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As filed with the Securities and Exchange Commission on April 17, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 13 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 15 [X]
(Check appropriate box or boxes)
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION 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 East Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
Fiscal year-end: December 31
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b)
X On May 1, 1998 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.
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 13 AND
AMENDMENT NO. 15
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
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
Item Number - Part A Location in Prospectus
- --------------------- ----------------------
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 Fund Description of the Fund; Investment
Policies and Techniques; Management of the
funds (Appendix)
5A. Management's Discussion Management's Discussion of Fund
of Fund Performance Performance (Appendix)
6. Capital Stock and Other Description of Shares; Sales and
Securities Redemption of Shares; General Information;
Distribution; Distribution and Federal
Income Tax Considerations (All in Appendix)
7. Purchase of Securities Net Asset Value; Purchase of Securities
Being Offered Being Offered; Sale and Redemption of
Shares (All in Appendix)
8. Redemption Sale and Redemption of Shares
or Repurchase (Appendix)
9. Legal Proceedings Not Applicable
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Location in Statement of
Item Number - Part B Additional Information
- --------------------- ------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information General Information and History
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
14. Management of the
Fund Directors and Officers (Appendix)
15. Control Persons and See "Management of the Funds" and
Principal Holders of "Description of Shares" in the Prospectus
Securities 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; Sale
and Pricing of and Redemption of Shares; and Net Asset
Securities Being Offered Value; all in the Prospectus Appendix
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Not Applicable (See the SAI for the
Performance Data Variable Annuity Account on Form N-4.)
23. Financial Statements Financial Statements
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PREFACE TO THE MULTI FUND-REGISTERED TRADEMARK- PROSPECTUSES
THE PREFACE AND DIRECTORY ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING
FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (AG)
Lincoln National Bond Fund, Inc. (B)
Lincoln National Capital Appreciation Fund, Inc. (CA)
Lincoln National Equity-Income Fund, Inc. (E-I)
Lincoln National Global Asset Allocation Fund, Inc. (GAA)
Lincoln National Growth and Income Fund, Inc. (GI)
Lincoln National International Fund, Inc. (I)
Lincoln National Managed Fund, Inc. (M)
Lincoln National Money Market Fund, Inc. (MM)
Lincoln National Social Awareness Fund, Inc. (SA)
Lincoln National Special Opportunities Fund, Inc. (SO)
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, 1998, 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 1997 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, 1998
27
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DIRECTORY FOR THE FUND PROSPECTUSES
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE 27
DESCRIPTION OF THE FUND
Aggressive Growth Fund 29
Bond Fund 35
Capital Appreciation Fund 39
Equity-Income Fund 43
Global Asset Allocation Fund 47
Growth and Income Fund 53
International Fund 55
Managed Fund 59
Money Market Fund 63
Social Awareness Fund 65
Special Opportunities Fund 69
- --------------------------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Aggressive Growth Fund 29
Bond Fund 35
Capital Appreciation Fund 39
Equity-Income Fund 43
Global Asset Allocation Fund 47
Growth and Income Fund 53
International Fund 55
Managed Fund 59
Money Market Fund 63
Social Awareness Fund 65
Special Opportunities Fund 69
- --------------------------------------------------------
INVESTMENT RESTRICTIONS
Aggressive Growth Fund 32
Bond Fund 37
Capital Appreciation Fund 41
Equity-Income Fund 45
Global Asset Allocation Fund 50
Growth and Income Fund 53
International Fund 57
Managed Fund 61
Money Market Fund 64
Social Awareness Fund 66
Special Opportunities Fund 70
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth Fund 32
Bond Fund 37
Capital Appreciation Fund 42
Equity-Income Fund 46
Global Asset Allocation Fund 50
Growth and Income Fund 54
International Fund 58
Managed Fund 61
Money Market Fund 64
Social Awareness Fund 66
Special Opportunities Fund 71
- --------------------------------------------------------
APPENDIX -- CONTAINS IMPORTANT INFORMATION
FOR ALL FUNDS
Net asset value 73
Management of the funds 73
Purchase of securities being offered 75
Sale and redemption of shares 76
Distributions and federal income tax
considerations 76
Management discussion of fund performance 76
Description of shares 76
Strategic portfolio transactions --
additional information 77
Foreign investments 79
General information 80
Statement of Additional Information
Table of contents -- 11 underlying funds 83
</TABLE>
28
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LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
DESCRIPTION OF THE FUND
The Global Asset Allocation Fund (FUND) was incorporated in Maryland in 1987. It
is an open-end diversified management investment company whose investment
objective is long-term total return consistent with preservation of capital. The
concept of total return is to increase the value of a shareholder's investment
through both capital appreciation and current income. The FUND pursues its
objective by investing in a diversified portfolio of equity and fixed income
securities of both United States and foreign issuers (including money market
instruments) through the allocation of FUND assets among a number of investment
categories described more fully in Investment policies and techniques. The
FUND'S objective is fundamental and cannot be changed without the affirmative
vote of a majority of the outstanding shares of the FUND. See General
information in the Appendix. There is no assurance that the objective of the
FUND will be achieved.
The FUND is designed to provide a complete investment program for investors
seeking a diversified portfolio that will be professionally managed to achieve
long-term results through a variety of market conditions.
PORTFOLIO MANAGERS
Putnam's Global Asset Allocation Team has primary responsibility for the
day-to-day asset allocation and management of the FUND. Recommendations and
decisions regarding the purchase and sale of individual securities are made by
consensus by Putnam's respective asset class investment teams.
INVESTMENT POLICIES AND TECHNIQUES
The FUND'S investment strategy is based on two principles:
1. Greater diversification among different types of securities may reduce
fluctuations in the value of a portfolio and therefore may reduce the risk
of loss in unfavorable market conditions and/or
2. The relative market opportunities and risks in the major securities
categories typically represented in a fully diversified portfolio equities,
fixed income securities and money market instruments vary at times. By
employing an investment practice known as asset allocation, the proportion
of the Global Asset Allocation FUND'S assets invested in each category can
be shifted in anticipation of or in response to changing market conditions,
in pursuit of the FUND'S objective.
In regard to the asset allocation method, the FUND'S portfolio may include
investments in each of the following categories:
Aggressive Equity Securities
Growth Equity Securities
Conservative Equity Securities
International Equity Securities
Convertible Securities (including Common Stock
Equivalents)
U.S. Fixed-Income Securities
International Fixed-Income Securities
Lower-Rated Fixed-Income Securities
Money Market Instruments
The specific allocation of FUND assets among the categories will be determined
by the sub-advisor at least quarterly based on its assessment of relative market
opportunities and risks. The determination of asset mix is based on the
sub-advisor's analyses and forecasts relating to economic and market factors.
AGGRESSIVE EQUITY SECURITIES
This category will include investments in common stocks of companies which the
sub-advisor believes have potential for capital appreciation which is
significantly greater than that of the market averages. A significant portion of
the investments will generally consist of smaller and less seasoned issuers
which the sub-advisor believes have a unique proprietary product or profitable
market niche and the potential to grow rapidly. These securities present greater
opportunity for capital appreciation, but may also involve greater risk, and may
change in value more than securities of larger, more established companies. The
FUND will also invest in securities of larger companies where opportunities for
above average capital appreciation appear favorable. Portfolio securities in
this category may be traded for short-term profits. Portfolio securities in this
category are not purchased to generate current income.
GROWTH EQUITY SECURITIES
This category will include investments in common stocks of companies believed to
have above-average growth characteristics. In selecting such instruments, growth
potential is given greater consideration than current income.
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CONSERVATIVE EQUITY SECURITIES
This category will include investments in common stocks of large, mature
companies that offer the potential for capital growth, current income or both.
These stocks often have relatively high levels of dividend payments.
INTERNATIONAL EQUITY SECURITIES
This category will include investments in equity securities of companies
domiciled in foreign countries, which securities are traded on a U.S. or foreign
market. The securities will primarily be in common stocks or securities
convertible into common stock. Investments will be made in small or large
companies (including relatively less well-known companies) whose earnings are
believed to be in a fairly strong growth trend or whose market value per share
is, in the sub-advisor's opinion, undervalued. With respect to 65% of the assets
allocated to this category, the FUND will hold securities in at least three
countries outside the United States at all times.
CONVERTIBLE SECURITIES
This category will include investments in corporate bonds, notes or preferred
stocks that can be converted into or exchanged for common stock.
U.S. FIXED-INCOME SECURITIES
This category will include investments in investment grade debt securities,
including both government and corporate obligations, primarily with maturities
of 1 to 40 years; however, a maximum of 5% of assets allocated to this category
may have maturities greater than 40 years. Investment grade bonds include high
grade bonds which are in the top three credit rating categories of Moody's
Investors Service or Standard & Poor's Corp. or are unrated securities judged by
Putnam to be of comparable value. However, bonds rated below investment grade by
any of these agencies would not be considered investment grade.
Investments may also be made in bonds rated Baa and BBB, respectively, by these
organizations, which are considered medium grade. As such, they 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. For a description of these ratings, see Bond Ratings in
the SAI.
INTERNATIONAL FIXED-INCOME SECURITIES
This category will include investments principally in investment grade debt
securities denominated in foreign currencies which are issued by foreign
governments and governmental or supranational agencies. The FUND will invest
only in securities which, at time of purchase, are rated at least Baa or higher
by Moody's Investors Service or BBB or higher by Standard & Poor's Corp.
(Investment grade), or are unrated securities judged by Putnam to be of
comparable quality. However, bonds rated below investment grade by any of these
agencies would not be considered investment grade. The FUND may also invest in
other debt securities, convertible securities, and preferred stocks principally
traded in foreign securities markets. With respect to 65% of the assets
allocated to this category, the FUND will hold securities in at least three
countries outside the United States, at all times.
LOWER-RATED FIXED-INCOME SECURITIES ("JUNK BONDS")
This category will include investments in U. S. and Emerging Markets
fixed-income securities rated at the time of purchase below Baa by Moody's, or
BBB by S&P, or if unrated, determined by the sub-advisor to be of comparable
quality, as long as, after the purchase, 15% or less of the FUND'S total assets
would be invested in Securities of that quality. (Securities rated Baa or BBB,
while still considered investment-grade, are more vulnerable to adverse economic
conditions than securities in the higher-rated categories and have speculative
elements.)
The values of junk bonds (i.e., those below Baa or BBB) generally fluctuate more
than those of higher-rated fixed-income securities. In addition, the lower
rating reflects a greater possibility that the financial condition of the
issuer, or adverse changes in general economic conditions, or both, may impair
the ability of the issuer to make payments of interest and repayments of
principal. The rating services' descriptions of debt securities are included in
the Appendix to the SAI. The FUND will not necessarily dispose of a security
when its rating is reduced below its rating at time of purchase, although the
sub-advisor will monitor the investment to determine whether continued
investment in the security will assist in meeting the FUND'S investment
objective.
The FUND may take full advantage of the entire range of U. S. and Emerging
Markets junk bonds, (except that no more than 10% of FUND assets may be in
Emerging Markets issues). The FUND and may adjust the average maturity of the
FUND'S portfolio from time to time, depending on its assessment of relative
yields on securities of different maturities and its expectation of future
changes in interest rates.
Through investment analysis and attention to current developments in interest
rates and economic conditions, the sub-advisor seeks to minimize the risks of
investing in lower-rated securities. The lower ratings of certain fixed-income
securities held by the FUND reflect a greater possibility that declines in the
financial conditions of the issuers, or in general economic conditions, or both,
or an unanticipated rise in interest rates, may make it harder for their issuers
to make payments of interest and principal. In addition, under these
circumstances,
48
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the values of these securities may be more volatile, and the markets for them
may be less liquid than those for higher-rated securities. As a result, the FUND
may find it more difficult to determine the fair value of these securities. When
the FUND invests in fixed-income securities in these lower rating categories,
the achievement of the FUND'S goals is more dependent on the sub-advisor's
investment analysis than would be the case if the FUND were investing in
fixed-income securities in the higher-rating categories.
In any event, the FUND will not purchase securities rated at the time of
purchase lower than Caa by Moody's or CCC by S&P or, if unrated, determined by
the sub-advisor to be of comparable quality, if as a result of the purchase more
than 5% of the FUND'S total assets would be invested in securities of that
quality. (Securities rated this low may be in default and are generally regarded
by the rating agencies as having extremely poor prospects of ever becoming
investment-grade.)
For additional information concerning the risks associated with investments by
each FUND in securities in the lower-rating categories, see the SAI.
MONEY MARKET INSTRUMENTS
This category will include investments in money market instruments consisting of
certificates of deposit and bankers' acceptances of major banks, high-grade,
short-term municipal obligations, U.S. Government securities and related
repurchase agreements, high grade commercial paper and other corporate
obligations.
ASSET ALLOCATION POLICY
Under normal circumstances, not more than 50% of the FUND'S total assets will be
invested in the Conservative Equity Category; not more than 15% in the
Lower-Rated Fixed-Income Category; and not more than 35% in any other category.
(In addition, see individual categories for additional restrictions.) The
following limits apply in aggregate across all investment categories: 1)
investment in Emerging Market securities is limited to a maximum of 10% of the
FUND'S total assets; and 2) investment in "intermediate grade bonds" (i.e.,
those rated Baa by Moody's Investors Service or BBB by Standard & Poor's Corp.
or, if unrated, are judged by Putnam to be of comparable quality, is limited to
a maximum of 35% of the FUND'S total assets. However, bonds rated below
investment grade by any of these agencies would not be considered investment
grade. When conditions dictate a defensive position or during periods of
portfolio restructuring, Putnam may invest up to 50% of the FUND'S total assets
in each of the U.S. Fixed Income Securities and Money Market instruments
categories. Within these limitations, Putnam will adjust the percentage of the
FUND assets in each category based upon its market outlook and its analysis of
long-term trends. For example, if Putnam believes that conditions will be
favorable for equity securities, a greater proportion may be invested in
Aggressive Equity Securities. Similarly, a greater proportion will be invested
in International Equity Securities if foreign equity markets are viewed
favorably. Since the FUND'S objective of total return consistent with
preservation of capital may be achieved by receipt of income, as well as by
capital gains, Putnam may increase the proportion of FUND assets in Fixed-Income
Securities or Convertible Securities when it believes the outlook for the bond
market is favorable.
In pursuing the FUND'S objective, Putnam expects generally to employ a
relatively conservative strategy for seeking total return. Accordingly, its
asset allocation decisions will seek to have the FUND'S assets decline
significantly less in value than the Standard and Poor's 500 Index (S&P 500) in
unfavorable securities markets, while correlating more closely with the
performance of the index in favorable securities markets. There is no assurance
that this strategy will be successful.
CHANGES IN INVESTMENT POLICIES
The investment policies of the FUND may be changed without shareholder approval,
although the shareholders will be notified of any material changes, additions or
deletions.
FOREIGN INVESTMENTS; AMERICAN DEPOSITARY RECEIPTS (ADRS) AND EUROPEAN DEPOSITARY
RECEIPTS (EDRS)
The International Equity and International Fixed Income Securities investment
categories will each invest 100% of their respective assets in securities
principally traded in foreign markets. The other investment categories may do so
as well, but only up to the following percentages of their total assets: the
Money Market Instruments category 50%; all other categories 10%. (Eurodollar
certificates of deposit are excluded for purposes of these limitations.) Foreign
investments can involve risks not present in domestic investments. For a
discussion of those risks, see Foreign investments in the Appendix. A detailed
discussion of how the FUND intends to handle these risks appears in the SAI.
For the domestic categories, the FUND may invest in depositary receipts. These
consist of ADRs and EDRs, and involve investing indirectly in an underlying
foreign security. Generally ADRs, which are in registered form, are U.S.
dollar-denominated securities designed for use in the U.S. securities markets
and which may be converted into the underlying security. EDRs, which are in
bearer form, are designed for use in the European securities markets.
PORTFOLIO TURNOVER
The FUND'S annual portfolio turnover rate is expected to average approximately
150%. (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.)
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The actual turnover rate will vary, depending upon the turnover rate in each
investment category, the amount of assets allocated to each category, and the
extent to which assets are reallocated among categories from time to time. High
portfolio turnover may involve correspondingly greater brokerage commissions and
other transaction costs, which are borne directly by the FUND. See Portfolio
Transactions and Brokerage in the SAI. During 1997 the FUND'S portfolio turnover
was 178.40% and in 1996 it was 167.33%.
INVESTMENT RESTRICTIONS
There are some specific investment restrictions that help the FUND limit
investment risks for its shareholder. The restrictions in this section are
fundamental. See General information in the Appendix.
The FUND may not:
1. Acquire more than 10% of the voting securities of any one issuer;
2. Invest more than 5% of its total assets in securities of any one issuer
(other than the U.S. Government or its agencies or instrumentalities);
3. Invest more than 5% of its net assets in securities restricted as to resale;
and/or
4. Invest more than 25% of its assets in any one industry.
A complete listing of all of the FUND'S fundamental and non-fundamental
restrictions can be found in the SAI.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio managers for the FUND have considerable discretion in the
selection of appropriate FUND investments. In the exercise of that discretion,
the portfolio managers 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 GLOBAL ASSET ALLOCATION FUND IS AUTHORIZED:
a) for derivative transactions, to: buy and sell foreign currency forward
contracts; buy and sell foreign currency futures contracts; and buy
exchange-listed and over-the-counter put and call options on foreign currency
futures contracts and on foreign currencies. For hedging purposes, the FUND may
sell covered call options on foreign currencies. All of the foregoing may also
be done as cross-hedging that is, using a currency different from the one in
which the portfolio securities are denominated. (See Foreign currency exchange
transactions in the SAI.)
In addition, the FUND may sell covered call and put options on equity and
fixed-income (debt) securities of U.S. issuers; sell put and call options and
buy put options on securities of U.S. issuers; buy and sell futures contracts
and options on futures contracts with respect to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; buy and sell
futures contracts and related options with respect to stock indices, foreign
fixed-income securities and foreign currencies (See Options and futures
portfolio strategies in the SAI); engage in spread and straddle transactions.
b) for cash enhancements transactions, to: lend portfolio securities if such
loans of securities do not exceed 25% of the FUND'S assets, and engage in
repurchase transactions. Collateral will be continually maintained at no less
than 102% of the value of the loaned securities or of the repurchase price, as
applicable.
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51
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APPENDIX -- CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National
Aggressive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond
Fund, Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation Fund), Lincoln National Equity-Income Fund, Inc.
(Equity-Income Fund), Lincoln National Global Asset Allocation Fund, Inc.
(Global Asset Allocation Fund), Lincoln National Growth and Income Fund, Inc.
(Growth and Income Fund), Lincoln National International Fund, Inc.
(International Fund), Lincoln National Managed Fund, Inc. (Managed Fund),
Lincoln National Money Market Fund, Inc. (Money Market Fund), Lincoln National
Social Awareness Fund, Inc. (Social Awareness Fund), and Lincoln National
Special Opportunities Fund, Inc. (Special Opportunities Fund). Unless otherwise
indicated, the following information applies to each FUND.
NET ASSET VALUE
Each FUND'S net asset value per share is determined as of close of business
(currently 4:00 p.m., New York Time) on the New York Stock Exchange (NYSE) on
each day it is open for trading. The net asset value per share for all FUNDS
except the Money Market Fund is determined by adding the values of all
securities and other assets, subtracting liabilities (including dividends
payable) and dividing by the number of shares outstanding. Debt securities and
other assets of the FUND, other than equity securities, for which market
quotations are readily available, are valued at their bid quotations.
When market quotations are not readily available, debt securities and other
assets are valued at their fair value as determined in good faith. This
valuation is made by or under the authority of each FUND'S Board of Directors
and it may include the use of valuations furnished by outside sources, including
pricing services which utilize electronic data processing techniques for valuing
normal institutional-size trading units of debt securities. The value of equity
securities is based on the last sale prices of those securities on national
securities exchanges or over-the-counter, or in the absence of recorded sales,
at the average of readily available closing bid and asked prices on exchanges or
over-the-counter. In the absence of readily available closing bid and asked
prices, equity securities will be valued at fair value. See the SAI Appendix for
a discussion of the methodology utilized to value short-term investments (other
than for the Money Market Fund), options, futures and options thereon, and
foreign securities.
MONEY MARKET FUND. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, under Rule 2a-7, as
amended (the Rule) under the Investment Company Act of 1940 (1940 Act). Under
the Rule, the FUND'S net asset value using the amortized cost method must fairly
reflect market value. The Board of Directors of the FUND has established
procedures to assist FUND management and the INVESTMENT ADVISOR in complying
with the requirements of the Rule, which imposes specific standards for the
maturity, quality and diversification of portfolio securities. The Rule also
assigns certain specific duties to FUND management and the Board.
MANAGEMENT OF THE FUNDS
The business and affairs of each FUND are managed under the direction of its
Board of Directors. The Board has the power to amend the bylaws of each FUND, to
declare and pay dividends and to exercise all the powers of the FUND except
those granted to the shareholder. LINCOLN LIFE is the sole shareholder of each
FUND.
INVESTMENT ADVISOR. LINCOLN INVESTMENT is the INVESTMENT ADVISOR to the FUNDS
and is headquartered at 200 East Berry Street, Fort Wayne, Indiana 46802.
LINCOLN INVESTMENT (THE ADVISOR) is registered with the Securities and Exchange
Commission (the Commission or SEC) as an INVESTMENT ADVISOR and has acted as an
INVESTMENT ADVISOR to mutual funds for over 40 years. The ADVISOR also acts as
INVESTMENT ADVISOR to Lincoln National Convertible Securities Fund, Inc., and
Lincoln National Income Fund, Inc., closed-end investment companies, and also
acts as sub-adviser to two of the series of Delaware Group Adviser Funds, Inc.,
an open-end series investment company.
The ADVISOR is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. Through its
subsidiaries, LNC provides life insurance and annuities, property-casualty
insurance, reinsurance and financial services. Directors, officers and employees
of the ADVISOR and each FUND are permitted to engage in personal securities
transactions subject to restrictions and procedures set forth in the Code of
Ethics adopted by the ADVISOR and each FUND. Such restrictions and procedures
include substantially all of the recommendations of the Advisory Group of the
Investment Company Institute and comply with SEC rules and regulations.
Under advisory agreements described in the Prospectus for the VARIABLE ACCOUNT,
the ADVISOR provides portfolio management and investment advice to the FUNDS and
administers their other affairs, subject to the supervision of each FUND'S Board
of Directors.
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<PAGE>
As compensation for its services to each FUND, the advisor is paid a monthly
investment advisory fee at an annual rate based on the average daily net asset
value of each FUND, as shown in the following chart:
<TABLE>
<CAPTION>
FUND ...OF AVERAGE DAILY NET ASSET VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Aggressive Growth .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; .65 of 1% of the excess over $400 million
Capital Appreciation* .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Equity-Income* .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Global Asset Allocation .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; and .68 of 1% of the excess over $400 million
International .90 of 1% of the first $200 million; .75 of 1% of the next $200
million; and .60 of 1% in excess over $400 million
All other FUNDS .48 of 1% of the first $200 million; .40 of 1% of the next $200
million; and .30 of 1% in excess over $400 million
</TABLE>
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1997 RATIO OF THE
ADVISOR'S
COMPENSATION TO 1997 RATIO OF TOTAL
AVERAGE EXPENSES
FUND NET ASSETS TO AVERAGE NET ASSETS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Aggressive Growth .73% .81%
Bond .46 .53
Capital Appreciation* .75 .84
Equity-Income* .75 .82
Global Asset Allocation .72 .89
Growth and Income .32 .35
International .79 .93
Managed .37 .42
Money Market .48 .59
Social Awareness .36 .41
Special Opportunities .37 .42
</TABLE>
* The management fees for the Capital Appreciation and the Equity-Income funds
have been decreased effective May 1, 1998 and January 1, 1998 respectively, and
the expense information in this table has been restated to reflect current fees.
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:
73
<PAGE>
<TABLE>
<CAPTION>
DATE OF ANNUAL FEE RATE BASED ON AVERAGE DAILY NET ASSET
FUND SUB-ADVISOR AGREEMENT 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; .55 of 1% of the first $100 million .50 of 1% of the
Appreciation 100 Fillmore Street Amended next $400 million; and .45 of 1% of the excess over
Denver, CO 80206 5/1/98 $500 million
Equity Income Fidelity 12/20/93 .48 of 1%
82 Devonshire Street Amended
Boston, MA 02108 1/1/98
Global Asset Putnam 6/8/87 the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation One Post Office first $200 million; .42 of 1% of the next $200
Square million; and .40 of 1% of any excess over $400
Boston, MA 02104 million
International Delaware 4/27/98 .50 of 1% of the first $200 million; .40 of 1% of the
International next $200 million; and .35 of 1% of any excess over
Advisers, Ltd. $400 million
80 Cheapside,
London, England
EC2V 6EE
- -------------
<CAPTION>
ANNUAL FEE RATE BASED ON MARKET VALUE OF SECURITIES
HELD IN THE PORTFOLIO OF EACH RESPECTIVE CLIENT FUND
DATE OF AT THE CLOSE OF BUSINESS ON THE LAST TRADING DAY OF
FUND SUB-ADVISOR AGREEMENT EACH 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 Vantage 4/30/88 .20 of 1%
Awareness
Special Vantage 8/21/85 .20 of 1%
Opportunities
</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.
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<PAGE>
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, Social Awareness Fund and
Managed Fund), $0.01 par value. As of March 1, 1998, each FUND had the following
number of shares issued and outstanding:
<TABLE>
<S> <C>
Aggressive Growth 24,053,290
Bond 23,710,935
Capital Appreciation 29,127,492
Equity-Income 42,380,182
Global Asset Allocation 30,669,482
Growth and Income 91,450,856
International 31,597,979
Managed 49,579,824
Money Market 9,274,413
Social Awareness 39,436,497
Special Opportunities 27,558,445
</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 CONTRACT
OWNERS 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
75
<PAGE>
attributable to a contract for which no timely voting instructions are received,
and any FUND shares 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
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<PAGE>
reserves the right to engage in related variations on those transactions.
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
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<PAGE>
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
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 repurchase 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. Repurchase agreements maturing in more than seven days
will be considered illiquid and subject to the FUNDS restriction on
illiquid securities.
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 securities, 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.
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<PAGE>
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the 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 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.
Additionally, several European countries are participating in the European
Economic and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro". It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. FUNDS investing in securities of
participating countries could be adversely affected if the computer systems used
by their major service providers are not properly prepared to
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handle both the imminent implementation of this single currency and the prospect
of the adoption of the Euro by additional countries in the future. These FUNDS
are taking steps to obtain satisfactory assurances that their major service
providers are, in turn, taking steps reasonably designed to address these
matters with respect to the computer systems they use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of any FUND.
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. In 1998, in response to certain changes to the
federal securities laws, the Board of Directors of each FUND recommended, and
shareholders of each FUND approved, changes to the fundamental policies for
certain of the FUNDS. The Board of Directors of each FUND also changed or
eliminated certain non-fundamental policies of certain FUNDS.
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 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.
PREPARING FOR YEAR 2000
THE 'YEAR 2000' ISSUE. Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. This 'year 2000 issue' affects virtually all companies and
organizations.
Lincoln Life is responsible, as part of its year 2000 updating process, for the
updating of FUND-related computer systems. An affiliate of Lincoln Life,
Delaware Service Company (Delaware), provides substantially all of the necessary
accounting and valuation services for the FUNDS. Delaware, for its part, is
responsible for updating all of its computer systems, including those which
serve the FUNDS, to accommodate the year 2000. Lincoln Life and Delaware have
begun formal discussions with each other to assess the requirements for their
respective systems to interface properly in order to facilitate the accurate and
orderly operation of the FUND beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every aspect
of the businesses of Lincoln Life, Delaware, and the FUNDS (the Companies). The
computer systems of Lincoln Life and Delaware (including those computer systems
which serve the FUNDS) and their interfaces with the computer systems of
vendors, suppliers, customers and other business partners are particularly
vulnerable. The inability to properly recognize date-sensitive electronic
information and to transfer data between systems could cause errors or even
complete failure of systems, which would result in a temporary inability to
process transactions correctly and
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engage in normal business activities for the FUNDS. Lincoln Life and Delaware,
respectively, are redirecting significant portions of their internal information
technology efforts and are contracting, as needed, with outside consultants to
help update their systems to accommodate the year 2000. Also, in addition to the
discussions with each other noted above, Lincoln Life and Delaware have
respectively initiated formal discussions with other critical parties that
interface with their systems to gain an understanding of the progress by those
parties in addressing year 2000 issues. While Lincoln Life and Delaware are
making substantial efforts to address their own systems (including those which
serve the FUNDS) and the systems with which they interface, it is not possible
to provide assurance that operational problems will not occur. Lincoln Life and
Delaware presently believe that, with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
year 2000 issue will not pose significant operations problems for their
respective computer systems. In addition, the Companies are incorporating
potential issues surrounding year 2000 into their contingency planning process,
in the event that, despite these substantial efforts, there are unresolved year
2000 problems. If the remediation efforts noted above are not completed timely
or properly, the year 2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life, Delaware, the FUNDS, or all of
them.
The cost of addressing year 2000 issues and the timeliness of completion will be
closely monitored by management for Lincoln Life, Delaware and the FUNDS and,
for each company, will be based on its management's best estimates which are
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. Nevertheless, there can be no guarantee by Lincoln Life, by Delaware or
by the FUNDS that estimated costs will be achieved, and actual results could
differ significantly from those anticipated. Specific factors that might cause
such differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems, and other uncertainties.
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STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS -- 11 UNDERLYING
FUNDS*
<TABLE>
<CAPTION>
ITEM ITEM
- ------------------------------------------------ ------------------------------------------------
<S> <C>
General Information and History Appendix
Investment objective Investment advisor and sub-advisor
Investment policies and techniques Directors and officers
Investment restrictions Investment policies and techniques
Portfolio transactions and brokerage (continued): options, futures, securities
Determination of net asset value valuation, securities lending, repurchase and
reverse repurchase agreements
Custodian
Independent auditors
Financial statements
Bond and commercial paper ratings
U.S. Government obligations
Taxes
State requirements
Derivative transactions -- definitions
*NOTE: THIS IS A GENERIC TABLE. THERE ARE
VARIATIONS IN THE CONTENTS OF THE SAI FROM FUND
TO FUND.
</TABLE>
- --------------------------------------------------------------------------------
Please send me a free copy of the current Statement of Additional Information
for Lincoln National Life Insurance Co. Variable Annuity Account C:
(Please Print)
Name: __________________________________________________________________________
Address: _______________________________________________________________________
City _________________________________ State ____________________ Zip __________
Mail to Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana
46081
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LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should read in conjunction with the Prospectus of
Lincoln National Global Asset Allocation Fund, Inc. (FUND)
dated May 1, 1998. You may obtain a copy of the FUND'S
Prospectus 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>
- ----------------------------------------------------
GENERAL INFORMATION AND HISTORY GAA- 2
- ----------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES OF THE
FUND GAA- 2
- ----------------------------------------------------
INVESTMENT RESTRICTIONS GAA- 8
- ----------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE GAA- 9
- ----------------------------------------------------
DETERMINATION OF NET ASSET VALUE GAA-10
- ----------------------------------------------------
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
- ----------------------------------------------------
<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-12
- ----------------------------------------------------
State requirements A-12
- ----------------------------------------------------
Derivative transactions-definitions A-12
- ----------------------------------------------------
</TABLE>
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1998
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GENERAL INFORMATION AND HISTORY
Lincoln National Global Asset Allocation Fund, Inc., was incorporated in
Maryland in 1987 as Lincoln National Putnam Master Fund, Inc. It operated under
that name until 1994, when the present name was adopted in order to more
adequately project the FUND'S global investment orientation.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Prospectus describes the FUND'S investment objective and its general
investment policies. This SAI includes additional information about engaging in
options and futures trading and the various investment restrictions of the FUND.
References to ADVISOR in this SAI include both Lincoln Investment Management,
Inc. (LINCOLN INVESTMENT) and Putnam Investment Management, Inc.
The investment policies described in the Prospectus and in this SAI are not
fundamental, and the Board of Directors may change such policies without
shareholder approval.
DEPOSITARY RECEIPTS
As discussed in the Prospectus, the FUND may invest in American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). Generally, ADRs in
registered form are U.S. dollar denominated securities designed for use in the
U.S. securities markets, which represent and may be converted into the
underlying foreign security. EDRs are typically issued in bearer form and are
designed for use in the European securities markets. No more than 5% of the
FUND'S assets will be invested in unsponsored ADRs or EDRs. Issuers of the stock
of such unsponsored ADRs and EDRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
The FUND may seek to increase its current return by writing covered call or put
option with respect to some or all of the debt or equity securities of issuers
in the United States (U.S. securities) held in its portfolio. In addition, by
writing options and purchasing put options on U.S. securities, and purchasing
and selling futures contracts and related options with respect to (1) securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
and (2) stock indices, foreign fixed income securities and foreign currencies,
the FUND may at times seek to reduce fluctuations in net asset value by hedging
against either a decline or an increase in the value of U.S. securities or other
securities owned by the FUND. The FUND, however, anticipates that net asset
value will fluctuate to some degree. Expense and any losses resulting from these
hedging strategies will tend to reduce the FUND'S current return.
The FUND'S ability to engage in options and futures strategies will depend on
the availability of liquid markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
options or futures contracts. Therefore no assurance can be given that the FUND
will be able to utilize these instruments effectively for the purposes stated
previously. Furthermore the FUND'S ability to engage in option is and futures
contracts transactions may be limited by tax considerations. Although the FUND
will only engage in options and futures contracts transactions for limited
purposes, they involve certain risks which are described under Risk factors in
options and futures transactions.
In connection with transactions in futures contracts, including foreign currency
futures contracts and related options, the FUND will be required to deposit as
initial margin an amount of cash and short-term U.S. Government securities of up
to 5% of the contract amount. Thereafter, subsequent payments are made to and
from the broker to reflect changes in the value of the futures contracts. The
FUND will not purchase or sell futures contracts or related options if, as a
result, the sum of the initial margin deposits on the FUND'S existing futures
and related options positions and premiums paid for options on futures contracts
would exceed 5% of the FUND'S assets. (For options which are in-the-money at the
time of purchase, the amount by which the option is in-the-money is excluded
from this calculation.)
The FUND may purchase and sell options and futures on foreign securities and
currencies held in its portfolio when, in the opinion of the advisor, the
investment characteristics of such options and contracts are acceptable. It is
expected that risks related to those transactions will not differ materially
from risks related to options and futures on U.S. securities. However, position
limits and other rules of foreign exchanges may differ from those in the United
States. Also, options and futures markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the United States.
In addition to the options strategies described previously, the FUND may engage
in spread transactions in which it purchases and writes a put or call option on
the same underlying security or currency, with the options having different
exercise prices and/or expiration dates. The FUND may also engage in so-called
straddles, in which it purchases or sells combinations of put and call options
on the same security or currency. When it engages in spread and straddle
transactions, the FUND
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seeks to profit from differentials in the option premiums paid and received by
it and in the market options by the FUND in connection with these transactions
may, under certain circumstances, involve a limited degree of investment
leverage, the FUND will not enter into any spreads or straddles or otherwise
purchase puts or calls if, as a result, more than 5% of its net assets will be
invested at any time in such option transactions. Spread and straddle
transactions require the FUND to purchase and/or write more than one option
simultaneously. Accordingly, the FUND'S ability to enter into such transactions
and to liquidate its positions when necessary or deemed advisable may be more
limited than if the FUND were to purchase or sell a single option. Similarly,
costs incurred by the FUND in connection with these transactions will in many
cases by greater than if the FUND were to purchase or sell a single option.
A call option included in a spread or straddle will be deemed to be covered in
the FUND holds, on a security-for-security or currency-for-currency basis, a
call option on the same security or currency with an exercise price equal to or
less than the exercise price of the call written (or, where the exercise price
is greater than that of the option written by the FUND, if the FUND segregates
cash or high-grade, short-term debt obligations equal to the difference).
Similarly, a put option included in a spread or straddle will be deemed to be
covered if the FUND holds, on a security-for-security or currency-for-currency
basis, a put option on the same security or currency with an exercise price
equal to or greater than the exercise price of the put option written by the
FUND (or, where the exercise price is less than that of the option written by
the FUND, if the FUND segregates cash or high-grade short-term debit obligations
equal to the difference). The FUND'S ability to engage in spread or straddle
transactions may be limited by state securities laws.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
The use of options and futures for hedging may involve certain special risks.
Options and futures transactions involve costs and may result in losses. Options
and futures transactions involve certain special risks, including the risk that
the FUND may be unable at times to close out such positions, that hedging
transactions may not accomplish their purpose because of imperfect market
correlations, or that the ADVISOR may not forecast market or interest rate
movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, the FUND'S ability to terminate options and futures positions at times
when the ADVISOR deems it desirable to do so. Although the FUND will enter into
an option or futures contract position only if the ADVISOR believes that a
liquid secondary market exists for such an option or futures contract, there is
no assurance the FUND will be able to effect closing transactions at any
particular time or at any acceptable price. The FUND generally expects that its
option and futures contract transactions may purchase and sell options in the
over-the-counter market. The FUND'S ability to terminate option positions in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the FUND. However, the FUND
will engage in these transactions only if, in the opinion of the advisor, the
pricing mechanism and liquidity of the over-the-counter market are satisfactory
and the participants are responsible parties likely to meet their contractual
obligations.
The use of options and futures strategies also involve the risk of imperfect
correlation between movements in options and futures contracts prices and
movements in the prices of securities or currencies which are the subject of the
hedge. The successful use of these strategies further depends on the ability of
the ADVISOR to forecast market or interest rate movements correctly.
The securities exchanges have established limitations governing the maximum
number of options which may be written by an investor or group of investors
acting in concert. It is possible that the FUND and other clients of the advisor
may be considered to be such a group. These position limits may restrict the
FUND'S ability to sell options on a particular security.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The FUND may write covered call options and covered put
options on optionable securities held in its portfolio, when in the opinion of
the ADVISOR such transactions are consistent with the FUND'S investment
objectives and policies. Call options written by the FUND give the purchaser the
right to buy the underlying securities from the FUND at a stated exercise price;
put options give the purchaser the right to sell the underlying securities to
the FUND at a stated price.
The FUND may write only covered options, which means that, so long as the FUND
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the FUND will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the FUND will be considered to
have covered a put or call option if and to the extent that it holds an option
that offset some or all of the risk of the option it has written. The FUND may
write combinations of covered puts and calls on the same underlying security.
The FUND will receive a premium from writing a put or call option, which
increases the FUND'S return on the underlying security in the event the option
expires unexercised or is closed out at a profit to the FUND. The amount of the
premium reflects, among other things,
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the relationship between the exercise price and the current market value of the
underlying security, the volatility of the underlying security, the amount of
time remaining until expiration, current interest rates and the effect of supply
and demand in the options market and in the market for the underlying security.
By writing a call option, the FUND limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the FUND assumes the risk that it
may be required to purchase the underlying security for an exercise price higher
than its then-current market value, resulting in a potential capital loss unless
the security subsequently appreciates in value.
The FUND may terminate an option that it has written before the option's
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The FUND realizes a profit or loss from a
closing transaction if the cost of the transaction (option Premium plus
transaction cost) is less or more than the premium received from writing the
option. Because increases in the market price of a call option generally reflect
increases in the market price of the security underlying the option, any loss
resulting from a closing purchase transaction may be offset in whole or in part
by unrealized appreciation of the underlying security owned by the FUND.
If the FUND writes a call option but does not own the underlying security, and
when it writes a put option, the FUND may be required to deposit cash or
securities with its broker as margin, or collateral, for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the FUND may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The FUND may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such protection is provided during the life of the put option since the FUND as
holder of the option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the FUND
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The FUND may purchase call options to hedge against an
increase in the price of securities that the FUND wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the FUND,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the FUND'S options strategies depends on the ability of
the ADVISOR to forecast correctly interest rate and market movements. For
example, if the FUND were to write a call option based on the ADVISOR'S
expectation that the price of the underlying security would fall, but the price
were to rise instead, the FUND could be required to sell the security upon
exercise at a price below the current market price. Similarly, if the FUND were
to write a put option based on the ADVISOR'S expectation that the price of the
underlying security would rise, but the price were to fall instead, the FUND
could be required to purchase the security upon exercise at a price higher than
the current market price.
When the FUND purchases an option, it runs the risk that will lose its entire
investment in the option in a relatively short period of time, unless the FUND
exercises the option or enters into a closing sale transaction before the
options expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the FUND will lose part or all
of its investment in the option. This contrasts with an investment by the FUND
in the underlying security, since the FUND will not lose any of its investment
in such security if the price does not change.
The effective use of options also depends on the FUND'S ability to terminate
option positions at times when the ADVISOR deems it desirable to do so. Although
the FUND will take an option position only if the ADVISOR believes there is a
liquid secondary market for the option, there is no assurance that the FUND will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary market in options were to become unavailable, the FUND could no
longer engage in closing transactions. Lack of investor interest might adversely
affect the liquidity of the market for particular options or series of option. A
market may discontinue trading of a particular option or options generally. In
addition, a market could become temporarily unavailable if unusual events--such
as volume in excess of trading or clearing capability--were to interrupt its
normal operations.
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A market may at times find it necessary to impose restriction on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualification imposed by the market or the
Options Clearing Corp. (OCC), new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, the FUND as a holder of an option would be able to realize profits
or limit losses only by exercising the option, and the FUND, as option writer,
would remain obligated under the option until expiration or exercise.
Disruption in the markets for the securities underlying options purchased or
sold by the FUND could result in losses on the option. If trading is interrupted
in an underlying security, the trading of options on that security is normally
halted as well. As a result, the FUND as purchaser or writer of an option will
be unable to close out its positions until options trading resumes, and it may
be faced with considerable losses if trading in the security reopens at a
substantially different price. In addition, the OCC or other options markets may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, the FUND as purchaser or
writer of an option will be locked into its position until one of the two
restrictions has been lifted. If the OCC were to determine that the available
supply of an underlying security appears insufficient to permit delivery by the
writers of all outstanding calls in the event of exercise, it may prohibit
indefinitely the exercise of put options. The FUND, a holder of such a put
option could lose its entire investment in the prohibition remained in effect
until the put option's expiration and the FUND was unable either to acquire the
underlying security or to sell the put option in the market.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and the various foreign countries, and
because different holidays are observed in different holidays are observe in
different countries, foreign options markets may be open for trading during
hours or on days when U.S. markets ware closed. As a result, option premiums may
not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
A financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial instrument
called for in the contract in specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at settlement date are
not determined until on or near that date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade--known as contract markets--approved for
such trading by the Commodity Futures Trading Commission (CFTC), and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a future contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, he realizes a loss.
Unlike when the FUND purchases or sells a security, no price is paid or received
by the FUND upon the purchase or sale of a futures contract. Upon entering into
a contract, the FUND is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash and/or U.S.
Government securities. This amount is known as initial margin. The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of FUNDS to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
FUND upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called variation margin, to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as marking to the market. For
example, when the FUND has purchased a futures contract on a security and the
price of the underlying security has risen, that position will have increased in
value and the FUND will receive from the broker a variation margin payment based
on that increase in value. Conversely, when the FUND has purchased a security
futures contract and the price of the underlying security has declined, the
position would be less valuable and the FUND would be
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required to make a variation margin payment to the broker.
The FUND may elect to close some or all of its futures positions at any time
before their expiration in order to reduce or eliminate a hedge position then
currently held by the FUND. The FUND may close its positions by taking opposite
positions which will operate to terminate the FUND'S position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to the FUND, and the FUND realizes a
loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The FUND may purchase and write call and put
options futures contracts it may buy or sell and enter into closing transactions
with respect to such options to terminate existing positions. The FUND may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, the FUND may purchase call options or write call options
on futures contracts rather than selling futures contract. Similarly, the FUND
may purchase call options or write put options on futures contracts as a
substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which the FUND expects to purchase. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
the position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The FUND will be required to deposit initial margin and maintenance margin with
respect to put and call option on futures contracts written by it pursuant to
brokers' requirements similar to those described above. With respect to long
positions assumed by the FUND, the FUND will establish a segregated asset
account with its custodian, and will deposit into it an amount of cash and other
assets permitted by CFTC regulations. The FUND does not intend to leverage the
futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the FUND is subject to the ADVISOR'S ability to predict
movements in the direction of interest rates and other factors affecting
securities markets. For example, if the FUND has hedged against possibility of
decline in the values of its investments and the values of its investments
increased instead, the FUND will lose part or all of the benefit of the increase
through payments of daily maintenance margin. The FUND may have to sell
investments at a time when it may not be advantageous to do so in order to meet
margin requirements.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the FUND
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on the futures contract itself would result in a loss to the
FUND when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen event might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the FUND, the FUND may seek to
close out a position. The ability to establish and close out a position. The
ability to establish an close out position will be subject to development and
maintenance of a liquid secondary market. It is not certain that this market
will develop or continue to exist for a particular futures contract or option.
Reasons for the absence of a liquid secondary market on an exchange include the
following:
1. there may be insufficient trading interest in certain contracts or options;
2. restrictions may be imposed by an exchange on opening transactions or
closing transactions or both;
3. trading halts, suspensions or other restrictions may be imposed with respect
to particular classes or series of contracts or options, or underlying
securities;
4. unusual or unforeseen circumstances may interrupt normal operations on an
exchange;
5. the facilities of an exchange or a clearing corporation may not at all times
be adequate to handle current trading volume; or
6. one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or
options (or a particular class or series of contracts or options), in which
event the secondary market on that exchange for such contracts or options
(or in the class or series of contracts or options) would cease to exist,
although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
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<PAGE>
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the FUND invests in
tax-exempt securities issued by a governmental entity, the FUND may purchase and
sell futures contracts and related options on U.S. Treasury securities when, in
the opinion of the advisor, price movements in treasury security futures and
related options will correlate closely with price movements in the tax-exempt
securities which are the subject to the hedge. U.S. Treasury security futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of U.S. Treasury security called for in the contract at a specified
date and price. Options on U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
U.S. Treasury security futures contract at the specified option exercise price
at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the FUND is
subject to the ADVISOR'S ability to predict movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if the FUND has sold U.S. Treasury security futures contracts in order
to hedge against the possibility of an increase in interest rates which would
adversely affect tax-exempt securities held in its portfolio, and the prices of
the FUND'S tax-exempt securities increase instead as a result of a decline in
interest rates, the FUND will lose part or all of the benefit of the increased
value of its securities which it has hedge because it will have offsetting
losses in its futures positions. In addition, in such situations, if the FUND
has insufficient cash, it may have to sell securities to meet daily maintenance
margin requirements at a time when it may be disadvantageous to do so.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
With respect to investments made for the International Fixed Income Securities
and the International Equity Securities investment categories, the FUND may
engage in foreign currency exchange transactions to protect against uncertainty
in the level of future exchange rates. The ADVISOR may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities (transaction hedging), and to protect the value of specific
portfolio positions (position hedging.)
The FUND may engage in transaction hedging to protect against a change in the
foreign currency exchange rate between the date on which the FUND contracts to
purchase or sell the security and the settlement date, or to lock in the U.S.
dollar equivalent of a dividend or interest payment in a foreign currency. For
the purpose, the FUND may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency.
If conditions warrant, the FUND may also enter into contracts to purchase or
sell foreign currencies at a future date (forward contracts) and purchase and
sell foreign currency futures contracts as a hedge against changes in foreign
currency exchange rates between the trade and settlement dates on particular
transactions and not for speculation. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes the FUND may also purchase exchange-listed and
over-the counter call and put options on foreign currency futures contracts and
on foreign currencies.
The FUND may engage in position hedging to protect against the decline in the
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of currency
for securities which the FUND expects to buy, when the FUND holds cash reserves
and short-term investments). For position hedging purposes the FUND may purchase
or sell foreign currency futures contracts and foreign currency forward
contracts, and may purchase put or call options on foreign currency futures
contracts and on foreign currencies on exchanges or over-the-counter markets. In
connection with position hedging, the FUND may also purchase or sell foreign
currency on a spot basis. In addition, as part of its position hedging
strategies, the FUND may engage in the forward contract, futures contract and
options transactions described previously using a currency different from that
in which the portfolio securities are denominated (cross-hedging) if the ADVISOR
believes that the U.S. dollar value of the currency used in cross-hedging will
fall or rise, as the case may be, whenever there is a decrease or increase,
respectively, in the U.S. dollar value of the currency in which the portfolio
securities are denominated.
Hedging transactions involve costs and may result in losses. The FUND may write
covered call options on foreign currencies to offset some of the costs of
hedging those currencies, as well as to increase current return. The FUND will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the advisor, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. The FUND'S
ability to engage in hedging and related option transactions may be limited by
tax considerations.
LENDING OF SECURITIES
The FUND may make secured loans of its portfolio securities amounting to not
more than 25% of its total assets, thereby realizing additional income. The
risks in lending
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<PAGE>
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy, securities loans
are made to broker-dealers pursuant to agreements requiring that loans be
continuously secured by collateral in cash or short-term debt obligations at
least equal at all times to the value of the securities lent. The borrower pays
to 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 investment
of the cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities pass to the
borrower, the FUND retains the right to call the loans at any time on reasonable
notice, and it will do so in order that the securities may be voted by the FUND
if the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The FUND may also call such loans in order
to sell the securities involved. The FUND will not loan its portfolio securities
to the ADVISOR, the sub-advisor or an affiliate thereof.
FORWARD COMMITMENTS
The FUND may make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time (forward commitments) if the FUND holds,
and maintains until the settlement date in a segregated account, cash or liquid
securities in an amount sufficient to meet the purchase price, or if the FUND
enters into offsetting contracts for the forward sale of other securities it
purchased declines before the settlement date, the risk of which is in addition
to the risk of decline in value of the FUND'S other assets. Where such purchases
are made through dealers, the FUND relies on the dealer to consummate the sale.
The dealer's failure to do so may result in the loss to the FUND of an
advantageous yield of price. Although the FUND will generally enter into forward
commitments with the intention of acquiring the securities for its portfolio,
the FUND may dispose of a commitment before settlement if the ADVISOR deems it
appropriate to do so. The FUND may realize short-term profits or losses upon the
sale of forward commitments.
REPURCHASE AGREEMENTS
The FUND may enter into repurchase agreements with respect to the amount of its
total assets (taken at current value) specified in the Prospectus. A repurchase
agreement is a contract under which the FUND acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the FUND to re-sell such security at
a fixed time and price (representing the FUND'S cost plus interest). It is the
FUND'S present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. Government or its agencies or instrumentalities. The
Board of Directors or its delegate will evaluate the creditworthiness of all
entities with which the FUND proposes to enter into repurchase agreements.
Repurchase agreements may also be viewed as loans made by the FUND which are
collateralized by the securities subject to the repurchase. The ADVISOR will
monitor such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including the interest factor. If the seller defaults, the FUND
could realize a loss on the sale of the underlying security to the extent that
the proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, if the seller should
be involved in bankruptcy or insolvency proceedings, the FUND may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the FUND is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
INVESTMENT RESTRICTIONS
The following 17 restrictions are fundamental. The FUND may not and will not:
1. Borrow money in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at
the time the borrowing is made, and then only from banks as a temporary
measure to facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such borrowings will
be repaid before any additional investments are purchased.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
15% of its total assets (taken at current value) and then only to secure
borrowings permitted by restriction 1. (The deposit of underlying securities
and other assets in escrow and other collateral arrangements in connection
with the writing of put or call options and collateral arrangements with
respect to margin for options on financial futures contracts are not deemed
to be pledges or other encumbrances.)
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with options on financial
futures contracts.
4. Make short sales of securities or maintain a short sale position from the
account of the FUND unless at
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<PAGE>
all times when a short position is open it owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold short.
5. Underwrite securities issued by other persons except to the extent that, in
connection with disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws.
6. Purchase or sell real estate, although it may purchase securities which are
secured by or represent interests in real estate.
7. Purchase or sell commodities or commodity contracts, except that the FUND
may write and purchase options on financial futures contracts.
8. Make loans, except by purchase of debt obligations in which the FUND may
invest consistent with its investment policies, by entering into repurchase
agreements with respect to not more than 25% of its total assets (taken at
current value), or through the lending of its portfolio securities with
respect to not more than 25% of its assets.
9. Invest in securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the FUND (taken at current value) would
be invested in the securities of such issuer; provided that this limitation
does not apply to securities issued by the U.S. Government or its agencies
or instrumentalities (U.S. Government obligations).
10. Acquire more than 10% of the voting securities of any issuer.
11. Invest more than 25% of the value of its total assets in any one industry.
12. Invest in the securities of other investment companies, except as they may
be acquired as part of a merger of consolidation or acquisition of assets.
13. Invest more than 5% of its net assets in securities restricted as to
resale.
14. Make investments for the purpose of gaining control of a company's
management.
15. Issue any class of securities which is senior to the FUND'S stock. (For
purposes of this restriction, collateral arrangements with respect to the
writing of options are not deemed to be the issuance of a senior security).
The following two restrictions are not fundamental, and the FUND does not
presently intend:
1. To invest in (a) securities which at the time of such investment are not
readily marketable, (b) restricted securities and (c) repurchase agreements
maturing in more than seven days, if, as a result, more than 10% of the
FUND'S total assets (taken at current value) would then be invested in the
aggregate in securities described in (a), (b) and (c).
2. To invest in equity securities for which market quotations are not readily
available if, as a result, the aggregate of such investments would exceed 5%
of the value of the FUND'S net assets; provided, however, that this
restriction shall not apply to U.S. Government obligations. (Debt securities
having equity features are not considered equity securities for purposes of
this restriction.)
Although the provisions of fundamental investment restrictions 1, 2 and 4 permit
the FUND to engage in certain practices to a limited extent, the FUND does not
have any present intention of engaging in such practices.
All percentage limitations on investments will apply at the time of the making
of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
The Investment Company Act of 1940 (1940 Act) provides that a vote of a majority
of the outstanding voting securities means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the FUND, or (2) 67% or more of
the shares present at a meeting in person or by proxy.
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 an exchange are effected through brokers who charge a commission for their
services. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the FUND usually includes
an undisclosed dealer commission or mark-up. In the U.S. Government securities
market, securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the securities usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commission or discounts are
paid.
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<PAGE>
The ADVISOR currently provides investment advice to a number of other clients.
See Investment advisor. 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 most 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. 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
from time to time, and, in that connection, will receive reports from the
ADVISOR and published data concerning transaction costs incurred by
institutional investors generally. The nature of the research services provided
to the advisors 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; and risks and trends, all of
which the ADVISOR regards as a useful supplement of 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 1997,
the ADVISOR directed transactions totaling approximately $242.3 million to these
brokers and paid commissions of approximately $303,000 in connection with these
transactions. Research services furnished by brokers are used for the benefit of
all 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 1997 was $460,621, for 1996 it was $370,923, and for 1995 it was
$337,343.
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. See Sub-advisor.
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 1998 it will be closed
on New Year's Day, Martin Luther King 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.
Since a significant portion of the FUND'S portfolio may at any one time consist
of securities primarily listed on foreign exchanges or otherwise traded outside
the United States, those securities may be traded (and the net asset value of
the FUND could therefore be significantly affected) on days when the investor
has no access to the FUND.
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<PAGE>
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<PAGE>
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
compensation to the ADVISOR and the sub-advisors are set forth in the Appendix
to the Prospectus.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $2,109,952 $1,428,803 $ 725,544
Bond Fund 1,221,295 1,188,030 1,061,701
Capital Appreciation Fund 2,940,632 1,549,656 726,011
Equity-Income Fund 6,053,404 3,303,336 1,457,623
Global Asset Allocation Fund 2,808,358 2,072,722 1,570,876
Growth and Income Fund 9,714,765 7,063,276 5,077,981
International Fund 3,741,563 3,319,701 2,770,197
Managed Fund 2,873,786 2,480,524 2,120,656
Money Market Fund 451,243 417,468 385,019
Social Awareness Fund 3,355,544 1,877,030 1,048,366
Special Opportunities Fund 2,824,015 2,274,229 1,809,514
</TABLE>
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<PAGE>
During the last three years, the ADVISOR received the amounts, as mentioned
above, 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.
During the last three years each SUB-ADVISOR received the following amounts for
investment sub-advisory services. LINCOLN INVESTMENT, not the FUND, pays all
sub-advisory fees owed.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $1,229,800 $ 893,059 $ 483,982
Bond Fund N/A N/A N/A
Capital Appreciation Fund 2,072,388 1,117,383 545,800
Equity-Income Fund 4,781,931 2,612,405 1,152,337
Global Asset Allocation Fund 1,724,369 1,284,185 1,034,321
Growth and Income Fund 6,155,225 4,440,325 3,108,208
International Fund 1,503,294 1,326,484 1,146,153
Managed Fund 974,080 820,633 672,474
Money Market Fund N/A N/A N/A
Social Awareness Fund 1,901,560 923,516 462,593
Special Opportunities Fund 1,519,961 1,168,134 868,019
</TABLE>
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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>
<CAPTION>
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<S> <C> <C>
* KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR, age
45
1300 S. Clinton Street
Fort Wayne, IN 46802
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JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--Investments, Northwestern
DIRECTOR, age 64 University
1776 Sherwood Road
Des Plaines, IL 60016
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NANCY L. FRISBY, CPA Regional Vice President/Chief Financial Officer (formerly Vice
DIRECTOR, age 56 President--Finance; Regional Controller of Finance), St. Joseph Medical
700 Broadway Center, Fort Wayne, Indiana
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and Development,
DIRECTOR, age 46 Lincoln National Corporation; Director, Lincoln Life and Annuity Company
1300 S. Clinton St. of New York (formerly Executive Vice President, LINCOLN INVESTMENT
Fort Wayne, IN 46802 Management, Inc.)
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KENNETH G. STELLA President, Indiana Hospital and Health Association
DIRECTOR, age 54
One America Square
Indianapolis, IN 46282
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* JANET C. WHITNEY Vice President and Treasurer, Lincoln National Corp. (formerly Vice
TREASURER, age 49 President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
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* CYNTHIA A. ROSE Assistant Secretary, Lincoln National Life Insurance Co.
SECRETARY, age 43
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 1997, each FUND paid $1,000 in director's
fees to each such director, plus out of pocket expenses to attend meetings.
During 1997, the FUND complex paid each of these directors aggregate fees of
$11,000. Mr. Stanley R. Nelson, a director who retired in 1997, received $750 in
director fees from each FUND and aggregate fees of $8,250 from the FUND complex.
Mr. Stella became a director in 1998 and thus received no fees during 1997.
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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 option will be
exercised, and the FUND will be required to sell
A-4
<PAGE>
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.)
A-5
<PAGE>
The FUND will not invest in futures contracts and options thereon if immediately
thereafter the amount 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
A-6
<PAGE>
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been sold to hedge 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,
A-7
<PAGE>
there can be no assurance that such liquidity will always exist.
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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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 The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, NY 11245. Chase Manhattan agreed to act as custodian for each
FUND pursuant to a Custodian Agreement dated March 30, 1998.
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, Two Commerce
Square, Suite 4000, 2001 Market Street, Philadelphia, PA 19103, to be the
independent auditors for the FUND. In addition to the audit of the 1997
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 audited financial statements and the report of Ernst & Young LLP,
Independent Auditors, for the FUNDS are incorporated by reference to the FUNDS'
1997 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).
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.
A-9
<PAGE>
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 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-10
<PAGE>
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.
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 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,
A-11
<PAGE>
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.
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).
A-12
<PAGE>
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>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
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 Global Asset Allocation
Fund (the Fund) for the years ended December 31, 1997, 1996, 1995, 1994, 1993,
1992, 1991, 1990, 1989, and 1988 and for the period from August 3, 1987 to
December 3, 1987, is incorporated by reference to Pages 53-54 of the Fund's
1997 Annual Report.
Part B.
------
The following financial statements and report of Independent
Auditors of the Fund are incorporated by reference to Pages 19-30
and 42,44 and 46-52 and 55 of the Fund's 1997 Annual Report:
- Statement of Net Assets -- December 31, 1997
- Statement of Operations -- Year Ended December 31, 1997
- Statements of Changes in Net Assets -- Years Ended
December 31, 1997 and 1996
- Notes to Financial Statements -- December 31, 1997
- Report of Independent Auditors
In total, only pages 19-30 and 42,44 and 46-55 of the Fund's 1997
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.
<PAGE>
b) Exhibits:
1 - Articles
2 - By-Laws
3 - NA
4 - Certificate
5(a)- Sub-Advisory Agreement between Lincoln Investment
Management, Inc. and Putnam Investment Management, Inc. dated
June 8, 1987.
5(b)- Advisory Agreement between Lincoln Investment Management,
Inc. and Lincoln National Global Asset Allocation Fund, Inc.
dated May 31, 1987.
6(a)- Specimen Agents Contract
7 - NA
8(a)- Custody Agreement
8(b)- Custody Fee Schedule (filed with Post-Effective Amendment
NO. 12 to this registration statement)
9(a)- Agreement to Purchase Shares
9(b)- Trade Name Agreement
9(c)- NA
9(d)- Services Agreement between Delaware Management Holdings, Inc.,
Delaware Service Company, Inc. and Lincoln National Life
Insurance Company is incorporated herein by reference to the
Registration Statement on Form S-6 (333-40745) filed on
November 21, 1997.
10 - Opinion of Counsel
11 - Consent of Ernst & Young LLP, Independent Auditors
12 - NA
13 - Investment Letter
14 - NA
15 - NA
16 - NA
17(a)- Financial Data Schedule
18(a) Power of Attorney-Nancy L. Frisby
18(b) Power of Attorney-John B. Borsch Jr.
18(c) Power of Attorney-Barbara S. Kowalczyk
19(a)- ORG chart
19(b)- Memorandum Concerning Books and Records
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 Advisor 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 its Variable Life Account 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, 1998, there was one record holder of common stock, $.01 par
value per share.
Item 27. Indemnification
Reference is made to Article IX of the Fund's By-Laws (filed as Exhibit
No. 2 hereto), Section 8 of the Agreement to Purchase Shares between the Fund
and Lincoln National Pension Insurance Company (filed as Exhibit 9(a)
hereto), and Section 2-418 of the Maryland General Corporation Law.
<PAGE>
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, Putnam
Investment Management, Inc. ("Putnam") 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 Putnam's Form ADV filed
separately with the Commission (File No. 801-7974).
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 Putnam are hereby incorporated by
reference, respectively, from Schedules A and D of Lincoln Investment's
Form ADV and from Schedules A and D of Putnam's Form ADV.
(a) As of April 1, 1998, the officers and/or directors of the
Investment Adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
JoAnn Becker Senior Vice President 200 East Berry Street,
and Director Fort Wayne, Indiana 46802
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
Steven R. Brody Senior Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company, and Lincoln Advisor Funds, Inc., 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
Mark Laurent Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Thomas M. McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., President, Chief Executive Officer and Director,
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 Other Substantial Business
Jil Schoeff-Lindholm Portfolio Manager 200 East Berry Street, Fort Wayne, Indiana 46802
Cedrick Walta Short Term Investment 200 East Berry Street, Fort Wayne, Indiana 46802
Manager
Denny Westrick Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Jay Yentis Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
</TABLE>
(b) The Sub-Advisor.
As of March 13, 1998 the officers and/or directors of the Sub-Adviser
are as follows:
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
Name Title
------ ----------
Putnam, George Chairman
Lasser, Lawrence J. President & Director
Silver, Gordon H. Director & SMD
Burke, Robert W. Sr Managing Director
Coburn, Gary N. Sr Managing Director
Ferguson, Tim Sr Managing Director
Regan, Anthony W. Sr Managing Director
Spiegel, Steven Sr Managing Director
Anderson, Blake E. Managing Director
Bogan, Thomas R. Managing Director
Browchuk, Brett Managing Director
Cassaro, Joseph A. Managing Director
Collman, Kathleen M. Managing Director
Curtin, William J. Managing Director
D'Alello, Edward H. Managing Director
DeTore, John A. Managing Director
Durgarian, Karnig H. Managing Director
Esteves, Irene M. Managing Director
Gillis, Roland Managing Director
Haslett, Thomas R. Managing Director
Hurley, William J. Managing Director
Jacobs, Jerome J. Managing Director
Joseph, Joseph P. Managing Director
Kearney, Mary E. Managing Director
King, David L. Managing Director
Kohli, D. William Managing Director
Krelsel, Anthony I. Managing Director
Landes, William J. Managing Director
Maloney, Kevin J. Managing Director
Martino, Michael Managing Director
Maxwell, Scott M. Managing Director
McGue, William F. Managing Director
McMullen, Carol C. Managing Director
Miller, Daniel L. Managing Director
Morgan, Jr., John J. Managing Director
O'Donnell Jr., C. Patrick Managing Director
Peacher, Stephen C. Managing Director
Porter, Charles E. Managing Director
Reilly, Thomas V. Managing Director
Schultz, Mitchell D. Managing Director
Scott, Justin M. Managing Director
Swift, Robert Managing Director
Talanian, John C. Managing Director
Woolverton, William H. Managing Director
Zieff, William E. Managing Director
Waldman, David L. Managing Director & CFO
Asher, Steven E. Senior Vice President
Atkin, Michael J. Senior Vice President
<PAGE>
Attridge, Gail S. Senior Vice President
Bakshi, Manjit S. Senior Vice President
Bamford, Dolores Snyder Senior Vice President
Baumbach, Robert K. Senior Vice President
Beck, Robert R. Senior Vice President
Blaisdell, Geoffrey C. Senior Vice President
Bousa, Edward P. Senior Vice President
Breenahan Leslee R. Senior Vice President
Burke, Andrea Senior Vice President
Burns, Cheryl A. Senior Vice President
Callahan, Ellen S. Senior Vice President
Carlson, David G. Senior Vice President
Chapman, Susan Senior Vice President
Cotner, C. Beth Senior Vice President
Cronin, Kevin M. Senior Vice President
Curran, Peter J. Senior Vice President
Dalferro, John R. Senior Vice President
Daly, Kenneth L. Senior Vice President
Derbyshire, Ralph S. Senior Vice President
England, Richard B. Senior Vice President
Eurkus, David J. Senior Vice President
Fitzgerald, Michael T. Senior Vice President
Flaherty, Patricia C. Senior Vice President
Francis, Jonathan H. Senior Vice President
Frucci, Richard M. Senior Vice President
Fullerton, Brian J. Senior Vice President
Grant, J. Peter Senior Vice President
Grim, Daniel J. Senior Vice President
Haagensen, Paul E. Senior Vice President
Hadden, Peter J. Senior Vice President
Halperin, Matthew C. Senior Vice President
Han, Billy P. Senior Vice President
Healey, Deborah R. Senior Vice President
Holding, Pamela Senior Vice President
Joyce, Kevin M. Senior Vice President
Kamshad, Omid Senior Vice President
Kay, Karen R. Senior Vice President
Kirson, Steven L. Senior Vice President
Kobylarz, Jeffrey J. Senior Vice President
Koontz, Jill A. Senior Vice President
Korn, Karen R. Senior Vice President
Kuenstner, Deborah F. Senior Vice President
Leichter, Jennifer E. Senior Vice President
Lindsey, Jeffrey R. Senior Vice President
Lukens, James W. Senior Vice President
MacElwee, Elizabeth M. Senior Vice President
Madore, Robert A. Senior Vice President
Malloy, Julie M. Senior Vice President
Manning, Howard K. Senior Vice President
<PAGE>
Matteis, Andrew S. Senior Vice President
McAuley, Alexander J. Senior Vice President
McDonald, Richard E. Senior Vice President
Meehan, Thalia Senior Vice President
Mikami, Darryl K. Senior Vice President
Miller, William H. Senior Vice President
Minn, Seung H. Senior Vice President
Mockard, Jeanne L. Senior Vice President
Morgan, Kelly A. Senior Vice President
Mufson, Michael J. Senior Vice President
Mullin, Hugh H. Senior Vice President
Netois, Jeffrey W. Senior Vice President
Nguyen, Triet M. Senior Vice President
Oler, Stephen S. Senior Vice President
Paine, Robert M. Senior Vice President
Parker, Margery C. Senior Vice President
Perry, William Senior Vice President
Peters, Carmel Senior Vice President
Pohl, Charles G. Senior Vice President
Pollard, Mark D. Senior Vice President
Ray, Christopher A. Senior Vice President
Reeves, William H. Senior Vice President
Rosalanko, Thomas J. Senior Vice President
Ruys de Perez, Charles A. Senior Vice President
Santos, David J. Senior Vice President
Schwister, Jay E. Senior Vice President
Scordato, Christine A. Senior Vice President
Senter, Max S. Senior Vice President
Shadek Jr., Edward T. Senior Vice President
Silk, David M. Senior Vice President
Simon, Sheldon N. Senior Vice President
Smith Jr., Leo J. Senior Vice President
Smith, Margaret D. Senior Vice President
Stairs, George W. Senior Vice President
Storkerson, John K. Senior Vice President
Strumpf, Casey Senior Vice President
Sullivan, Roger R. Senior Vice President
Svensson, Lisa H. Senior Vice President
Swanberg, Charles H. Senior Vice President
Taubes, Kenneth J. Senior Vice President
Thomas, David K. Senior Vice President
Thomsen, Rosemary H. Senior Vice President
Tibbetts, Richard B. Senior Vice President
Till, Hilary F. Senior Vice President
Troped, Bonnie L. Senior Vice President
Van Vleet, Charles C. Senior Vice President
Verani, John R. Senior Vice President
Warren, Paul C. Senior Vice President
Weinstein, Michael R. Senior Vice President
<PAGE>
Weiss, Manuel Senior Vice President
Whalen, Edward P. Senior Vice President
Wheeler, Diane D.F. Senior Vice President
Wyke, Richard P. Senior Vice President
Yogg, Michael R. Senior Vice President
Zukowski, Gerald S. Senior Vice President
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 19(b): Books and Records -- Lincoln National Global Asset
Allocation Fund, Inc. -- Rules Under Section 31 of the Investment Company
Act of 1940.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant makes the following undertakings:
to file an amendment to this Registration Statement with certified
financial statements showing the initial capital received before it
accepts subscriptions from any persons in excess of 25 if Registrant
proposes to raise its initial capital pursuant to Section 14(a)(3) of
the Act; and
to file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date
of this Registration Statement.
The registrant undertakes to provide, without charge, a copy of the
Fund's most recent Annual Report to any receipient of its prospectus who
requests it.
<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 17 day
of April, 1998.
LINCOLN NATIONAL
GLOBAL ASSET ALLOCATION FUND, INC.
By /s/ Kelly D. Clevenger
----------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this
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>
April 17, 1998
/s/ Kelly D. Clevenger Chairman of the Board --------------
- ------------------------ President and Director
Kelly D. Clevenger (Principal Executive
Officer)
April 17, 1998
* Director --------------
- ------------------------
John B. Borsch, Jr.
April 17, 1998
Director --------------
- ------------------------
Kenneth G. Stella
April 17, 1998
*** Director --------------
- ------------------------
Barbara S. Kowalczyk
April 17, 1998
** Director --------------
- ------------------------
Nancy L. Frisby
/s/ Eric C. Jones Chief Accounting Officer April 17, 1998
- ------------------------ (Principal Accounting --------------
Eric C. Jones Officer)
/s/ Janet C. Whitney Vice President and April 17, 1998
- ------------------------ Treasurer (Principal --------------
Janet C. Whitney Financial Officer)
* By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with the original
------------------- Registration Statement.
Jeremy Sachs
** By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
------------------- Effective Amendment No. 8 to this Registration
Jeremy Sachs Statement.
*** By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
------------------- Effective Amendment No. 9 to the Registration
Jeremy Sachs Statement.
</TABLE>
<PAGE>
Exhibit No. Description
- ----------- -----------
1 Articles
2 By-Laws
4 Certificate
5(a) Sub-Advisory Agreement between Lincoln Investment
Management, Inc. and Putnam Investment Management, Inc.
dated June 8, 1987.
5(b) Advisory Agreement between Lincoln Investment Management,
Inc. and Lincoln National Global Asset Allocation Fund, Inc.
dated May 31, 1987.
6(a) Specimen Agents Contract
8(a) Custody Agreement
9(a) Agreement to Purchase Shares.
9(b) Trade Name Agreement
10 Opinion of Counsel
11 Consent of Ernst & Young LLP, Independent Auditors
13 Investment Letter
17(a) Financial Data Schedule
18(a) Power of Attorney-Nancy L. Frisby
18(b) Power of Attorney-John B. Borsch Jr.
18(c) Power of Attorney-Barbara S, Kowalczyk
19(a) ORG Chart
19(b) Memorandum Concerning Books and Records
<PAGE>
Exhibit 1
ARTICLES OF INCORPORATION
of Lincoln National Putnam Master Fund, Inc.
(A Maryland Corporation)
FIRST: INCORPORATOR. The undersigned, whose address is One First
National Plaza, Suite 3300, Chicago, Illinois 60603, being at least 18 years of
age, is acting as sole incorporator to form a corporation under and by virtue of
the General Laws of the State of Maryland authorizing the formation of
corporations (hereinafter referred to as the "General Corporation Law").
SECOND: NAME. The name of the corporation (hereinafter called the
"Corporation") is Lincoln National Putnam Master Fund, Inc.
THIRD: PURPOSE. The purposes for which the Corporation is formed are:
A. To engage in, conduct, operate and carry on the business of an
open-end management investment company as defined in the Investment Company Act
of 1940 (including any amendment thereof or successor statute) (hereinafter
called the "1940 Act");
B. To invest and reinvest in, buy or otherwise acquire, hold for
investment or otherwise, sell or otherwise dispose of, lend or pledge, trade or
deal in securities, obligations, commodities, commodity futures contracts or
interests therein of all kinds, however evidenced, (or rights, options, or
warrants to acquire or dispose of such securities, obligations, commodities,
commodity futures contracts or interests) of, or issued or guaranteed by or on
behalf of: (I) any national, state or local governments, foreign or domestic,
or their agencies, instrumentalities or subdivisions (including, without
limitation, the United States, any state of the United States, multi-state
agency, political subdivision of a state, municipality, or any governmental
entity, unit, agency or instrumentality of any of the foregoing), and (ii) any
private or public company, corporation, association, board of trade, exchange,
general or limited partnership, trust or other enterprise or organization,
foreign or domestic; including as to both clauses (I) and (ii) without
limitation stocks, and all other forms of equity securities, convertible
securities, bonds, debentures, bills, notes and all other evidences of
indebtedness, negotiable or non-negotiable instruments, government securities,
money market instruments, certificates of deposit, finance paper, commercial
paper, secured call loans, commodities, commodity futures contracts, bankers'
acceptances, investment contracts and repurchase agreements; and
<PAGE>
C. To do every other act not inconsistent with law which is appropriate
to promote and attain the purposes set forth in these Articles of Incorporation.
FOURTH: PRINCIPAL OFFICE AND RESIDENT AGENT. The address of the
principal office of the Corporation in this State is 929 North Howard Street,
Baltimore, Maryland 21201. The name of the resident agent of the Corporation in
this State is The Prentice-Hall Corporation System, Maryland, Inc., a
corporation of this State, and the address of the resident agent is 929 North
Howard Street, Baltimore, Maryland 21201.
FIFTH: CAPITAL STOCK.
A. AUTHORIZED SHARES. The total number of shares of stock which the
Corporation shall have authority to issue is 50,000,000 shares of the par value
of $.0l per share, all of which shall be of a single class designated Common
Stock (and hereinafter referred to as such), such shares having an aggregate par
value of $500,000.
B. PREEMPTIVE RIGHTS. No holder of any stock of the Corporation shall as
such holder have any preemptive or other right to purchase or subscribe for any
stock which the Corporation may issue or sell, whether or not exchangeable for
any other stock of the Corporation, and whether out of the number of shares
authorized by the Articles of Incorporation as originally filed or by any
amendment thereof or out of shares of the stock of the Corporation acquired by
it after the issue thereof.
C. FRACTIONAL SHARES. The Corporation may issue fractional as well as
full shares, and each fractional share shall be dealt with and have rights
identical to those to which a full share is entitled but in such proportion, in
all instances, as such fractional share bears to a full share; provided,
however, that the Corporation shall in no event be obliged to issue certificates
for fractional shares.
D. MAJORITY VOTE. Notwithstanding any provision of the General
Corporation Law requiring that any action be taken or authorized by the
affirmative vote of the holders of a designated proportion greater than a
majority of the shares or votes entitled to be cast, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding and entitled to
vote thereon.
SIXTH: REDEMPTION OF SHARES. All shares of Common Stock now or
hereafter authorized shall be subject to redemption, in the sense used in the
General Corporation Law, in the manner,
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<PAGE>
upon the terms and conditions and at the redemption price determined as provided
in these Articles of Incorporation. All shares so redeemed or repurchased shall
be deemed to be acquired for retirement in the sense contemplated by the General
Corporation Law and the number of authorized shares of Common Stock shall not be
reduced by the number of any shares redeemed or repurchased by the Corporation.
A. REDEMPTION BY STOCKHOLDERS. Each holder of Common Stock, upon request
in proper form as determined by the Board of Directors, delivered to the
Corporation or its agent appointed for such purpose, accompanied, in the case of
shares for which certificates have been issued, by surrender of the appropriate
stock certificate or certificates in proper form for transfer, as determined by
the Board of Directors, shall be entitled to require the Corporation to redeem
all or any part of the shares of Common Stock standing in the name of such
holder on the books of the Corporation, to the extent that funds or property are
legally available therefor, at a redemption price per share equal to the net
asset value per share applicable to such redemption, determined as provided in
these Articles of Incorporation and in resolutions of the Board of Directors
adopted from time to time. Payment of the redemption price shall be made not
later than the seventh day following the day of receipt by the Corporation or
such agent of the written request and stock certificates, if any, in proper form
as described in the preceding sentence, except that no payment need be made
until funds for the purchase price of shares redeemed have been collected by or
for the account of the Corporation.
B. RIGHTS OF HOLDERS OF SHARES REDEEMED. The right of any holder of
shares of Common Stock redeemed as provided in Paragraph A to receive dividends
or distributions thereon and all other rights of such holder with respect to
such shares shall terminate at the time as of which the redemption price of such
shares is determined, except the right of such holder to receive (I) the
redemption price of such shares in accordance with the provisions hereof, and
(ii) any dividend or distribution to which such holder had previously become
entitled.
C. DETERMINATION OF NET ASSET VALUE PER SHARE. The Board of Directors
shall determine from time to time the net asset value per share of the
outstanding shares of Common Stock. It may delegate this authority to any one
or more of the Directors or officers of the Corporation, to the investment
adviser, the custodian of the Corporation's assets or to another agent of the
Corporation or agent of any of the foregoing appointed for such purpose; except
that the authority to suspend the determination of the net asset value may not
be delegated. The net asset value shall be determined as of the close of
trading on
-3-
<PAGE>
the New York Stock Exchange on each day such Exchange is open for trading,
unless the Board of Directors shall, by resolution, prescribe a different time
or times as of which such determination shall be made. The time at which shares
of Common Stock issued and sold by the Corporation shall be deemed to be
outstanding and the time at which shares of Common Stock redeemed or repurchased
by the Corporation shall be deemed no longer to be outstanding shall be fixed by
resolution of the Board of Directors. A determination of net asset value shall
be applicable to requests for redemption and, if and to the extent determined by
the Board of Directors, to other transactions of the Corporation in shares of
Common Stock, effected during such periods as the Board of Directors shall
prescribe by resolution.
D. SUSPENSION OF REDEMPTION RIGHTS. The Board of Directors may declare a
suspension of the redemption rights granted in Paragraph A: (I) for any period
during which the New York Stock Exchange is closed (other than customary weekend
and holiday closings), or during which trading in the markets customarily
utilized by the Corporation is restricted; (ii) for any period during which an
emergency exists, as determined by the Securities and Exchange Commission, as a
result of which disposal of the Corporation's investments or determination of
net asset value is not reasonably practicable; or (iii) for such periods as the
Securities and Exchange Commission by order may permit for the protection of the
Corporation's investors. Such suspension shall take effect at such time as the
board of Directors or authorized officer shall specify and shall continue until
the Board of Directors or authorized officer shall declare the suspension at an
end, except that the suspension shall terminate in any event on the first day on
which (1) the condition giving rise to the suspension shall have ceased to exist
and (2) no other condition exists under which suspension is authorized under
this Paragraph D. Each declaration by the Board of Directors pursuant to this
Paragraph D shall be consistent with applicable rules and regulations, if any,
of the Securities and Exchange Commission or any other governmental body having
jurisdiction over the Corporation. To the extent not inconsistent with such
rules and regulations, the determination of the board of Directors shall be
conclusive.
E. EFFECT OF SUSPENSION OF REDEMPTION RIGHTS. Notwithstanding any other
provision of this Article Sixth, the rights of holders of Common Stock to
require the Corporation to redeem and receive payment for their shares,
including holders who shall have requested redemption of shares but who shall
not have received payment therefor, shall be suspended during any period when a
suspension of redemption rights authorized by Paragraph D is in effect. No
determination of net asset value per share shall be required to be made during a
period when
-4-
<PAGE>
such a suspension is in effect. Any holder who shall have his redemption right
so suspended may, during the period of such suspension, by appropriate written
notice of revocation delivered to the office or agency where request for
redemption was made, revoke any request or instruction for redemption not
honored and withdraw any certificates tendered for redemption. The redemption
price of shares for which redemption requests have not been revoked shall be the
net asset value of such shares determined after the termination of such
suspension, and payment shall be made within seven days after the date upon
which the requirements of Paragraph A were met plus the period during which such
suspension was in effect.
SEVENTH: BOARD OF DIRECTORS. The number of Directors the Corporation
shall be four, which number may be changed pursuant to the By-Laws of the
corporation. The names of the Directors, who shall act until the first annual
meeting or until their successors are duly elected and qualified, are:
Robert A. Nikels
John B. Borsch, Jr.
Roxanne Decyk
Stanley R. Nelson
A. POWERS. The following powers are expressly vested in the Board of
Directors of the Corporation and may be exercised +with+ without the approval of
the stockholders of the Corporation:
(I) To make, adopt, alter, amend and repeal By-Laws of the
Corporation;
(ii) To declare and pay dividends and distributions in cash, shares
of Common Stock or other securities or property from surplus or
any funds legally available therefor, at such intervals (which
may be as frequently as daily) or on such other periodic bases as
it shall determine; to declare such dividends or distributions by
means of a formula or other method of determination at meetings
held less frequently than the frequency of the effectiveness of
such declarations; to provide that dividends may be paid in cash
or in shares of Common Stock at the election of each stockholder;
to establish payment dates for dividends or any other
distributions on any bases, including dates occurring less
frequently than the effectiveness of the declaration thereof; and
to provide for the payment of declared dividends on a date
earlier than the specified payment date;
(iii) Inasmuch as the computation of net income, profits or earnings
for Federal income tax purposes may
-5-
<PAGE>
vary from the computation thereof on the books of the
Corporation, in its discretion, to distribute for any fiscal year
as dividends and as capital gains distributions, respectively,
additional amounts sufficient to enable the Corporation to avoid
or reduce its liability for taxes;
(iv) To issue, reissue, sell or cause to be issued and sold any of the
authorized shares of Common Stock, including any additional
shares hereafter authorized and any shares redeemed or
repurchased by the Corporation, to such persons as the Board of
Directors shall determine, for such consideration, not less than
the greater of the par value thereof or the net asset value per
share determined as provided in these Articles of Incorporation
and in resolutions of the Board of Directors adopted from time to
time, and upon terms and conditions determined by the Board of
Directors, all such shares when so issued and sold being fully
paid and nonassessable; provided that no shares of Common stock
shall be issued or sold by the Corporation, except as a stock
dividend distributed to stockholders, for less than an amount
which would result in proceeds to the Corporation at least equal
to the net asset value per share, determined as provided in these
Articles of Incorporation and in resolutions of the Board of
Directors adopted from time to time, and provided further that in
the case of shares issued or sold for a consideration other than
cash, the resolution authorizing their issue or sale shall
include a fair description of any consideration other than cash
and a statement of the actual value of such consideration as
determined by the Board of Directors or a statement that the
Board of Directors has determined that the actual value is or
will be not less than a certain sum; and
(v) To authorize the purchase by the Corporation, either directly or
through an agent, of shares of Common Stock, in the open market
or otherwise, upon terms and conditions determined by the Board
of Directors at prices not in excess of the net asset value of
such shares determined as provided in these Articles of
Incorporation and in resolutions of the Board of Directors
adopted from time to time.
B. GOOD-FAITH DETERMINATIONS CONCLUSIVE. Any determination made in good
faith and, so far as accounting matters are involved in accordance with
generally accepted accounting principles, by or pursuant to the direction of the
Board of Directors, as to: the amount of the assets, debts, obligations or
liabilities of the Corporation; the amount of any reserves or charges set up and
the propriety thereof; the purpose for
-6-
<PAGE>
creating such reserves or charges the use, alteration or cancellation of any
reserves or charges (whether or not any debt, obligation or liability for which
such reserves or charges were created shall have been paid or discharged or
shall be then or thereafter required to be paid or discharged); the price or bid
or asked price or yield equivalent of any investment owned or held by the
Corporation; the market or fair value of any investment or any other asset of
the Corporation; the number of shares of Common Stock of the Corporation
outstanding; the ability to liquidate investments in orderly fashion; and any
matters relating to the issue, sale, redemption, purchase and/or other
acquisition or disposition of investments or Common Stock of the Corporation,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its Common Stock, past, present and future, and Common Stock of the
Corporation shall be issued and sold on the condition and understanding that any
and all such determinations shall be binding as aforesaid.
EIGHTH: GENERAL:
A. The Corporation reserves the right from time to time to amend, alter,
change, add to, or repeal any provisions contained in these Articles of
Incorporation in the manner now or hereafter prescribed or permitted by statute,
including any amendment which alters the contract rights, as expressly set forth
in these Articles of Incorporation, of any outstanding Common Stock, and all
rights conferred on stockholders and others herein are granted subject to this
reservation.
B. Nothing contained in these Articles of Incorporation shall be deemed
to authorize any action in contravention of any provision of the 1940 Act or any
rule or regulation thereunder.
C. The titles contained in these Articles of Incorporation are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
IN WITNESS WHEREOF, the undersigned incorporator hereby acknowledges these
Articles of Incorporation to be his act and further acknowledges that, to the
best to his knowledge, information and belief, the matters and facts set forth
therein are true in all material respects and that this statement is made under
the penalties for perjury.
/s/ ROBERT J. WILCZEK
Robert J. Wilczek
-7-
<PAGE>
Exhibit 2
Bylaws
of
Lincoln National Putnam Master Fund, Inc.
(as last amended January 24, 1989)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS: (a) The annual meeting of the stockholders of
the Corporation (if such meeting be held) shall be held on the third Tuesday in
August in each year (or if said day be a legal holiday then on the next
succeeding day not a legal holiday), at 10:30 a.m., at the office of the
Corporation in the City of Baltimore, Maryland, or at such other time and place
within the United States as may be fixed by the Chairman of the Board or the
President, for the purpose of electing directors and for transacting such other
business as may properly be brought before the meeting. Only such business, in
addition to that prescribed by law, by the Articles of Incorporation or by these
Bylaws, may be brought before such meeting as may be specified by resolution of
the Board of Directors, or by writing filed with the secretary of the
Corporation and signed by the Chairman of the Board or the President or by a
majority of the directors or by stockholders holding at least one-half of the
Common Stock of the Corporation outstanding and entitled to vote at the meeting.
(b) Upon the affirmative vote of a majority of the whole board, the annual
meeting may be dispensed with in any year in which none of following is required
to be acted upon by stockholders pursuant to the Investment Company Act of
1940:
i. Election of directors;
ii. Approval of an investment advisory agreement;
iii. Ratification of the selection of independent public accountants; and
iv. Approval of a distribution agreement. (Last amended January 24, 1989.)
SECTION 2. SPECIAL MEETINGS: Special meetings of the stockholders for
any purpose or purposes may be held upon call by the Chairman of the Board or
the President or by a majority of the Board of Directors, and shall be called
by the Chairman of the Board, the President, a Vice President, the Secretary
or any director at the request in writing of a majority of the Board of
Directors or of stockholders holding at least one-quarter of the stock of the
Corporation outstanding and entitled to vote at the meeting, at such time and
date and at such place where an annual meeting of
-1-
<PAGE>
stockholders could be held, each as may be fixed by the Chairman of the Board,
the President or the Board of Directors, as the case may be, and as may be
stated in the notice setting forth such call. Such request shall state the
purpose or purposes of the proposed meeting and the matters proposed to be acted
upon and only such matters so specified may properly be brought before such
meeting.
Special meetings of the stockholders shall be called by the Chairman of the
Board, the President, a Vice President, the Secretary or any Director when
requested to do so by stockholders representing the requisite beneficial
interest in the Corporation pursuant to Section 16(c) of the Investment Company
Act of 1940, for the purpose of removing one or more directors. The time and
place for any such meeting will be fixed as provided in the previous paragraph.
Whenever stockholders or beneficial owners of stock in the Corporation apply to
the Board of Directors for assistance in communicating with other stockholders
or beneficial owners for this purpose, the Board shall facilitate that
communication pursuant to that Section 16(c). (Last amended January 24, 1989.)
Whenever the Board of Directors shall change the independent public
accountant for the Corporation, a meeting of stockholders shall be called by the
Board for the purpose of ratifying or rejecting the selection of the new
accountant. The time and place for any such meeting will be fixed as provided
in the first paragraph of this SECTION. (Last amended January 24, 1989.)
SECTION 3. NOTICE OF MEETINGS: Written or printed notice of every annual
or special meeting of stockholders, stating the time and place thereof and, in
the case of every special meeting, the purpose of such meeting, shall be
delivered personally or mailed to each stockholder of record entitled to vote at
the meeting at his address as the same appears on the books of the Corporation
or left at his residence or usual place of business, in each case at least ten
days but not more than ninety days prior to such meeting. Such further notice
shall be given as may be required by law. Meetings may be held without notice if
all of the stockholders entitled to vote are present or represented at the
meeting, or if notice is waived in writing, either before or after the meeting,
by those not present or represented at the meeting. No notice of an adjourned
meeting of the stockholders other than an announcement of the time and place
thereof at the preceding meeting shall be required.
SECTION 4. QUORUM: At every meeting of the stockholders, the holders of
record of one-halt of the outstanding shares of Common Stock of the Corporation
entitled to vote at the meeting, whether present in person or represented by
proxy, shall, except as otherwise provided by law, constitute a quorum. If at
any meeting there shall be no quorum, the holders of record of a majority of
such shares entitled to vote at the meeting so present or represented may
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<PAGE>
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall have been obtained, when any business may be
transacted which might have been transacted at the meeting as first convened had
there been a quorum.
SECTION 5. PRESIDING OFFICER: Meetings of the stockholders shall be
presided over by the Chairman of the Board or, if he is not present, the
President or, if neither is present by a Vice President or, in their absence, by
a chairman to be chosen at the meeting. The Secretary of the Corporation, or,
if he is not present, an Assistant Secretary of the Corporation or, if neither
is present, a secretary to be chosen at the meeting shall act as secretary of
the meeting.
SECTION 6. PROXIES: Each stockholder entitled to vote at any meeting
shall have one vote in person or by proxy for each share of Common Stock held by
him, but no proxy shall be voted on after eleven months from its date, unless
such proxy provides for a longer period. Fractional shares shall be entitled to
fractional votes. All elections of directors shall be had and all questions,
except as otherwise provided by law or by the Articles of Incorporation or by
these Bylaws, shall be decided by a majority of the votes cast by stockholders
present or represented and entitled to vote thereon in person or by proxy.
SECTION 7. BALLOTING: The vote on the election of directors, and other
questions properly brought before any meeting, need not be by ballot except when
so demanded by a majority vote of the shares present in person or by proxy and
entitled to vote theron, or when so ordered by the chairman of such meeting.
The chairman of each meeting at which directors are to be elected by ballot or
at which any question is to be so voted on shall, at the request of any
stockholder present or represented by proxy at the meeting and entitled to vote
at such election or on such question, appoint two inspectors of election. No
director or candidate for the office of director shall be appointed as such
inspector. Inspectors shall first take and subscribe an oath or affirmation
faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of their ability, and shall take charge
of the polls and after the balloting shall make a certificate of the result of
the vote taken.
SECTION 8. RECORD DATE: The Board of Directors may close the stock
transfer books of the Corporation for a period not exceeding twenty days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of stock shall go into effect; or, in lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date, not exceeding sixty days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding sixty
-3-
<PAGE>
days preceding the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
stock shall go into effect, or a date in connection with the obtaining of any
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at any such meeting and at any adjournment thereof, or
entitled to receive payment of any such dividend, or to receive any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of stock, or to give such consent, and in such case such
stockholders, and only such stockholders, as shall be stockholders of record on
the date so fixed, shall be entitled to such notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE: The Board of
Directors of the Corporation shall consist of not less than three nor more than
ten persons, none of whom need be stockholders of the Corporation. The number
of directors shall be four unless increased or decreased by the Board of
Directors from time to time, as it sees fit, by vote of a majority of the whole
Board. The directors shall be elected and shall hold office, except as
otherwise provided in SECTIONS 2 and 3 hereof, until their respective successors
are elected and qualify. A majority of the whole Board, but in no event less
than two, shall constitute a quorum for the transaction of business, but if at
any meeting of the Board there shall be less than a quorum present, a majority
of the directors present may adjourn the meeting from time to time, until a
quorum shall have been obtained, when any business may be transacted which might
have been transacted at the meeting as first convened had there been a quorum.
No notice of an adjourned meeting of the directors other than an announcement of
the time and place thereof at the preceding meeting shall be required. The acts
of the majority of the directors present at any meeting at which there is a
quorum shall, except as otherwise provided by law, by the Articles of
Incorporation or by these Bylaws, be the acts of the Board. (Last amended
January 24, 1989)
SECTION 2. RESIGNATIONS: Any director may resign his office at any time
by delivering a written resignation to the Board of Directors, the President or
the Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery and need not be accepted. A director who is an "interested
person", as defined in the
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<PAGE>
Investment Company Act of 1940 shall resign as a director of the Corporation
upon the termination of his employment relationship with the investment adviser
or an affiliated corporation of the investment adviser. The Board of Directors
may, at its option, decline to accept the resignation of a director who tenders
his resignation under these circumstances.
SECTION 3. VACANCIES: (a) The Board of Directors, by vote of a majority
of the whole Board, may elect directors to fill vacancies in the Board
resulting from an increase in the number of directors or from any other cause
except removal of a director pursuant to Subsection (b) of this SECTION 3. A
director so chosen shall hold office until the expiration of the term of the
director whom he shall have succeeded, and, in the case of an increase in the
number of directors, the directors so chosen shall hold office until the next
meeting of stockholders and until their respective successors are elected and
qualify. (Last amended January 24, 1989.)
(b) The stockholders, at any meeting called for the purpose, may, with or
without cause, remove any director by the affirmative vote of two-thirds of the
outstanding shares of the Corporation which are entitled to be represented at
such meeting. (Last amended January 24, 1989.)
The stockholders may, at any meeting called for the purpose, fill the
vacancy in the Board thus caused, by the affirmative vote of not less than a
majority of the outstanding shares of the Corporation entitled to be cast at
such meeting. (Last amended January 24, 1989.)
SECTION 4. PLACE, TIME AND NOTICE OF MEETINGS: Meetings of the Board of
Directors shall be held at such place, within or without the State of
Maryland, as may from time to time be fixed by resolution of the Board or as
may be specified in the call of any meeting. Regular meetings of the Board
of Directors shall be held at such times as may from time to time be fixed by
resolution of the Board, and special meetings may be held at any time upon
the call of a majority of the persons constituting the Board of Directors the
Chairman of the Board, the President or the Secretary, by oral, telephonic,
telegraphic or written notice, duly served on, sent, mailed or given to each
director at least twenty-four hours before the meeting. The notice of any
special meeting shall specify the purposes thereof. Notice need not be given
of regular meetings of the Board held at times fixed by resolution of the
Board. Meetings may be held at any time without notice if all of the
directors are present or if notice is waived in writing, either before or
after the meeting, by those not present.
SECTION 5. CONFERENCE TELEPHONE: Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
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<PAGE>
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at the meeting.
SECTION 6. PRESIDING OFFICER: Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or, if he is not present, by the
President or, if neither of the above is present, by a Vice President or, if
none of the above is present, by a chairman to be chosen at the meeting; and the
Secretary or, if he is not present, an Assistant Secretary or, if neither is
present, a secretary to be chosen at the meeting shall act as secretary of the
meeting.
SECTION 7. COMPENSATION: The directors, other than those who are
"interested persons" as defined in the Investment Company Act of 1940 shall
receive such fees or compensation for services to the Corporation (including
attendance at meetings of the Board or of committees designated by the Board
pursuant to Section 9 of this Article II) as may be fixed by the Board of
Directors.
SECTION 8. CONFLICTS OF INTEREST: Except as otherwise provided by law or
in the Articles of Incorporation, a director of the Corporation shall not, in
the absence of fraud, be disqualified by his office from dealing or contracting
with the Corporation either as a vendor, purchaser or otherwise, nor in the
absence of fraud shall any transaction or contract of the Corporation be void or
voidable or affected by reason of the fact that any directors, or any firm of
which any director is a member, or any corporation of which any director is an
officer, director or stockholder, is in any way interested in such transaction
or contract; provided, that at the meeting of the Board of Directors authorizing
or confirming said contract or transaction, the existence of an interest of such
director, firm or corporation is disclosed or made known and there is present a
quorum of the Board of Directors, and such contract or transaction is approved
by a majority of such quorum, which majority shall consist of directors not so
interested or connected. Nor shall any director be liable to account to the
Corporation for any profit realized by him from or through any such transaction
or contract of the Corporation, ratified or approved as aforesaid, by reason of
the fact that he or any firm of which he is a member, or any corporation of
which he is an officer, director or shareholder, was interested in such
transaction or contract. Directors so interested may be counted when present at
meetings of the Board of Directors for the purpose of determining the existence
of a quorum. Any contract, transaction or act of the Corporation or of the
Board of Directors (whether or not approved or ratified as hereinabove provided)
which shall be ratified by a majority in interest of a quorum of the
stockholders having voting power at any annual meeting or any special meeting
called for such purpose or approved in writing by a majority in interest of the
stockholders having voting power without a meeting shall,
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<PAGE>
except as otherwise provided by law, be as valid and as binding as though
ratified by every stockholder of the Corporation.
SECTION 9. COMMITTEES: The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of two or more of the directors of
the Corporation, which, to the extent permitted by law and provided in said
resolution or resolutions, shall have and may exercise the powers of the Board
over the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors. A
majority of the members of any such committee may determine its action and fix
the time and place of its meetings unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to change the
membership of, to fill vacancies in, or to dissolve any such committee.
ARTICLE III
OFFICERS
SECTION 1. GENERAL: The Board of Directors annually shall elect from
among its members a Chairman of the Board and a President of the Corporation,
and shall elect one or more Vice Presidents, a Secretary and a Treasurer and,
from time to time, any other officers and agents as it may deem proper. Any two
of the above-mentioned officers, except those of the President and a Vice
President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by law or by these Bylaws to be executed, acknowledged or
verified by any two or more officers. The Board of Directors may fill any
vacancy which occurs in any office. (Last amended January 24, 1989.)
SECTION 2. TERM OF OFFICE: The term of office of all officers shall be
one year or until their respective successors are chosen; but any officer or
agent chosen or elected by the Board of Directors may be removed, if the Board
of Directors in its judgment finds that the best interests of the Corporation
will be thus served, at any time, by the affirmative vote of a majority of the
members of the Board then in office.
SECTION 3. POWERS: Subject to such limitations as the Board of Directors
may from time to time prescribe, the officers of the Corporation shall each have
such powers and duties as generally appertain to their respective offices, as
well as such powers and duties as from time to time may be conferred by the
Board of Directors. Any officer, agent or employee of the Corporation may be
required by the Board of
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<PAGE>
Directors to give bond for the faithful discharge of his duties, in such sum and
of such character as the Board may from time to time prescribe.
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. CERTIFICATES: Each stockholder of the Corporation shall be
entitled, upon written request by such stockholder to the Corporation, to a
certificate or certificates, in such form as the Board of Directors may from
time to time prescribe, which shall represent and certify the number of whole
shares of stock of the Corporation owned by such stockholder. The certificates
for shares of stock of the Corporation shall bear the signature, either manual
or facsimile, of the President or a Vice President and the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, and shall be
sealed with the seal of the Corporation or bear a facsimile of such seal. The
validity of any stock certificate shall not be affected if any officer whose
signature appears thereon ceases to be an officer of the Corporation before such
certificate is issued.
SECTION 2. TRANSFERS: The shares of stock of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by a duly authorized attorney, upon surrender for cancellation of a certificate
or certificates for a like number of shares, with a duly executed assignment and
power of transfer endorsed thereon or attached thereto, or, if no certificate
has been issued to the holder in respect of shares of stock of the Corporation,
upon receipt of written instructions, signed by such holder, to transfer such
shares from the account maintained in the name of such holder by the Corporation
or its agent. Such proof of the authenticity of the signatures as the
Corporation or its agent may reasonably require shall be provided.
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES: No certificate for
shares of stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen, mutilated or destroyed except
upon production of such evidence of the loss, theft, mutilation or
destruction, and upon indemnification of the Corporation and its agents to
such extent and in such manner as the Board of Directors may from time to
time prescribe.
ARTICLE V
CORPORATE BOOKS
The books of the Corporation, except the original or a duplicate stock
ledger which shall be kept at the office of the Corporation located in Fort
Wayne, Indiana, may be
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<PAGE>
kept outside the State of Maryland at such place or places as the Board of
Directors may from time to time determine.
ARTICLE VI
SIGNATURES
Except as otherwise provided in these Bylaws or as the Board of Directors
may generally or in particular cases authorize the execution thereof in some
other manner, all deeds, leases, transfers, contracts, bonds, notes, checks,
drafts and other obligations made, accepted or endorsed by the Corporation and
all endorsements, assignments, transfers, stock powers or other instruments of
transfer of securities owned by or standing in the name of the Corporation shall
be signed or executed by the President or any Vice President or by any other
officer or agent authorized to act in such matters, whether by law, the Articles
of Incorporation, these Bylaws, or any general or special authorization of the
Board of Directors. If the corporate seal is required, it shall be affixed by
the Secretary or an Assistant Secretary.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall end on December 31 each year. (Amended
March 9, 1982)
ARTICLE VIII
CORPORATE SEAL
The corporate seal of the Corporation shall consist of a flat faced
circular die with the word "Maryland" together with the name of the Corporation,
the year of its organization, and such other appropriate legend as the Board of
Directors may from time to time determine, cut or engrave thereon. In lieu of
the corporate seal, when so authorized by the Board of Directors or a duly
empowered committee thereof, a facsimile thereof may be impressed or affixed or
reproduced.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify directors, officers, employees and agents
of the
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<PAGE>
Corporation against judgments, fines, settlements and expenses to the fullest
extent authorized and in the manner permitted by applicable federal and state
law. (Amended December 14, 1981)
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<PAGE>
ARTICLE X
ADDITIONAL PROVISIONS
In any case where an officer or director of the Corporation or of any
investment adviser of the Corporation or a member of any committee of the
Corporation, is also an officer or director of another corporation and the
purchase or sale of the securities issued by such other corporation is under
consideration, the officer, director or committee member concerned will abstain
from participating in any decision made on behalf of the Corporation to purchase
or sell any securities issued by such other corporation.
ARTICLE XI
AMENDMENTS
The Bylaws of the Corporation may be amended, added to, rescinded or
repealed at any meeting of the stockholders, or by vote of a majority of the
directors then in office at any meeting of the Board of Directors, provided
notice of the substance of the proposed change is contained in the notice of the
meeting or any waiver thereof; except that after the initial issue of any shares
of capital stock of the Corporation, the provisions of this Article XI may be
altered, amended or repealed only upon the affirmative vote of the holders of a
majority of all shares of capital stock of the Corporation at the time
outstanding and entitled to vote.
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<PAGE>
Exhibit 4
INCORPORATED UNDER THE LAWS OF THE STATE OF
MARYLAND
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
AUTHORIZED CAPITAL 50,000,000 SHARES $.01 PAR VALUE
THIS CERTIFIES THAT SPECIMEN IS THE OWNER OF ______________________ FULL PAID
AND NON-ASSESSABLE shares of the Capital Stock of LINCOLN NATIONAL PUTNAM MASTER
FUND, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE
CORPORATION,
THIS ______________________ DAY OF _________________________ A.D. 19__
- ------------------------------ ------------------------------
Secretary President
<PAGE>
SUB-ADVISORY AGREEMENT
Sub-Advisory Agreement executed as of June 8, 1987 between LINCOLN
NATIONAL INVESTMENT MANAGEMENT COMPANY, an Illinois corporation (the "Adviser"),
and PUTNAM MANAGEMENT COMPANY, INC., a Delaware Corporation (the "Sub-Adviser").
Witnesseth:
That in Consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE FUND.
(a) Subject always to the Control of the Directors of Lincoln
National Putnam Master Fund, Inc. (the "Fund"), a Maryland corporation,
which is an eligible investment fund for Lincoln National Pension Variable
Annuity Account C (the "Variable Annuity"), the Sub-Adviser, at its
expense, will furnish continuously an investment program for the Fund
which shall at all times meet the diversification requirements of Section
817(h) of the Internal Revenue Code of 1986 (the "Code"). The Sub-Adviser
will make investment decisions on behalf of the Fund and place all orders
for the purchase and sale of portfolio securities. In the performance of
its duties, the Sub-Adviser will comply with the provisions of the
organizational documents and Bylaws of the Fund and the stated investment
objective, policies and restrictions of the Fund, and will use its best
efforts to safeguard and promote the welfare of the Fund, and to comply
with other policies which the Directors or the Adviser, as the case may
be, may from time to time determine. The Sub-Adviser shall make its
officers and employees available to the Adviser from time to time at such
reasonable times as the parties may agree to review investment policies of
the Fund and to consult with the Adviser regarding the investment affairs
of the Fund.
(b) The Sub-Adviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel,
required for it to execute its duties faithfully and (ii) administrative
facilities, including bookkeeping, clerical personnel and equipment
necessary for the efficient conduct of the investment affairs of the Fund
(excluding determination of net asset value per share and shareholder
accounting services).
(C) In the selection of brokers, dealers or futures commission
merchants and the placing of orders for the purchase and sale of portfolio
investments for the Fund, the Sub-Adviser shall use its best efforts to
obtain for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher
<PAGE>
brokerage commissions for brokerage and research services as described
below. In using its best efforts to obtain for the Fund the most favorable
price and execution available, the Sub-Adviser, bearing in mind the Fund's
best interests at all times, shall consider all factors it deems relevant,
including by way of illustration: price; the size of the transaction; the
nature of the market for the security; the amount of the commission; the
timing of the transaction taking into account market prices and trends;
the reputation, experience and financial stability of the broker, dealer,
or futures commission merchant involved; and the quality of service
rendered by the broker, dealer or futures commission merchant in other
transactions. Subject to such policies as the Directors of the Fund may
determine, the Sub-Adviser shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Fund to pay a broker, dealer or futures
commission merchant that provides brokerage and research services to the
Sub-Adviser an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker, dealer
or futures commission merchant would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research services provided by such broker, dealer futures commission
merchant, viewed in terms of either that particular transaction or the
Sub-Adviser's over-all responsibilities with respect to the Fund and to
other clients of the Sub-Adviser as to which the Sub-Adviser exercises
investment discretion.
(d) The Sub-Adviser shall not be obligated to pay any expenses of or
for the Fund not expressly assumed by the Sub-Adviser pursuant to this
Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
(a) It is understood that any of the shareholders, Directors,
officers and employees of the Fund may be a shareholder, director,
officer or employee of, or be otherwise interested in, the Sub-Adviser,
and in any person controlled by or under common control with the
Sub-Adviser; and that the Sub-Adviser and any person controlled by or
under common control with the Sub-Adviser may have an interest in the Fund
or the Variable Annuity, or any other investment vehicle for which the
Fund is an eligible investment fund.
(b) The Adviser agrees that if any additional funds are created by
the Variable Annuity for which the Adviser undertakes to act as investment
adviser, it will discuss with the Sub-Adviser obtaining investment
advisory services from the Sub-Adviser for any such additional fund before
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<PAGE>
seeking such services from any other investment adviser not affiliated
with the Adviser.
3. COMPENSATION TO BE PAID BY THE ADVISER TO THE SUB-ADVISER.
The Adviser will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered and for the expenses borne by the Sub-Adviser
pursuant to Section 1, a fee, computed and paid at the annual rate of the
greater of (a) $40,000, or (b) 0.47% of the first $200 million of average net
assets of the Fund, 0.42% of the next $200 million of average net assets, and
0.40% of any excess over $400 million. Such fee shall be paid by the Adviser,
and not by the Fund, and without regard to any reduction in the fees paid by the
Fund to the Adviser under its management contract as a result of any statutory
or regulatory limitation on investment company expenses or voluntary fee
reduction assumed by the Adviser. Such fee shall be payable for each month
within 10 business days after the end of such month.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment or in the event that the investment
advisory contract between the Adviser and the Fund shall have terminated for any
reason; and this Agreement shall not be amended unless such amendment be
approved at a meeting by the affirmative vote of a majority of the outstanding
shares of the Fund and by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Directors of the Fund
who are not interested persons of the Fund or of the Adviser or of the
Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall remain
in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) The Fund may at any time terminate this Agreement by not more
than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the Adviser and the Sub-Adviser; or
(b) If (i) the Directors of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund and
(ii) a majority of the Directors who are not interested persons of the
Fund or of the Adviser or of the Sub-Adviser, by vote cast in person at
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<PAGE>
a meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this Agreement,
then this Agreement shall automatically terminate at the close of business
on the second anniversary of its execution, or upon the expiration of one
year from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Agreement is
submitted to the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this Agreement as
provided herein, the Sub-Adviser may continue to serve hereunder in a
manner consistent with the Investment Company Act of 1940 and the Rules
and Regulations thereunder; or
(c) The Adviser may at any time terminate this Agreement by not less
than ninety days' written notice delivered or mailed by registered mail,
postage prepaid, to the Sub-Adviser, and the Sub-Adviser may at any time
terminate this Agreement by not less than 90 days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser.
Action by the Fund under (a) above may be taken either (i) by vote of a
majority of its Directors, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be without
the payment of any penalty.
6. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Adviser in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, and under the laws of any jurisdiction in which
the Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement, (b) the Sub-Adviser shall have
been served or otherwise have notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board or
body, involving the affairs of the Rind, (c) the Sub-Adviser shall cease to be a
direct or indirect wholly-owned subsidiary of Marsh & McLennan Companies, Inc.
and (d) the President of the Sub-Adviser or any portfolio manager of the Fund
shall have changed.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority of
the outstanding shares" means the affirmative vote, at a duly called and held
meeting of shareholders, (a) of the holders of 67% or more of the shares of the
Fund present (in person or by proxy) and entitled to vote at such meeting, if
the
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<PAGE>
holders of more than 50% of the outstanding shares of the Fund entitled to vote
at such meeting are present in person or by proxy, or (b) of the holders of more
than 50% of the outstanding shares of the Fund entitled to vote at such meeting,
whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
8. NONLIABILITY OF SUB-ADVISER.
(a) In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Sub-Adviser, or reckless disregard of its
obligations and duties hereunder, the Sub-Adviser shall not be subject to
any liability to the Fund or to any shareholder of the Fund, for any act
or omission in the course of, or connected with, rendering services
hereunder.
(b) Failure by the Sub-Adviser to assure that the investment program
for the Fund meets the diversification requirements of Section 817(h) of
the Code, as required by Article 1(a) of this Agreement, shall constitute
cross negligence per se under sub-paragraph 8(a) just above.
9. Sub-Adviser agrees to indemnify the Adviser, the Variable Annuity and the
Depositor of the Variable Annuity for, and hold them harmless against, any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Sub-Adviser) or litigation (including legal and
other expenses) to which the Adviser, the Variable Annuity or the Depositor of
the Variable Annuity may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements arise as a result of any failure by
the Sub-Adviser, whether unintentional or in good faith or otherwise, to
adequately diversify the investment program of the Fund, pursuant to the
requirements of Section 817(h) of the Code, and the regulations issued
thereunder (including, but not by way of limitation, Temporary Reg. Sec.
1.817-5T, September 12, 1986, 51 F.R. 32633), relating to the diversification
requirements for variable annuity, endowment, and life insurance contracts,
provided that the Sub-Adviser shall
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<PAGE>
have been given prompt written notice concerning any matter for which
indemnification is otherwise afforded hereunder.
IN WITNESS WHEREOF, LINCOLN NATIONAL INVESTMENT MANAGEMENT COMPANY and THE
PUTNAM MANAGEMENT COMPANY, INC. have each caused this Instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the day
and year first above written.
LINCOLN NATIONAL INVESTMENT
MANAGEMENT COMPANY
By: /s/ Robert W. Crispin
-------------------------------
Title: President
THE PUTNAM MANAGEMENT COMPANY, INC.
By: /s/ [illegible]
-------------------------------
Title: Senior Managing Director
Accepted and agreed to
as of the day and year
first above written:
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
By: /s/ Robert A. Nikels
-------------------------------
Title: President
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<PAGE>
ADVISORY AGREEMENT
Agreement, made this 31st day of May, 1987 between Lincoln National
Putnam Master Fund, Inc., a Maryland corporation (the "Fund"), and Lincoln
National Investment Management Company (the "Adviser"),
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory and administrative services to the Fund, and the Adviser is willing
to render such services;
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Fund hereby appoints the Adviser to
act as investment adviser to the Fund and to administer its corporate
affairs, subject to the supervision of the Board of Directors of the Fund for
the period and on the terms set forth in this Agreement. The Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. INVESTMENT ADVISORY DUTIES. Subject to the supervision of the
Board of Directors of the Fund, the Adviser shall manage the investment
operations of the Fund, subject to the following:
(a) the Adviser shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio, determine
from time to time what securities will be purchased, retained or sold by
the Fund, and what portion of the assets will be invested or held
uninvested as cash;
(b) the Adviser shall use the same skill and care in the management of the
Fund's portfolio as it uses in the management of other accounts for which
it has investment responsibility;
(c) the Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of Incorporation,
By-laws and Prospectus of the Fund and with the instructions and directions
of the Board of Directors of the Fund and will conform to and comply with
the requirements of the 1940 Act and all other applicable federal and state
laws and regulations;
(d) the Adviser shall determine the securities to be purchased or sold by
the Fund and will place orders pursuant to its determinations either
directly with the issuer or with any
<PAGE>
broker and/or dealer who specializes in the securities in which the Fund is
active, but shall in no event place such orders with any affiliated person
of the Adviser; in placing orders with brokers and/or dealers, the Adviser
shall attempt to obtain the best price and the most favorable execution of
its orders, subject to such other considerations as may be set forth in the
then most recent Prospectus of the Fund;
(e) the Adviser shall maintain books and records with respect to the
Fund's securities transactions and shall render to the Fund's Board of
directors such periodic and special reports as the Fund's Board of
Directors may reasonably request; and
(f) the investment advisory services of the Adviser to the Fund under this
Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services to others; it is understood that the persons
employed by the Adviser to assist in the performance of its duties under
this Agreement will not necessarily devote their full time to such
activity.
The Adviser may contract with other entities to assist it in rendering
services described herein; provided, however, that the Adviser will continue to
be contractually bound with respect to the performance of its duties and
obligations as set forth herein.
3. ADMINISTRATIVE FUNCTIONS. The Adviser will administer the Fund's
corporate affairs, subject to the overall supervision of the Board of
Directors of the Fund and, in connection therewith, shall furnish the Fund
with office space and all necessary office facilities, equipment and
personnel, and shall provide all necessary executive and other personnel
(including certain of its officers and employees) for managing the
investments and affairs of the Fund.
In connection with its administration of the affairs of the Fund, the
Adviser will bear all of the following expenses:
(i) the salaries and expenses of all personnel, except the fees and
expenses of directors who are not "interested persons" of the Fund, as that
term is defined in the 1940 Act;
(ii) all expenses incurred by the Adviser in connection with administering
the Fund's business other than those assumed by the Fund herein; and
(iii) the organizational expenses of the Fund.
The Fund assumes and will pay the following expenses:
(a) the fee of the Adviser;
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<PAGE>
(b) the compensation and expenses of directors who are not "interested
persons" of the Fund;
(c) the fees and expenses of the custodian of the Fund's assets and of the
transfer and dividend-disbursing agent;
(d) the fees and expenses of independent accountants for the Fund;
(e) brokerage commissions and securities transaction costs incurred by the
Fund, including any portion of such commissions attributable to research
and brokerage services as defined by Section 28(e) of the Securities
Exchange Act of 1934, as amended;
(f) all taxes and corporate fees payable by the Fund to federal, state or
other governmental agencies;
(g) the fees of any trade association of which the Fund may be a member;
(h) the cost of stock certificates representing shares of the Fund;
(i) the fees and expenses involved in registering and maintaining
registrations of the Fund and its shares with the Securities and Exchange
Commission (the "Commission"), and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses;
(j) expenses of stockholders' and directors' meetings and of preparing and
printing proxy material and mailing reports to stockholders;
(k) the charges and expenses of outside legal counsel for the Fund,
including legal services rendered in connection with the Fund's corporate
existence, corporate and financial structure and relations with its
stockholders, registrations and qualification of securities and litigation;
(l) expenses of any extraordinary nature (including litigation and
indemnification expenses) which are not incurred in the ordinary course of
the Fund's business.
4. BOOKS AND RECORDS. The Adviser shall keep the Fund's books and
records required to be maintained by it pursuant to paragraph 2 hereof. The
Adviser agrees that all records which it maintains for the Fund are the property
of the Fund and it will surrender promptly to the Fund any of such records upon
the Fund's request. The Adviser further agrees to
-3-
<PAGE>
preserve for the periods prescribed by Rule 31a-2 of the Commission under the
1940 Act any such records as are required to maintained by Rule 31a-1 of the
Commission under the 1940 Act.
5. COMPENSATION. The Fund shall pay the Adviser, as full compensation
for all services rendered and all facilities and personnel furnished hereunder,
a monthly fee at the annual rate of .75 of 1% of the first $200,000,000 of
average daily net asset value of the Fund during the fiscal year, .70 of 1% of
the next $200,000,000 of average daily net asset value of the Fund and .68 of 1%
of the average daily net asset value of the Fund in excess of $400,000,000,
computed in the manner used for the determination of the offering price of
shares of the Fund. The fee for each month shall be payable to the Adviser not
later than the tenth day of the following month.
6. REIMBURSEMENT OF EXPENSES. If, in any fiscal year, the total of the
Fund's expenses (including the fee payable pursuant to paragraph 5 hereof, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses) exceeds
the limits set by applicable regulations of state securities commissions, the
Adviser will pay such excess by offsetting it against the advisory fee or, if
such offset is insufficient to cover the excess, by paying it directly to the
Fund. For purposes of this paragraph, the term "fiscal year" shall include the
portion of any fiscal year which shall have elapsed at the date of termination
of the Agreement.
7. LIMITATION OF LIABILITY. The Adviser shall not be liable for any
error of judgment or mistake of law or fact or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard of its obligations and
duties under this Agreement.
8. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall continue in effect for a period of more than two years
from the date of its execution, if such continuance is approved by a majority of
the outstanding voting securities of the Fund at the first annual or special
meeting of the stockholders of the Fund, and, if approved by a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act), thereafter
shall continue automatically for periods of one calendar year so long as such
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting
-4-
<PAGE>
securities or by the Fund's Board of Directors, and (b) by the vote of a
majority of those members of the Board of Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such approval; provided, however, that this Agreement may be
terminated by the Fund at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Directors of the Fund or by vote of
a majority of the Fund's outstanding voting securities on 60 day's written
notice to the Adviser, or by the Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the Fund. This Agreement will
automatically and immediately terminate in the event of its "assignment" (as
defined in the 1940 Act).
9. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Fund must be authorized or approved (a) by a
vote of a majority of those members of the Board of Directors of the Fund who
are not "interested persons" of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such amendment, and (b) by
vote of a majority of the Fund's outstanding voting securities; provided,
however, that compliance with subparagraph (b) of this paragraph 9 shall not
be required to amend this Agreement so as to reduce the Adviser's
compensation from that set forth in paragraph 5 hereof.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
LINCOLN NATIONAL PUTNAM
MASTER FUND, INC.
(CORPORATION SEAL)
By
-------------------------------------------
President
ATTEST:
- ----------------------------
LINCOLN NATIONAL INVESTMENT
MANAGEMENT COMPANY
(CORPORATE SEAL)
By
--------------------------------------------
President
ATTEST:
- -----------------------------
-6-
<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
Long Term Care Policies. renewal commissions through the 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
Long Term Care Policies. renewal commissions through the 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
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
4% 54 or Below 4% 2.25%
- --------------------------------------------------------------------------------
4% 55 or Above 0% 3.25%
================================================================================
</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
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
3% 54 or Below 4% 1.50%
- --------------------------------------------------------------------------------
3% 55 or Above 0% 2.50%
================================================================================
</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>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment; Duties of the Bank .................1
Article 2 Fees and Expenses ........................................4
Article 3 Representations and Warranties of the Bank ...............5
Article 4 Representations and Warranties of the Fund ...............6
Article 5 Indemnification ..........................................6
Article 6 Covenants of the Fund and the Bank .......................9
Article 7 Termination of Agreement ................................11
Article 8 Assignment ..............................................11
Article 9 Amendment ...............................................12
Article 10 Massachusetts Law to Apply ..............................12
Article 11 Merger of Agreement .....................................12
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 21st day of July, 1987, by and between
LINCOLN NATIONAL PUTNAM MASTER FUND, INC., a Maryland corporation, having its
principal office and place of business at 1300 South Clinton Street, Fort Wayne,
Indiana 46801 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts corporation having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows: Article 1 Terms of Appointment;
Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and issued shares
of its common stock, $ par value, ("Shares"), dividend disbursing agent and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Fund ("Shareholders") and set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund, including without limitation any periodic investment
plan or periodic withdrawal program.
<PAGE>
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
therefor to the Custodian of the Fund authorized pursuant to
the Articles of Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor
to the Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
-2-
<PAGE>
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule l7Ad-l0(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. Bank
shall also provide the Fund on a regular basis with the total
number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), the Bank shall: (i) perform all of the customary services
of a transfer agent, dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and tabulating proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate
-3-
<PAGE>
forms required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the Fund to monitor the
total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the
Fund agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed
-4-
<PAGE>
from time to time subject to mutual written agreement between the Fund and the
Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within five days following the mailing of the respective billing notice. Postage
for mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund at least seven
(7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank.
The Bank represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in The
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its
-5-
<PAGE>
duties and obligations under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that;
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made with respect to all
Shares of the Fund being offered for sale.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement,
-6-
<PAGE>
provided that such actions are taken in good faith and without negligence or
willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination, or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
-7-
<PAGE>
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and o subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
-8-
<PAGE>
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for
-9-
<PAGE>
safekeeping of stock certificates, check forms and facsimile signature in
printing devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
-10-
<PAGE>
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund. Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding,
upon the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(l) of the Securities Exchange Act of
1934 ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(l) or (iii) a BFDS affiliate; provided,
however, that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and omissions.
-11-
<PAGE>
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
BY: /s/ Robert A. Nikels
------------------------------
ATTEST:
/s/ C. Suzanne Womack
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Michael J. Williams
------------------------------
Vice President
ATTEST:
/s/ J. Farrill
- ------------------------------
Assistant Secretary
-13-
<PAGE>
LOGO State State
STATE STREET BANK AND FIRST COMPANY
Fee Schedule and Summary Description of
Services and Transfer and Dividend Disbursing Agent
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
- --------------------------------------------------------------------------------
1. Annual Maintenance Charge
Fee is based on the maintenance of Transfer Agency records to reflect all
transaction activity for the shareholders of the fund. Maintain an
individual shareholder account record and provide daily confirmation of
each entry; Calculate and disburse dividends as declared by the fund;
Provide Form 1099 reporting at end of year declared by the fund; Provide
Form 1099 reporting oat end of year to Internal Revenue Service. No
certificates will be issued.
The annual fee under this section shall be $3,000 per shareholder
account payable on a monthly basis at the rate of 1/12 the annual
fee.
II. Out-of-Pocket Expenses
All out of pocket expenses will be charged to the fund monthly including
forms, postage, telephone, wires, etc.
III. Term of Contract
Rates will remain at the agreed upon level for a two year period ending
December 31, 1989 except the rates may be modified by mutual agreement at
any time prior to that date if the level of service is changed materially
from that described in Section I of this agreement.
Fees for additional services not covered in this fee schedule will be
mutually agreed upon between the Fund and State Street Bank based upon the
additional cost incurred in performing those services.
LINCOLN NATIONAL PUTNAM STATE STREET BANK AND TRUST
MASTER FUND, INC. COMPANY
By: /s/ Robert A. Nikels By: /s/ ED Dawkins Jr.
--------------------- ---------------------
Title: President Title: Vice President
------------------ ------------------
Date: July 21, 1987 Date: Jun 2, 1987
------------------- -------------------
<PAGE>
AGREEMENT TO PURCHASE SHARES
Lincoln National Pension Insurance Company ("LNP"), on its behalf and on
behalf of Lincoln National Pension Variable Annuity Account C (the "Variable
Account") , and Lincoln National Putnam Master Fund, Inc. (the "Fund") hereby
agree that shares of the Fund shall be made available to serve as an underlying
investment medium for variable annuity contracts to be offered by LNP through
the Variable Account subject to the following provisions:
1. LNP represents and warrants that it is an insurance company duly
organized and existing in good standing under Indiana law and that it has
legally and validly established the Variable Account as permitted under Indiana
law and has registered the Variable Account as permitted under Indiana law and
has registered the Variable Account as a unit investment trust in accordance
with the provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), to serve as a segregated investment account for certain variable annuity
contracts (the "Contracts"). LNP further represents and warrants that the
Contracts will be registered under the Securities Act of 1933, as amended (the
"1933 Act"), and the Contracts will be issued and sold in compliance with all
applicable federal and state laws. The Contracts will provide for the
allocation of net amounts received by LNP thereunder to separate divisions of
the Variable Account designated as "sub-accounts" for investment in the shares
of registered investment companies selected by LNP ("underlying funds"). The
Fund will be an underlying fund for one of the sub-accounts.
2. Fund shares may be purchased and redeemed by LNP in
<PAGE>
accordance with the provisions of the then current prospectus of the Fund. The
Fund anticipates that it will make its shares available indefinitely for
purchase by LNP hereunder, but the Fund reserves the right to suspend or
terminate sales of its shares hereunder at any time or times when its Board of
Directors makes a good faith determination that further sales would be to the
detriment of current holders of Fund shares. Payment for Fund shares shall be
made by LNP within five days after placement of the order for Fund shares. The
Fund reserves the right to delay issuance or transfer of Fund shares and/or to
delay the accrual and/or declaration of dividends in accordance with any policy
set forth in its then current prospectus with respect to such shares until any
payment check has cleared. If payment is not received by the Fund or an agent
of the Fund within the five day period, the Fund may, without notice, cancel the
order and require LNP to reimburse promptly the Fund for any loss suffered by
the Fund resulting from such failure to make timely payment. The Fund
represents and warrants that Fund shares sold hereunder shall be registered
under the 1933 Act and duly authorized for issuance in accordance with Maryland
law.
3. LNP and its agents shall make no representation concerning the
Fund or Fund shares except those contained in the then current prospectus of
the Fund or in current printed sales literature of the Fund, or as otherwise
approved by the Fund in writing.
4. Administrative services to owners of and participants under
Contracts shall be the responsibility of LNP and shall not be the responsibility
of
<PAGE>
the Fund. The Fund will furnish LNP copies of its proxy material, reports to
stockholders and other communications to stockholders in such quantities as LNP
shall reasonably require for distribution to owners of or participants under the
Contracts and LNP will distribute these materials to such owners or participants
as required. LNP will vote Fund shares, to the extent required by law, in
accordance with instructions received from Contract owners. LNP will vote Fund
shares for which no instructions have been received in the same proportion as
Fund shares for which instructions have been received from Contract owners. LNP
and persons under its control will in no way recommend action in connection with
the solicitation of proxies for Fund shares held in the Variable Account.
5. The Fund shall amend the Registration Statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares and shall provide LNP with as many
copies of its current prospectus as LNP may reasonably request.
6. This Agreement may be terminated as to the issuance of Fund shares
as follows:
(a) at the option of LNP or the Fund upon 90 days' written notice to
the other party;
(b) at the option of LNP if Fund shares are not available for any
reason to meet the requirements of the Contracts as determined by LNP; or
(c) at the option of the Fund upon institution of any proceedings
against LNP relating to the Variable Account or the issuance and sale of
the Contracts, by the National Association of Securities Dealers, Inc.,
the
<PAGE>
Securities and Exchange Commission, the Indiana Insurance Commissioner or
any other regulatory body.
7. (a) LNP agrees to indemnify and hold harmless the Fund and each
of its directors who is not an "interested person" of the Fund, as defined in
the 1940 Act (collectively, the "Indemnified Parties") against any losses,
claims, damages, liabilities (including amounts paid in settlement thereof with
the written consent of LNP) or expenses or actions with respect thereto to which
such Indemnified Parties may become subject, under the federal securities laws
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus of the Variable Account or
contained in the Contracts or sales literature (or any amendment
or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to an Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with written
information furnished to LNP by such Indemnified Party expressly
for use in the Registration Statement or prospectus for the
Variable Account or the Contracts or sales literature (or any
amendment or supplement);
(ii) arise out of or as a result of conduct, statements, or
representations (other than statements or representations
contained in the prospectus of the Fund and sales literature not
supplied by LNP) of LNP or persons under its control, with respect
to the sale and distribution of the Contracts, or
(iii) arise as a result of any failure by LNP to provide the services
and furnish the materials set forth in paragraph four hereof.
<PAGE>
LNP will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement is in addition to
any liability which LNP may otherwise have.
(b) Promptly after receipt by any of the Indemnified Parties of notice
of the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim in respect thereof is to be made against LNP, notify LNP of the
commencement thereof; but the omission so to notify LNP will not relieve LNP
from any liability which it may have to the Indemnified Parties otherwise than
under this Agreement. In case any such action is brought against the
Indemnified Parties, and LNP is notified of the commencement thereof, LNP will
be entitled to participate therein and to assume the defense thereof, with
counsel satisfactory to the party named in the action, and after notice from LNP
to such party of LNP's election to assume the defense thereof, LNP will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
<PAGE>
Executed and agreed to this 11th day of June, 1987,
LINCOLN NATIONAL PENSION INSURANCE
COMPANY
By
-------------------------------------
President
LINCOLN NATIONAL PUTNAM
MASTER FUND, INC.
By
-------------------------------------
President
9412W
<PAGE>
TRADENAME AGREEMENT
THIS AGREEMENT, made this day of , 1987,
between Lincoln National Corporation ("LNC") and Lincoln National Putnam Master
Fund, Inc. (the "Fund").
W I T N E S S E T H:
LNC, an Indiana corporation, holds diversified interests, primarily in
insurance and related financial service companies. Various subsidiary and
affiliated corporations organized or acquired by LNC use the words "Lincoln
National" in their names and business, and these words when used by a company
associated with LNC have a recognized business acceptance and identity
throughout the United States and in foreign countries. The right to use the
words "Lincoln National" as a part of the corporate name and business is an
asset of LNC, and it is entitled to protect its valuable property right against
improper use by others.
Lincoln National Investment Management Company, a subsidiary of LNC, has
agreed to act as investment adviser to the Fund. LNC believes that it is in its
best interests to agree to make the words "Lincoln National" available for use
by the Fund so long as the Fund has in effect an investment advisory contract
with Lincoln National Investment Management Company.
Accordingly, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
1. The use of the words "Lincoln National" as part of the corporate name and
business of the Fund is subject to consent of LNC, which consent is hereby
granted upon the conditions and terms set forth herein.
2. The Fund is authorized to use the words "Lincoln National" in its corporate
name and business only while the Fund is a party to an investment advisory
contract with Lincoln National Investment Management Company and for a
period not exceeding 90 days following the termination of any such
contract. In the event that the Fund ceases to be a party to an investment
advisory contract with Lincoln National Investment Management Company, the
Fund shall promptly take such steps as may be necessary to change its
corporate name and business practices so as to eliminate the words "Lincoln
National", or any name that, in the opinion of LNC is confusingly similar
or indicates an affiliation with LNC of any of its subsidiaries and
affiliates.
3. The use of the words "Lincoln National" by the Fund shall not prevent LNC
or any of its subsidiaries or affiliates, or any of their respective
successors or assigns, from using or permitting the use of the words
"Lincoln National" alone or with any other word or words by or in
connection with any other entity or business, whether or not the same
directly or indirectly competes or conflicts with the Fund or its business
in any manner.
1
<PAGE>
IN WITNESS WHEREOF, LNC and the Fund have caused this Agreement to be
executed by their duly authorized officers and their corporate seals to be
hereunto affixed, all upon the day aforesaid.
Attest: LINCOLN NATIONAL CORPORATION
By:
- ----------------------------- ---------------------------------
Assistant Secretary Vice President
Attest: LINCOLN NATIONAL PUTNAM
MASTER FUND, INC.
By:
- ----------------------------- ---------------------------------
Assistant Secretary Vice President
P:\NYC\1578NYC8\EXH-9B.WPD
2
<PAGE>
<PAGE>
[LETTERHEAD OF GARDNER, CARTON & DOUGLAS]
July 22, 1987
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Lincoln National Putnam Master Fund, Inc.,
Shares of Common Stock, $.01 par value
Gentlemen:
As counsel for Lincoln National Putnam Master Fund, Inc., a Maryland
corporation (the "Fund"), we have examined the proceedings taken and being taken
for the registration by the Fund on the Registration Statement on Form N-1A of
an indefinite number of shares of its Common Stock, $.01 par value.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the
above-described shares of Common Stock will be, if and when issued by the Fund
in the manner and upon the terms set forth in said Registration Statement,
validly authorized and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to Form
N-1A.
Very truly yours,
/s/ GARDNER, CARTON & DOUGLAS
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Financial Statements"
in the Statement of Additional Information and to the incorporation by reference
in this Post-Effective Amendment No. 13 to the Registration Statement (Form
N-1A) (No. 33-13530) of Lincoln National Global Asset Allocation Fund, Inc. of
our report dated February 4, 1998, included in the Multi Fund Variable Annuity
Annual Report 1997.
Philadelphia, Pennsylvania
April 14, 1998
<PAGE>
INVESTMENT LETTER
___________, 1987
Lincoln National Putnam Master Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46801
Gentlemen:
This will advise you that in consideration of your issuance to the undersigned
of ______ shares of Common Stock (the "Stock") $.01 par value of Lincoln
National Putnam Master Fund, Inc. (the "Fund") for an aggregate purchase price
of $__________, the undersigned hereby represents and warrants that the Stock
will be held by the undersigned for its own account, for investment and not with
a view to distribution.
The undersigned understands that the Stock being issued to it has not been
registered under the Securities Act of 1933, as amended (the "Act"), and agrees
that the Stock may not be sold or transferred except pursuant to an effective
Registration Statement under the Act or unless exemption from such registration
is available under the Act with respect to such proposed sale or transfer.
In order to insure compliance with the Act, the undersigned understands and
agrees that the Fund may, if it desires, refuse to transfer the Stock unless:
(i) a Registration Statement under the Act is then in effect with respect to
such Stock; or (ii) an opinion has been obtained from counsel for the Fund to
the effect that fan exemption from registration under the Act is available with
respect to the proposed transfer and that no such registration is required; or
(iii) a no-action letter has been obtained with respect to such transfer from
the staff or the Securities and Exchange Commission.
The undersigned further agrees that a legend briefly describing the restriction
set forth herein may be placed upon the stock certificate, if any, delivered to
the undersigned.
Very truly yours,
LINCOLN NATIONAL PENSION INSURANCE COMPANY
By________________________________________
<PAGE>
Power of Attorney
LET IT BE KNOWN that I, Nancy L. Frisby, hereby revoke all Powers of
Attorney authorizing any person to act as attorney-in-fact relative to Lincoln
National Putnam Master Fund, Inc. which were previously executed by me and
appoint Jeremy Sachs, John L. Steinkamp and C. Suzanne Womack, jointly and
severally, my attorneys-in-fact, with power of substitution, for me in any and
all capacities, to sign any and all amendments to the Registration Statement for
Lincoln National Putnam Master Fund, Inc. and to file such amendments, with
exhibits and other documents, with the Securities and Exchange Commission,
hereby ratifying all that each attorney-in-fact may do or cause to be done by
virtue of this power.
/s/ Nancy L. Frisby
----------------------
Nancy L. Frisby
STATE OF INDIANA )
) SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me
this 2nd day of February, 1993.
/s/ [Illegible]
----------------------------
Notary Public
Commission Expires: July 6, 1993
<PAGE>
Global Asset
allocation
SIGNATURE
a) Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Wayne, and State of Indiana, on the 15th day
April, 1987.
LINCOLN NATIONAL PUTNAM MASTER FUND, INC.
By: /s/ Robert A. Nikels
-----------------------------------
Robert A. Nikels, Chairman of the
Board and President
POWER OF ATTORNEY
b) Each person whose signature appears following paragraph c) below
hereby constitutes and appoints John L. Steinkamp, Jeremy Sachs and C. Suzanna
Womack, and each of them, his true and lawful attorneys-in-fact in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission under the Securities Act of 1933 and
the Investment Company Act of 1940.
c) Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert A. Nikels Chairman of the Board, April 15, 1987
----------------------- President and Director
Robert A. Nikels (Principal Executive
Officer)
/s/ John B. Borsch, Jr. Director April 15, 1987
-----------------------
John B. Borsch, Jr.
Director
-----------------------
Roxanne Decyk
Director
-----------------------
Stanley R. Nelson
/s/ David G. Humes Assistant Secretary April 15, 1987
----------------------- (Principal Accounting
David G. Humes Officer)
/s/ Max A. Roesler Assistant Secretary and April 15, 1987
----------------------- Treasurer (Principal
Max A. Roesler Financial Officer)
<PAGE>
Exhibit 18(c)
Global Asset
Allocation
Power of Attorney
LET IT BE KNOWN that I, Barbara S. Kowalczyk, hereby revoke all Powers of
Attorney authorizing any person to act as attorney-in-fact relative to Lincoln
National Putnam Master Fund, Inc. which were previously executed by me and
appoint Jeremy Sachs, John L. Steinkamp and C. Suzanne Womack, jointly and
severally, my attorneys-in-fact, with power of substitution, for me in any and
all capacities, to sign any and all amendments to the Registration Statement for
Lincoln National Putnam Master Fund, Inc. and to file such amendments, with
exhibits and other documents, with the Securities and Exchange Commission,
hereby ratifying all that each attorney-in-fact may do or cause to be done by
virtue of this power.
/s/ Barbara S. Kowalczyk
---------------------------------
Barbara S. Kowalczyk
STATE OF INDIANA )
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me
this 20th day of December, 1993.
/s/ Mary L. Lung
--------------------
Notary Public
Commission Expires: 12-20-97
--------
<PAGE>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------
|--| City Financial Planners, Ltd. |
| | 100% - Englad/Wales - Distribution of life|
| | assurance & pension products |
| --------------------------------------------
| -------------------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| -------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ------------------------------------------------
|--| Lincoln Funds Corporation |
| | 100% - Delaware - Intermediate Holding Company |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -----------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | --------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | --------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | --------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
| | ----------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
| -------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
|
| ----------------------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | -------------------------------------------------------------
| |
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (India) Inc. |
| | 100% - Indiana - India Representative Office |
| -----------------------------------------------
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | ----------------------------------------
| | | |--| Delaware International Advisers Ltd. |
| | | | | 81.1% - England - Investment Advisor |
| | | | ----------------------------------------
| | | | --------------------------------------
| | | |--| Delaware Management Trust Company |
| | | | | 100% - Pennsylvania - Trust Service |
| | | | --------------------------------------
| | | | ------------------------------------------------
| | | |--| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | ------------------------------------------------
| | | | | | --------------------------------------
| | | | | --| Delaware International Advisers, Ltd.|
| | | | | | 18.9% - England - Investment Advisor |
| | | | | --------------------------------------
| | | | -------------------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | ---------------------------------------
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | ---------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-MutualFund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | | |
| | | | | | -------------------------------------------------------
| | | | | | ------------------------------------
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General Partner |
| | | | | | ------------------------------------
| | | | | | | -----------------------------------------
| | | | | | | | Founders CBO, L.P. |
| | | | | | --| 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | --|Founders CBO Corporation |
| | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | -------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------
| | | | | ------------------------------------
| | | | |---| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | ------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |---| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |-- | Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | -------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Investment & Retirement Services, Inc. |
| | | | | 100% - Delaware - Registered Transfer Agent |
| | | | -----------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | -----------------------------------------
| | | |--| Lynch & Mayer Asia, Inc. |
| | | | | 100% - Delaware - Investment Management |
| | | | -----------------------------------------
| | | | ----------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ----------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
| | | ----------------------------------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--| AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | --------------------------------------------------
| | -------------------------------------------
| |--| Cigna Associates, Inc. |
| | | 100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | ----------------------------------------------------------
| | |--| Cigna Associates of Massachusetts, Inc. |
| | | | 100% - Massachusetts - Insurance Agency |
| | ----------------------------------------------------------
| | -------------------------------------------
| |--|Cigna Financial Advisors, Inc. |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| |
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| -----------------------------------------------
| -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
|
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | -------------------------------------------------------
| |--| Lincoln European Reinsurance S.A. |
| | | 79% - Belgium |
| | | (Remaining 21% owned by Lincoln National Underwriting |
| | | Services, Ltd. |
| | -------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | | ------------------------------------------------------
| | |--| Lincoln European Reinsurance S.A. |
| | | | 21% - Belgium |
| | | |(Remaining 79% owned by Lincoln National Reinsurance |
| | | | Company Limited |
| | | ------------------------------------------------------
| | --------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | | (Remaining 49% owned by Lincoln National Corp.) |
| | --------------------------------------------------------
| ---------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| ---------------------------------------------
| ------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| ------------------------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | -------------------------------------------------------
| |--| Allied Westminster & Company Limited |
| | | (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | -------------------------------------------------------
| | -----------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | --------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ---------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| |
| | --------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Financial Advisers Limited |
| | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| | ------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Unit Trust Management Limited |
| | | |(formerly: Laurentian Unit Trust Management Limited)|
| | | | 100% - England/Wales - Unit Trust Management |
| | | ----------------------------------------------------
| | | | --------------------------------------------------
| | | |--| LUTM Nominees Limited |
| | | | | 100% - England/Wales - Nominee Services (Dormat) |
| | | | --------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | |(formerly: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--| Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | | 100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| ------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | |
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | |
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | | -----------------------------------------------------
| | | | ----------------------------------------------------
| | | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | |
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
| | | | -------------------------------------
| | | | --------------------------
| | | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | | | 100% - Inactive |
--------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | | -----------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| | -----------------------------------------------------------
| |--| Lincoln Independent Limited |
| | |(formerly: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | -----------------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln Investment Management Limited |
| | |(formerly: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| |
| | ---------------------------------------------
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| | ---------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | --------------------------------------------------
| | -------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National (Jersey) Limited |
| | | 100% - England/Wales - Dormat |
| | --------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln National (Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| | -------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln SBP Trustee Limited |
| | 100% - England/Wales |
--------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
|
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| | --------------------------------------------------------
| | ---------------------------------------------------
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | ---------------------------------------------------
| | | ----------------------------------------
| | |--|Solutions Reinsurance Limited |
| | | 100% - Bermuda - Class III Insurance Co|
| ----------------------------------------
| ----------------------------------------------------------
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
| ----------------------------------------------------------
| ----------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ----------------------------------------------------------
| --------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
--------------------------------------------
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport, LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
12a) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18,
1995. Company is dormat and was formed for tax reasons per Barbara
Benoit, Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware
Capital Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National
Sales Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and
was incorporated on November 26, 1996; it was formed to act ast
Trustee for Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an
Indiana corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage
Global Advisors, Inc. were transferred via capital contribution to
Lincoln National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln
National Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to
Lincoln National Investments, Inc. effective January 24, 1997.
<PAGE>
JANUARY 1997 CON'T
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (formerly
Laurentian Financial Group PLC); Lincoln Milldon Limited (formerly
Laurentian Milldon Limited); Lincoln Management Services Limited
(formerly Laurentian Management Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc.
which was dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved
effective March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997.
Company then changed its name to Delvoy, Inc. The acquisition
included the mutual fund group of companies as part of the Voyager
acquisition. The following companies all then were moved under the
newly formed holding company, Delvoy, Inc. effective April 30, 1997:
Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Capital Management, Inc., Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund
Distributors, Inc. on April 30, 1997; merger is scheduled for May 31,
1997 for Voyager Fund Managers, Inc. into Delaware Management Company,
Inc. and Voyager Fund Distributors, Inc. is to merge into Delaware
Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y
Reaseguros, Grupo Financiero InverMexico. Stock was sold to Grupo
Financiero InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National
Financial Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company,
Inc. effective May 30, 1997 at 10:00 p.m. with Delaware Management
Company, Inc. surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged
into a newly formed company Voyager Fund Distributors (Delaware),
Inc., incorporated as a Delaware corporation on May 23, 1997. Voyager
Fund Distributors (Delaware), Inc. then merged into Delaware
Distributors, L.P. effective May 31, 1997 at 2:01 a.m. Delaware
Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
<PAGE>
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on
June 30, 1997.
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial
Advisors Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial
Corporation, American States Insurance Company, American Economy
Insurance Company, American States Insurance Company of Texas,
American States Life Insurance Company, American States Lloyds
Insurance Company, American States Preferred Insurance Company, City
Insurance Agency, Inc. And Insurance Company of Illinois -- all were
sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International
Holdings PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Planners, Ltd. as a result of its
acquisition by Lincoln National Corporation on December 22, 1997.
This company will distribute life assurance and pension products of
Lincoln Assurance Limited.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln
National Life Insurance Company on January 1, 1998. Cigna Associates
of Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was
dissolved on January 12, 1998 and Lincoln National Mezzanine Fund,
L.P. was cancelled January 12, 1998.
c. Corporate organizational changes took place in the UK group of
companies on January 21, 1998: Lincoln Insurance Services Limited and
its subsidiaries were moved from Lincoln National (UK) PLC to Lincoln
Assurance Limited; Lincoln General Insurance Co. Ltd. was moved from
Lincoln Insurance Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation
on January 16, 1998 and a wholly-owned subsidiary of The Lincoln
National Life Insurance Company.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION 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.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
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
(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
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years in an easily accessible
transactions place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
PORTFOLIO SECURITIES
Equity Delaware Fund Accounting Permanently, the first two
Notifications years in an easily accessible
place
RECEIPTS AND DELIVERIES OF SECURITIES (SHARES)
Not Applicable.
PORTFOLIO SECURITIES
Debit and Delaware Fund Accounting Permanently, the first two
Credit Advices years in an easily accessible
from Bankers place
(bank statement)
RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Daily Journals Delaware Fund Accounting Permanently, the first two
Journals years in an easily accessible
place
(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
General Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
SECURITIES IN TRANSFER
File consisting State Mutual Funds Permanently, the first two
of bank advices, Street Division years in an easily accessible
confirmations, Bank place
and Notification and Trust
of Securities Company
Transaction
SECURITIES IN PHYSICAL POSSESSION
Securities State Mutual Funds Permanently, the first two
Ledger Street Division years in an easily accessible
Bank place
and Trust
Company
Portfolio State Mutual Funds Permanently, the first two
Listings Street Division years in an easily accessible
Bank place
and Trust
Company
SECURITIES BORROWED AND LOANED
Their files State Mutual Funds Permanently, the first two
Street Division years in an easily accessible
Bank place
and Trust
Company
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
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
<PAGE>
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
(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.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
(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.
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
(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
LNL - only F&RM Eric Jones Permanently, the first two
shareholder years in an easily accessible
place
(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.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
SECURITIES POSITION RECORD
Maintained by State Mutual Funds Permanently, the fist two
Custodian of Street Division years in an easily accessible
Securities Bank place
and Trust
Company
(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.
CORPORATE DOCUMENTS
Corporate Executive - Sue Womack Permanently, the first two
charter, cer- Corp. Secy. years in an easily accessible
tificate of place
incorporation.
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.
ORDER TICKETS
Sales Order or Putnam Mutual Funds Six years, the first two
Purchase Order Division years in an easily accessible
place
Notification State Mutual Funds Six years, the first two
Form (From Street Division years in an easily accessible
AOS Trading Bank place
System) and Trust
Company
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
SHORT-TERM INVESTMENTS
Notification State Mutual Funds Six years, the first two
Form (From Street Division years in an easily accessible
AOS S-T Bank place
System) and Trust
Company
Bank Advice Delaware Fund Accounting Six years, the first two
and Issuer years in an easily accessible
Confirmation place
<PAGE>
(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.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
RECORD OF PUTS, CALLS, SPREADS, ETC.
Trade Delaware Fund Accounting Six Years.
Notification
(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 Putnam Mutual Funds Six Years, the first two
Allocation Division years in an easily accessible
Report 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).
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Trading Putnam Mutual Funds Six years, the first two
Authorization Division years in an easily accessible
place
Advisory Law Janet Lindenburg Six years, the first two
Agreements Division Jeremy Sachs years in an easily accessible
place
(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.
Not Applicable.
(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 Nancy Alford Six years, the first two
Admin. years in an easily accessible
Product place
Management
Pricing Sheets Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
Bank State- Delaware Fund Accounting Six years, the first two
ments, Can- years in an easily accessible
celled Checks place
and Cash
Reconciliations
March 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND
ANNUAL REPORT DATED 12/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000812806
<NAME> GLOBAL ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 369,250,005
<INVESTMENTS-AT-VALUE> 428,062,760
<RECEIVABLES> 7,760,962
<ASSETS-OTHER> 8,791,122
<OTHER-ITEMS-ASSETS> (187,625)
<TOTAL-ASSETS> 444,427,219
<PAYABLE-FOR-SECURITIES> 6,659,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (321,765)
<TOTAL-LIABILITIES> 6,337,324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336,106,813
<SHARES-COMMON-STOCK> 28,032,127
<SHARES-COMMON-PRIOR> 22,217,145
<ACCUMULATED-NII-CURRENT> 10,728,312
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,708,317
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,546,453
<NET-ASSETS> 438,089,895
<DIVIDEND-INCOME> 3,956,856
<INTEREST-INCOME> 10,290,629
<OTHER-INCOME> (68,242)
<EXPENSES-NET> (3,450,931)
<NET-INVESTMENT-INCOME> 10,728,312
<REALIZED-GAINS-CURRENT> 33,708,317
<APPREC-INCREASE-CURRENT> 21,677,078
<NET-CHANGE-FROM-OPS> 66,113,707
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (26,677,086)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,478,495
<NUMBER-OF-SHARES-REDEEMED> (241,050)
<SHARES-REINVESTED> 2,577,537
<NET-CHANGE-IN-ASSETS> 122,038,420
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 26,677,086
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,808,358
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,450,931
<AVERAGE-NET-ASSETS> 387,395,939
<PER-SHARE-NAV-BEGIN> 14.226
<PER-SHARE-NII> 0.383
<PER-SHARE-GAIN-APPREC> 2.205
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (1.186)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.628
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
