section 16.4 shall adversely
affect the fundamental benefits received by the parties under this Agreement.
Section 16.5 Waiver. A waiver by any party of any of the terms and
conditions of this Agreement in any one instance shall not be deemed or
construed to be waiver of any such term or condition for the future, or of any
subsequent breach thereof, nor shall it be deemed a waiver of performance of any
other obligation hereunder. No waiver of any provision of this Agreement shall
be valid unless agreed to in writing by the party or parties against whom such
waiver is sought to be enforced.
Section 16.6 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter of this
Agreement and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties.
Section 16.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving
effect to the conflict of law provisions thereof.
Section 16.8 Section and Paragraph Headings. The titles of the sections
and paragraphs of this Agreement are for convenience only and shall not in any
way affect the interpretation of any provision or condition of this Agreement.
Section 16.9 Counterparts. This Agreement may be executed in counterparts
which, taken together, shall constitute the whole of the Agreement as between
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
LINCOLN LIFE:
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: ____________________________
O. Douglas Worthington
Title: Vice President and
Controller
Date: __________________________
HOLDINGS:
DELAWARE MANAGEMENT HOLDINGS, INC.
By: ____________________________
Title: _________________________
Date: __________________________
DELAWARE:
DELAWARE SERVICE COMPANY, INC.
By: ____________________________
Title: _________________________
Date: __________________________
<PAGE>
FUNDS:
LINCOLN NATIONAL AGGRESSIVE GROWTH
FUND, INC.
LINCOLN NATIONAL BOND FUND, INC.
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
LINCOLN NATIONAL EQUITY-INCOME
FUND, INC.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
LINCOLN NATIONAL GROWTH AND INCOME
FUND, INC.
LINCOLN NATIONAL INTERNATIONAL
FUND, INC.
LINCOLN NATIONAL MANAGED FUND, INC.
LINCOLN NATIONAL MONEY MARKET FUND,
INC.
LINCOLN NATIONAL SOCIAL AWARENESS
FUND, INC.
LINCOLN NATIONAL SPECIAL
OPPORTUNITIES FUND, INC.
By: ____________________________
Kelly D. Clevenger
In his capacity as President of each of
the above-named Funds.
Date: __________________________
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
<PAGE>
EXHIBIT B
---------
FORM OF WRITTEN ACKNOWLEDGEMENT OF CUTOVER DATE
<PAGE>
SCHEDULE 1.1(a)
---------------
CUTOVER SCHEDULE
<PAGE>
SCHEDULE 2.1
------------
PROCEDURES FOR CORRECTING ERRORS
<PAGE>
SCHEDULE 3.1
------------
DATA PROVIDED BY LINCOLN LIFE
<PAGE>
SCHEDULE 3.2
------------
UNAFFILIATED MUTUAL FUNDS
AND
SERVICE PROVIDERS
<PAGE>
SCHEDULE 6.1
------------
FEE SCHEDULE
<PAGE>
EXHIBIT 11
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Post-Effective Amendment No. 16 to the Registration Statement (Form N-1A
No. 2-82276) and related Statement of Additional Information of Lincoln National
Managed Fund, Inc. dated May 1, 1997 and to the incorporation by reference
therein of our report dated January 27, 1997, with respect to the financial
statements of Lincoln National Managed Fund, Inc. included in its Annual Report
for the year ended December 31, 1996, included as Item 24(a) to this
Registration Statement.
/s/ERNST & YOUNG LLP
Fort Wayne, Indiana
April 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
the Multi Fund Annual Report and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 585,795
<INVESTMENTS-AT-VALUE> 696,227
<RECEIVABLES> 6,567
<ASSETS-OTHER> 154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 702,948
<PAYABLE-FOR-SECURITIES> 1,024
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,184
<TOTAL-LIABILITIES> 27,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 547,279
<SHARES-COMMON-STOCK> 41,543
<SHARES-COMMON-PRIOR> 37,067
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,029
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 110,432
<NET-ASSETS> 675,740
<DIVIDEND-INCOME> 8,155
<INTEREST-INCOME> 20,484
<OTHER-INCOME> 0
<EXPENSES-NET> 2,734
<NET-INVESTMENT-INCOME> 25,905
<REALIZED-GAINS-CURRENT> 18,029
<APPREC-INCREASE-CURRENT> 33,901
<NET-CHANGE-FROM-OPS> 77,835
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,905
<DISTRIBUTIONS-OF-GAINS> 37,948
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,264
<NUMBER-OF-SHARES-REDEEMED> 1,483
<SHARES-REINVESTED> 3,696
<NET-CHANGE-IN-ASSETS> 86,576
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,734
<AVERAGE-NET-ASSETS> 639,460
<PER-SHARE-NAV-BEGIN> 15.895
<PER-SHARE-NII> 0.628
<PER-SHARE-GAIN-APPREC> 1.291
<PER-SHARE-DIVIDEND> 1.548
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.266
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 19
BOOKS AND RECORDS
LINCOLN NATIONAL MANAGED FUND, INC.
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain Majority-
Owned Subsidiaries Thereof, and Other Persons Having Transactions with
Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every underwriter,
broker, dealer, or investment advisor which is a majority-owned subsidiary of
such a company, shall maintain and keep current the accounts, books, and other
documents relating to its business which constitute the record forming the basis
for financial statements required to be filed pursuant to Section 30 of the
Investment Company Act of 1940 and of the auditor's certificates relating
thereto.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Annual Reports F&RM Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual F&RM Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR F&RM Eric Jones Permanently, the first two
years in an easily accessible
place
</TABLE>
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------
<TABLE>
<S> <C> <C> <C>
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years an easily accessible
transactions place
</TABLE>
Portfolio Securities
- --------------------
<TABLE>
<S> <C> <C> <C>
Equity Delaware Fund Accounting Permanently, the first two
Notifications years in an easily accessible
place
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Public Bond Delaware Fund Accounting Permanently, the first two
Trades years in an easily accessible
Notifications place
</TABLE>
Receipts and Deliveries of Securities (shares)
- ----------------------------------------------
Not applicable
Portfolio Securities
- --------------------
<TABLE>
<S> <C> <C> <C>
Debit and Delaware Fund Accounting Permanently, the first two
Credit Advices years in an easily accessible
from Bankers place
Trust Company
(Bank statement)
</TABLE>
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Daily Delaware Fund Accounting Permanently, the first two
Journals years in an easily accessible
place
</TABLE>
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of the
collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
- --------------
<TABLE>
<S> <C> <C> <C>
General Ledger Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
</TABLE>
Separate Ledger Accounts
------------------------
Securities in Transfer
- ----------------------
<TABLE>
<S> <C> <C> <C>
Bank Advices Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
</TABLE>
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<TABLE>
<S> <C> <C> <C>
Notification Treasurers- Ken Hobson Permanently, the first two
of Securities Sec. Custody years in an easily accessible
Transactions. place
(Original
records main-
tained by
custodian
bank.)
</TABLE>
Securities in Physical Possession
- ---------------------------------
<TABLE>
<S> <C> <C> <C>
Securities Treasurers- Ken Hobson Permanently, the first two
Ledger Sec. Custody years in an easily accessible
(Portfolio place
report
available on
request from
Bankers Trust
Company-Keeper
of original records).
Monthly Securities Nate Wagley Permanently, the first two
Portfolio Compliance years in an easily accessible
Listings place
</TABLE>
Securities Borrowed and Loaned
- ------------------------------
<TABLE>
<S> <C> <C> <C>
AOS file Treasurers- Ken Hobson Permanently, the first two
Sec. Custody years in an easily accessible
place
</TABLE>
Monies Borrowed and Loaned
- --------------------------
Not applicable
Dividends and Interest Received
- -------------------------------
<TABLE>
<S> <C> <C> <C>
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
</TABLE>
Dividends Receivable and Interest Accrued
- -----------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
</TABLE>
<PAGE>
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
</TABLE>
Ledger Account for each portfolio Security
- ------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
</TABLE>
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
<TABLE>
<S> <C> <C> <C>
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
</TABLE>
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held. in
respect of share accumulation accounts (arising from periodic investment plans,
dividend reinvestment plans, deposit of issued shares by the owner thereof,
etc.), details shall be available as to the dates and number of shares of each
accumulation, and except with respect to already issued shares deposited by the
owner thereof, prices of each such accumulation.
Shareholder Accounts
- --------------------
<TABLE>
<S> <C> <C> <C>
Maintained by F&RM Eric Jones Permanently, the first two
LNL years in an easily accessible
place
</TABLE>
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
Securities Position Record
- ----------------------------
<TABLE>
<S> <C> <C> <C>
Maintained by Bankers William P. Kelly Permanently, the fist two
Custodian of Trust years in an easily accessible
Securities Company place
</TABLE>
<PAGE>
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Corporate Documents
- -------------------
Corporate Executive- Sue Womack Permanently,
charter, Corp. Secy. the first two
certificate of years in an
incorporation. easily accessible
place
Bylaws and Corp. Secy. Sue Womack
minute books.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
Sales Order or LIM/VGA Kevin Lee Six years,
Purchase Order (Stocks) the first two
Pat Roller years in an
(Bonds) easily accessible
place
Confirmations LIM/VGA Kevin Lee Six years,
(Stocks) the first two
years in an
easily accessible
place
Notification Investment Pat Roller Six years,
Form the first two
(from AOS years in an
Trading easily accessible
System) place
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
Short-Term Investments
- ----------------------
Notification Investment Pat Roller Six years,
Form the first two
(From AOS years in an
S-T System) easily accessible
place
Bank Advice LNIMC Ann Warner Six years,
and Issuer the first two
Confirmation years in an
easily accessible
place
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not applicable
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
Trial Balance
- -------------
General Ledger Delaware Fund Accounting Permanently, the
first two years
in an easily
accessible place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Brokerage LIM Gina Rohrbacher Six years, the
Allocation first two years
Report in an easily
accessible
place
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Trading LNIMC Pat Roller Six years, the
Authorization first two years
in an easily
accessible
place
VGA Kevin Lee
(Stocks)
Advisory Law Division Jeremy Sachs Six years, the
Agreements first two years
in an easily
accessible
place
<PAGE>
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Issue Folders VGA Kevin Lee Six years, the first two
(Stocks) years in an easily accessible
place
Brokerage/ LNIMC Pat Roller
Credit (Bonds)
Information
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence Product Admin. Nancy Alford Six years, the first two
Product Mgt. years in an easily
accessible place
Pricing Sheets Delaware Fund Accounting Permanently, the first two
years in an easily
accessible place
Bank Delaware Fund Accounting Six years, the first two
Statements, years in an easily
and Cash accessible
Reconciliations place
</TABLE>
March 12, 1997
